-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R/peyjZlZNI57ywX7Qr6qgkwMGUkRcnZu4iYVjtIceyzMEwO+RMK1WGm7kcTyzOK r+59I3mlzSf6232ZHM39EA== 0000950123-97-002647.txt : 19970329 0000950123-97-002647.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950123-97-002647 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALCAN ALUMINIUM LTD /NEW CENTRAL INDEX KEY: 0000004285 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03677 FILM NUMBER: 97566337 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 10-K405 1 ALCAN ALUMINUM LIMITED 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [+] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 31 December 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-3677 ALCAN ALUMINIUM LIMITED Incorporated in: I.R.S. Employer Identification No.: CANADA NOT APPLICABLE 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 3G2 Telephone: (514) 848-8000 Securities registered pursuant to Section 12(b) of the Act: Title Name of each exchange on which registered Common Shares without nominal or par value Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Common Share Purchase Rights Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes . +. No ... Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ + ] The aggregate market value of the voting stock held by non-affiliates: $8,056 million, as of 21 March 1997 Common Stock of Registrant outstanding: 226,920,923 Common Shares, as of 21 March 1997 Documents incorporated by reference: Annual Report to security holders for the fiscal year ended 31 December 1996 (Parts I, II and IV)
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CONTENTS PAGE PART I Items 1 and 2 Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2 Sales and Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3 Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3 Smelting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5 Other Aluminum Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 6 Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7 Fabricating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8 Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 Competition and Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 10 Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 11 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13 Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 13 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . .. 14 Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 14 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . .. 15 Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 15 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . .. 15 PART III Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16 Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 19 Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . .. 29 Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . .. 31 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 34 Consent of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 36 Comments for U.S. Readers by Independent Auditors on Canada-U.S. Reporting Conflict . . . . . . . . . . . . .. 36 Exhibit No. 21 Subsidiaries, Related Companies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 37
3 PART I In this report, unless the context otherwise requires, the following definitions apply: "Alcan", "Company" or "Registrant" means Alcan Aluminium Limited and, where applicable, one or more consolidated subsidiaries, "Annual Report" means the Annual Report for the year ended 31 December 1996, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Dollars" or "$" means U.S. Dollars, "related company" means a company in which Alcan directly or indirectly owns 50% or less of the voting stock and in which Alcan has significant influence over management, and includes the subsidiaries and related companies of such company, "Shares" or "Common Shares" means the Common Shares of the Company, "Shareholders" means holders of the Shares, "subsidiary" means a company controlled by Alcan, and "tonne" means a metric tonne of 1,000 kilograms, or 2,204.6 pounds. Unless otherwise expressly indicated herein, the financial and other information given in this report is presented on a consolidated basis. Certain information called for by Items of this Form is incorporated by reference to the Annual Report. Where this is done, the reference will be preceded by the word "See". A typical reference would be "See Annual Report, the section titled "Quarterly Financial Data" on page 59". With the exception of such information specifically incorporated by reference, the Annual Report is not to be deemed filed as part of this Form 10-K Report. ITEMS 1 AND 2 BUSINESS AND PROPERTIES GENERAL Alcan is a Canadian company, incorporated on 3 June 1902, with headquarters in Montreal, Canada, engaged, together with subsidiaries and related companies, in all aspects of the aluminum business on an international scale. Alcan is independent of, and operates in competition with, all other aluminum companies. Its operations include the mining and processing of bauxite, the basic aluminum ore; the refining of bauxite into alumina; the generation of electric power for use in smelting aluminum; the smelting of aluminum from alumina; the recycling of used and scrap aluminum; the fabrication of aluminum, aluminum alloys and non-aluminum materials into semi-fabricated and finished products; the distribution and marketing of aluminum and non-aluminum products; and, in connection with its aluminum operations, the production and sale of industrial chemicals. Alcan, together with its subsidiaries and related companies, has bauxite holdings in six countries, produces alumina in nine, smelts primary aluminum in six, operates aluminum fabricating plants in 15 and has sales outlets and maintains warehouse inventories in the larger markets of the world. Alcan also operates a global transportation network that includes bulk cargo vessels, port facilities and freight trains. 2 4 Since the metal aluminum, from the raw material to the semi-fabricated or finished product, is the prime concern of the Company, and since its operations are vertically integrated on an international basis, the Company is engaged in a one-segment business. Operations other than those related to aluminum, process materials and by-products are not material. For 1996, the Company reported a net income of $410 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 15. SALES AND MARKETS Nearly 90% of Alcan's sales and operating revenues are derived from the sale of aluminum in ingot and fabricated form, including fees charged for converting customer-owned alumina into primary ingot and for converting customer-owned metal into fabricated products. Total Western World primary aluminum shipments (excluding the countries of the CIS, Eastern Europe, China and North Korea) totalled 17.1 million tonnes in 1994, 17.9 million tonnes in 1995 and 17.7 million tonnes in 1996. For a discussion of the Western World Market and Western World Consumption Compared to Alcan Sales, see Annual Report, pages 19 and 20. For a review of Alcan's Raw Materials and Chemicals Operations, Primary Metals Operations and Fabricated Products Operations, see Annual Report, pages 20 through 26. For a Geographic Review, see Annual Report, pages 26 through 29 and page 58. RAW MATERIALS BAUXITE/ALUMINA Alumina (aluminum oxide) is produced from bauxite, the basic aluminum-bearing ore, by a chemical process. Aluminum is, in turn, produced from alumina by an electrolytic process which uses large quantities of energy to separate the aluminum from the oxygen in alumina. Depending upon quality, between four and five tonnes of bauxite are required to produce approximately two tonnes of alumina which yield approximately one tonne of aluminum. A portion of the alumina produced by the Company is sold in the chemical markets. The Company and its consolidated subsidiaries obtain their requirements of alumina and bauxite from several sources as described below. CANADA The Company owns alumina facilities with a capacity of about 1.2 million tonnes per year at Jonquiere (Quebec). Bauxite for this operation is obtained from Brazil (see below), Guinea (see below) and other sources. Alumina and alumina-based chemicals produced at Jonquiere supply, in part, the smelters in Quebec and are also sold in the North American chemical market. AUSTRALIA The Company has a 21.4% interest in a company which operates an alumina plant at Gladstone (Queensland) which has a capacity of about 3.3 million tonnes per year. Each participant in that plant supplies bauxite for toll conversion. Alcan's bauxite is purchased from a third party in Australia under long-term contracts. Alcan's share of production from Gladstone is used to supply the Alcan smelter at Kitimat (British Columbia) and is also sold to third parties. 3 5 BRAZIL The Company purchased close to 2 million tonnes of bauxite in 1996 under contracts in effect through 1999 from a 12.5%-owned company, Mineraceo Rio do Norte S.A. ("MRN"). MRN's Trombetas mine in the Amazon region has an operating capacity of about 9 million tonnes per year. Bauxite purchased from MRN is processed at the Jonquiere plant (see above) and at the Alumar alumina refinery in Seo Luis (Brazil) which has an annual capacity of 1.2 million tonnes; the Company owns a 10% interest and future expansion rights in that refinery. The Company owns alumina facilities with a capacity of 150,000 tonnes per year at Ouro Preto which supply smelters in Brazil. GHANA The Company has a 45% interest in Ghana Bauxite Co. Ltd. which has an operating capacity of 500,000 tonnes of bauxite per year. The Company purchased about 300,000 tonnes of bauxite in 1996 for processing at the Burntisland plant (see below) and the Jonquiere plant (see above). GUINEA The Company purchased over 4 million tonnes of bauxite in 1996 under contracts in effect through 2011 from Compagnie des Bauxites de Guinee ("CBG"). Alcan has a 33% interest in Halco (Mining) Inc.; Halco holds a 51% interest in CBG, the remaining 49% being held by the Republic of Guinea. CBG's mine in the Boke region of Guinea has an operating capacity of about 12 million tonnes per year. Bauxite purchased from CBG is processed at the Aughinish plant (see below) and the Jonquiere plant (see above) and is also sold to third parties. In Guinea, the Company also purchased about 130,000 tonnes of alumina in 1996 from Friguia. The Company holds a 20% interest in Frialco S.A. which holds a 51% interest in Friguia, the remaining 49% being held by the Republic of Guinea. The Friguia alumina plant has an operating capacity of about 640,000 tonnes per year. Alumina purchased from Friguia is sold to third parties. IRELAND The Company owns an alumina plant at Aughinish which has a capacity of about 1.3 million tonnes of alumina per year. Bauxite for this operation is purchased from Guinea (see above). In 1996, the Company's alumina produced at Aughinish was consumed by Alcan smelters in the United Kingdom and North America or sold to third parties. JAMAICA The Company has a 93% interest in alumina facilities (and related bauxite mining facilities) with an annual capacity of 1.1 million tonnes. The Government of Jamaica owns the remaining 7% interest in these facilities. The Company is responsible for management of the operations. In 1996, most of the Company's share of the alumina produced was supplied to Alcan smelters in Canada and in the United States. UNITED KINGDOM The Company operates an alumina plant in Burntisland (Scotland), which has an annual capacity of 120,000 tonnes of special aluminas and other chemicals. Bauxite for this operation is purchased from Ghana (see above). Production from this plant is sold in the chemical market. In addition to the foregoing, Alcan owns bauxite-mining and alumina-producing facilities through related companies in India and Japan. BAUXITE RESERVES Through subsidiaries and related companies, Alcan has approximately 330 million tonnes of demonstrated bauxite reserves, sufficient to meet its needs for the next 30 years. During 1996, a detailed feasibility study on the development of the Company s Ely bauxite reserves in Northern Queensland, Australia was completed. 4 6 CHEMICALS AND OTHER MATERIALS The Company, together with its subsidiaries and related companies, produces a wide range of specialty aluminas and aluminum hydroxides for different markets, such as, ceramics, refractories, water treatment, catalysts, and coagulants; its products are also used as flame retardants and smoke suppressants for plastics and resins. The principal manufacturing facilities for special aluminas and aluminum hydroxides are located in Canada, the U.K., Brazil, Japan and India. Certain chemicals and other materials, e.g., aluminum fluoride, required for the production of aluminum at the Company s smelters are also produced by its chemical operations. Other materials, e.g. caustic soda, fuel oil, fluorspar and petroleum coke, are purchased from third parties. SMELTING At the end of 1996, the Company owned 13 primary aluminum smelters with a total annual rated capacity of 1,558,000 tonnes. Seven of these smelters, having a total annual rated capacity of 1,093,000 tonnes, are located in Canada. The other smelters are located in Brazil, the United Kingdom and the United States. The Company has interests, through related companies, in a primary smelter in Japan with an annual rated capacity of 20,000 tonnes and in three primary smelters in India with a total annual rated capacity of 117,000 tonnes. The table below summarizes the primary aluminum production for 1996, together with annual rated capacities of smelters referred to above at end-1996:
OWNERSHIP AT 1996 RATED 31 DECEMBER, 1996 PRODUCTION CAPACITY (%) ('000 TONNES) ('000 TONNES) COMPANY AND SUBSIDIARIES Canada 100 1,082 1,093* Brazil 100 93 109 United Kingdom 100 107 176 United States 100 125 180 Total 1,407 1,558 RELATED COMPANIES Japan 45.6 17 20 India 34.6 37 117 Total 54 137
* See table below 5 7 The Company's smelter facilities in Canada are as follows:
RATED CAPACITY LOCATION ('000 TONNES P.A.) QUEBEC Arvida (Jonquiere) 232 Beauharnois (Melocheville) 48 Grande Baie (Ville de la Baie) 180 Isle Maligne (Alma) 73 Laterriere (Chicoutimi) 204 Shawinigan 84 BRITISH COLUMBIA Kitimat 272 Total 1,093
During 1991 and 1992, cutbacks and restarts to smelter production aggregated a net reduction of 102,000 tonnes of annual smelter capacity of which 9,000 tonnes were permanently shut down in Brazil. There were no cutbacks or restarts in 1993. In 1994, cutbacks to smelter production of 156,000 tonnes of annual capacity were made. In 1995, a ten-day strike at three of the Quebec smelters reduced the output by approximately 75,000 metric tonnes. In conjunction with the restart of capacity related to the strike, 63,000 tonnes/year of capacity shut down in 1994 were restarted in Quebec, British Columbia and the U.K. in 1995. Earlier in that year, the Company had restarted 27,000 tonnes/year of shut down capacity in Brazil. These restarts have brought Alcan's operating rate to 90% of its total rated capacity. For many years, the Company has been engaged in smelter modernization and rebuilding programs to retrofit or replace some of its older facilities. It intends to continue these programs, with a view to increasing productivity, improving working conditions, and minimizing the impact of its operations on the environment. OTHER ALUMINUM SOURCES Other sources of aluminum include the following: purchases of primary aluminum under contracts and spot purchases, purchases of aluminum used beverage cans and aluminum scrap for recycling and purchases of customer scrap returned against ingot or semi-fabricated product sales contracts. In addition, some aluminum fabricated products are purchased for re-sale. Purchases in 1996 of aluminum of all types from all sources amounted to 1,003,000 tonnes, compared with 1,365,000 tonnes in 1995 and 1,350,000 tonnes in 1994. The Company operates three specialized plants in the United States, with a total annual capacity of 430,000 tonnes, for the recycling of used beverage cans and process scrap returned from customers. A similar plant in the United Kingdom operates with a capacity of 70,000 tonnes per year. The Company also operates a facility in the United Kingdom for the production of 60,000 tonnes per year of sheet ingot from aluminum scrap. The Company operates secondary aluminum smelters in Italy, the United States and Thailand which have capacities of 50,000, 52,000 and 30,000 tonnes per year, respectively, for the production of secondary aluminum from aluminum scrap. 6 8 The Company has interests, through related companies, in four secondary aluminum smelters; three in Japan with annual rated capacities totalling 116,000 tonnes and one in India with an annual rated capacity of 25,000 tonnes. POWER Aluminum is produced from alumina by an electrolytic process requiring large amounts of electric power. The smelting of one tonne of aluminum requires between 14 and 18.5 megawatt-hours of electricity. The Company produces low-cost power at its own hydro-electric generating plants in Canada. These plants have an installed generating capacity of 3,583 megawatts of which 2,740 megawatts are classified as "firm power", that is, power available even under historically low water conditions. The plants usually supply all of the power required by the Company's smelters in Canada. Power which is surplus to the Company's needs is sold to neighbouring utilities or customers under both long-term and short-term arrangements. The Company's power facilities in Canada are as follows:
POWER PLANT LOCATION INSTALLED CAPACITY (MEGAWATTS) Chute-des-Passes Peribonka River, Quebec 750 Chute-du-Diable Peribonka River, Quebec 205 Chute-a-la-Savane Peribonka River, Quebec 210 Isle Maligne Saguenay River, Quebec 402 Chute-a-Caron Saguenay River, Quebec 224 Shipshaw Saguenay River, Quebec 896 Kemano Kemano, British Columbia 896 Total 3,583
In Canada, all water rights are owned by the Company except for those relating to the Peribonka River in Quebec. In 1984, the Company and the Quebec government signed a lease extending the Company's water rights relating to that river to 31 December 2033 against an annual payment based on sales realizations of aluminum ingot. An additional charge ("redevance additionnelle") is payable to the provincial government based on total power generation, escalating at the same rate as the Consumer Price Index in Canada. In British Columbia, rentals and generation taxes for power used in smelting and related purposes are directly related to the sales realizations of aluminum produced at Kitimat. For electricity sold to third parties, the Company pays provincial water rentals at rates which are fixed by the provincial government. One-third of the Company's installed hydro-electric capacity in Canada was constructed prior to the end of 1943, another third by the end of 1956 and the remainder by the end of 1959. All these facilities are expected to remain fully operational over the foreseeable future. Electric power for the smelters located outside of Canada is supplied from a variety of sources. The smelters in England and Scotland operate their own coal-fired and hydro-electric power generating plants, respectively. A related company in India operates its own coal-fired power generating plant for one of its smelters, while its two other smelters are dependent upon purchased power. The smelters in Brazil and that of a related company in Japan obtain some of their energy requirements from owned hydro-electric power generating plants, and purchase the balance. The smelter in the United States purchases power from a cooperative system under a long-term contract. 7 9 FABRICATING The conversion of aluminum ingot into semi-fabricated and finished products requires the application of a variety of intermediate processes, known generally as fabricating. Many other producers of primary aluminum are also in the business of supplying those products. In addition, there are many independent fabricators who purchase primary and recycled aluminum from the primary producers and the post consumer market. Although Alcan is a leader in international markets for aluminum ingot products, the Company's principal sales are in fabricated aluminum products. In 1996, Alcan shipped 1,539,000 tonnes of fabricated products and manufactured another 258,000 tonnes from customer-owned metal, which together represented 69% of Alcan's total volume for the year. Alcan, together with its subsidiaries and related companies, carries out fabricating operations in more than 60 plants in 15 countries. Due to market conditions, certain fabricating facilities in Europe and the United States are operating at less than full capacity. Flat-rolled Products Alcan is the world's largest producer and marketer of flat-rolled aluminum products (sheet and foil), with over 85% of Alcan's fabricated product volume being composed of those products. At the end of 1996, the Company's annual sheet and foil manufacturing capacity in its principal fabricating markets was as follows: slightly in excess of 1,000,000 tonnes in North America; 100,000 tonnes in South America and over 800,000 tonnes in Europe. A major portion of Alcan sheet is can stock for beverage containers. Other important end-use markets for sheet include building and construction, transportation, the printing industry and the industrial distribution market. Alcan foil is used for household and commercial packaging applications and for industrial products. Wire and Cable Aluminum is also cast and rolled into rod which is then drawn into wire and stranded into cable for the transmission and distribution of electricity. Wire is also used for non-electrical applications such as welding wire, rivets and zippers. Alcan's main wire and cable businesses are in Canada and the United States. Castings Another method of fabrication is the casting of molten aluminum into components for machinery, automotive products and aircraft. Alcan is a supplier of aluminum pistons and other engine components to the automotive industry in Germany, the United States and Canada. The Company also sells aluminum alloys to independent foundries in Canada, Italy, the United Kingdom and the United States. 8 10 Extrusions The Company's subsidiaries and related companies produce extruded products in several countries (including France, India, Italy and Japan) and sell these products locally and in other countries for the building, construction, transportation and engineering markets. Examples of end-products using extrusions include windows, doors and automotive components. The Company is also a major supplier of extrusion ingot in many countries. Divestments Since 1994, Alcan has divested several fabricating businesses which were not considered to be a strategic fit for the Company and which did not create long-term value for its Shareholders. As part of this process, in February 1996, Alcan announced the sale of 12 non-strategic downstream businesses in the U.K. and in the United States. In the third quarter of 1996, Alcan sold a related company in Japan, Toyo Aluminium K.K., to another related company in Japan, Nippon Light Metal Company, Ltd. (NLM). In addition, Alcan and NLM created a new company, Alcan Nikkei Asia Holdings Ltd., owned 60% by Alcan and 40% by NLM to hold some of the Far East investments of Alcan and NLM. As a result of this transaction, Alcan s effective ownership in NLM fell from 47.4% to 45.6%. In 1996, Alcan sold three fabricating plants in Brazil involved in the extrusion, consumer goods and refrigerator panel businesses. RESEARCH AND DEVELOPMENT Alcan's resource for technology is a global system of research laboratories, applied engineering centres and technical departments. Some of these are operated on a Company-wide basis by the R&D division of Alcan, while others are managed and operated locally by subsidiaries and related companies. The R&D division of Alcan is the largest single body of research effort within Alcan. Responsible for about 60% of total R&D expenses, the division plays a major role in innovation, through basic and applied research. The organization consists of about 500 employees located largely in three laboratories: two in Canada (at Kingston, Ontario and Jonquiere, Quebec) and one in the United Kingdom (Banbury, Oxfordshire). At Kingston and Banbury, efforts are mainly related to fabricating processes and aluminum product systems as well as developing and improving aluminum alloys. At Jonquiere, efforts are directed more towards the primary aluminum processes of alumina production, smelter operations and molten metal treatment. The Company's expenditures on research and development amounted to $71 million in 1996 compared to $76 million in 1995 and $72 million in 1994. Corresponding expenditures are expected to be approximately $70 million for 1997. ENVIRONMENTAL PROTECTION In most of the countries where the Company operates production facilities, environmental control regulations have been established or are in the process of being established. The Company believes that its existing and planned anti-pollution measures will enable it to satisfy statutory and regulatory demands without material effect on its competitive position. The Company's capital expenditures to protect the environment and improve working conditions at the smelters and other locations were $60 million in 1996. Similar expenditures for 1997 and 1998 are expected to be $94 million and $90 million, respectively. In addition, expenditures charged against revenue for environmental protection were $96 million in 1996 and are expected to be $96 million in 1997 and $74 million in 1998. In respect of years beyond 1998, the Company expects that capital and operating expenditures will continue at approximately the same levels. 9 11 EMPLOYEES The following table shows the average number of employees of Alcan on a geographical basis for the year ended 31 December 1996:
LOCATION EMPLOYEES ('000) Canada 11 United States 4 South America 4 Europe 12 Asia and Pacific 1 Other 2 Total 34
A majority of the hourly-paid employees is represented by labour unions. COMPETITION AND GOVERNMENT REGULATIONS The aluminum business is highly competitive in price, quality and service. The Company experiences competition in the sale of aluminum from a large number of companies in all major markets. In addition, aluminum products face competition from products fabricated from other materials, particularly plastic, steel, iron, copper, glass, wood, zinc, lead, tin, titanium, magnesium, cement and paper. The Company believes that its competitive standing is enhanced by its ability to supply virtually all its own power for its Canadian and United Kingdom smelters at low cost. The operations of the Company, like those of other international companies, including its access to and cost of raw materials and repatriation of earnings, may be affected by such matters as fluctuations in monetary exchange rates, currency and investment controls, withholding taxes and changes in import duties and import restrictions. Imports of ingot and other aluminum products into certain markets are subject to import regulations and, where applicable, duties which affect the Company's sales realizations and may affect the Company's competitive position. Shipments of these products are also subject to anti-dumping laws of the importing country, which prohibit sales of imported merchandise at less than defined fair values. The Investment Canada Act provides that the acquisition of control of a Canadian business enterprise, such as Alcan, by a "non-Canadian" (as defined in the Act) is subject to review under the Act and may not be implemented unless the Minister of the Government of Canada responsible for the administration of the Act determines that the proposed acquisition is, or is likely to be, of net benefit to Canada. The acquisition by a non-Canadian of a majority of the voting shares of a Canadian company is deemed to constitute the acquisition of control of that company. The acquisition by a non-Canadian of more than one-third but less than the majority of the common shares of a Canadian company is, unless the contrary is established, deemed to constitute the acquisition of control. 10 12 ITEM 3 LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS LITIGATION The Company's U.S. subsidiary (Alcan Aluminum Corporation, or "Alcancorp") and third parties are defendants in a litigation, instituted in May 1983 before the Federal District Court for the Central District of California, by the U.S. Environmental Protection Agency ("EPA") and the State of California, involving the Stringfellow hazardous waste site in California. Alcancorp was held liable in that lawsuit. In January 1992, Alcancorp and the U.S. Justice Department entered into a four-year Partial Consent Decree. On the basis of that arrangement, Alcancorp funded a total of $13,100,000 for a treatment plant which would help clean up the site. Alcancorp will seek to recover contributions over that amount (if any, based on the final determination of clean-up costs) from other defendants in this case. A decision by the Special Master would assign as much as 95% of Alcancorp's liability to the State of California. The decision of the Special Master was appealed to the United States District Court and the District Court confirmed the decision of the Special Master. The matter is now being appealed to the U.S. Court of Appeals for the Ninth Circuit. In a lawsuit instituted before the Federal District Court for the Southern District of New York in 1985, in which Alcancorp is a party, and involving the dumping of allegedly hazardous waste at five New York sites, the Court in June 1991 rendered partial summary judgment holding Alcancorp jointly and severally liable for clean-up costs. Alcancorp is planning to appeal as soon as it has a final appealable order from the Court identifying its alleged share of the costs. Alcancorp is party to an EPA lawsuit, instituted in October 1991 before the Federal District Court for the District of New Jersey, relating to the Quanta Resources site in Edgewater, New Jersey. Alcancorp is a third-party defendant in a lawsuit filed by other generators in connection with the Kin Buc site in Edison, New Jersey, instituted in 1988 before the Federal District Court for the District of New Jersey. In a lawsuit brought in July 1987 relating to the Pollution Abatement Services site in Oswego, New York, the Federal District Court for the Northern District of New York found (in January 1991) Alcancorp liable for a share of the clean-up costs for the site, and in December 1991 determined the amount of such share to be $5,175,683. Alcancorp appealed this decision to the United States Circuit Court of Appeals for the Second Circuit. In April 1993, the Second Circuit reversed the District Court and remanded the case for a hearing on what, if any, liability might be assigned to Alcancorp depending on whether Alcancorp can prove that its waste did not contribute to the response costs at the site. Furthermore, the case was consolidated with another case, instituted in October 1991, in which the EPA sued Alcancorp in the Federal District Court for the Northern District of New York seeking clean-up costs in regard to the Fulton Terminals site in Oswego County, New York. In an EPA lawsuit in 1989 before the Federal District Court for the Middle District of Pennsylvania involving the Butler Tunnel site, in which Alcancorp is a party, the Court in May 1991 granted summary judgment against Alcancorp in the amount of $473,790. Alcancorp appealed to the United States Court of Appeals for the Third Circuit, which in May 1992 reversed the District Court decision and remanded the case to the District Court for a trial on whether Alcancorp can prove that its waste did not contribute to the response costs at the site. In June 1995, the District Court upon hearing cross motions for summary judgment ruled in favor of the government and imposed joint and several liability against Alcancorp. Alcancorp filed a motion for reconsideration which was denied in December 1995. Alcancorp appealed the District Court's decision to the United States Circuit Court of Appeals for the Third Circuit and lost. A petition for rehearing was filed and denied by the Court. Further appeals are now contemplated. In May 1992, Alcancorp received an adverse arbitration ruling in Southern Pacific Railroad v. Alcan in San Francisco, California, in which the arbitrators awarded the plaintiffs $5.4 million from Alcancorp for a clean-up of the plaintiffs' land adjacent to the site of Alcancorp's former Berkeley aluminum powders plant, as well as the site itself and for rent claimed to be owed to the railroad. Alcancorp appealed to the Superior Court of California for Alameda County, which rejected the appeal. Alcancorp then appealed to 11 13 the Court of Appeals of the State of California, First Appellate Division, Division One, which rejected Alcancorp's appeal. Alcancorp then sought discretionary review by the California Supreme Court, which was denied. In 1994, Alcancorp paid this amount, plus interest, or a total of $6.5 million into escrow pending a determination of the actual cost of the clean-up. If the actual cost is less than the escrowed amount, Alcancorp will receive a refund of the difference. In September 1993, the EPA issued an order against Alcancorp and other potentially responsible parties ("PRPs") at the Sealand Restoration site in Upstate New York. The order directed the PRPs to supply drinking water to area residents potentially affected by the site. Since the material sent to the site was the same water-oil emulsion which was the subject of favourable decisions by the U.S. Courts of Appeals for the Third and Second Circuits referred to above, Alcancorp refused to supply the water. In February 1996, the Company's U.K. subsidiary (British Alcan Aluminium plc) sold its investments in several of its subsidiaries, including Magnesium Elektron Inc. and Luxfer USA Limited, both located in the U.S.A. However, as part of the sale, British Alcan has agreed to indemnify the purchaser for certain liabilities including those, inter alia, arising out of the following proceedings which are therefore included in this Form 10-K Report: (a) Magnesium Elektron, Inc. ("MEI"; at the time a subsidiary of British Alcan Aluminium plc) was sued by the Public Interest Research Group of New Jersey and the Friends of the Earth for exceeding its water discharge limits. The United States District Court for the District of New Jersey imposed a fine of $2.6 million for technical violations and an award of attorneys' fees in the amount of $524,900. MEI is appealing the District Court decision to the United States Court of Appeals for the Third Circuit and filed a motion in November 1996. (b) Luxfer USA Limited ("Luxfer"; at the time a subsidiary of British Alcan Aluminium plc) is a participant in a joint defense group with regard to waste Luxfer sent to the Omega hazardous waste site in Whittier, California. At various times during 1995, Luxfer contributed various amounts totaling $11,800 for defense group costs and the removal of waste from the site, and is now waiting for a report on the cost of the remediation that is needed at the site. INVESTIGATIONS In certain other previously reported government investigations of contamination by alleged hazardous wastes at sites in Illinois, New York, Pennsylvania, Ohio, New Jersey, North Carolina, Michigan, Missouri and Massachusetts (on which waste material is alleged to have been deposited by disposal contractors employed in the past directly or indirectly by Alcancorp and other industrial companies), Alcancorp has contested that its waste is hazardous. The EPA has responded that, in the EPA's opinion, Alcancorp's waste is hazardous and that it may file lawsuits against Alcancorp as to these sites. In 1995, Alcancorp was advised of five additional sites being similarly investigated: two in Ohio, two in New Jersey and one in Kentucky. Alcancorp has been advised by the various authorities that it may be liable to contribute to the cost of the investigations and any possible remedial action for such sites. As to those sites not yet subject to litigation, although Alcancorp does not acknowledge any legal obligation to do so, it is cooperating with the governments in each matter to seek fair and reasonable solutions. REVIEWS AND REMEDIAL ACTIONS The Company has established procedures for reviewing, on a regular basis, environmental investigations and any possible remedial action. Although the Company cannot estimate the costs which may ultimately be borne by it, the Company has no reason to believe that any remedial action will materially impair its operations or materially affect its financial condition. 12 14 OTHER MATTERS In March 1996, Alcancorp, along with other U.S. aluminum producers, was sued by a U.S. bicycle manufacturer for alleged price-fixing stemming from the Memorandum of Understanding entered into by six Governments in January 1994. In a summary judgement, rendered in July 1996, the U.S. District court for the Central District of California (county of Los Angeles) dismissed the case. The plaintiff has appealed. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company has not submitted any matter to a vote of security holders, through solicitations of proxies or otherwise, during the fourth quarter of the year ended 31 December 1996. 13 15 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS See Annual Report, the section titled "Common Shares" on page 64. The number of holders of record of Shares on 21 March 1997 was approximately 21,295. While the Company intends to pursue a policy of paying quarterly dividends, the level of future dividends will be determined by the Board of Directors in light of earnings from operations, capital requirements and the financial condition of the Company. The Company's cash flow is generated principally from operations and also by dividends and interest payments from subsidiaries and related companies. These dividend and interest payments may be subject from time to time to regulatory or contractual restraints, to withholding taxes (see Annual Report, page 52, note 15 to Consolidated Financial Statements) and to foreign governmental restrictions affecting repatriation of earnings. (See section titled "Competition and Government Regulations" on page 10 of this report.) Dividends paid on Shares held by non-residents of Canada generally will be subject to Canadian withholding tax. This withholding tax is levied at the basic rate of 25%, although this rate may be reduced depending on the terms of any applicable tax treaty. For residents of the United States, the treaty-reduced rate is currently 15%. ITEM 6 SELECTED FINANCIAL DATA See Annual Report, on pages 60 and 61, for the following items: - - under the heading "Consolidated income statement items": - Revenues - Net income (Loss) - - under the heading "Consolidated balance sheet items": - Total assets - Total debt - - under the heading "Per Common Share": - Net income (Loss) - Dividends paid Commencing 1986, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants concerning the accounting for pension costs and obligations. Commencing 1992, the Company adopted the accrual basis of accounting for post-retirement benefits other than pensions. Commencing 1995, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants concerning the accounting for joint ventures. 14 16 Commencing 1996, the Company retroactively adopted the recommendations of The Canadian Institute of Chartered Accountants concerning the disclosure and presentation of financial instruments. See Annual Report, pages 43 to 45, note 5 to Consolidated Financial Statements for a comparison, for certain items listed, of the amounts as reported by the Company under Generally Accepted Accounting Principles (GAAP) in Canada with amounts that would have been reported under U.S. GAAP. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See the Annual Report, pages 18 through 29, the section titled "Business Review" and pages 30 through 36, the section titled "Financial Review". As the Company follows Canadian GAAP, reference should be made to note 5 to the Consolidated Financial Statements on pages 43 to 45 of the Annual Report which compares, for certain items listed, the amounts as reported with the amounts that would have been reported under U.S. GAAP. Refer to the section titled "Competition and Government Regulations" on page 10 of this report for a brief description of the Investment Canada Act as it applies to the Company. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Annual Report, Consolidated Financial Statements on pages 38 through 58 and the "Auditors' Report" on page 37; the section titled "Quarterly Financial Data" on page 59. Location of Financial Statements and other material required under this Item is found under Item14 of this report. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has nothing to report under this Item. 15 17 PART III INFORMATION IN THIS PART IS BASED ON INFORMATION CONTAINED IN THE COMPANY'S MANAGEMENT PROXY CIRCULAR DATED 5 MARCH 1997. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (A) IDENTIFICATION OF DIRECTORS The term of office of each Director runs from the time of his or her election to the next succeeding Annual Meeting or until they cease to hold office as such. SONJA I. BATA, O.C. - DIRECTOR SINCE 1979 Sonja Bata, 70, has been a director of Bata Limited, the headquarters company of the world-wide Bata Shoe Organization, since 1973. She is closely involved in the management of that company. Mrs. Bata is also a director of Canada Trust and devotes significant time to other activities. She is chairman of the Bata Shoe Museum Foundation (Toronto), chairman of the Governors' Council of North York General Hospital and honorary chairman of the World Wildlife Fund Canada. W.R.C. BLUNDELL - DIRECTOR SINCE 1987 Bill Blundell, 69, is chairman of The Manufacturers Life Insurance Company. From 1985 to 1990, he was chairman and chief executive officer of General Electric Canada Inc., and president and chief operating officer from 1983 to 1985. Mr. Blundell is a director of Amoco Canada Petroleum Co. Ltd., Avenor Inc., Swiss Bank Corporation (Canada), Export Development Corporation and a number of other Canadian companies. JACQUES BOUGIE, O.C. - DIRECTOR SINCE 1989 Jacques Bougie, 49, has been President and Chief Executive Officer of Alcan since November 1993, having served as President and Chief Operating Officer since July 1989. Mr. Bougie joined Alcan in 1979 and held a number of senior management positions until 1989, including having responsibility for all of Alcan's fabricating operations in North America other than rolling. Mr. Bougie is a director of British Alcan Aluminium plc (a wholly-owned subsidiary of Alcan) and also of Royal Bank of Canada and Bell Canada. WARREN CHIPPINDALE, F.C.A. - DIRECTOR SINCE 1986 Warren Chippindale, 68, was chairman and chief executive partner of Coopers & Lybrand (Canada) from 1971 to 1986 and chairman of Coopers & Lybrand (International) for five years during that period. Mr. Chippindale is a director of BCE Inc., Bell Canada, BCE Mobile Communications Inc., The Spectrum United Funds and The Molson Companies Limited. D. TRAVIS ENGEN - DIRECTOR SINCE 1996 Travis Engen, 52, is chairman, president and chief executive officer of ITT Industries, Inc. in the United States of America and has held several important positions within the ITT organization, including that of executive vice president of ITT Corporation from 1991 to 1995. Mr. Engen is a member of the U.S. President's National Security Telecommunications Advisory Committee. He is a director of Fundacion Chile. He is also a director of Lyondell Petrochemical Company and a member of the Business Round Table and the Manufacturers Alliance Board of Trustees, all of which are located in the United States of America. DR. JOHN R. EVANS, C.C. - DIRECTOR SINCE 1986 John Evans, 67, has been the Non-Executive Chairman of Alcan since April 27, 1995. He is also chairman of Allelix Biopharmaceuticals Inc. as well as of Torstar Corporation. Dr. Evans was chairman and chief executive officer of Allelix Inc. from 1983 to 1989, president of the University of Toronto from 1972 to 1978 and director of the Population, Health and Nutrition 16 18 Department of the World Bank from 1979 to 1983. He is past chairman of the Rockefeller Foundation. He is also a director of Connaught Laboratories Ltd., MDS Health Group Ltd., Pasteur Merieux Serums & Vaccines and Royal Bank of Canada. ALLAN E. GOTLIEB, C.C. - DIRECTOR SINCE 1989 Allan Gotlieb, 69, was Ambassador of Canada to the United States of America from 1981 to 1989 and chairman of the Canada Council from 1989 to 1994. Mr. Gotlieb is a director of Hollinger Inc., Champion International Corporation, AXA Assurances, Boreal Assurances, Suncor Inc. and Peoples Jewellers, a senior consultant with the law firm of Stikeman, Elliott, a member of the advisory boards of the Bank of Montreal, Nestle Canada Inc., Hollinger International Inc., Investment Co. of America and BJB (Bank Julius Baer) Global Investment Ltd., co-chairman of Saturday Night magazine and chairman of the Donner Canadian Foundation. J.E. NEWALL, O.C. - DIRECTOR SINCE 1985 Ted Newall, 61, is vice-chairman, chief executive officer and a director of NOVA Corporation. He was chairman and chief executive officer of Du Pont Canada Inc. from 1980 to 1991. Mr. Newall is a director of BCE Inc., Methanex Corporation, Royal Bank of Canada and is honorary chairman of the Business Council on National Issues. DR. PETER H. PEARSE, C.M. - DIRECTOR SINCE 1989 Peter Pearse, 64, is a consultant on natural resource economics and management and the president of Pearse Ventures Ltd. He was a professor at the University of British Columbia from 1962 to 1996. Dr. Pearse has served on the Economic Council of Canada, the Canadian Consumer Council, the Board of Governors of the University of British Columbia and two Royal Commissions. He is a member of the executive board of the Law of the Sea Institute and a director of World Wildlife Fund Canada. Dr. Pearse has been an advisor on natural resources matters to Canadian and foreign governments and to the World Bank. SIR GEORGE RUSSELL, C.B.E. - DIRECTOR SINCE 1987 Sir George Russell, 61, is chairman of Marley plc in the United Kingdom, a world-wide producer of building products, having been chief executive of that company from 1986 to 1989. Sir George had previously served with Alcan from 1972, becoming managing director of British Alcan Aluminium plc in 1981. He resigned from that company in 1986, but rejoined its board in 1997. He is also chairman of 3i Group plc, Camelot plc and director of Northern Rock Building Society and Taylor Woodrow, all of which are located in the United Kingdom. GUY SAINT-PIERRE, O.C. - DIRECTOR SINCE 1994 Guy Saint-Pierre, 62, is chairman and a director of SNC-Lavalin Group Inc., having served as president and chief executive officer from 1989 to 1996. From 1970 to 1976, he had served with the Government of Quebec, first as Minister of Education and then as Minister of Industry and Commerce. Between 1978 and 1989, he was president and chief executive officer of Ogilvie Mills Ltd. Mr. Saint-Pierre is currently chairman of the Business Council on National Issues. Mr. Saint-Pierre is a director of BCE Inc., General Motors of Canada and Royal Bank of Canada. GERHARD SCHULMEYER - DIRECTOR SINCE 1996 Gerhard Schulmeyer, 58, is president and chief executive officer of Siemens Nixdorf Informationssysteme AG and chairman of its managing board since 1994. Prior to joining Siemens Nixdorf, Mr. Schulmeyer was executive vice president and a member of the executive committee of Asea Brown Boveri Ltd. as well as president and chief executive officer of ABB Inc., U.S.A. From 1980 to 1989, he held various senior positions with Motorola Inc., culminating with that of executive vice president, deputy to the chief executive officer, responsible for European business. He is a member of the supervisory boards of Thyssen-Bornemisza Holding N.V. and VOBIS Microcomputer AG. 17 19 (B) IDENTIFICATION OF EXECUTIVE OFFICERS The names, ages and positions with the Company of the Executive Officers of the Company, at 27 March 1997, are as follows:
NAME AGE POSITIONS Robert L. Ball 50 Executive Vice President, Corporate Development and Technology Jacques Bougie 49 President and Chief Executive Officer. Director since 1989. Claude Chamberland 57 Executive Vice President, Smelting and Power Jean-Pierre M. Ergas 57 Executive Vice President, Europe Robert J. Fox 60 Executive Vice President, South Pacific and Japan; Environment, Occupational Health and Safety Daniel Gagnier 50 Vice President, Corporate Affairs S. Bruce Heister 58 Executive Vice President, Asia Emery P. LeBlanc 56 Executive Vice President, Raw Materials and Chemicals Gaston Ouellet 54 Vice President, Human Resources P. K. Pal 61 Vice President, Chief Legal Officer and Secretary Everaldo N. Santos 57 Executive Vice President, South America Brian W. Sturgell 47 Executive Vice President, Fabricated Products, North America Suresh Thadhani 57 Vice President and Chief Financial Officer Geraldo N. de Aguiar 48 Treasurer Denis G. O'Brien 54 Controller
With the exception of Messrs. Ergas, Gagnier, and Sturgell, all of the Executive Officers of the Company have held their present positions or other executive positions with the Company during the past five years. Mr. Ergas served as senior advisor to the President and Chief Executive Officer of Alcan from January 1995 to June 1996 and served as a Trustee of DePaul University from February 1994 to December 1994. Prior thereto, Mr. Ergas served as senior executive vice president of Pechiney S.A. and as a member of the Pechiney group executive committee from 1987 to 1994, and also held several management positions with various subsidiaries of Pechiney S.A. Mr. Daniel Gagnier was president of the Brewers Association of Canada between 1992 and 1994. From 1980 to 1992, he held various positions in Government of Canada culminating in the position of Deputy Secretary to the Cabinet (Communications and Consultations) in the Privy Council Office of Canada. Mr. Sturgell has been with Alcan's U.S. subsidiary, Alcan Aluminum Corporation since 1989, where he has held different managerial positions until November 1996 when he became president of that Company as well as an Executive Vice President of Alcan. The term of office of each Officer runs from the time of his appointment to the next succeeding Annual Meeting. 18 20 ITEM 11 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE Compensation paid to the Chief Executive Officer and the four other most highly compensated Executive Officers for each of the three most recently completed financial years is set out in the table below. These individuals are hereinafter collectively referred to as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE Long-term Annual Compensation Compensation Awards Bonus (Executive Other Annual Shares Under All Other Performance Compensation Options Compensation Name and Principal Position Year Salary Award) (1,2) Granted (2) ($) ($) ($) (#) ($) J. Bougie 1996 647,415 424,274 (3) 45,773 65,000 19,225 President and Chief 1995 552,799 582,880 (3) 32,084 54,500 16,556 Executive Officer 1994 495,821 332,176 36,155 52,600 14,591 R. Wagner 1996 594,092 191,435 (3) 31,262 20,000 3,319 Former Executive 1995 600,832 324,432 (3) 62.565 18,000 3,521 Vice President (4) 1994 499,593 258,515 27,321 17,800 3,110 J.-P. Ergas 1996 453,061 162,319 (3) 83,516 20,000 40,202 Executive Vice President (5) 1995 330,114 195,428 (3) 9,755 36,000 10,999 E.N. Santos 1996 357,761 168,829 (3) 125,942 20,000 12,064 Executive Vice President 1995 268,195 198,287 (3) 32,789 20,000 10,166 1994 232,688 112,523 26,767 17,800 7,690 R.L. Ball 1996 312,500 142,762 (3) 54,381 18,200 29,218 Executive Vice President 1995 286,667 213,953 (3) 57,065 16,000 14,275 1994 260,000 140,184 26,481 16,200 12,065
(1) See page 21 for details. (2) In response to the Ontario Securities Commission s Staff Report of 17 February 1995, certain figures have been re-classified from Other Annual Compensation to All Other Compensation. (3) See pages 20 and 21 for description. (4) Mr. Wagner retired as Executive Vice President on 1 June 1996. (5) Mr. Ergas joined Alcan on 23 January 1995. Compensation payments to each Named Executive Officer were determined in the currency of his normal place of work. Unless otherwise indicated, all compensation payments reported in this document are stated in U.S. Dollars 19 21 converted, where necessary, from the currency of disbursement to U.S. Dollars at the average exchange rates for the respective year. The currency and exchange rate details are given in the table below. CURRENCY AND EXCHANGE RATE TABLE
Currency of Average Exchange Rate Name Disbursement Year to convert to U.S. Dollars J. Bougie Canadian Dollars 1996 0.7329 Canadian Dollars 1995 0.7298 Canadian Dollars 1994 0.7309 R. Wagner Deutschmarks 1996 0.6638 Deutschmarks 1995 0.7041 Deutschmarks 1994 0.6219 J.-P. Ergas U.S. Dollars 1996 1.0000 British Pounds 1996 1.5672 U.S. Dollars 1995 1.0000 E.N. Santos Canadian Dollars 1996 0.7329 Brazilian Reals 1996 0.9924 Canadian Dollars 1995 0.7298 Canadian Dollars 1994 0.7309 R.L. Ball U.S. Dollars 1996 1.0000 U.S. Dollars 1995 1.0000 U.S. Dollars 1994 1.0000
The salaries and the Executive Performance Awards (described below) paid to all 17 Executive Officers as a group in 1996 amounted to $4,621,780 and $2,026,675 respectively. EXECUTIVE PERFORMANCE AWARD PLAN A substantial proportion of the Executive Officers compensation is related to the performance of Alcan. Alcan's short-term incentive plan, known as the Executive Performance Award Plan ("EPA"), has three components, each based on a different aspect of performance: (1) the overall profitability of Alcan, (2) the performance of Alcan against key strategic corporate objectives, and (3) the performance of Alcan's business units. These are explained in the numbered paragraphs below. The guideline payment ranges referred to in each paragraph were increased in 1995 to maintain their competitive position with the median of a selected comparator group of companies, chosen for their comparable size, their involvement in a cyclical industry (as is Alcan) and their global presence. 1. The award for overall profitability of Alcan is called the Corporate Performance Award ("CPA"). The CPA is related to return on equity. The CPA for the Executive Officers has a guideline payment range of 20% to 30% of salary grade mid-point against which actual performance is measured. The minimum CPA payment can be nil and the maximum, in a year of exceptionally high profits, could be up to three times the guideline amount. The Personnel Committee ("Committee") establishes a threshold corporate profitability performance target which must be met before any CPA payment will be made. Based on Alcan's actual performance in the year and allowing for the partial amortisation of the effect of an extraordinary item on return on equity, the Committee approved a rating below 20 22 the guideline level. All Executive Officers received an award from this component of the EPA for the year 1996. 2. The award for achieving corporate objectives, called the Corporate Objectives Award ("COA"), focuses on Alcan's critical corporate objectives. These objectives are established as part of the annual business planning process by the Chief Executive Officer and are submitted to the Committee for approval at the start of each year. The COA is independent of the CPA objective. For Executive Officers, the CPA has a guideline payment range of 15% to 25% of salary grade mid-point. There is a minimum payment of nil and a maximum of twice the guideline amount. The corporate objective established by the Chief Executive Officer and the Committee for 1996 was a target range of "free cash flow". Based on Alcan's actual results in the year which fell within the target range but below the expected target level, the Committee approved a rating below the guideline level. All Executive Officers received an award from this component of the EPA for the year 1996. 3. The award for business unit performance is called the Business Unit Award ("BUA"). The BUA provides for an award based on the business unit's performance measured against pre-established objectives for the year. The BUA is independent of the CPA and COA objective. For Executive Officers, the BUA has a guideline payment range of 15% to 20% of salary grade mid-point. There is a minimum payment of nil and a maximum of twice the guideline amount. The criteria for rewards under this aspect of the EPA are set annually by management at various levels and their respective superiors. The BUA, covering 17 major business units world-wide, was paid to all senior employees on the basis of their performance in 1996 with ratings varying from 51% to 165% of the guideline amount. All Executive Officers received an award from this component of EPA for performance in 1996. An exception to the practice described in the preceding paragraphs is made in the case of employees retiring from or otherwise ceasing employment with Alcan. In that year, the employee receives guideline CPA, COA and BUA amounts, pro-rated for the number of months actually employed. OTHER COMPENSATION Compensation benefits made available to senior employees under various plans included those under (a) the Executive Performance Award Plan described on pages 20 and 21, (b) the Alcan Executive Share Option Plan described below, (c) retirement benefit plans described on pages 25, 26 and 27, (d) life insurance plans, (e) savings plans, (f) plans for the use and parking of automobiles, for professional financial advice through independent organisations, deemed interest on loans and for the reimbursement of club membership fees and (g) in applicable cases, expatriate benefits, foreign taxes, housing assistance and directors' fees from subsidiaries and related companies. In the Summary Compensation Table on page 19, the amounts indicated for the year 1996 under the column titled Other Annual Compensation include benefits paid to the Named Executive Officers under these plans: automobile usage (J. Bougie, $13,520; R. Wagner, $14,000; J.-P. Ergas, $50,411; and E.N. Santos, $57,706), club membership fees (J. Bougie, $16,635; and R.L. Ball, $19,469), expatriate benefits (E.N. Santos, $43,416), foreign taxes (R.L. Ball, $19,231) and housing assistance (R. Wagner, $9,320). Other Executive Officers also participate in these plans and the value of the benefits paid to all 17 such Executive Officers as a group was $777,003 in 1996. 21 23 ALCAN EXECUTIVE SHARE OPTION PLAN The Alcan Executive Share Option Plan ("Option Plan") provides for the granting to senior employees of non-transferable options ("Options") to purchase Shares. A Options Prior to 22 April 1993, the Option Plan provided for the granting of Options hereinafter referred to as "A Options". No further A Options have been, or may be, issued after that date. The subscription price per Share under A Options was set at not less than 90% of the market value on the effective date of the grant of each A Option, but all A Options granted after 1985 were at 100% of the market value on their effective dates. The effective date was fixed at the time of each grant. Each A Option is exercisable in whole or in part during a period commencing three months after the effective date and ending not later than 10 years after that date. In the event of retirement or death of the employee, any remainder of this 10-year period in excess of five years is reduced to five years. Alcan may make loans ("Option Loans"), at such interest rate, if any, as the Option Committee may determine, to assist in financing the purchase of Shares through the exercise of A Options (see Indebtedness of Directors and Executive Officers on page 30). The interest rate is currently nil on all outstanding Option Loans. The Option Loans have terms of 10 years. After exercise of an A Option, the employee may not dispose of the Shares during a one-year period ("Holding Period"). In the event of retirement or resignation or other termination of the employee, the Holding Period shall terminate upon repayment of the Option Loan. Each A Option has connected therewith stock appreciation rights ("SARs") in respect of one-half of the Shares covered by the A Option. Each SAR entitles the optionee to surrender unexercised the right to subscribe for one Share in return for a cash payment in an amount equal to the excess of the market value of such Share at the time of surrender over the subscription price. B Options Since 22 April 1993, the Option Plan has provided for Options hereinafter referred to as "B Options". Alcan may issue in any year B Options in respect of a Yearly Allotment, as defined in the Option Plan, of 0.75% of the Shares outstanding as at the end of the previous calendar year. In addition, the unused portion of any previous Yearly Allotment may be carried forward. The maximum number of Shares that can be issued under the Option Plan after 31 December 1995 is 20,500,000. The subscription price per Share under B Options is set at not less than 100% of the market value on the effective date of the grant of each B Option. The effective date is fixed at the time of the grant. Each B Option is exercisable in whole or in part during a period commencing not less than three months after the effective date as determined by the above-mentioned Committee ("Waiting Period") and ending not later than 10 years after that date. In the event of retirement or death of the employee, any remainder of this 10-year period in excess of five years is reduced to five years. Option Loans may not be made in respect of the exercise of B Options. The B Options do not have SARs connected therewith unless the above-mentioned Committee so determines at the time of grant; no such determination has been made in respect of the B Options currently outstanding. 22 24 Grants and Exercises during 1996 The following table sets out the number of Shares covered by Options which were granted to and exercised by all 17 Executive Officers as a group during 1996, as well as the number thereof outstanding at 31 December 1996:
Outstanding at Granted during 1996 Exercised during 1996 31 December 1996 (#) (#) (#) Under A Options - 34,250 70,500 Under B Options 279,500 (1) 94,600 961,100 TOTAL 279,500 128,850 1,031,600
(1) Aggregate of two grants made during the year. The subscription price (or exercise price) per Share relating to the Options granted during 1996 was the market value on the date of each of the two grants made during the year, which was Can. $41.61 for the grant made on 25 September 1996 and Can. $46.61 for the grant made on 4 December 1996. The following table provides information pertaining to Options granted to the Named Executive Officers during 1996: OPTION GRANTS DURING 1996
Exercise Price Shares Under Percent of and Options Total Options Market Value Granted Granted to on Date of Grant Name (#) Employees in 1996 (Can. $/Share) Expiry Date J. Bougie 65,000 (1) 7.8 41.61 25 September 2006 R. Wagner 20,000 (1) 2.4 41.61 25 September 2006 J.-P. Ergas 20,000 (1) 2.4 41.61 25 September 2006 E.N. Santos 20,000 (2) 2.4 46.61 4 December 2006 R.L. Ball 18,200 (1) 2.2 41.61 25 September 2006
(1) Date of grant: 25 September 1996. (2) Date of grant: 4 December 1996. One-quarter of the Options covered by the grants in the foregoing table may be exercised, cumulatively, after Waiting Periods of 12, 24, 36 and 48 months from the date of grant. 23 25 The following table provides certain required information pertaining to Options exercised by the Named Executive Officers during 1996 as well as year-end values: AGGREGATED OPTION EXERCISES DURING 1996 AND YEAR-END OPTION VALUES
Shares Underlying Shares Aggregate Unexercised Value of Unexercised Name Acquired Value Options at in-the-Money Options at on Exercise Realized 31 December 1996 (1) 31 December 1996 (1,2) (#) (Can. $) (#) (Can. $) J. Bougie - - E: 94,925 E: 1,543,603 U: 147,175 U: 1,108,993 R. Wagner - - E: 21,400 E: 277,099 U: 46,400 U: 343,099 J.-P. Ergas - - E: 9,000 E: 69,660 U: 47,000 U: 303,780 E.N. Santos 60,200 1,177,900 E: 19,450 E: 226,750 U: 32,900 U: 174,859 R.L. Ball 14,500 302,110 E: 28,350 E: 471,699 U: 42,300 U: 317,799
(1) E: Exercisable U: Unexercisable (2) Value of unexercised Options includes value of corresponding unexercised SARs (if any). The aggregate net value (excess of market value at the date of the exercise over subscription price) of the Options exercised in 1996 by all 17 Executive Officers was Can. $2,430,815. 24 26 The following table provides certain required information pertaining to SARs exercised by the Named Executive Officers during 1996 as well as year-end values: AGGREGATED SAR EXERCISES DURING 1996 AND YEAR-END SAR VALUES
Shares Underlying Value of Unexercised Shares Unexercised in-the-Money SARs Name Acquired on Aggregate SARs at at Exercise Value 31 December1996 (1) 31 December 1996 (1) (#) Realized (#) (Can. $) (Can. $) J. Bougie - - E: - E: - U: - U: - R. Wagner - - E: - E: - U: - U: - J.-P. Ergas - - E: - E: - U: - U: - E.N. Santos - - E: - E: - U: - U: - R.L. Ball - - E: 1,500 E: 31,275 U: - U: -
(1) E: Exercisable U: Unexercisable RETIREMENT BENEFITS Based on the total 1996 pensionable earnings of the Executive Officers, annual pensions of $117,038 in the aggregate were accrued for all 17 Executive Officers in respect of service credited under all retirement benefit plans for 1996. Canadian Plans During 1996, Messrs. Bougie and Santos participated in the Alcan Pension Plan (Canada) and the Alcan Supplemental Retirement Benefit Plan (Canada). Pensions up to a statutory limit are payable under the former and, in excess thereof, under the latter. These Canadian pension plans are together herein referred to as the "Canadian Plans". The Canadian Plans provide for pensions calculated on pensionable service and annual average earnings during the 36 consecutive months when they were the greatest, which earnings consist of salary and the Executive Performance Award at its guideline amount. The following table shows estimated annual retirement benefits, expressed as a percentage of annual average earnings during the said 36 months, payable upon normal retirement at age 65 to persons in the indicated earnings and pensionable service classifications: 25 27 PENSION PLAN TABLE
Average Annual Earnings (as defined) ($) Years of Service 10 15 20 25 30 35 40 (%) (%) (%) (%) (%) (%) (%) 400,000 16.7 25.0 33.3 41.6 50.0 58.3 66.6 500,000 16.7 25.1 33.4 41.8 50.2 58.5 66.9 600,000 16.8 25.2 33.5 41.9 50.3 58.7 67.1 700,000 16.8 25.2 33.6 42.0 50.4 58.8 67.2 800,000 16.8 25.2 33.7 42.1 50.5 58.9 67.3 900,000 16.8 25.3 33.7 42.1 50.5 59.0 67.4 1,000,000 16.9 25.3 33.7 42.2 50.6 59.0 67.4 1,100,000 16.9 25.3 33.7 42.2 50.6 59.1 67.5 1,200,000 16.9 25.3 33.8 42.2 50.7 59.1 67.5 1,300,000 16.9 25.3 33.8 42.2 50.7 59.1 67.6 1,400,000 16.9 25.4 33.8 42.3 50.7 59.2 67.6 1,500,000 16.9 25.4 33.8 42.3 50.7 59.2 67.6 1,600,000 16.9 25.4 33.8 42.3 50.7 59.2 67.7 1,700,000 16.9 25.4 33.8 42.3 50.8 59.2 67.7 1,800,000 16.9 25.4 33.8 42.3 50.8 59.2 67.7
The Alcan Supplemental Retirement Benefit Plan provides for an additional pension to J. Bougie which increases the percentage in the above table by 4.1%. Non-Canadian Plans During 1996, Messrs. Ball and Wagner participated in Alcan-sponsored pension plans in the U.S.A. and Germany, respectively. These plans provide for retirement benefits which are generally comparable with the Canadian Plans, but with a ceiling of 60% of annual average earnings and a maximum pensionable service of 35 years. Mr. Ergas participated in Alcan-sponsored pension plans in the U.S.A. and the United Kingdom and also in a supplemental retirement benefit agreement which provides for a pension based on the terms of the U.S. pension plan but in excess of statutory limitations in both countries. Deductions for Social Security In Germany, the retirement benefits described above are reduced by retirement benefits from social security. In the Canadian Plans, those benefits are reduced by the excess (if any) of retirement benefits payable from non-Canadian social security and the Canada Pension Plan or the Quebec Pension Plan ("C/QPP") over the maximum retirement benefits under the C/QPP. The normal form of payment of pensions is a lifetime annuity with a guaranteed minimum of 60 monthly payments, but optional guarantees are available. 26 28 Pensionable Earnings and Years of Pensionable Service The 1996 pensionable earnings and estimated years of pensionable service on normal retirement at age 65 for the Named Executive Officers were as follows: J. Bougie, $1,175,120 and 33 years; R. Wagner, $909,193 and 35 years; J.-P. Ergas, $649,283 and 10 years; E. N. Santos, $472,636 and 40 years; R.L. Ball, $455,262 and 35 years. RETIRING ALLOWANCES Upon his retirement, E.N. Santos will be paid a retiring allowance equal to $200,000 plus an amount determined at the rate of $10,000 per year from 1 August 1995 to his retirement date. FEES An employee of Alcan who is a Director is not entitled to receive fees for serving on the Board or on any Committee thereof. COMPENSATION OF NON-EXECUTIVE DIRECTORS FEES AND EXPENSES During 1996, every Non-Executive Director was paid an annual fee of $25,000 and an additional annual fee of $5,000 for serving on a Committee of the Board, except for the Option Committee. If such Director also served as Chairman of a Committee, a further annual fee of $6,000 was paid. J.R. Evans, as Non-Executive Chairman of the Board, was paid a fee of $120,000 during 1996 in lieu of the above fees. Non-Executive Directors are reimbursed for transportation and other expenses actually incurred in attending Board/Committee meetings. A travel fee of $1,000 is also payable to those Non-Executive Directors who require an extra day of travel to attend any Board/Committee meeting; during 1996, travel fees were paid as follows: J.E. Newall, $2,000; J.L. Nichol (retired during the year), $1,000; P.H. Pearse, $8,000; and G. Russell, $6,000. RETIREMENT ARRANGEMENTS The Deferred Share Unit Plan ("DSUP") became effective on 1 January 1997. The DSUP provides that each Non-Executive Director is credited with a number of Deferred Share Units ("Units"), as determined by the Board, in respect of every quarter of service on the Board. At present, this number has been set at the equivalent of one Unit for every $100 of Directors' fees (as described above, but excluding the travel fees) received by the Director. Additional Units are credited to each Director's account calculated at the same rate per Unit as dividends declared on the Shares. Upon retirement or death, all Units (including additional Units issued in respect thereof) standing to a Director's credit will be redeemed on a date to be selected by the Director or legal representative up to 15 December of the next financial year of the Company. The number of Units will be multiplied by the then prevailing average price of the Shares on the Montreal, Toronto and New York stock exchanges and the resulting value shall be paid to the Director or legal representative. The Retirement Compensation Plan ("RCP"), introduced on 27 April 1995, was in effect throughout the year 1996 but has been terminated effective 31 December 1996 so that there are no further accruals of benefits thereafter. The RCP provides a pension calculated on the basis of 50% of the applicable Directors' fees in force on 31 December 1996, to be paid for a period equal in duration to the Director's length of service on the Board up to that date. In 1996, $11,656 was paid under the RCP to a Director who retired during the year. The DSUP is intended to link the interests of Directors more closely with those of Shareholders. 27 29 PERFORMANCE GRAPH The following graph compares the cumulative total Shareholder return on Can. $100 invested in Shares with the cumulative total return of the Toronto Stock Exchange 300 Stock Index, assuming reinvestment of all dividends. Additional comparisons, which the Personnel Committee believes to be appropriate, are provided with respect to two U.S. Dollar-based indices, the Standard & Poor's 500 Index and the Standard & Poor's Aluminum Index. 1991 1992 1993 1994 1995 1996 Alcan $100 $ 98 $124 $160 $191 $212 S & P 500 Index 100 103 117 120 163 205 TSE 300 100 98 132 130 149 192 S & P Aluminum Index 100 105 108 129 158 183 28 30 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows the Shares beneficially owned and Options held by each Director and all Directors and Executive Officers as a group, including Shares over which control or direction is exercised by such persons:
Number of Number of Name Shares Shares Subject to Beneficially Options (1) Owned (2) S.I. Bata - 6,308 W.R.C. Blundell - 4,292 J. Bougie 242,100 253,317 W. Chippindale - 1,436 D.T. Engen - 2,500 J.R. Evans - 2,417 A.E. Gotlieb - 1,312 J.E. Newall - 3,580 P.H. Pearse - 1,705 G. Russell - 3,657 G. Saint-Pierre - 4,608 G. Schulmeyer - 196 Directors and Executive Officers as a group 882,975 1,031,958
(1) See Alcan Executive Share Option Plan described on page 22. (2) In respect to Mr. Bougie, the figures include Shares subject to Options referred to in note (1) above. Mr. Bata beneficially owns 940 Shares. A trust in which Sir George Russell's children have an interest owns 10,380 Shares. Mrs. Bata and Sir George Russell disclaim beneficial ownership in the Shares owned by Mr. Bata and the Russell children, respectively. Mr. Blundell and his wife beneficially own, respectively, 2,000 and 1,500 Floating Rate Cumulative Redeemable Preference Shares, Series C. Mr. Engen owns his Shares jointly with his wife. 29 31 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS Non-Executive Directors are not indebted to Alcan. The required details with regard to Option Loans given to all Executive Officers (including the Named Executive Officers) are shown in the following table. The aggregate indebtedness of all officers, directors, employees and former officers, directors and employees of Alcan and its subsidiaries (including the Named Executive Officers) to Alcan in respect of Option Loans at 10 February 1997 was $4,250,029. The terms of Option Loans are described on page 22. TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS UNDER SHARE PURCHASE PROGRAMS
Amount Financially Outstanding Assisted Largest as at Share Security Amount 10 February Purchases for Name and Principal Position Involvement Outstanding 1997 During 1996 Indebt- of During 1996 ($) (#) edness Alcan ($) R.L. Ball Executive Vice President Lender 74,648 70,864 4,500 (1) J. Bougie (2) President and Lender 104,668 98,199 0 (1) Chief Executive Officer C. Chamberland Executive Vice President Lender 119,686 83,241 0 (1) S.B. Heister Executive Vice President Lender 38,035 32,355 0 (1) E.P. LeBlanc Executive Vice President Lender 28,034 26,633 0 (1) P.K. Pal Vice President Lender 94,694 89,710 0 (1) R. Wagner Former Executive Vice President Lender 72,361 0 0 (1) E.N. Santos Executive Vice President Lender 304,740 304,740 18,750 (1) G.N. de Aguiar Treasurer Lender 82,913 78,549 0 (I) D.G. O'Brien Controller Lender 8,326 7,493 0 (I)
(1) Security for the indebtedness is provided by the deposit of the certificates representing the relevant Shares with Canada Trust Company, as trustee, which holds the certificates registered in its name until full repayment of the particular Option Loan has been made to Alcan. (2) Mr. Bougie is a nominee for election as Director. 30 32 (1) OTHER INDEBTEDNESS The required details with regard to indebtedness of Executive Officers to Alcan other than in respect of Option Loans is shown on the following table. The aggregate indebtedness of all officers and employees and former officers and employees of Alcan and its subsidiaries to Alcan other than in respect of Option Loans at 10 February 1997 is $2,002,997.
Name and Principal Position Involvement of Largest Amount Amount Outstanding at Year-end Alcan Outstanding as at or Subsidiary during 1996 10 February 1997 ($) ($) E.P. LeBlanc Executive Vice President Lender (1) 99,109 90,809 E.N. Santos Executive Vice President Lender (2) 275,842 0
(1) The indebtedness consists of a residential loan from Alcan. The loan is interest-free, is secured by a mortgage on the residence and matures on 13 May 2004. (2) The loan was repaid on 30 December 1996. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS See Annual Report, pages 38 to 58 and the Auditors' Report on page 37 thereof. See comments by Independent Auditors on Canada-U.S. reporting conflicts on page 43. 2. FINANCIAL STATEMENT SCHEDULES The required information is shown in the consolidated financial statements or notes thereto. 3. EXHIBITS References to documents filed by the Company prior to April 1987 are to SEC File No. 1-3555. References to documents filed by the Company after April 1987 are to SEC File No. 1-3677. (3) Articles of Incorporation and By-laws: 3.1 Certificate of Amalgamation dated 1 January 1995, Certificate of Amendment dated 8 May 1995. (Filed herewith.) 3.2 By-law No. 1A. (Incorporated by reference to exhibit 3.5 to the Annual Report on Form 10-K of the Company for 1987.) 31 33 (4) Instruments defining the rights of security holders: 4.1 No long-term debt instrument is required to be filed herewith, and the Company agrees to furnish a copy of any such instrument to the Commission upon request. 4.2 Form of certificate for the Registrant's Common Shares. (Incorporated by reference to exhibit 4.2 to the Annual Report on Form 10-K of the Company for 1989.) 4.3 Shareholder Rights Agreement as amended and restated on 24 April 1995 between Alcan Aluminium Limited and The R-M Trust Company as Rights Agent, which Agreement includes the form of Rights Certificates. (Incorporated by reference to exhibit 4 to the Company's Report on Form 8-K filed on 5 May 1995.) (10) Material Contracts 10.1 Alcan Pension Plan (Canada), restated version, as of October 1990. (Incorporated by reference to exhibit 10.1 to the Annual Report on Form 10-K of the Company for 1990.) 10.1.1 Amendments dated 1 January 1992. (Incorporated by reference to exhibit 10.1.1 to the Annual Report on Form 10-K of the Company for 1991.) 10.1.2 Amendments dated 1 January 1990, Schedule 93-2. (Incorporated by reference to exhibit 10.1.2. to the Annual Report on Form 10-K of the Company for 1994.) 10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and Schedule 93-4. (Incorporated by reference to exhibit 10.1.3. to the Annual Report on Form 10-K of the Company for 1994.) 10.1.4 Amendments dated 31 December 1994, for Schedule 95-1, 1 January 1996 for Schedule 95-2, 1 January 1992 for Schedule 95-3 and 1 January 1995 for Schedule 95-4. (Incorporated by reference to exhibit 10.1.4 to the Annual Report on Form 10-K of the Company for 1995.) 10.1.5 Amendments dated 1 July 1996 for Schedule 96-1, 1 November 1996 for Schedule 96-2, 1 January 1992 for paragraphs 1, 2 and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4 of Schedule 96-3. (Filed herewith.) 10.2 Alcan Executive Share Option Plan. (Incorporated by reference to the section titled "The Plan" on pages 3 through 8 and on pages 3 through 7 of the Prospectuses dated 30 April 1990 and 28 April 1993, respectively, filed as part of the Company's Registration Statements on Form S-8, Registration Nos. 33-34716 and 33- 61790.) 10.3 Alcan Aluminium Limited Executive Performance Award Plan revised as of October 1994. (Incorporated by reference to exhibit 10.3 to the Annual Report on Form 10-K of the Company for 1994.) 10.4 Alcan Aluminium Limited Financial Counselling Plan. (Incorporated by reference to the exhibit of that name filed with the Annual Report on Form 10-K of the Company for 1981.) 32 34 10.5 Alcan Aluminium Limited Executive Automobile Programme revised as of 1 January 1992. (Incorporated by reference to exhibit 10.5 to the Annual Report on Form 10-K of the Company for 1991.) 10.6 Alcan Aluminium Limited Flexible Perquisites Program. (Incorporated by reference to exhibit 10.6 to the Annual Report on Form 10-K of the company for 1995.) 10.7 Form of Supplemental Retirement Benefits Agreement. (Incorporated by reference to exhibit 10.6 filed with the Annual Report of the Company on Form 10-K for 1983.) 10.8 Alcan Supplemental Retirement Benefit Plan (Canada), February 1992 edition. (Incorporated by reference to exhibit 10.8 to the Annual Report on Form 10-K of the Company for 1991.) 10.8.1 Amendments dated 1 January 1994, Schedule 93-1. (Incorporated by reference to exhibit 10.7.1 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.2 Amendments dated 23 September 1993. (Incorporated by reference to exhibit 10.8.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.9 Indemnity Agreement with Jacques Bougie. Substantially similar agreements have been entered into with all current Directors of Alcan Aluminium Limited. (Incorporated by reference to exhibit 10.9 to the Annual Report on Form 10-K of the Company for 1995.) 10.10 Alcan Aluminium Limited Retirement Compensation Plan for Non-Executive Directors dated 27 April 1995. (Incorporated by reference to exhibit 10.10 to the Annual Report on Form 10-K of the Company for 1995.) 10.10.1 Amendment dated 1 January 1997. (Filed herewith.) 10.11 Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors dated 1 January 1997. (Filed herewith.) (13) Annual Report. (Filed herewith.) (21) Subsidiaries and related companies of the Company are listed on pages 37 to 41. (23) Consent of Independent Accountants is on page 36. (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.) (b) REPORTS ON FORM 8-K The Company has not filed any Form 8-K reports during the quarter ended 31 December 1996. 33 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALCAN ALUMINIUM LIMITED 27 March 1997 By: /s/ J.R. Evans --------------------- J.R. Evans Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on 27 March 1997. /s/ Sonja I. Bata - ----------------------------------- Sonja I. Bata, Director - ----------------------------------- W. R. C. Blundell, Director /s/ Jacques Bougie - --------------------------------------------------------------- Jacques Bougie, Director, President and Chief Executive Officer (Principal Executive Officer) /s/ Warren Chippindale - ---------------------------------- Warren Chippindale, Director /s/ D. Travis Engen - ---------------------------------- D. Travis Engen, Director /s/ John R. Evans - ------------------------------------ John R. Evans, Chairman of the Board /s/ Allan E. Gotlieb - ------------------------------------ Allan E. Gotlieb, Director 34 36 /s/ J. E. Newall - --------------------------------------------- J. E. Newall, Director /s/ Peter H. Pearse - --------------------------------------------- Peter H. Pearse, Director /s/ Sir George Russell - --------------------------------------------- Sir George Russell, Director /s/ Guy Saint-Pierre - --------------------------------------------- Guy Saint-Pierre, Director /s/ Gerhard Schulmeyer - --------------------------------------------- Gerhard Schulmeyer, Director /s/ Suresh Thadhani - ----------------------------------------------------------- Suresh Thadhani, Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Denis G. O'Brien - --------------------------------------------- Denis G. O'Brien, Controller (Principal Accounting Officer) 35 37 CONSENT OF INDEPENDENT ACCOUNTANTS To the Directors of Alcan Aluminium Limited: We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-6070, 33-34716 and 33-61790) and on Form S-3 (Nos. 2-78568, 2-78713 and 33-82754) of Alcan Aluminium Limited of our Report dated 13 February 1997 appearing on page 37 of the 1996 Annual Report to Shareholders. Our Report is incorporated by reference in this Annual Report on Form 10-K. We also consent to the reference to us under the caption "Experts" in such Prospectuses. Montreal, Canada 27 March 1997 By: /s/ PRICE WATERHOUSE --------------------- PRICE WATERHOUSE
COMMENTS FOR U.S. READERS BY INDEPENDENT AUDITORS ON CANADA-U.S. REPORTING CONFLICT In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of a company's financial statements such as the changes described in note 3 of the financial statements. Our report to the Shareholders dated 13 February 1997 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements. Montreal, Canada 27 March 1997 By: /s/ PRICE WATERHOUSE ------------------------ PRICE WATERHOUSE
36 38 EXHIBIT NO. 21.: SUBSIDIARIES, RELATED COMPANIES, ETC. With the exception of a number of subsidiaries which, considered in the aggregate, would not constitute a significant subsidiary, the subsidiaries of Alcan, as of 1 March 1997, are listed below. All subsidiaries and joint ventures named below are consolidated in the financial statements incorporated by reference in this report. The list also includes several related companies for which Alcan reports its interest in the net income or loss of such companies. Alcan is the direct owner of the stock of each subsidiary or related company, except where the name is indented. Indentation signifies that the principal ownership by Alcan is through the company under which the indentation is made; where there is additional ownership through another company also listed below, that additional ownership is described in the end-note on page 41.
% OF VOTING SHARES HELD BY ORGANIZED UNDER IMMEDIATE SUBSIDIARY, RELATED COMPANY, ETC. THE LAWS OF OWNER ----------- ------- -------- ---- --- ---- -- ----- Alcan Adminco Inc. . . . . . . . . . . . . . . . . . . . . . . . Canada 100 Alcan Aluminio (America Latina) Inc. . . . . . . . . . . . . . . Canada 100 Alcan Aluminum Corporation . . . . . . . . . . . . . . . . . . . Ohio 100 Alcan Automotive Castings, Inc. . . . . . . . . . . . . . . Ohio 100 Altek Automotive Castings Partnership . . . . . . . . . Delaware 50 Alcan Cable (Mexico), Inc. . . . . . . . . . . . . . . . . . Georgia 100 Alcan Management Services U.S.A. Inc. . . . . . . . . . . Ohio 100 Erieview Cartage, Inc. . . . . . . . . . . . . . . . . . . . Ohio 100 Logan Aluminum, Inc. . . . . . . . . . . . . . . . . . . . Delaware 40 Alcan Empreendimentos Ltda. . . . . . . . . . . . . . . . . . . . Brazil 100 Alcan Aluminio do Brasil S.A. . . . . . . . . . . . . . . Brazil 100 Alcan Aluminio Pocos de Caldas S.A. . . . . . . . . . . Brazil 100 Consorcio Aluminio do Maranheo-ALUMAR . . . . . . . . . Brazil 10 Petrocoque S.A.- Industria e Comercio . . . . . . . . . . Brazil 25 Mineraceo Rio do Norte S.A. . . . . . . . . . . . . . . . Brazil 12.5 Alcan Europe Limited . . . . . . . . . . . . . . . . . . . . . . England 100 Alcan Finances (Barbados) Ltd. . . . . . . . . . . . . . . . . . Barbados 100 Alcan Finances (Bda) Ltd. . . . . . . . . . . . . . . . . . . . . Bermuda 100 Alcan Aluminio del Uruguay S.A. . . . . . . . . . . . . . Uruguay 89.9 Alcan Asia Limited . . . . . . . . . . . . . . . . . . . . Hong Kong 100 Alcan (Bermuda) Limited . . . . . . . . . . . . . . . . . . Bermuda 100 Alcan Shipping (Bermuda) Limited . . . . . . . . . . . . Bermuda 100 Alcan Limerick Limited . . . . . . . . . . . . . . . . . . Ireland 100 Alcan Nikkei Asia Holdings Ltd. . . . . . . . . . . . . . . Bermuda 60 (11) Alcom Nikkei Specialty Coatings Sdn. Bhd. . . . . . . . . Malaysia 50 (12) Aluminium Company of Malaysia Berhad . . . . . . . . . . Malaysia 59.2 Aluminium Development Company (Thailand) Limited . . . . Thailand 16 (15) Nikkei Holdings Pte. Limited . . . . . . . . . . . . . . Singapore 100 Nikkei Siam Aluminium Company Limited . . . . . . . . . . Thailand 33 (13) Nikkei Thai Aluminium Company Limited . . . . . . . . . . Thailand 75 (14) Nonfemet International (China-Canada-Japan) Aluminium Company Limited . . . . . . . . . . . . . . . . . . . . China 45 Alcan Nikkei China Limited . . . . . . . . . . . . . . . . Hong Kong 49 (6) Champlain Insurance Company Ltd. . . . . . . . . . . . . . Bermuda 100 Frialco S.A. . . . . . . . . . . . . . . . . . . . . . . . Cayman Islands 20 Friguia . . . . . . . . . . . . . . . . . . . . . . . . Guinea 51 Halco (Mining) Inc. . . . . . . . . . . . . . . . . . . . Delaware 33 Compagnie des Bauxites de Guinee . . . . . . . . . . . . Delaware 51
37 39
% OF VOTING SHARES HELD BY ORGANIZED UNDER IMMEDIATE SUBSIDIARY, RELATED COMPANY, ETC. THE LAWS OF OWNER ----------- ------- -------- ---- --- ---- -- ----- Alcan Finances B.V. . . . . . . . . . . . . . . . . . . . . . . . Netherlands 100 Alcan Finances (Ireland) Limited . . . . . . . . . . . . . . . . Canada 100 Alcan Aluminium AG . . . . . . . . . . . . . . . . . . . . Switzerland 100 Alcan Rorschach AG . . . . . . . . . . . . . . . . . . . Switzerland 100 Alcan Finances (Ireland) Company . . . . . . . . . . . . . Ireland 100 Alcan Finances (U.K.) * . . . . . . . . . . . . . . . . . . . . . . England 100 Alcan France Holdings . . . . . . . . . . . . . . . . . . . . . . France 100 Alcan France . . . . . . . . . . . . . . . . . . . . . . . France 91.1 (7) Evolutis S.A. . . . . . . . . . . . . . . . . . . . . . France 100 Technal AB Sweden . . . . . . . . . . . . . . . . . . . Sweden 99 Technal Aluminium Systems S.A. . . . . . . . . . . . . Switzerland 100 Technal Iberica S.A. . . . . . . . . . . . . . . . . . Spain 100 Technal Portuguesa Systems de Aluminio Ltda. . . . . . Portugal 100 Technal Viking Limited . . . . . . . . . . . . . . . . . England 100 Transports et Aluminium Industries S.A.R.L. . . . . . . France 100 Alcan Iberica S.A. . . . . . . . . . . . . . . . . . . . . . . . Spain 100 Alcan International Limited . . . . . . . . . . . . . . . . . . . Canada 100 Alcan Ireland Limited . . . . . . . . . . . . . . . . . . . . . . Ireland 100 Aughinish Alumina Limited . . . . . . . . . . . . . . . . Ireland 40 (8) Aughinish Estates Limited . . . . . . . . . . . . . . . . Ireland 40 (8) Aughinish Property (Nominees) Limited . . . . . . . . . . Ireland 40 (8) Alcan Luxembourg S.A. . . . . . . . . . . . . . . . . . . . . . . . Luxembourg 100 Alcan Alluminio S.p.A. . . . . . . . . . . . . . . . . . . Italy 100 Alcanital Services Srl . . . . . . . . . . . . . . . . Italy 100 Artal S.p.A. . . . . . . . . . . . . . . . . . . . . . Italy 49 Alcan Deutschland GmbH . . . . . . . . . . . . . . . . . . Germany 98.6 (1) Alcan Austria GmbH . . . . . . . . . . . . . . . . . . Austria 100 Alcan Lamines France . . . . . . . . . . . . . . . . . France 40 (2) Aluminium Norf GmbH . . . . . . . . . . . . . . . . . . Germany 50 BAA Holdings S.A. . . . . . . . . . . . . . . . . . . . . . Luxembourg 100 British Alcan Aluminium plc . . . . . . . . . . . . . . England 100 Alcan Automotive Structures (UK) Ltd. . . . . . . . England 50 (3) Alcan BAP Limited . . . . . . . . . . . . . . . . . . England 100 Alcan BAS Limited . . . . . . . . . . . . . . . . . . England 50 (3) Alcan Chemicals Europe Limited . . . . . . . . . . . England 100 Alcan Chemicals Limited . . . . . . . . . . . . . . . England 100 Alcan Colwick Holdings Limited . . . . . . . . . . . England 100 Alcan Colwick Limited . . . . . . . . . . . . . . . . England 100 Alcan Contracts Limited . . . . . . . . . . . . . . . England 50 (3) Alcan Enfield Alloys Limited . . . . . . . . . . . . England 50 Alcan Farms Limited . . . . . . . . . . . . . . . . . England 100 Alcan Metal Centres (Midlands) Limited . . . . . . . England 100 Alcan Metal Centres Limited . . . . . . . . . . . . . Scotland 100 Alcan Shipping Services (UK) Limited . . . . . . . . England 100 Alcan Speciality and Aerospace Limited . . . . . . . England 50 (3) Alcan St Helens Limited . . . . . . . . . . . . . . . England 100 Alcan Stockists South Limited . . . . . . . . . . . . England 100
38 40
% OF VOTING SHARES HELD BY ORGANIZED UNDER IMMEDIATE SUBSIDIARY, RELATED COMPANY, ETC. THE LAWS OF OWNER --------------------------------- ------------------ ---------------- Alcan Luxembourg S.A. (continued) --------- BAA Holdings S.A. (continued) --------- British Alcan Aluminium plc (continued) --------- Alcan Swinton Limited . . . . . . . . . . . . . . . . England 100 Alcan Systems and Conservatories Limited . . . . . . England 100 Alcan Systems Limited . . . . . . . . . . . . . . . . England 100 Alcan Windows Limited . . . . . . . . . . . . . . . . England 50 (3) Alliance Aluminium Holdings Limited . . . . . . . . . England 100 Aluminium Corporation Limited . . . . . . . . . . . England 100 Aluminium Sulphate Limited . . . . . . . . . . . . . England 50 Aluminium Supply (Aerospace) Limited . . . . . . . . England 100 Aylesford (Packaging) Limited . . . . . . . . . . . England 100 BA Chemicals Limited . . . . . . . . . . . . . . . . England 100 BA Finance Limited . . . . . . . . . . . . . . . . . England 100 BA Metals Limited . . . . . . . . . . . . . . . . . England 100 Belfast Aluminium Limited . . . . . . . . . . . . . . Northern Ireland 100 British Alcan Conductor Limited . . . . . . . . . . . England 100 British Alcan Consumer Products Limited . . . . . . . England 100 British Alcan Extrusions Limited . . . . . . . . . . England 50 (3) British Alcan Highland Estates Limited . . . . . . . England 66.7 (4) British Alcan Primary and Recycling Limited . . . . . England 100 British Alcan Rolled Products Limited . . . . . . . . England 100 British Alcan Snappies Limited . . . . . . . . . . . England 100 British Alcan Wire and Conductor Limited . . . . . . England 100 Four County Windows Limited . . . . . . . . . . . . . England 100 Gentrin Limited . . . . . . . . . . . . . . . . . . England 100 Pearhouse Limited . . . . . . . . . . . . . . . . . . England 100 Pentagon Radiator (Stafford) Limited . . . . . . . . England 100 Propax Packaging Products Limited . . . . . . . . . England 100 Saguenay Shipping (U.K.) Limited . . . . . . . . . . England 100 TBAC Limited . . . . . . . . . . . . . . . . . . . . England 100 Alcan Aluminium UK Limited . . . . . . . . . . . . England 90 (5) British Alcan Overseas Investments Limited . . . . England 100 Saratoga Resources N.V. . . . . . . . . . . . . Netherland Antilles 20 Vigelands Metal Refinery A/S . . . . . . . . . . Norway 50 Ghana Bauxite Company Limited . . . . . . . . . . Ghana 45 Isleburn Limited . . . . . . . . . . . . . . . . . Scotland 21.7 MacKay & MacLeod Engineering Limited . . . . . . Scotland 100 Kinlochleven Road Transport Company Limited . . . Scotland 25 The Lochaber Power Company . . . . . . . . . . . . Scotland 100 Venesta Foils Limited . . . . . . . . . . . . . . England 100 Vigelands Brug A/S . . . . . . . . . . . . . . . . Norway 100 Thames Alum Limited . . . . . . . . . . . . . . . . . England 100 Ulster Aluminium Stockists Limited . . . . . . . . . Northern Ireland 100 Westbro Welding Wire Limited . . . . . . . . . . . . England 100 Alcan Management Services Canada Limited . . . . . . . . . . . . Canada 100 Alcan Nikkei Asia Company Ltd. . . . . . . . . . . . . . . . . . . Bermuda 60 (11) Alcan Nikkei Korea Limited . . . . . . . . . . . . . . . . . . . Hong Kong 49 (6) Alcan Pacific Limited . . . . . . . . . . . . . . . . . . . . . . Canada 100
39 41
% OF VOTING SHARES HELD BY ORGANIZED UNDER IMMEDIATE SUBSIDIARY, RELATED COMPANY, ETC. THE LAWS OF OWNER ----------- ------- -------- ---- --- ---- -- ----- Alcan Palco S.A. . . . . . . . . . . . . . . . . . . . . . . . . . Spain 100 Alcan Realty Limited . . . . . . . . . . . . . . . . . . . . . . Canada 100 Alcan Shannon Company . . . . . . . . . . . . . . . . . . . . . . Ireland 100 Alcan Shipping Services Limited . . . . . . . . . . . . . . . . . Canada 100 Alcan Smelters and Chemicals Limited . . . . . . . . . . . . . . Canada 100 Alcan Sprostons Limited . . . . . . . . . . . . . . . . . . . . . Jamaica 100 Alpac Aluminium Inc. . . . . . . . . . . . . . . . . . . . . . . Canada 50 (9) Aluminio de Venezuela, C.A. . . . . . . . . . . . . . . . . . . . Venezuela 49 Aluminum Company of Canada, Limited . . . . . . . . . . . . . . . Canada 100 Handy Chemicals Limited . . . . . . . . . . . . . . . . . . . . . Quebec 100 Indian Aluminium Company, Limited . . . . . . . . . . . . . . . . India 34.6 Jamalcan (unincorporated) . . . . . . . . . . . . . . . . . . . . Jamaica 93 Nippon Light Metal Company, Ltd. . . . . . . . . . . . . . . . . Japan 37.2 (10)(16) N.V. Alcan Aluminium Products Benelux S.A. . . . . . . . . . . . Belgium 100 Societe des Alumines et Bauxites de Provence . . . . . . . . . . France 100 The Roberval and Saguenay Railway Company . . . . . . . . . . . . Quebec 100 3088405 Canada Inc. . . . . . . . . . . . . . . . . . . . . . . . . Canada 100 Alcan South Pacific Pty. Ltd. . . . . . . . . . . . . . . Australia 100 Alcan Queensland Smelter Pty. Ltd. . . . . . . . . . . Australia 100 Queensland Alumina Limited . . . . . . . . . . . . . . . Australia 21.4 Queensland Alumina Security Corporation . . . . . . . . Delaware 20 Wenlock Bauxite Pty. Limited . . . . . . . . . . . . . . Australia 100 Unique Mobility, Inc. . . . . . . . . . . . . . . . . . . . . . . Colorado 14.2
* A company with unlimited liability 40 42
NOTE ADDITIONAL OWNERSHIP THROUGH % OF VOTING ---- ---------- --------- ------- SHARES HELD ------ ---- (1) Alcan Aluminium AG 1.4 (2) British Alcan Aluminium plc 30 Alcan Alluminio S.p.A. 30 (3) TBAC Limited 50 (4) TBAC Limited 33.3 (5) British Alcan Aluminium plc 10 (6) Nippon Light Metal Company, Ltd. 51 (7) Alcan Aluminium Limited 8.9 (8) Alcan Shannon Company 25 Alcan Limerick Limited 35 (9) Nippon Light Metal Company, Ltd. 50 (10) Alcan Adminco Inc. 1.6 Alcan Nikkei Asia Holdings Ltd. 8.5 * Alcan Pacific Limited 0.2 (11) Nippon Light Metal Company, Ltd. 40 (12) Aluminium Company of Malaysia Berhad 50 (13) Nikkei Holdings Pte. Limited 37 (14) Nikkei Holdings Pte. Limited 2.6 (15) Nikkei Thai Aluminium Company Limited 84
(16) Nippon Light Metal Company, Ltd., Japan's largest aluminum company, has its principal operations in Japan and has subsidiaries and related companies in many countries including Brazil, Canada, China, Indonesia, Malaysia and Thailand. * The effective ownership of Alcan, via Alcan Nikkei Asia Holdings Ltd., is 6.6%. 41 43 EXHIBIT INDEX Item No. Description - -------- ----------- (3) Articles of Incorporation and By-laws: 3.1 Certificate of Amalgamation dated 1 January 1995, Certificate of Amendment dated 8 May 1995. (Filed herewith.) 3.2 By-law No. 1A. (Incorporated by reference to exhibit 3.5 to the Annual Report on Form 10-K of the Company for 1987.) (4) Instruments defining the rights of security holders: 4.1 No long-term debt instrument is required to be filed herewith, and the Company agrees to furnish a copy of any such instrument to the Commission upon request. 4.2 Form of certificate for the Registrant's Common Shares. (Incorporated by reference to exhibit 4.2 to the Annual Report on Form 10-K of the Company for 1989.) 4.3 Shareholder Rights Agreement as amended and restated on 24 April 1995 between Alcan Aluminium Limited and The R-M Trust Company as Rights Agent, which Agreement includes the form of Rights Certificates. (Incorporated by reference to exhibit 4 to the Company's Report on Form 8-K filed on 5 May 1995.) (10) Material Contracts 10.1 Alcan Pension Plan (Canada), restated version, as of October 1990. (Incorporated by reference to exhibit 10.1 to the Annual Report on Form 10-K of the Company for 1990.) 10.1.1 Amendments dated 1 January 1992. (Incorporated by reference to exhibit 10.1.1 to the Annual Report on Form 10-K of the Company for 1991.) 10.1.2 Amendments dated 1 January 1990, Schedule 93-2. (Incorporated by reference to exhibit 10.1.2. to the Annual Report on Form 10-K of the Company for 1994.) 10.1.3 Amendments dated 1 January 1994, Schedule 93-3 and Schedule 93-4. (Incorporated by reference to exhibit 10.1.3. to the Annual Report on Form 10-K of the Company for 1994.) 10.1.4 Amendments dated 31 December 1994, for Schedule 95-1, 1 January 1996 for Schedule 95-2, 1 January 1992 for Schedule 95-3 and 1 January 1995 for Schedule 95-4. (Incorporated by reference to exhibit 10.1.4 to the Annual Report on Form 10-K of the Company for 1995.) 10.1.5 Amendments dated 1 July 1996 for Schedule 96-1, 1 November 1996 for Schedule 96-2, 1 January 1992 for paragraphs 1, 2 and 3 of Schedule 96-3 and 1 January 1996 for paragraph 4 of Schedule 96-3. (Filed herewith.) 10.2 Alcan Executive Share Option Plan. (Incorporated by reference to the section titled "The Plan" on pages 3 through 8 and on pages 3 through 7 of the Prospectuses dated 30 April 1990 and 28 April 1993, respectively, filed as part of the Company's Registration Statements on Form S-8, Registration Nos. 33-34716 and 33- 61790.) 10.3 Alcan Aluminium Limited Executive Performance Award Plan revised as of October 1994. (Incorporated by reference to exhibit 10.3 to the Annual Report on Form 10-K of the Company for 1994.) 10.4 Alcan Aluminium Limited Financial Counselling Plan. (Incorporated by reference to the exhibit of that name filed with the Annual Report on Form 10-K of the Company for 1981.) 44 EXHIBIT INDEX Item No. Description - -------- ----------- 10.5 Alcan Aluminium Limited Executive Automobile Programme revised as of 1 January 1992. (Incorporated by reference to exhibit 10.5 to the Annual Report on Form 10-K of the Company for 1991.) 10.6 Alcan Aluminium Limited Flexible Perquisites Program. (Incorporated by reference to exhibit 10.6 to the Annual Report on Form 10-K of the company for 1995.) 10.7 Form of Supplemental Retirement Benefits Agreement. (Incorporated by reference to exhibit 10.6 filed with the Annual Report of the Company on Form 10-K for 1983.) 10.8 Alcan Supplemental Retirement Benefit Plan (Canada), February 1992 edition. (Incorporated by reference to exhibit 10.8 to the Annual Report on Form 10-K of the Company for 1991.) 10.8.1 Amendments dated 1 January 1994, Schedule 93-1. (Incorporated by reference to exhibit 10.7.1 to the Annual Report on Form 10-K of the Company for 1994.) 10.8.2 Amendments dated 23 September 1993. (Incorporated by reference to exhibit 10.8.2 to the Annual Report on Form 10-K of the Company for 1994.) 10.9 Indemnity Agreement with Jacques Bougie. Substantially similar agreements have been entered into with all current Directors of Alcan Aluminium Limited. (Incorporated by reference to exhibit 10.9 to the Annual Report on Form 10-K of the Company for 1995.) 10.10 Alcan Aluminium Limited Retirement Compensation Plan for Non-Executive Directors dated 27 April 1995. (Incorporated by reference to exhibit 10.10 to the Annual Report on Form 10-K of the Company for 1995.) 10.10.1 Amendment dated 1 January 1997. (Filed herewith.) 10.11 Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors dated 1 January 1997. (Filed herewith.) (13) Annual Report. (Filed herewith.) (21) Subsidiaries and related companies of the Company are listed on pages 37 to 41. (23) Consent of Independent Accountants is on page 36. (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Filed herewith.) EX-3.1 2 CERTIFICATE OF AMALGAMATION 1 Industry Canada CERTIFICATE OF AMENDEMENT CANADA BUSINESS CORPORATIONS ACT ALCAN ALUMINIUM LIMITED 310145-2 - ------------------------ ----------------------- Name of corporation Corporation number
I hereby certify that the articles of the above- named corporation were amended (a) under section 13 of the Canada Business Corporations Act in accordance with the [ ] attached notice; (b) under section 27 of the Canada Business Corporations Act as set out in the attached [ ] of amendment designating a series of shares; (c) under section 179 of the Canada Business [X] Corporations Act as set out in the attached articles of amendment; (d) under section 191 of the Canada Business Corporations Act as set out in the attached articles [ ] or reorganization; (e) under section 192 of the Canada Business Corporations Act as set out in the attached articles [ ] of arrangement. Director May 8, 1995 Date of Amendment
CANADA 2 Canada Business FORM 4 Corporations Act ARTICLES OF AMENDMENT (SECTION 27 OR 177) 1- Name of corporation 2 - Corporation - No ALCAN ALUMINIUM LIMITED 310145-2
3 - The articles of the above-named corporation are amended as follows: By deleting Part A of Schedule 1, pertaining to the 2,000,000 Cumulative Redeemable First Preferred Shares, and the related description set out in Schedule 1-A. By deleting Part D of Schedule 1, pertaining to the unlimited number of Junior Preferred Shares, and the related description set out in Schedule 1-A. By the addition of the following to Item 5: "The Directors may appoint one or more additional Directors (above the number elected at the previous Annual Meeting) who shall hold office for a term expiring not later than the close of the next Annual Meeting provided that the total number of Directors so appointed may not exceed one-third of the number of Directors elected at the said previous Annual Meeting. Date Signature Title 2 May 1995 Serge Fecteau Assistant Secretary FOR DEPARTMENTAL USE ONLY Filed
3 Industry Canada CERTIFICATE OF AMALGAMATION CANADA BUSINESS CORPORATIONS ACT ALCAN ALUMINIUM LIMITED 310145-2 ______________________________ _____________________________ Name of corporation Corporation number I hereby certify that the above-named corporation resulted from an amalgamation, under section 185 of the Canada Business Corporations Act, of the corporations set out in the attached articles of amalgamation. /s/ January 1, 1995 Director Date of amalgamation
CANADA 4 Canada Business FORM 9 Corporations Act ARTICLES OF AMALGAMATION (SECTION 185) - ---------------------------------------------------------------------------
1 - Name of amalgamated corporation ALCAN ALUMINUM LIMITED 2 - The place in Canada where the registered office is to be situated CITY OF MONTREAL, PROVINCE OF QUEBEC 3 - The classes and any maximum number of shares that the corporation is authorized to issue SCHEDULES 1 AND 1-A ARE INCORPORATED IN THIS FORM 4 - Restrictions, if any, on share transfers THERE ARE NO RESTRICTIONS ON THE TRANSFER OF SHARES OF THE CORPORATION. 5 - Number (or minimum and maximum number) of directors MINIMUM: 9 MAXIMUM: 20 6 - Restrictions, if any, on business the corporation may carry on THERE ARE NO RESTRICTIONS ON THE BUSINESS THAT THE CORPORATION MAY CARRY ON. 7 - Other provisions, if any WITHOUT THE CONSENT GIVEN BY WAY OF SPECIAL RESOLUTION OF THE HOLDERS OF THE COMMON SHARES, THERE SHALL NOT BE CREATED OR ISSUED ANY SERIES OF PREFERENCE SHARES TO WHICH ARE ATTACHED VOTING RIGHTS OTHER THAN VOTING RIGHTS ARISING ONLY IN THE EVENT OF NON-PAYMENT OF DIVIDENDS THEREON. 8 - The amalgamation has been approved pursuant to that section or subsection of the Act which is indicated as follows: 183 184 (1) 184 (2) 9 - Name of Amalgamating corporations Corporation No. Signature Date Title ALCAN ALUMINIUM LIMITED 010058-7 [P.K. Pal] 22/12/94 SECRETARY ALCAN ALUMINIUM HOLDINGS LIMITED 010041-2 [Serge Fecteau] 22/12/94 SECRETARY FOR DEPARTMENTAL USE ONLY Filed - Corporation No. 310145-2 JAN - 4 1995 5 The classes and any maximum number of shares SCHEDULE 1 The classes of shares and, where applicable, the maximum number of Shares that the Corporation is authorized to issue are set out below and the rights, privileges, restrictions and conditions attaching to each class of shares of the Corporation are set out in Schedule 1-A annexed hereto: A. 2,000,000 Cumulative Redeemable First Preferred Shares without nominal or par value, issuable in series (See Schedule 1-A, Part A); B. An unlimited number of Preference Shares without nominal or par value, issuable in series (See Schedule 1-A, Part B), of which: i) the third series consists of 4,200,000 Floating Rate Cumulative Redeemable Preference Shares, Series C, 1984 Issue (See Schedule 1-A, Part B.1); ii) the fourth series consists of 1,300,000 Floating Rate Cumulative Redeemable Preference Shares, Series D, 1984 Issue (See Schedule 1-A, Part B.2); iii) the fifth series consists of 1,500,000 Floating Rate Cumulative Redeemable Preference Shares, Series C, 1985 Issue (See Schedule 1-A, Part B.3); iv) the sixth series consists of 400,000 Floating Rate Cumulative Redeemable Preference Shares, Series D, 1985 issue (See Schedule 1-A, Part B.4); v) the seventh series consists of 3,000,000 Cumulative Redeemable Preference Shares, Series E (See Schedule 1-A, Part B.5); vi) the eighth series consists of 400,000 Cumulative Redeemable Retractable Preference Shares, Series F (See Schedule 1-A Part B.6); vii) the ninth series consists of 300 Floating Rate Cumulative Redeemable Preference Shares, Series G (See Schedule 1-A, Part B.7); 6 The classes and any maximum number of shares C. An unlimited number of Common Shares without nominal or par value (See Schedule 1-A, Part C); D. An unlimited number of Junior Preferred Shares (See Schedule 1-A, Part D) 7 SCHEDULE 1-A The rights, privileges, restrictions and conditions attaching to the Cumulative Redeemable First Preferred Shares without nominal or par value, issuable in series; Preference Shares without nominal or par value, issuable in series; Common Shares without nominal or par value; and the Junior Preferred Shares shall be as set out in this Schedule. PART A 2,000,000 CUMULATIVE REDEEMABLE FIRST PREFERRED SHARES WITHOUT NOMINAL OR PAR VALUE, ISSUABLE IN SERIES (hereinafter referred to as "First Preferred Shares"). PROVISIONS OF FIRST PREFERRED SHARES AS A CLASS The First Preferred Shares shall, as a class, carry and be subject to the following preferences, priorities, rights, conditions, limitations and restrictions: (a) The First Preferred Shares may be issued at any time or from time to time in one or more series with such preferred, deferred or other special rights, restrictions, conditions, limitations or designations attaching thereto including, without limiting the generality of the foregoing, such rates of cumulative preferred dividends, redemption price, conversion rights (if any), sinking or purchase fund (if any), retraction provisions (if any) and provisions for the amendment of such rights, restrictions, conditions, limitations or designations (the whole subject to the preferences, priorities, rights, conditions, limitations and restrictions attaching to the First Preferred Shares as a class) as shall be prescribed from time to time before issuance by any resolution providing for the issue of the First Preferred Shares of any series which may be passed by the Directors of the Corporation. The number of shares in any series may from time to time be increased by the Directors upon compliance with the same conditions as are applicable to the issue of shares of a new series. (b) The First Preferred Shares of each series shall rank on a parity with the First Preferred Shares of every other series with respect to priority in payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs. (c) The holders of the First Preferred Shares shall be entitled to receive and the Corporation shall pay thereon as and when declared by the Directors of the Corporation, out of the moneys of the Corporation properly applicable to the payment of dividends, fixed, cumulative, preferential, cash dividends at such rates and payable at such intervals as shall have been prescribed for each series. Such dividends shall accrue from such date as may in the case of each series be determined by the Directors of the Corporation, or in case no date be so determined, then from the date of issue thereof. Cheques of the Corporation, payable at par at any branch in Canada of a chartered bank from time to time selected by the Directors of the Corporation, shall be issued in respect of such dividends (less any taxes required to be deducted) and payment thereof shall satisfy such dividends. With respect to each series of First Preferred Shares, dividends shall be paid to the registered holders appearing on the register at the close of business on such a day preceding the day fixed for the payment of dividends as may be determined from time to time by the Directors of the Corporation. (d) Subject to the provisions of the Canada Business Corporations Act as from time to time amended or replaced ("Act"), and the provisions relating to any particular series, the Corporation may at any time or from time to time, at its option, purchase (if obtainable) for cancellation out of 8 capital or otherwise pursuant to the Act, the whole or any part of the First Preferred Shares of any one or more series outstanding from time to time in the open market (including purchase through or from any investment dealer or firm holding membership on a recognized stock exchange) or by invitation for tenders addressed to all holders of record of the series of First Preferred Shares proposed to be purchased at the lowest price or prices at which, in the opinion of the Treasurer or an Assistant Treasurer of the Corporation, such shares are obtainable but not exceeding the price at which such shares could be redeemed at the time of purchase or, if not then callable for redemption, on the date of their first becoming redeemable, together with an amount equal to all dividends, if any, accrued thereon up to the date of purchase and then remaining unpaid, whether or not earned or declared (which dividends, for such purpose, shall be calculated as if they were accruing from day to day up to the date of purchase), plus costs of purchase. If, upon any invitation for tenders more First Preferred Shares are tendered at a price or prices acceptable to the Corporation than the Corporation is then prepared to purchase, the Corporation will accept, to the extent required, the tenders submitted at the lowest price and then, if and to the extent required, the tenders submitted at the next progressively higher prices and if more shares are tendered at any such price than the Corporation is prepared to purchase, the shares tendered at that price shall be purchased as nearly as possible pro rata (disregarding fractions) according to the number of First Preferred Shares so tendered by each holder thereof. From and after the date of purchase, the First Preferred Shares so purchased shall be canceled and shall not be reissued. (e) Subject to the provisions of the Act and the provisions relating to any particular series, the Corporation may upon giving notice as hereinafter provided redeem out of capital or otherwise pursuant to the Act, at any time the whole or, from time to time, any part of the then outstanding First Preferred Shares of any series at such redemption price (consisting of the amount paid up thereon and of such premium thereon, if any, not exceeding 20% of the amount paid up thereon) as shall have been prescribed for such series, together with an amount equal to all dividends, if any, accrued thereon up to the date fixed for redemption and then remaining unpaid, whether or not earned or declared (which dividends, for such purpose, shall be calculated as if they were accruing from day to day up to and including the date fixed for redemption). In case a part only of the First Preferred Shares of any series is to be redeemed, the shares of such series to be redeemed shall be selected by lot in such manner as the Directors of the Corporation may determine or if the Directors so determine, may be redeemed pro rata disregarding fractions and the Directors may make such adjustments as may be necessary to avoid redemption of fractional parts of shares. In the case of any redemption of First Preferred Shares, not less than 30 days' notice in writing of such redemption shall be given by mailing such notice to each registered holder who at the time of the mailing is a registered holder of First Preferred Shares to be redeemed, at his address as it appears on the books of the Corporation, or in the event of the address of any such shareholder not so appearing, then to the last known address of such shareholder; provided, however, that accidental failure to give any such notice to one or more of such holders shall not affect the validity of such redemption as to the other holders. Such notice shall set out the redemption price, the place or places at which the redemption price is to be paid and the date on which redemption is to take place, and, if part only of the First Preferred Shares held by the person to whom such notice is addressed is to be redeemed, the number thereof so to be redeemed. On or before the date so fixed for redemption, the Corporation shall deposit the redemption price of the First Preferred Shares to be redeemed in the chartered bank or trust company specified in the notice of redemption, to be paid without interest to or to the order of the respective holders of such First Preferred Shares upon presentation and surrender to such chartered bank or trust company of the certificates representing the same. Provided such deposit shall have been made, such First Preferred Shares so called for redemption shall on the date fixed for redemption be deemed to be redeemed, shall cease to be entitled to dividends and the holders thereof shall cease to be entitled to exercise any of the rights of shareholders in respect thereof. If the redemption price shall not be deposited as aforesaid, the rights of the holders of the First Preferred Shares so called for redemption shall remain unaffected. From and after the date fixed for redemption, the First Preferred Shares so redeemed shall be deemed cancelled and shall not be reissued. 9 (f) In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding up its affairs, the holders of the First Preferred Shares shall be entitled to receive (i) the amount paid up on such shares together with all unpaid dividends (which dividends, for such purpose, shall be calculated as if they were accruing from day-to-day for the period from the expiration of the last period for which dividends have been paid up to and including the date of distribution), and (ii) if such liquidation, dissolution, winding up or distribution shall be voluntary, an additional amount equal to the premium, if any, which would have been payable on the redemption (for other than sinking fund purposes) of the First Preferred Shares respectively if they had been called for redemption by the Corporation (a) on the date of distribution, or (b) if not then callable for redemption, on the date of their first becoming redeemable, before any amount shall be paid to, or any property or assets of the Corporation distributed among, the holders of any shares of the Corporation ranking junior to the First Preferred Shares. After payment to the holders of the First Preferred Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation. (g) The holders of the First Preferred Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay in the aggregate six quarterly dividends on the First Preferred Shares of any one series on the dates on which the same should be paid according to the terms thereof whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the First Preferred Shares of any series remain in arrears, the holders of the First Preferred Shares shall be entitled to receive notice of attend and vote at all meetings of shareholders of the Corporation and shall be entitled, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation. Each holder of the First Preferred Shares shall be entitled to one vote in respect of each First Preferred Share held by him. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of First Preferred Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at least one-tenth of the outstanding First Preferred Shares. In default of the calling of such general meeting by the Secretary within 15 days after the making of such request, such meeting may be called by any holder of record of First Preferred Shares. Any vacancy occurring among members of the Board elected by the holders of First Preferred Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of First Preferred Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding First Preferred Shares shall have the right to require the Secretary of the Corporation to call a meeting of the holders of First Preferred Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of the last preceding paragraph shall apply with respect to the calling of any such meeting. Notwithstanding anything contained in the by-laws of the Corporation (i) upon any termination of the said right to elect Directors, the term of Office of the Directors elected or appointed to represent 10 the holders of First Preferred Shares exclusively shall forthwith terminate and (ii) the holding of one First Preferred Share shall be sufficient to qualify a person for election or appointment as a Director of the Corporation to represent the holders of First Preferred Shares exclusively. (h) The Corporation shall not, without prior approval of the holders of the First Preferred Shares given as hereinafter specified, create any First Preferred Shares in addition to the 2,000,000 presently authorized First Preferred Shares or create any class of shares ranking as to payment of dividends or repayment of capital in priority to, or on a parity with, the First Preferred Shares. (i) The holders of the First Preferred Shares shall not be entitled as of right to subscribe for, purchase or receive any part of any issue of any shares, bonds, debentures or other securities of the Corporation now or hereafter authorized, otherwise than in accordance with exercise of the conversion rights, if any, which may from time to time attach to any series of the First Preferred Shares. (j) The provisions contained in paragraphs (a) to (i) and in this paragraph (j) may be repealed or amended in whole or in part but only with the approval of the holders of the First Preferred Shares. The approval of the holders of the First Preferred Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding First Preferred Shares or by resolution passed or by-law sanctioned at a meeting of holders of First Preferred Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least a majority of the outstanding First Preferred Shares are present or represented by proxy and carried by not less than two-thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of a majority of the outstanding First Preferred Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting the holders of First Preferred Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the First Preferred Shares referred to above. If the repeal or amendment of the provisions hereinbefore contained affects the rights of the holders of First Preferred Shares of any series in a manner different from that in or to which the rights of the holders of First Preferred Shares of any other series are affected, then such repeal or amendment shall, in addition, be approved by the holders of the First Preferred Shares of such series so affected, and the provisions of this paragraph (j) shall apply, mutatis mutandis, with respect to the giving of such approval. Any meeting of the holders of the outstanding First Preferred Shares may be held at any time and for any purpose, without notice, if all holders of First Preferred Shares entitled to vote at the meeting waive notice of the meeting in writing. For the purposes of waiver of notice, the words "in writing" shall, without limitation, include the sending of a telegram, telex, cable or any other form of written communication by a shareholder. Any holder of First Preferred Shares may waive notice of any meeting either before or after the meeting is held. Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of First Preferred Shares, shall not invalidate any action taken at any meeting. 11 At any meeting of the holders of First Preferred Shares without distinction as to series, each holder of First Preferred Shares shall be entitled to one vote in respect of each First Preferred Share held by him. At any meeting of the holders of First Preferred Shares of any particular series, each holder shall be entitled to one vote in respect of each First Preferred Share of such series held by him. The formalities to be observed with respect to the giving of notice of any meeting of holders of First Preferred Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 12 PART B AN UNLIMITED NUMBER OF PREFERENCE SHARES WITHOUT NOMINAL OR PAR VALUE, ISSUABLE IN SERIES PROVISIONS OF PREFERENCE SHARES AS A CLASS The Preference Shares shall, as a class, carry and be subject to the following rights, privileges, restrictions and conditions: (a) The Preference Shares may be issued at any time or from time to time in one or more series, each series consisting of such number of shares and having such preferred, deferred or other special rights, restrictions, conditions, limitations or designations attaching thereto including, without limiting the generality of the foregoing, such rates, amounts or methods of calculation of cumulative preferred dividends, redemption price, conversion rights (if any), sinking or purchase fund (if any), retraction provisions (if any), voting rights, and provisions for the amendment of such rights, restrictions, conditions, limitations or designations (the whole subject to the rights, privileges, restrictions and conditions attaching to the Preference Shares as a class) as shall be prescribed from time to time before issuance by any resolution providing for the issue of the Preference Shares of any series which may be passed by the Directors of the Corporation. (b) The rights, privileges, restrictions and conditions attaching to the Preference Shares shall be subject and subordinate to those attaching to the First Preferred Shares and to the Second Preferred Shares, but only to the extent that they may conflict therewith. (c) The Preference Shares of each series shall rank pari passu with the Preference Shares of every other series and shall be entitled to preference over the Common Shares and over any other shares ranking junior to the Preference Shares with respect to payment of dividends or distribution of assets in the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs. (d) Subject to the provisions of paragraph (b) hereof, the holders of the Preference Shares shall be entitled to receive and the Corporation shall pay thereon as and when declared by the Directors of the Corporation, out of the moneys of the Corporation properly applicable to the payment of dividends, cumulative, preferential, cash dividends at such rates, in such amounts or by such methods of calculation, in such currencies and payable at such intervals as shall have been prescribed for each series. Such dividends shall accrue from such date as may in the case of each series be determined by the Directors of the Corporation, or in case no date be so determined, then from the date of issue thereof. Cheques of the Corporation, payable at par at any branch in Canada or the United States of America of a bank from time to time selected by the Directors of the Corporation shall be issued in respect of such dividends (less any taxes required to be deducted) and payment thereof shall satisfy such dividends. A dividend that is represented by a cheque which has not been presented to the Corporation's bankers for payment or that otherwise remains unclaimed for a period of six years from the date on which it was declared to be payable shall be forfeited to the Corporation. With respect to each series of Preference Shares, dividends shall be paid to the registered holders appearing on the register at the close of business on such a day preceding the day fixed for the payment of dividends as may be determined from time to time by the Directors of the Corporation. (e) Subject to the provisions of the Canada Business Corporation Act as from time to time amended ("Act"), the provisions of paragraph (b) hereof and the provisions relating to any particular series, the Corporation may at any time or from time to time, at its option, purchase (if obtainable) 13 for cancellation out of capital or otherwise pursuant to the Act, the whole or any part of the Preference Shares or any one or more series outstanding from time to time in the open market (including purchase through or from any investment dealer or firm holding membership on a recognized stock exchange), by invitation for tenders addressed to all holders of record of the series of Preference Shares proposed to be purchased or by private contract at the lowest price or prices at which, in the opinion of the Treasurer or an assistant Treasurer of the Corporation, such shares are obtainable but not exceeding the price at which such shares could be redeemed at the time of purchase or, if not then callable for redemption, on the date of their first becoming redeemable, together with an amount equal to all dividends, if any, accrued thereon up to the date of purchase and then remaining unpaid, whether or not earned or declared (which dividends, for such purpose, shall be calculated as if they were accruing from day to day up to the date of purchase) plus costs of purchase. If upon any invitation for tenders, more Preference Shares are tendered at a price or prices acceptable to the Corporation than the Corporation is then prepared to purchase, the Corporation will accept, to the extent required, the tenders submitted at the lowest price and then, if and to the extent required, the tenders submitted at the next progressively higher prices, and if more shares are tendered at any such price than the Corporation is prepared to purchase, the shares tendered at that price shall be purchased as nearly as possible pro rata (disregarding fractions) according to the number of Preference Shares so tendered by each holder thereof. From and after the date of purchase the Preference Shares so purchased shall be cancelled and shall not be reissued. (f) Subject to the provisions of the Act, the provisions of paragraph (b) hereof and the provisions relating to any particular series, the Corporation may, upon giving notice as hereinafter provided, redeem out of capital or otherwise pursuant to the Act at any time the whole or from time to time any part of the then outstanding Preference Shares of any series at such redemption price as shall have been prescribed for such series, together with an amount equal to all dividends, if any, accrued thereon up to the date fixed for redemption and then remaining unpaid, whether or not earned or declared (which dividends, for such purpose, shall be calculated as if they were accruing from day to day up to and including the date fixed for redemption). In case a part only of the Preference Shares of any series is to be redeemed, the shares of such series to be redeemed shall be selected by lot in such manner as the Directors of the Corporation may determine or if the Directors so determine, may be redeemed pro rata disregarding fractions and the Directors may make such adjustments as may be necessary to avoid redemption of fractional parts of shares. In the case of any redemption of Preference Shares, notice in writing of such redemption of such number of days as shall have been prescribed for each series and failing such prescription of not less than 90 days shall be given by mailing such notice to each registered holder who at the time of the mailing is a registered holder of Preference Shares to be redeemed, at his address as it appears on the books of the Corporation, or in the event of the address of any such shareholder not so appearing, then to the last known address of such shareholder; provided, however, that accidental failure to give any such notice to one or more of such holders shall not affect the validity of such redemption as to the other holders. Such notice shall set out the redemption price, the place or places at which the redemption price is to be paid and the date on which redemption is to take place, and, if part only of the Preference Shares held by the person to whom it is addressed is to be redeemed, the number thereof so to be redeemed. On or before the date so fixed for redemption, the Corporation shall deposit the redemption price of the Preference Shares to be redeemed in the bank or trust company specified in the notice of redemption, to be paid without interest to or to the order of the respective holders of such Preference Shares upon presentation and surrender to such bank or trust company of the certificates representing the same. Provided such deposit shall have been made, such Preference Shares so called for redemption shall on the date fixed for redemption be deemed to be redeemed, shall cease to be entitled to dividends and the holders thereof shall cease to be entitled to exercise any of the rights of shareholders in respect thereof. If the redemption price shall not be deposited as aforesaid, the rights of the holders of the Preference Shares so called for redemption shall remain unaffected. From and after the date fixed for redemption, the Preference Shares so redeemed shall be deemed cancelled and shall not be reissued. 14 (g) Except as set forth in paragraph (h) and subject to the provisions relating to any particular series, the holders of Preference Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting. (h) The provisions contained in paragraphs (a) to (g) and in this paragraph (h) may be repealed or amended in whole or in part but only with the approval of the holders of the Preference Shares, except that without such approval the Directors of the Corporation may change the designation of the Preference Shares or any series thereof. The approval of the holders of the Preference Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding Preference Shares or by resolution passed or by-law sanctioned at a meeting of holders of Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding Preference Shares are present or represented by proxy and carried by not less than two-thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting, the holders of Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the Preference Shares referred to above. If the repeal or amendment of the provisions hereinbefore contained affects the rights of the holders of Preference Shares of any series in a manner different from that in or to which the rights of the holders of Preference Shares of any other series are affected, then such repeal or amendment shall, in addition, be approved by the holders of the Preference Shares of such series so affected, and the provisions of this paragraph (h) shall apply, mutatis mutandis, with respect to the giving of such approval. Any meeting of the holders of the outstanding Preference Shares may be held at any time and for any purpose, without notice, if all holders of Preference Shares entitled to vote at the meeting waive notice of the meeting in writing. For the purpose of waiver of notice, the words "in writing" shall, without limitation, include the sending of a telegram, telex, cable or any other form of written communication by a shareholder. Any holder of Preference Shares may waive notice of any meeting either before or after the meeting is held. Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of Preference Shares, shall not invalidate any action taken at any meeting. At any meeting of the holders of Preference Shares, without distinction as to series, each holder shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him, whether such issue price is in Canadian or United States currency. At any meeting of the holders of Preference Shares of any particular series, each holder shall be entitled to one vote in respect of each Preference Share of such series held by him. The formalities to be observed with respect to the giving notice of any meeting of holders of Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 15 PART B.1 PROVISIONS OF THE THIRD SERIES OF PREFERENCE SHARES CONSISTING OF 4,200,000 FLOATING RATE CUMULATIVE REDEEMABLE PREFERENCE SHARES, SERIES C, 1984 ISSUE (hereinafter referred to as "Series C Preference Shares") The Series C Preference Shares shall, in addition to the rights, privileges, restrictions and conditions attaching to the Preference Shares as a class, have the following rights, privileges, restrictions and conditions: 1. Issue Price The Series C Preference Shares will have an issue price of $25.00 each. 2. Dividends 2.1 The holders of Series C Preference Shares will be entitled to receive a quarterly cumulative preferential cash dividend, as and when declared by the Board of Directors of the Corporation, on the 20th day of February, May, August and November in each year ("Dividend Payment Dates") in an amount per share determined by applying to the $25.00 issue price per share one-quarter of the Annual Dividend Rate applicable to the Quarter preceding the Dividend Payment Date for which the determination is being made. The record date for the payment of dividends will be the 5th day of February, May, August and November or any other day, chosen by the Board of Directors, which is not more than 30 days preceding the Dividend Payment Date. The initial dividend will be payable on November 20, 1984 to holders of record on November 5, 1984 in an amount per share determined by applying to $25.00 the Annual Dividend Rate applicable to the period from the date of issue to September 30, 1984 multiplied by the number of days following the date of issue through November 20, 1984, all divided by 365. "Annual Dividend Rate" applicable to a Quarter is the greater of (i) 72% of Canadian Prime and (ii) the lesser of 7.5% and Canadian Prime. "Quarter" is a period of three consecutive calendar months commencing on the first day of any of January, April, July or October. "Quarter" shall also mean the period from the date of issue to September 30, 1984. "Canadian Prime" for a Quarter is the average of the Prime Interest Rates in effect on each day of that Quarter. "Prime Interest Rate" is the average of the annual rates of interest announced from time to time by The Royal Bank of Canada and The Toronto-Dominion Bank as reference rates then in effect for determining interest rates on Canadian dollar commercial loans in Canada. In the event that for any reason one of the said banks does not have a Prime Interest Rate in effect during all of a Quarter, then the Prime Interest Rate for such bank for such Quarter shall be the Prime Interest Rate of the other bank. In the event that both of the said banks do not have a Prime Interest Rate in effect during all of a Quarter, then the Prime Interest Rate for that Quarter shall be equal to 1.65% per annum plus the average during such Quarter of the average yields at weekly tender on 91-day Government of Canada Treasury Bills as reported by the Bank of Canada. In any case where a dividend is payable for a period that ends on a date ("reference date") other than a Dividend Payment Date, the amount of such dividend shall be determined by applying to $25.00 the Annual Dividend Rate applicable to the Quarter preceding the reference date multiplied by the number 16 of days following the Dividend Payment Date preceding the reference date through the reference date, all divided by 365. 2.2 In these provisions, "accrued and unpaid dividends" means an amount computed at the applicable rates as though dividends had been accruing on a day-to-day basis from the date of issue to the date to which the computation of accrued dividends is to be made, after deducting all dividend payments made. 3. Redemption The Series C Preference Shares shall not be redeemable on or before December 31, 1987, but thereafter shall be redeemable at the option of the Corporation on at least 30 days' notice prior to the date fixed for redemption in whole at any time or in part from time to time on payment of the following redemption prices in Canadian currency for each share to be redeemed:
If redeemed in the l2 months ending Redemption Price - ----------------------------------- ---------------- December 31, 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.50 December 31, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.20 December 31, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.90 December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.60 December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.30 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.00
together in each case with an amount equal to all accrued and unpaid dividends to the date fixed for redemption. In case a part only of the Series C Preference Shares is to be redeemed, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall by resolution determine. 4. Creation or Issue of Additional Shares So long as any of the Series C Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series C Preference Shares given as hereinafter specified, create or issue any shares ranking prior to or on a parity with the Series C Preference Shares with respect to return of capital or payment of dividends, provided that the Corporation may without such approval, if all dividends then payable on the Series C Preference Shares shall have been declared and paid or set apart for payment, (i) issue additional series of Preference Shares and (ii) create additional series of First Preferred Shares or Second Preferred Shares to be issued upon the exercise of a right of conversion which may hereafter be attached to the 1975 Series Preferred Shares or the Series B Second Preferred Shares or Series C Second Preferred Shares, as the case may be, provided that the date of retraction at the option of the holder attached to such additional series shall not be earlier than December 31,1989 except, with respect to the additional Second Preferred Shares, in the circumstances referred to in paragraph 5 of the provisions relating to the Series B and C Second Preferred Shares. 5. Restrictions on Dividends, Retirement of Shares and Certain Investments 5.1 So long as any of the Series C Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series C Preference Shares given as hereinafter specified, declare any dividends on any class of its Common Shares (other than dividends payable solely in such shares) to, or make any payment on account of the purchase, redemption or other retirement of any shares of any class to, or make any distribution in respect thereof to, or make or permit any subsidiary to make any Investment in, or permit to exist any extended Short-Term Investment in, the Parent Corporation or any subsidiary thereof (other than the Corporation or a Subsidiary) either directly or indirectly, unless any such dividends are declared to be payable 17 not more than 120 days after the day of declaration, and unless (a) all dividends then payable on the Series C Preference Shares shall have been declared and paid or set apart for payment and (b) after giving effect to such proposed dividend or other payment or distribution or investment and the application of the proceeds thereof and to any other dividends declared but not yet paid, at the Computation Date, the sum of: (i) $350,000,000 in United States currency plus (or minus in the case of a deficit), (ii) the Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to the Computation Date, plus (iii) the aggregate amount of the net cash proceeds to the Corporation from sales subsequent to December 31, 1981 of shares of its capital stock, shall be greater than the sum of the aggregate amount of all such dividends and all such other payments and distributions declared or made during the period commencing January 1, 1982 to and including the Computation Date, plus the net amount of Investment outstanding on such date, provided however that with regard to the foregoing restrictions of this paragraph 5.1, the Corporation may purchase, redeem or retire any shares of any class by exchange for or out of the proceeds of the substantially concurrent sale of other shares ranking either (1) junior to the Series C Preference Shares, or (2) equally with or junior to the shares being purchased, redeemed or retired and neither any such purchase, redemption or retirement nor any such proceeds shall be included in and computation provided for in this paragraph 5.1. For the purposes of this paragraph 5.1, all sums shall be determined in United States currency. As used in this paragraph 5.1, the following terms shall have the meanings set forth below: "Computation Date" shall mean (i) in the case of a dividend, the date of the declaration thereof, (ii) in the case of payment on account of the purchase, redemption or retirement of, or any distribution with respect to, shares, or any Investment, the date of the making thereof and (iii) in the case of extended Short-Term Investment, any date. "Consolidated Net Income" shall mean the Net Income of the Corporation and its Subsidiaries, all consolidated in accordance with generally accepted accounting principles. The Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to any Computation Date shall conclusively be deemed to be that shown by an interim statement of the Consolidated Net Income of the Corporation and its Subsidiaries for such period prepared by the Corporation. "Investment" shall mean all loans, advances and capital contributions in cash to any Person, and all cash payments in respect of the purchase from any Person of evidences of indebtedness, capital stock or other securities of such Person, but shall not include any Short-Term Investment. "Short-Term Investment" shall mean all Investments repayable on demand or within one year from the making thereof. "Net Amount of Short-Term Investment" outstanding on any day shall mean all Short-Term Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary, as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Short-Term Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day. "Net Amount of Investment" outstanding on any day shall mean all Investments by the Corporation or any Subsidiary in the 18 Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary, as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day, provided, however, that Net Amount of Investment shall include extended Short-Term Investment. "Extended Short-Term Investment" shall mean the highest Net Amount of Short-Term Investment outstanding during any period of 30 consecutive days within the 12 months preceding the date of determination, such 30-day period to be selected by the Corporation. "Net Income" of any corporation for any period shall mean the net income (or net deficit) of such corporation for such period, determined in accordance with generally accepted accounting principles. "Parent Corporation" shall mean any corporation which owns, together with its subsidiaries, at least a majority of the outstanding Voting Stock of the Corporation. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Stock" shall include any and all shares, interests, participations or other equivalents (however designated) of corporate stock, and the term "Voting Stock", as applied to the stock of any corporation, shall mean Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Stock having such power only by reason of the happening of a contingency. "subsidiary" shall mean any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned by another corporation or by one or more subsidiaries of such other corporation or by such other corporation and one or more subsidiaries thereof. 5.2 So long as any of the Series C Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series C Preference Shares given as hereinafter specified: (a) pay any dividends (other than stock dividends) or make any distributions on any shares of the Corporation ranking junior to the Series C Preference Shares with respect to payment of dividends or return of capital, or (b) retire for value any shares of the Corporation ranking junior to the Series C Preference Shares with respect to payment of dividends or return of capital, or (c) except in connection with the exercise of the retraction privilege attaching thereto, retire less than all the Series C Preference Shares, unless all dividends then payable on the Series C Preference Shares shall have been declared and paid or set apart for payment. 6. Voting Rights 6.1 The holders of the Series C Preference Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay in the aggregate six quarterly dividends on the Series C Preference Shares on the 19 dividend payment dates whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the Series C Preference Shares remain in arrears, the holders of the Series C Preference Shares shall be entitled to receive notice of and to attend, but not to vote at, all meetings of shareholders of the Corporation and shall be entitled on any election of Directors, together with holders of shares of all other series of Preference Shares having the right to vote in similar circumstances, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation. Each holder of Preference Shares entitled to so vote shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. 6.2 Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of Series C Preference Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at least one-tenth of the outstanding Series C Preference Shares. In default of the calling of such general meeting by the Secretary within 15 days after the making of such request, such meeting may be called by any holder of record of Series A Preference Shares. 6.3 Any vacancy occurring among members of the Board elected by the holders of Preference Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of Preference Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding Series C Preference Shares shall have the right to require the Secretary of the Corporation to call a meeting of the holders of Preference Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of paragraph 6.2 shall apply with respect to the calling of any such meeting. 6.4 Notwithstanding anything contained in the by-laws of the Corporation upon any termination of the said right to elect Directors, the term of office of the Directors elected or appointed to represent the holders of Preference Shares exclusively shall forthwith terminate. 7. Rights on Liquidation In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding up its affairs, the borders of the Series C Preference Shares shall be entitled to receive (i) the sum of $25.00 in Canadian currency per share together with all accrued and unpaid dividends up to and including the date of distribution, and (ii) if such liquidation, dissolution, winding-up or distribution shall be voluntary, an additional amount equal to the premium, if any, which would have been payable on the redemption of the Series C Preference Shares if they had been called for redemption by the Corporation (a) on the date of distribution, or (b) if not then callable for redemption, on the date of their first becoming redeemable, before any amount shall be paid to, or any property or assets of the Corporation distributed among, the holders of any shares of the Corporation ranking junior to the Series C Preference Shares. After payment to the holders of the Series C Preference Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 20 8. Amendments The rights, privileges, restrictions and conditions attaching to the Series C Preference Shares may be repealed or amended in whole or in part but only with the approval of the holders of the Series C Preference Shares, given as hereinafter specified; provided, however, that the Directors of the Corporation may at any time or from time to time, without such shareholder approval, but subject to the provisions of any applicable law, attach the right, exercisable at the option of the holder, to convert on such terms and conditions and in such manner as the Directors shall determine each Series C Preference Share into a Preference Share of another series. 9. Approvals 9.1 The approval of the holders of the Series C Preference Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding Series C Preference Shares or by resolution passed or by-law sanctioned at a meeting of holders of Series C Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding Series C Preference Shares are present or represented by proxy and carried by not less than two- thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding Series C Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting, the holders of Series C Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the Series C Preference Shares referred to above. 9.2 Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of Series C Preference Shares, shall not invalidate any action taken at any meeting. 9.3 The formalities to be observed with respect to the giving of notice of any meeting of holders of Series C Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 10. Notices Any notice required to be given under the provisions attaching to the Series C Preference Shares to the holders thereof shall be given by posting the same in a postage-paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. In the event of a threatened or actual disruption in the mail service, notice as aforesaid shall be given to registered holders of Series C Preference Shares by means of publication twice in successive weeks in a daily newspaper of general circulation in each of the cities of Halifax, Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver. Publication in each week in each newspaper shall be made within a period of seven days of publication in each other newspaper. If at any time any notice is required under the provisions of this paragraph 10 21 to be published in a particular city and no newspaper of general circulation is then being published and circulated on a daily basis in that city, the Corporation shall not be required to publish in that city. Any notice given by mail shall be deemed to be given on the day on which it is mailed. Any notice given by publication shall be deemed to be given on the day on which the first publication is completed in all of the cities in which publication is required. 22 PART B.2 PROVISIONS OF THE FOURTH SERIES OF PREFERENCE SHARES CONSISTING OF 1,300,000 FLOATING RATE CUMULATIVE REDEEMABLE PREFERENCE SHARES, SERIES D, 1984 ISSUE (hereinafter referred to as "Series D Preference Shares") The Series D Preference Shares shall, in addition to the rights, privileges, restrictions and conditions attaching to the Preference Shares as a class, have the following rights, privileges, restrictions and conditions: 1. Issue Price The Series D Preference Shares will have an issue price of U.S. $25.00 each. 2. Dividends 2.1 The holders of Series D Preference Shares will be entitled to receive a quarterly cumulative preferential cash dividend, as and when declared by the Board of Directors of the Corporation, on the 20th day of February, May August and November in each year ("Dividend Payment Dates") in an amount per share determined by applying to the U.S. $25.00 issue price per share one-quarter of the Annual Dividend Rate applicable to the Quarter preceding the Dividend Payment Date for which the determination is being made. The record date for the payment of dividends will be the 5th day of February, May, August and November or any other day, chosen by the Board of Directors which is not more than 30 days preceding the Dividend Payment Date. The initial dividend will be payable on November 20, 1984 to holders of record on November 5, 1984 in an amount per share determined by applying to U.S. $25.00 the Annual Dividend Rate applicable to the period from the date of issue to September 30, 1984 multiplied by the number of days following the date of issue through November 20, 1984, all divided by 365. "Annual Dividend Rate" applicable to a Quarter is the greater of (i) 72% of U.S. Prime and (ii) the lesser of 7.5% and U.S. Prime. "Quarter" is a period of three consecutive calendar months commencing on the first day of any of January, April, July or October. "Quarter" shall also mean the period from the date of issue to September 30, 1984. "U.S. Prime" for a Quarter is the average of the U.S. Prime Rates in effect on each day of that Quarter. "U.S. Prime Rate" is the average of the annual rates of interest announced from time to time by The Royal Bank of Canada and The Toronto-Dominion Bank as reference rates then in effect for determining interest rates on United States dollar commercial loans made in the United States of America. In the event that for any reason one of the said banks does not have a U.S. Prime Rate in effect during all of a Quarter, then the U.S. Prime Rate for such bank for such Quarter shall be the U.S. Prime Rate of the other bank. In the event that both of the said banks do not have a U.S. Prime Rate in effect during all of a Quarter, then the U.S. Prime Rate for that Quarter shall be equal to the average of the rates of interest per annum announced from time to time by two major reference banks in the United States of America, as selected by the Corporation in its sole discretion, as their prime or reference interest rate then in effect on United States dollar commercial loans made in the United States of America. 23 In any case where a dividend is payable for a period that ends on a date ("reference date") other than a Dividend Payment Date, the amount of such dividend shall be determined by applying to U.S. $25.00 the Annual Dividend Rate applicable to the Quarter preceding the reference date multiplied by the number of days following the Dividend Payments Date preceding the reference date through the reference date, all divided by 365. 2.2 In these provisions, "accrued and unpaid dividends" means an amount computed at the applicable rates as though dividends had been accruing on a day-to-day basis from the date of issue to the date to which the computation of accrued dividends is to be made, after deducting all dividend payments made. 3. Redemption The Series D Preference Shares shall not be redeemable on or before December 31, 1987, but thereafter shall be redeemable at the option of the Corporation on at least 30 days' notice prior to the date fixed for redemption in whole at any time or in part from time to time on payment of the following redemption prices in United States currency for each share to be redeemed:
If redeemed in the l2 months ending Redemption Price - ----------------------------------- ---------------- December 31, 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.50 December 31, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.20 December 31, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.90 December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.60 December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.30 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.00
together in each case with an amount equal to all accrued and unpaid dividends to the date fixed for redemption. In case a part only of the Series D Preference Shares is to be redeemed, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall by resolution determine. 4. Creation or Issue of Additional Shares So long as any of the Series D Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series D Preference Shares given as hereinafter specified, create or issue any shares ranking prior to or on a parity with the Series D Preference Shares with respect to return of capital or payment of dividends, provided that the Corporation may without such approval, if all dividends then payable on the Series D Preference Shares shall have been declared and paid or set apart for payment, (i) issue additional series of Preference Shares and (ii) create additional series of First Preferred Shares or Second Preferred Shares to be issued upon the exercise of a right of conversion which may hereafter be attached to the 1975 Series Preferred Shares or the Series B Second Preferred Shares or Series C Second Preferred Shares, as the case may be, provided that the date of retraction at the option of the holder attached to such additional series shall not be earlier than December 31, 1989 except, with respect to the additional Second Preferred Shares, in the circumstances referred to in paragraph 5 of the provisions relating to the Series B and C Second Preferred Shares. 5. Restrictions on Dividends, Retirement of Shares and Certain Investments 5.1 So long as any of the Series D Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series D Preference Shares given as hereinafter specified, declare any dividends on any class of its Common Shares (other than dividends payable solely in such shares) to, or make any payment on account of the purchase, redemption or other 24 retirement of any shares of any class to, or make any distribution in respect thereof to, or make or permit any Subsidiary to make any Investment in, or permit to exist any extended Short-Term Investment in, the Parent Corporation or any subsidiary thereof (other than the Corporation or a Subsidiary) either directly or indirectly, unless any such dividends are declared to be payable not more than 120 days after the day of declaration, and unless (a) all dividends then payable on the Series D Preference Shares shall have been declared and paid or set apart for payments and (b) after giving effect to such proposed dividend or other payment or distribution or Investment and the application of the proceeds thereof and to any other dividends declared but not yet paid, at the Computation Date, the sum of: (i) $350,000,000 in United States currency plus (or minus in the case of a deficit), (ii) the Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to the Computation Date, plus (iii) the aggregate amount of the net cash proceeds to the Corporation from sales subsequent to December 31, 1981 of its capital stock, shall be greater than the sum of the aggregate amount of all such dividends and all such other payments and distributions declared or made during the period commencing January 1, 1982 to and including the Computation Date, plus the Net Amount of Investment outstanding on such date, provided however that with regard to the foregoing restrictions of this paragraph 5.1, the Corporation may purchase, redeem or retire any shares of any class by exchange for or out of the proceeds of the substantially concurrent sale of other shares ranking either ( 1 ) junior to the Series D Preference Shares, or (2) equally with or junior to the shares being purchased, redeemed or retired and neither any such purchase, redemption or retirement nor any such proceeds shall be included in any computation provided for in this paragraph 5.1. For the purposes of this paragraph 5.1, all sums shall be determined in United States currency. As used in this paragraph 5.1, the following terms shall have the meanings set forth below: "Computation Date" shall mean (i) in the case of a dividend, the date of the declaration thereof, (ii) in the case of any payment on account of the purchase, redemption or retirement of, or any distribution with respect to, shares, or any Investment, the date of the making thereof and (iii) in the case of Extended Short-Term Investment, any date. "Consolidated Net Income" shall mean the Net Income of the Corporation and its Subsidiaries, all consolidated in accordance with generally accepted accounting principles. The Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to any Computation Date shall conclusively be deemed to be that shown by an interim statement of the Consolidated Net Income of the Corporation and its Subsidiaries for such period prepared by the Corporation. "Investment" shall mean all loans, advances and capital contributions in cash to any Person, and all cash payments in respect of the purchase from any Person of evidences of indebtedness, capital stock or other securities of such Person, but shall not include any Short-Term Investment. "Short-Term Investment" shall mean all Investments repayable on demand or within one year from the making thereof. "Net Amount of Short-Term Investment" outstanding on any day shall mean all Short-Term Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary as payments of principal or premium, returns of 25 capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Short-Term Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day. "Net Amount of Investment" outstanding on any day shall mean all Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary, as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions or otherwise, in respect of such Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day, provided, however, that Net Amount of Investment shall include extended Short-Term Investment. "Extended Short-Term Investment" shall mean the highest net amount of Short-Term Investment outstanding during any period of 30 consecutive days within the 12 months preceding the date of determination, such 30-day period to be selected by the Corporation. "Net Income" of any corporation for any period shall mean the net income (or net deficit) of such corporation for such period, determined in accordance with generally accepted accounting principles. "Parent Corporation" shall mean any corporation which owns, together with its subsidiaries, at least a majority of the outstanding Voting Stock of the Corporation. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Stock" shall include any and all shares, interests, participations or other equivalents (however designated) of corporate stock, and the term "Voting Stock", as applied to the stock of any corporation, shall mean Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Stock having such power only by reason of the happening of a contingency. "subsidiary" shall mean any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned by another corporation or by one or more subsidiaries of such other corporation or by such other corporation and one or more subsidiaries thereof. "Subsidiary" shall mean a subsidiary of the Corporation. 5.2 So long as any of the Series D Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series D Preference Shares given as hereinafter specified: (a) pay any dividends (other than stock dividends) or make any distributions on any shares of the Corporation ranking junior to the Series D Preference Shares with respect to payment of dividends or return of capital, or (b) retire for value any shares of the corporation ranking junior to the Series D Preference Shares with respect to payment of dividends or return of capital, or (c) except in connection with the exercise of the retraction privilege attaching thereto' retire less than all the Series D Preference Shares, 26 unless all dividends then payable on the Series D Preference Shares shall have been declared and paid or set apart for payment. 6. Voting Rights 6.1 The holders of the Series D Preference Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay in the aggregate six quarterly dividends on the Series D Preference Shares on the dividend payment dates whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the Series D Preference Shares remain in arrears, the holders of the Series D Preference Shares shall be entitled to receive notice of and to attend, but not to vote at, all meetings of shareholders of the Corporation and shall be entitled on any election of Directors, together with holders of shares of all other series of Preference Shares having the right to vote in similar circumstances, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation. Each holder of Preference Shares entitled to so vote shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. 6.2 Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of Series D Preference Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at Least one-tenth of the outstanding Series D Preference Shares. In default of the calling of such general meeting by the Secretary within 15 days after the making of such request, such meeting may be called by any holder of record of Series D Preference Shares. 6.3 Any vacancy occurring among members of the Board elected by the holders of Preference Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of Preference Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding Series D Preference Shares shall have the right to require the Secretary of the Corporation to call a meeting of the holders of Preference Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of paragraph 6.2 shall apply with respect to the calling of any such meeting. 6.4 Notwithstanding anything contained in the by-laws of the Corporation upon any termination of the said right to elect Directors, the term of office of the Directors elected or appointed to represent the holders of Preference Shares exclusively shall forthwith terminate. 7. Rights on Liquidation In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding up its affairs, the holders of the Series D Preference Shares shall be entitled to receive (i) the sum of $25.00 in United States currency per share together with all accrued and unpaid dividends up to and including the date of distribution, and (ii) if such liquidation, dissolution, winding-up or distribution shall be voluntary, an additional amount equal to the premium, if any, which would have been payable on the redemption of the 27 Series D Preference Shares if they had been called for redemption by the Corporation (a) on the date of distribution, or (b) if not then callable for redemption, on the date of their first becoming redeemable, before any amount shall be paid to, or any property or assets of the Corporation distributed among, the holders of any shares of the Corporation ranking junior to the Series D Preference Shares. After payment to the holders of the Series D Preference Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 8. Amendments The rights, privileges, restrictions and conditions attaching to the Series D Preference Shares may be repealed or amended in whole or in part but only with the approval of the holders of the Series D Preference Shares, given as hereinafter specified; provided, however, that the Directors of the Corporation may at any time or from time to time, without such shareholder approval, but subject to the provisions of any applicable law, attach the right, exercisable at the option of the holder, to convert on such terms and conditions and in such manner as the Directors shall determine each Series D Preference Share into a Preference Share of another series. 9. Approvals 9.1 The approval of the holders of the Series D Preference Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding Series D Preference Shares or by resolution passed or by-law sanctioned at a meeting of holders of Series D Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding Series D Preference Shares are present or represented by proxy and carried by not less than two- thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding Series D Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting, the holders of Series D Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the Series D Preference Shares referred to above. 9.2 Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of Series D Preference Shares, shall not invalidate any action taken at any meeting. 9.3 The formalities to be observed with respect to the giving of notice of any meeting of holders of Series D Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 10. Notices Any notice required to be given under the provisions attaching to the Series D Preference Shares to the holders thereof shall be given by posting the same in a postage paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. In the event of a threatened or actual disruption in the mail service, notice as aforesaid shall 28 be given to registered holders of Series D Preference Shares by means of publication twice in successive weeks in a daily newspaper of general circulation in each of the cities of Halifax, Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver. Publication in each week in each newspaper shall be made within a period of seven days of publication in each other newspaper. If at any time any notice is required under the provisions of this paragraph 10 to be published in a particular city and no newspaper of general circulation is then being published and circulated on a daily basis in that city, the Corporation shall not be required to publish in that city. Any notice given by mail shall be deemed to be given on the day on which it is mailed. Any notice given by publication shall be deemed to be given on the day on which the first publication is completed in all of the cities in which publication is required. 11. Currency 11.1 Any holder of Series D Preference Shares shall be entitled to elect to receive payment of dividends and the redemption price, or any of such payments, in the equivalent in Canadian currency of the United States dollar amount otherwise payable based upon the then applicable U.S. Dollar Exchange Rate by written notice given to the Corporation in the case of a dividend prior to the record date and in all other cases at least ten days prior to the date fixed for payment of such amount. 11.2 Any cheques issued to the holders of Series D Preference Shares for the payment of a dividend or for the ranking of any other payment on Series D Preference Shares in United States currency shall be payable at par at a branch in New York City and at such other branches in the United States of America of a bank or banks from time to time selected by the Corporation in addition to being so payable at any branch or branches of a bank or banks in Canada so selected. In the event that the Corporation is precluded from paying a dividend or making any other payment on Series D Preference Shares in United States currency pursuant to any applicable law, it may satisfy such monetary requirements by the equivalent in Canadian currency, based upon the then applicable U.S. Dollar Exchange Rate. 11.3 For purposes of paragraphs 11.1 and 11.2, the "applicable U.S. Dollar Exchange Rate" in respect of any payment shall mean the noon rate of exchange in Canadian currency, as quoted by the Bank of Canada, for one dollar in United States currency) on the record date in the case of a dividend and in all other cases on a day fixed by the Corporation not more than five business days preceding the date fixed for such payment. 29 PART B.3 PROVISIONS OF THE FIFTH SERIES OF PREFERENCE SHARES CONSISTING OF 1,500,000 FLOATING RATE CUMULATIVE REDEEMABLE PREFERENCE SHARES, SERIES C, 1985 ISSUE (hereinafter referred to as "1985 Series C Preference Shares"). The 1985 Series C Preference Shares shall, in addition to the rights, privileges, restrictions and conditions attaching to the Preference Shares as a class, have the following rights, privileges, restrictions and conditions: 1. Issue Price The 1985 Series C Preference Shares will have an issue price of $25.00 each. 2. Dividends 2.1 The holders of 1985 Series C Preference Shares will be entitled to receive a quarterly cumulative preferential cash dividend, as and when declared by the Board of Directors of the Corporation, on the 20th day of February, May, August and November in each year ("Dividend Payment Dates") in an amount per share determined by applying to the $25.00 issue price per share one-quarter of the Annual Dividend Rate applicable to the Quarter preceding the Dividend Payment Date for which the determination is being made. The record date for the payment of dividends will be the 5th day of February, May, August and November or any other day, chosen by the Board of Directors, which is not more than 30 days preceding the Dividend Payment Date. The initial dividend will be payable on August 20, 1985 to holders of record on August 5, 1985 and will accrue from May 20, 1985. "Annual Dividend Rate" applicable to a Quarter is the greater of (i) 72% of Canadian Prime and (ii) the lesser of 7.5% and Canadian Prime. "Quarter" is a period of three consecutive calendar months commencing on the first day of any of January, April, July or October. "Canadian Prime" for a Quarter is the average of the Prime Interest Rates in effect on each day of that Quarter. "Prime Interest Rate" is the average of the annual rates of interest announced from time to time by The Royal Bank of Canada and The Toronto-Dominion Bank as reference rates then in effect for determining interest rates on Canadian dollar commercial loans in Canada. In the event that for any reason one of the said banks does not have a Prime Interest Rate in effect during all of a Quarter, then the Prime Interest Rate for such bank for such Quarter shall be the Prime Interest Rate of the other bank. In the event that both of the said banks do not have a Prime Interest Rate in effect during all of a Quarter, then the Prime Interest Rate for that Quarter shall be equal to 1.65% per annum plus the average during such Quarter of the average yields at weekly tender on 91-day Government of Canada Treasury Bills as reported by the Bank of Canada. In any case where a dividend is payable for a period that ends on a date ("reference date") other than a Dividend Payment Date, the amount of such dividend shall be determined by applying to $25.00 the Annual Dividend Rate applicable to the Quarter preceding the reference date multiplied by the number of days following the Dividend Payment Date preceding the reference date through the reference date, all divided by 365. 30 2.2 In these provisions, "accrued and unpaid dividends" means an amount computed at the applicable rates as though dividends had been accruing on a day-to-day basis from May 20, 1985 to the date to which the computation of accrued dividends is to be made, after deducting all dividend payments made. 3. Redemption The 1985 Series C Preference Shares shall not be redeemable before December 31, 1987, but thereafter shall be redeemable at the option of the Corporation on at least 30 days' notice prior to the date fixed for redemption in whole at any time or in part from time to time on payment of the following redemption prices in United States currency for each share to be redeemed:
If redeemed in the l2 months ending Redemption Price - ----------------------------------- ---------------- December 31, 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.50 December 31, 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.20 December 31, 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.90 December 31, 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.60 December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.30 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.00
together in each case with an amount equal to all accrued and unpaid dividends to the date fixed for redemption. In case a part only of the 1985 Series C Preference Shares is to be redeemed, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall by resolution determine. 4. Creation or Issue of Additional Shares So long as any of the 1985 Series C Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the 1985 Series C Preference Shares given as hereinafter specified, create or issue any shares ranking prior to or on a parity with the 1985 Series C Preference Shares with respect to return of capital or payment of dividends, provided that the Corporation may without such approval, if all dividends then payable on the 1985 Series C Preference Shares shall have been declared and paid or set apart for payment, (i) issue additional series of Preference Shares and (ii) create additional series of First Preferred Shares or Second Preferred Shares to be issued upon the exercise of a right of conversion which may hereafter be attached to the 1975 Series Preferred Shares or the Series B Second Preferred Shares or Series C Second Preferred Shares, as the case may be, provided that the date of retraction at the option of the holder attached to such additional series shall not be earlier than December 31, 1989 except, with respect to the additional Second Preferred Shares, in the circumstances referred to in paragraph 5 of the provisions relating to the Series B and C Second Preferred Shares. 5. Restrictions on Dividends, Retirement of Shares and Certain Investments 5.1 So long as any of the 1985 Series C Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the 1985 Series C Preference Shares given as hereinafter specified, declare any dividends on any class of its Common Shares (other than dividends payable solely in such shares) to, or make any payment on account of the purchase, redemption or other retirement of any shares of any class to, or make any distribution in respect thereof to, or make or permit any subsidiary to make any investment in, or permit to exist any Extended Short-Term Investment in, the Parent Corporation or any subsidiary thereof (other than the Corporation or a Subsidiary) either directly or indirectly, unless any such dividends are declared to be payable not more than 120 days after the day of declaration, and unless (a) all dividends then payable on the 1985 Series C Preference Shares shall have been declared and paid or set apart for payment and (b) after giving 31 effect to such proposed dividend or other payment or distribution or Investment and the application of the proceeds thereof and to any other dividends declared but not yet paid, at the Computation Date, the sum of: (i) $350,000,000 in United States currency plus (or minus in the case of a deficit), (ii) the Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to the Computation Date, plus (iii) the aggregate amount of the net cash proceeds to the Corporation from sales subsequent to December 31, 1981 of shares of its capital stock, shall be greater than the sum of the aggregate amount of all such dividends and all such other payments and distributions declared or made during the period commencing January 1, 1982 to and including the Computation Date, plus the Net Amount of Investment outstanding on such date, provided however that with regard to the foregoing restrictions of this paragraph 5.1, the Corporation may purchase, redeem or retire any shares of any class by exchange for or out of the proceeds of the substantially concurrent sale of other shares ranking either (1) junior to the 1985 Series C Preference Shares, or (2) equally with or junior to the shares being purchased, redeemed or retired and neither any such purchase, redemption or retirement nor any such proceeds shall be included in any computation provided for in this paragraph 5.1. For the purposes of this paragraph 5.1, all sums shall be determined in United States currency. As used in this paragraph 5.1, the following terms shall have the meanings set forth below: "Computation Date" shall mean (i) in the case of a dividend, the date of the declaration thereof, (ii) in the case of any payment on account of the purchase, redemption, or retirement of, or any distribution with respect to, shares, or any Investment, the date of the making thereof and (iii) in the case of extended Short-Term Investment, any date. "Consolidated Net Income" shall mean the Net Income of the Corporation and its subsidiaries, all consolidated in accordance with generally accepted accounting principles. The Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to any Computation Date shall conclusively be deemed to be that shown by an interim statement of the Consolidated Net Income of the Corporation and its Subsidiaries for such period prepared by the Corporation. "Investment" shall mean all loans, advances and capital contributions in cash to any Person, and all cash payments in respect of the purchase from any Person of evidences of indebtedness, capital stock or other securities of such Person, but shall not include any Short-Term Investment. "Short-Term Investment" shall mean all Investments repayable on demand or within one year from the making thereof. "Net Amount of Short-Term Investment" outstanding on any day shall mean all Short-Term Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary as payment of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Short-Term Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day. "Net Amount of Investment" outstanding on any day shall mean all Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary, as payments of principal or premium, returns of capital, liquidation dividends 32 or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day, provided, however, that Net Amount of Investment shall include Extended Short-Term Investment. "Extended Short-Term Investment" shall mean the highest Net Amount of Short-Term Investment outstanding during any period of 30 consecutive days within the 12 months preceding the date of determination, such 30-day period to be selected by the Corporation. "Net Income" of any corporation for any period shall mean the net income (or net deficit) of such corporation for such period, determined in accordance with generally accepted accounting principles. "Parent Corporation" shall mean any corporation which owns, together with its subsidiaries, at least a majority of the outstanding Voting Stock of the Corporation. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Stock" shall include any and all shares, interests, participations or other equivalents (however designated) of corporate stock, and the term "Voting Stock", as applied to the stock of any corporation, shall mean Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Stock having such power only by reason of the happening of a contingency. "subsidiary" shall mean any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned by another corporation or by one or more subsidiaries of such other corporation or by such other corporation and one or more subsidiaries thereof. "Subsidiary" shall mean a subsidiary of the Corporation. 5.2 So long as any of the 1985 Series C Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the 1985 Series C Preference Shares given as hereinafter specified: (a) pay any dividends (other than stock dividends) or make any distributions on any shares of the Corporation ranking junior to the 1985 Series C Preference Shares with respect to payment of dividends or return of capital, or (b)retire for value any shares of the Corporation ranking junior to the 1985 Series C Preference Shares with respect to payment of dividends or return of capital, or (c) except in connection with the exercise of the retraction privilege attaching thereto, retire less than all the 1985 Series C Preference Shares, unless all dividends then payable on the 1985 Series C Preference Shares shall have been declared and paid or set apart for payment. 6. Voting Rights 6.1 The holders of the 1985 Series C Preference Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time 33 shall fail to pay in the aggregate six quarterly dividends on the 1985 Series C Preference Shares on the dividend payment dates whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the 1985 Series C Preference Shares remain in arrears, the holders of the 1985 Series C Preference Shares shall be entitled to receive notice of and to attend, but not to vote at, all meetings of shareholders of the Corporation and shall be entitled on any election of Directors, together with holders of shares of all other series of Preference Shares having the right to vote in similar circumstances, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation. Each holder of Preference Shares entitled to so vote shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. 6.2 Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of 1985 Series C Preference Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at least one-tenth of the outstanding 1985 Series C Preference Shares. In default of the calling of such general meeting by the Secretary within 15 days after the making of such request, such meeting may be called by any holder of record of 1985 Series C Preference Shares. 6.3 Any vacancy occurring among members of the Board elected by the holders of Preference Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of Preference Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding 1985 Series C Preference Shares shall have the right to require the Secretary of the Corporation to call a meeting of the holders of Preference Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of paragraph 6.2 shall apply with respect to the calling of any such meeting. 6.4 Notwithstanding anything contained in the by-laws of the Corporation upon any termination of the said right to elect Directors, the term of office of the Directors elected or appointed to represent the holders of Preference Shares exclusively shall forthwith terminate. 7. Rights on Liquidation In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the 1985 Series C Preference Shares shall be entitled to receive (i) the sum of $25.00 in Canadian currency per share together with all accrued and unpaid dividends up to and including the date of distribution, and (ii) if such liquidation, dissolution, winding-up or distribution shall be voluntary, an additional amount equal to the premium, if any, which would have been payable on the redemption of the 1985 Series C Preference Shares if they had been called for redemption by The Corporation (a) on the date of distribution, or (b) if not then callable for redemption, on the date of their first becoming redeemable, before any amount shall be paid to, or any property or assets of the Corporation distributed among, the holders of any shares of the Corporation ranking junior to the 1985 Series C Preference Shares. After payment to the holders of the 1985 Series C Preference Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 34 8. Amendments The rights, privileges, restrictions and conditions attaching to the 1985 Series C Preference Shares may be repealed or amended in whole or in part but only with the approval of the holders of the 1985 Series C Preference Shares, given as hereinafter specified; provided, however, that the Directors of the Corporation may at any time or from time to time, without such shareholder approval, but subject to the provisions of any applicable law, attach the right, exercisable at the option of the holder, to convert on such terms and conditions and in such manner as the Directors shall determine each 1985 Series C Preference Share into a Preference Share of another series. 9. Approvals 9.1 The approval of the holders of the 1985 Series C Preference Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding 1985 Series C Preference Shares or by resolution passed or by-law sanctioned at a meeting of holders of 1985 Series C Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding 1985 Series C Preference Shares are present or represented by proxy and carried by not less than two-thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding 1985 Series C Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting, the holders of 1985 Series C Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the 1985 Series C Preference Shares referred to above. 9.2 Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of 1985 Series C Preference Shares, shall not invalidate any action taken at any meeting. 9.3 The formalities to be observed with respect to the giving of notice of any meeting of holders of 1985 Series C Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 10. Notices Any notice required to be given under the provisions attaching to the 1985 Series C Preference Shares to the holders thereof shall be given by posting the same in a postage-paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. In the event of a threatened or actual disruption in the mail service, notice as aforesaid shall be given to registered holders of 1985 Series C Preference Shares by means of publication twice in successive weeks in a daily newspaper of general circulation in each of the cities of Halifax, Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver. Publication in each week in each newspaper shall be made within a period of seven days of publication in each other newspaper. If at any time any notice is required under the provisions of this paragraph 10 to be published in a particular city and no newspaper of general circulation is then being published and circulated on a daily basis in that city, the Corporation shall not be required to publish in that city. Any notice given by mail shall be deemed to be given on the day on which it is mailed. Any notice 35 given by publication shall be deemed to be given on the day on which the first publication is completed in all of the cities in which publication is required. 36 PART B.4 Provisions of the sixth series of Preference Shares consisting of 400,000 Floating Rate cumulative Redeemable Preference Shares Series D, 1985 Issue (hereinafter referred to as "1985 Series D Preference Shares") The 1985 Series D Preference Shares shall, in addition to the rights, privileges, restrictions and conditions attaching to the Preference Shares as a class, have the following rights, privileges, restrictions and conditions: 1. Issue Price The 1985 Series D Preference Shares will have an issue price of U.S. $25.00 each. 2. Dividends 2.1 The holders of 1985 Series D Preference Shares will be entitled to receive a quarterly cumulative preferential cash dividend, as and when declared by the Board of Directors of the Corporation, on the 20th day of February, May, August and November in each year ("Dividend Payment Dates") in an amount per share determined by applying to the U.S. $25.00 issue price per share one-quarter of the Annual Dividend Rate applicable to the Quarter preceding the Dividend Payment Date for which the determination is being made. The record date for the payment of dividends will be the 5th day of February, May, August and November or any other day, chosen by the Board of Directors, which is not more than 30 days preceding the Dividend Payment Date. The initial dividend will be payable on August 20, 1985 to holders of record on August 5, 1985 and will accrue from May 20, 1985. "Annual Dividend Rate" applicable to a Quarter is the greater of (i) 72% of U.S. Prime and (ii) the lesser of 7.5% and U.S. Prime. "Quarter" is a period of three consecutive calendar months commencing on the first day of any of January, April, July or October. "U.S. Prime" for a Quarter is the average of the U.S. Prime Rates in effect on each day of that Quarter. "U.S. Prime Rate" is the average of the annual rates of interest announced from time to time by The Royal Bank of Canada and The Toronto-Dominion Bank as reference rates then in effect for determining interest rates on United States dollar commercial loans made in the United States of America. In the event that for any reason one of the said banks does not have a U.S. Prime Rate in effect during all of a Quarter, then the U.S. Prime Rate for such bank for such Quarter shall be the U.S. Prime Rate of the other bank. In the event that both of the said banks do not have a U.S. Prime Rate in effect during all of a Quarter, then the U.S. Prime Rate for that Quarter shall be equal to the average of the rates of interest per annum announced from time to time by two major reference banks in the United States of America, as selected by the Corporation in its sole discretion, as their prime or reference interest rate then in effect on United States dollar commercial loans made in the United States of America. In any case where a dividend is payable for a period that ends on a date ("reference date") other than a Dividend Payment Date, the amount of such dividend shall be determined by applying to U.S. $25.00 the Annual Dividend Rate applicable to the Quarter preceding the reference date 37 multiplied by the number of days following the Dividend Payment Date preceding the reference date through the reference date, all divided by 365. 2.2 In these provisions, "accrued and unpaid dividends" means an amount computed at the applicable rates as though dividends had been accruing on a day-to-day basis from May 20, 1985 to the date to which the computation of accrued dividends is to be made, after deducting all dividend payments made. 3. Redemption The 1985 Series D Preference Shares shall not be redeemable on or before December 31, 1987, but thereafter shall be redeemable at the option of the Corporation on at least 30 days' notice prior to the date fixed for redemption in whole at any time or in part from time to time on payment of the following redemption prices in United States currency for each share to be redeemed:
If redeemed in the l2 months ending Redemption Price - ----------------------------------- ---------------- December 31,1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.50 December 31,1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.20 December 31,1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.90 December 31,1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.60 December 31,1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.30 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25.00
together in each case with an amount equal to all accrued and unpaid dividends to the date fixed for redemption. In case a part only of the 1985 Series D Preference Shares is to be redeemed, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall by resolution determine. 4. Creation or Issue of Additional Shares So long as any of the 1985 Series D Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the 1985 Series D Preference Shares given as hereinafter specified, create or issue any shares ranking prior to or on a parity with the 1985 Series D Preference Shares with respect to return of capital or payment of dividends, provided that the Corporation may without such approval, if all dividends then payable on the 1985 Series D Preference Shares shall have been declared and paid or set apart for payment, (i) issue additional series of Preference Shares and (ii) create additional series of First Preferred Shares or Second Preferred Shares to be issued upon the exercise of a right of conversion which may hereafter be attached to the 1975 Series Preferred Shares or the Series B Second Preferred Shares or Series C Second Preferred Shares, as the case may be, provided that the date of retraction at the option of the holder attached to such additional series shall not be earlier than December 31, 1989 except, with respect to the additional Second Preferred Shares, in the circumstances referred to in paragraph 5 of the provisions relating to the Series B and C Second Preferred Shares. 5. Restrictions on Dividends, Retirement of Shares and Certain Investments 5.1 So long as any of the 1985 Series D Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the 1985 Series D Preference Shares given as hereinafter specified, declare any dividends on any class of its Common Shares (other than dividends payable solely in such shares) to, or make any payment on account of the purchase, redemption or other retirement of any shares of any class to, or make any distribution in respect thereof to, or make or permit any subsidiary to make any investment in, or permit to exist any Extended Short-Term Investment in, the Parent Corporation or any subsidiary thereof (other than the Corporation or a Subsidiary) either directly or indirectly, unless any such dividends are 38 declared to be payable not more than 120 days after the day of declaration, and unless (a) all dividends then payable on the 1985 Series D Preference Shares shall have been declared and paid or set apart for payment and (b) after giving effect to such proposed dividend or other payment or distribution or Investment and the application of the proceeds thereof and to any other dividends declared but not yet paid, at the Computation Date, the sum of: (i) $350,000,000 in United States currency plus (or minus in the case of a deficit), (ii) the Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to the Computation Date, plus (iii) the aggregate amount of the net cash proceeds to the Corporation from sales subsequent to December 31, 1981 of shares of its capital stock, shall be greater than the sum of the aggregate amount of all such dividends and all such other payments and distributions declared or made during the period commencing January 1, 1982 to and including the Computation Date, plus the Net Amount of Investment outstanding on such date, provided however that with regard to the foregoing restrictions of this paragraph 5.1, the Corporation may purchase, redeem or retire any shares of any class by exchange for or out of the proceeds of the substantially concurrent sale of other shares ranking either (1) junior to the 1985 Series D Preference Shares, or (2) equally with or junior to the shares being purchased, redeemed or retired and neither any such purchase, redemption or retirement nor any such proceeds shall be included in any computation provided for in this paragraph 5.1. For the purposes of this paragraph 5.1, all sums shall be determined in United States currency. As used in this paragraph 5.1, the following terms shall have the meanings set forth below: "Computation Date" shall mean (i) in the case of a dividend, the date of the declaration thereof, (ii) in the case of any payment on account of the purchase, redemption or retirement of, or any distribution with respect to, shares, or any Investment, the date of the making thereof and (iii) in the case of Extended Short-Term Investment, any date. "Consolidated Net Income" shall mean the Net Income of the Corporation and its Subsidiaries, all consolidated in accordance with generally accepted accounting principles. The Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to any Computation Date shall conclusively be deemed to be that shown by an interim statement of the Consolidated Net Income of the Corporation and its Subsidiaries for such period prepared by the Corporation. "Investment" shall mean all loans, advances and capital contributions in cash to any Person, and all cash payments in respect of the purchase from any Person of evidences of indebtedness, capital stock or other securities of such Person, but shall not include any Short-Term Investment. "Short-Term Investment" shall mean all Investments repayable on demand or within one year from the making thereof. "Net Amount of Short-Term Investment" outstanding on any day shall mean all Short-Term Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Short-Term Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1989. to and including such day. "Net Amount of Investment" outstanding on any 39 day shall mean all Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary, as payments or principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day, provided, however, that Net Amount of Investment shall include Extended Short-Term Investment. "Extended Short-Term Investment" shall mean the highest Net Amount of Short-Term Investment outstanding during any period of 30 consecutive days within the 12 months preceding the date of determination, such 30-day period to be selected by the Corporation. "Net Income" of any corporation for any period shall mean the net income (or net deficit) of such corporation for such period, determined in accordance with generally accepted accounting principles. "Parent Corporation" shall mean any corporation which owns, together with its subsidiaries, at least a majority of the outstanding Voting Stock of the Corporation. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Stock" shall include any and all shares, interests, participations or other equivalents (however designated) of corporate stock, and the term "Voting Stock", as applied to the stock of any corporation, shall mean Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Stock having such power only by reason of the happening of a contingency. "subsidiary" shall mean any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned by another corporation or by one or more subsidiaries of such other corporation or by such other corporation and one or more subsidiaries thereof. "Subsidiary" shall mean a subsidiary of the Corporation. 5.2 So long as any of the 1985 Series D Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the 1985 Series D Preference Shares given as hereinafter specified: (a) pay any dividends (other than stock dividends) or make any distributions on any shares of the Corporation ranking junior to the 1985 Series D Preference Shares with respect to payment of dividends or return of capital, or (b) retire for value any shares of the Corporation ranking junior to the 1985 Series D Preference Shares with respect to payment of dividends or return of capital, or (c) except in connection with the exercise of the retraction privilege attaching thereto. retire less than all the 1985 Series D Preference Shares, unless all dividends then payable on the 1985 Series D Preference Shares shall have been declared and paid or set apart for payment. 40 6. Voting Rights 6.1 The holders of the 1985 Series D Preference Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay in the aggregate six quarterly dividends on the 1985 Series D Preference Shares on the dividend payment dates whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the 1985 Series D Preference Shares remain in arrears, the holders of the 1985 Series D Preference Shares shall be entitled to receive notice of and to attend, but not to vote at, all meetings of shareholders of the Corporation and shall be entitled on any election of Directors, together with holders of shares of all other series of Preference Shares having the right to vote in similar circumstances, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation. Each holder of Preference Shares entitled to so vote shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. 6.2 Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of 1985 Series D Preference Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at least one-tenth of the outstanding 1985 Series D Preference Shares. In default of the calling of such general meeting by the Secretary within 15 days after the making of such request, such meeting may be called by any holder of record of 1985 Series D Preference Shares. 6.3 Any vacancy occurring among members of the Board elected by the borders of Preference Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of Preference Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding 1985 Series D Preference Shares shall have the right to require the Secretary of the Corporation to call a meeting of the holders of Preference Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of paragraph 6.2 shall apply with respect to the calling of any such meeting. 6.4 Notwithstanding anything contained in the by-laws of the Corporation upon any termination of the said right to elect Directors, the term of office of the Directors elected or appointed to represent the holders of Preference Shares exclusively shall forthwith terminate. 7. Rights on Liquidation In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the 1985 Series D Preference Shares shall be entitled to receive (i) the sum of $25.00 in United States currency per share together with all accrued and unpaid dividends up to and including the date of distribution, and (ii) if such liquidation, dissolution, winding-up or distribution shall be voluntary, an additional amount equal to the premium, if any, which would have been payable on the redemption of the 1985 Series D Preference Shares if they had been called for redemption by the Corporation (a) on the date of distribution, or (b) if not then callable for redemption, on the date of their first becoming redeemable, before any amount 41 shall be paid to, or any property or assets of the Corporation distributed among, the borders of any shares of the Corporation ranking junior to the 1985 Series D Preference Shares. After payment to the holders of the 1985 Series D Preference Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 8. Amendments The rights, privileges, restrictions and conditions attaching to the 1985 Series D Preference Shares may be repealed or amended in whole or in part but only with the approval of the holders of the 1985 Series D Preference Shares, given as hereinafter specified; provided, however, that the Directors of the Corporation may at any time or from time to time, without such shareholder approval, but subject to the provisions of any applicable law, attach the right, exercisable at the option of the holder, to convert on such terms and conditions and in such manner as the Directors shall determine each 1985 Series D Preference Share into a Preference Share of another series. 9. Approvals 9.1 The approval of the holders of the 1985 Series D Preference Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding 1985 Series D Preference Shares or by resolution passed or by-law sanctioned at a meeting of borders of 1985 Series D Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding 1985 Series D Preference Shares are present or represented by proxy and carried by not less than two-thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding 1985 Series D Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify, the purpose for which the meeting was originally called. At such adjourned meeting, the holders of 1985 Series D Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the 1985 Series D Preference Shares referred to above. 9.2 Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of 1985 Series D Preference Shares, shall not invalidate any action taken at any meeting. 9.3 The formalities to be observed with respect to the giving of notice of any meeting of holders of 1985 Series D Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 10. Notices Any notice required to be given under the provisions attaching to the 1985 Series D Preference Shares to the holders thereof shall be given by posting the same in a postage-paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. In the event of a threatened or actual disruption in the mail service, notice as aforesaid shall be given to registered holders of 1985 Series D Preference Shares by means of publication twice in successive weeks in a daily newspaper of general circulation in each of the cities of Halifax, Montreal, Toronto, Winnipeg, 42 Regina, Calgary and Vancouver. Publication in each week in each newspaper shall be made within a period of seven days of publication in each other newspaper. If at any time any notice is required under the provisions of this paragraph 10 to be published in a particular city and no newspaper of general circulation is then being published and circulated on a daily basis in that city, the Corporation shall not be required to publish in that city. Any notice given by mail shall be deemed to be given on the day on which it is mailed. Any notice given by publication shall be deemed to be given on the day on which the first publication is completed in all of the cities in which publication is required. 11. Currency 11.1 Any holder of 1985 Series D Preference Shares shall be entitled to elect to receive payment of dividends and the redemption price, or any of such payments, in the equivalent in Canadian currency of the United States dollar amount otherwise payable based upon the then applicable U.S. Dollar Exchange Rate by written notice given to the Corporation in the case of a dividend prior to the record date and in all other cases at least ten days prior to the date fixed for payment of such amount. 11.2 Any cheques issued to the holders of 1985 Series D Preference Shares for the payment of a dividend or for the making of any other payment on 1985 Series D Preference Shares in United States currency shall be payable at par at a branch in New York City and at such other branches in the United States of America of a bank or banks from time to time selected by the Corporation in addition to being so payable at any branch or branches of a bank or banks in Canada so selected. In the event that the Corporation is precluded from paying a dividend or making any other payment on 1985 Series D Preference Shares in United States currency pursuant to any applicable law, it may satisfy such monetary requirements by the equivalent in Canadian currency based upon the then applicable U.S. Dollar Exchange Rate. 11.3 For purposes of paragraphs 11.1 and 11.2, the "applicable U.S. Dollar Exchange Rate" in respect of any payment shall mean the noon rate of exchange in Canadian currency, as quoted by the Bank of Canada, for one dollar in United States currency on the record date in the case of a dividend and in all other cases on a day fixed by the Corporation not more than five business days preceding the date fixed for such payment. 43 PART B.5 PROVISIONS OF THE SEVENTH SERIES OF PREFERENCE SHARES CONSISTING OF 3,000,000 CUMULATIVE REDEEMABLE PREFERENCE SHARES, SERIES E (hereinafter referred to as "Series E Preference Shares") The Series E Preference Shares shall, in addition to the rights, privileges. restrictions and conditions attaching to the Preference Shares as a class, have the following rights, privileges, restrictions and conditions: 1. Issue Price The 1985 Series D Preference Shares Will have an issue price of U.S. $25.00 each. 44 2. Dividends The holders of Series E Preference Shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the Board of Directors of the corporation, cumulative preferential cash dividends which shall be as follows: (i) An initial dividend in respect of the period from and including the date of issue of the Series E Preference Shares to but excluding January 31, 1987 (the "Initial Dividend Period", payable on January 31, 1987 in an amount per Series E Preference Share equal to the amount obtained when $2.16 is multiplied by the number of days in the Initial Dividend Period, all divided by 365; (ii) Fixed quarterly dividends in an amount per share equal to $0.54 ($2.16 per annum) payable on the last day of each o9f the months of January, April, July and October in each year (the "Dividend Payment Dates") the first such dividend being paid on the Dividend Payment Date of April 30, 1987 and the last such dividend being paid on the Dividend Payment Date of October 31, 1991; and (iii) Quarterly dividends, the first of which shall be payable on the Dividend Payment Date of January 31, 1992, each in an amount per Series E Preference Share determined by applying to the $25.00 issue p[rice per share one-quarter of the Annual Dividend Rate applicable to the Quarter preceding the Dividend Payment Date for which the determination is being made. The record date for the payment of dividends will be the 15th day of January, April, July and October or any other day chosen by the Board of Directors which is not more than 30 days preceding the Dividend Payment Date. "Annual Dividend Rate" applicable to a Quarter is 75% of Canadian Prime. "Quarter" is a period of three consecutive calendar months commencing on the first day of any January, April, July or October. "Canadian Prime" for a Quarter is the average of the Prime Interest Rates in effect on each day of that Quarter. "Prime Interest Rate" is the average of the annual rates of interest announced from time to time by The Royal Bank of Canada ands the Toronto-Dominion Bank as reference rates then in effect for determining interest rates on Canadian dollar commercial loans in Canada. In the event that for any reason one of the said banks does not have a Prime Interest Rate in effect during all of a Quarter then the Prime Interest Rate for such bank for such Quarter shall be the Prime Interest Rate of the other bank. In the event that both of the said banks do not have a Prime Interest Rate in effect during all of a Quarter, then the Prime Interest Rate for that Quarter shall be equal to 1.65% per annum plus the average during such Quarter of the average yields at weekly tender on 91-day Government of Canada Treasury Bills as reported by the Bank of Canada. In the case where a dividend is payable for a period that ends on a date other than a Dividend Payment Date, a dividend ("Short Dividend") shall be paid in an amount per Series E Preference Share determined by applying to $25.00: (iv) 8.64% in the case of dividends payable prior to October 31, 1991, or (v) the Annual Dividend Rate applicable to the Quarter preceding such date, 45 multiplied by the number of days from and including the Dividend Payment Date preceding such date to and excluding such date, all divided by 365. The portion of the amount payable to a holder of a Series E Preference Share on a redemption or purchase for cancellation thereof, or on the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among its shareholders for the purpose of winding-up its affairs, equal to all accrued and unpaid dividends thereon up to and excluding the date of such redemption, purchase, liquidation, dissolution, winding-up or other distribution of assets ("Specified Date") shall consist of: (vi) the accrued and unpaid initial dividend thereon, if any payable pursuant to (i) above and all accrued and unpaid quarterly dividends thereon, if any, payable pursuant to paragraphs (ii) and (iii) above, plus (vii) if the Specified Date is other than a Dividend Payment Date, an amount equal to the Short Dividend that would be payable thereon. 3. Redemption The Series E Preference Shares shall not be redeemable prior to October 31, 1991, however on or after that date such shares shall be redeemable at the option of the Corporation on at least 30 days' notice prior to the date fixed for redemption in whole at any time or in part from time to time on payment for each share held of an amount of $25.00 per share together with all accrued and unpaid dividends thereon up to and excluding the date of such redemption (which for such purpose shall be calculated as provided in paragraph 2 hereof). In case a part only of the Series E Preference Shares is to be redeemed, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall by resolution determine. 4. Creation or Issue of Additional Shares So long as any of the Series E Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series E Preference Shares given as hereinafter specified, create or issue any shares ranking prior to or on a parity with the Series E Preference Shares with respect to return of capital or payment of dividends, provided that the Corporation may without such approval, if all dividends then payable on the Series E Preference Shares shall have been declared and paid or set apart for payment; (i) issue additional series of Preference Shares; and (ii) create additional series of First Preferred Shares to be issued upon the exercise of a right of conversion which may hereafter be attached to the 1975 Series Preferred Shares, provided that the date of retraction at the option of the holder attached to such additional series shall not be earlier than December 31, 1989. 5. Restrictions on Dividends, Retirement of Shares and Certain Investments 5.1 So long as any of the Series E Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series E Preference Shares given as hereinafter specified, declare any dividends on any class of its Common Shares (other than dividends payable solely in such shares) to, or make any payment on account of the purchase, redemption or other retirement of any shares of any class to, or make any distribution in respect thereof to, or make or permit any Subsidiary to make any Investment in, or permit to exist any Extended Short-Term Investment in, the Parent Corporation or any subsidiary thereof (other than the Corporation or a Subsidiary) either directly or indirectly, unless any such dividends are declared to be payable 46 not more than 120 days after the day of declaration, and unless (a) all dividends then payable on the Series E Preference Shares shall have been declared and paid or set apart for payment and (b) after giving effect to such proposed dividend or other payment or distribution or Investment and the application of the proceeds thereof and to any other dividends declared but not yet paid, at the Computation Date, the sum of: (i) $350,000,000 in United States currency plus (or minus in the case of a deficit), (ii) the Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to the Computation Date, plus (iii) the aggregate amount of the net cash proceeds to the Corporation from sales subsequent to December 31, 1981 of shares of its capital stock, shall be greater than the sum of the aggregate amount of all such dividends and all such other payments and distributions declared or made during the period commencing January 1, 1982 to and including the Computation Date, plus the Net Amount of Investment outstanding on such date, provided however that with regard to the foregoing restrictions of this paragraph 5.1, the Corporation may purchase, redeem or retire any shares of any class by exchange for or out of the proceeds of the substantially concurrent sale of other shares ranking either ( 1 ) junior to the Series E Preference Shares, or (2) equally with or junior to the shares being purchased, redeemed or retired and neither any such purchase, redemption or retirement nor any such proceeds shall be included in any computation provided for in this paragraph 5.1. For the purposes of this paragraph 5.1 all sums shall be determined in United States currency. As used in this paragraph 5.1, the following terms shall have the meanings set forth below: "Computation Date" shall mean (i) in the case of a dividend, the date of the declaration thereof, (ii) in the case of any payment on account of the purchase, redemption, or retirement of, or any distribution with respect to, shares, or any Investment, the date of the making thereof and (iii) in the case of Extended Short-Term Investment, any date. "Consolidated Net Income" shall mean the Net Income of the Corporation and its subsidiaries, all consolidated in accordance with generally accepted accounting principles. The Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to any Computation Date shall conclusively be deemed to be that shown by an interim statement of the Consolidated Net Income of the Corporation and its Subsidiaries for such period prepared by the Corporation. "Investment" shall mean all loans, advances and capital contributions in cash to any Person, and all cash payments in respect of the purchase from any Person of evidences of indebtedness, capital stock or other securities of such Person, but shall not include any Short-Term Investment. "Short-Term Investment" shall mean all Investments repayable on demand or within one year from the making thereof. "Net Amount of Short-Term Investment" outstanding on any day shall mean all Short-Term Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Short-Term Investments (except to the extent any such cash has been included in the Consolidated 47 Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day. "Net Amount of Investment" outstanding on any day shall mean all Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary, as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day, provided, however, that Net Amount of Investment shall include Extended Short-Term Investment. "Extended Short-Term Investment" shall mean the highest Net Amount of Short-Term Investment outstanding during any period of 30 consecutive days within the 12 months preceding the date of determination, such 30-day period to be selected by the Corporation. "Net Income" of any corporation for any period shall mean the net income (or net deficit) of such corporation for such period, determined in accordance with generally accepted accounting principles. "Parent Corporation" shall mean any corporation which owns together with its subsidiaries, at least a majority of the outstanding Voting Stock of the Corporation. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Stock" shall include any and all shares, interests, participation or other equivalents (however designated) of corporate stock, and the term "Voting Stock", as applied to the stock of any corporation, shall mean Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Stock having such power only by reason of the happening of a contingency. "subsidiary" shall mean any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned by another corporation or by one or more subsidiaries of such other corporation or by such other corporation and one or more subsidiaries thereof. "Subsidiary" shall mean a subsidiary of the Corporation. 5.2 So long as any of the Series E Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series E Preference Shares given as hereinafter specified: (i) pay any dividends (other than stock dividends) or make any distributions on any shares of the Corporation ranking junior to the Series E Preference Shares with respect to payment of dividends or return of capital, or (ii) retire for value any shares of the Corporation ranking junior to the Series E Preference Shares with respect to payment of dividends or return of capital, or (iii) retire less than all the Series E Preference Shares, unless all dividends then payable on the Series E Preference Shares shall have been declared and paid or set apart for payment. 6. Voting Rights 48 6.1 The holders of the Series E Preference Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay in the aggregate six quarterly dividends on the Series E Preference Shares on the dividend payment dates whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the Series E Preference Shares remain in arrears, the holders of the Series E Preference Shares shall be entitled to receive notice of and to attend, but not to vote at, all meetings of shareholders of the Corporation and shall be entitled on any election of Directors, together with holders of shares of all other series of Preference Shares having the right to vote in similar circumstances, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation. Each holder of Preference Shares entitled to so vote shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. 6.2 Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of Series E Preference Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at least one-tenth of the outstanding Series E Preference Shares. In default of the calling of such general meeting by the Secretary within 15 days after the making of such request, such meeting may be called by any holder of record of Series E Preference Shares. 6.3 Any vacancy occurring among members of the Board elected by the holders of Preference Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of Preference Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding Series E Preference Shares shall have the right to require the Secretary of the Corporation to call a meeting of the holders of Preference Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of paragraph 6.2 shall apply with respect to the calling of any such meeting. 6.4 Notwithstanding anything contained in the by-laws of the Corporation upon any termination of the said right to elect Directors, the term of office of the Directors elected or appointed to represent the holders of Preference Shares exclusively shall forthwith terminate. 7. Rights on Liquidation In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the Series E Preference Shares shall be entitled to receive the sum of $25.00 per share together with all accrued and unpaid dividends thereon up to and excluding the date of distribution, (which for such purpose shall be calculated as provided in paragraph 2 hereof) before any amount shall be paid to, or any property or assets of the Corporation distributed among, the holders of any shares of the Corporation ranking junior to the Series E Preference Shares. After payment to the holders of the Series E Preference Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 49 8. Amendments The rights, privileges, restrictions and conditions attaching to the Series E Preference Shares may be repealed or amended in whole or in part but only with the approval of the holders of the Series E Preference Shares, given as hereinafter specified; provided, however, that the Directors of the Corporation may at any time or from time to time, without such shareholder approval, but subject to the provisions of any applicable law, attach the right, exercisable at the option of the holder, to convert on such terms and conditions and in such manner as the Directors shall determine each Series E Preference Share into a Preference Share of another series. 9. Approvals 9.1 The approval of the holders of the Series E Preference Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding Series E Preference Shares or by resolution passed or by-law sanctioned at a meeting of holders of Series E Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding Series E Preference Shares are present or represented by proxy and carried by not less than two-thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding Series E Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting the holders of Series E Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the Series E Preference Shares referred to above. 9.2 Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of Series E Preference Shares, shall not invalidate any action taken at any meeting. 9.3 The formalities to be observed with respect to the giving of notice of any meeting of holders of Series E Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 10. Notices Any notice required to be given under the provisions attaching to the Series E Preference Shares to the holders thereof shall be given by posting the same in a postage-paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. In the event of a threatened or actual disruption in the mail service, notice as aforesaid shall be given to registered holders of Series E Preference Shares by means of publication twice in successive weeks in a daily newspaper of general circulation in each of the cities of Halifax, Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver. Publication in each week in each newspaper shall be made within a period of seven days of publication in each other newspaper. If at any time any notice is required under the provisions of this paragraph 10 to be published in a particular city and no newspaper of general circulation is 50 then being published and circulated on a daily basis in that city, the Corporation shall not be required to publish in that city. Any notice given by mail shall be deemed to be given on the day on which it is mailed. Any notice given by publication shall be deemed to be given on the day on which the first publication is completed in all of the cities in which publication is required. 51 PART B.6 PROVISIONS OF THE EIGHTH SERIES OF PREFERENCE SHARES CONSISTING OF 400,000 CUMULATIVE REDEEMABLE RETRACTABLE PREFERENCE SHARES, SERIES F (hereinafter referred to as "Series F Preference Shares") The Series F Preference Shares shall, in addition to the rights, privileges, restrictions and conditions attaching to the Preference Shares as a class, have the following rights, privileges, restrictions and conditions: 1. Dividends 1.1 The Series F Preference Shares shall carry the right to fixed cumulative cash dividends, as and when declared by the Board of Directors of the Corporation, at the rate of $2.00 per share per annum and no more, payable by quarterly installments of $0.50 each on the last day of March, June, September and December in each year (each of such days, a "dividend payment date"), except that no dividend shall be payable on March 31, 1987. Assuming the 400,000 Series F Preference Shares are issued on March 12, 1987 and provided the Board of Directors have adopted a resolution declaring a dividend on such shares, the initial dividend payment will be payable on June 30, 1987 and will be in the amount of $0.603 per share provided that, if the Series F Preference Shares are issued after March 12, 1987, the dividend payable on June 30, 1987 shall be such lesser amount per share as the Corporation shall determine to be payable on the basis of an annual rate of $2.00. 1.2 In these provisions, "accrued and unpaid dividends" means an amount computed at the aforesaid rate as though dividends had been accruing on a day-to-day basis from and including the date of issue to and excluding the date to which the computation of accrued dividends is to be made, after deducting all dividend payments made. 2. Retraction Privilege 2.1 A holder of Series F Preference Shares shall have the privilege ("Retraction Privilege") of requiring the Corporation to purchase all or any of the holder's Series F Preference Shares on March 31, 1992 ("Series F Retraction Date") at a price ("Series F Retraction Price") of $25.00 per share plus accrued and unpaid dividends to and excluding the date of payment. 2.2 On or before January 15, 1992 and not earlier than October 3, 1991, the Corporation shall give to each person who is then a registered holder of Series F Preference Shares a written notice ("Retraction Notice") of such person's right to exercise the retraction Privilege on the Series F Retraction Date. The Retraction Notice shall also contain, if the Corporation determines pursuant to paragraph 2.4 that it will not be permitted to purchase all the Series F Preference Shares then outstanding, the statement required under paragraph 2.4. 2.3 A holder of Series F Preference Shares desiring to exercise the Retraction Privilege shall, no earlier than October 3, 1991 but not later than February 14, 1992, complete the retraction panel on the certificate(s) representing the Series F Preference Shares to be purchased by specifying the number of Series F Preference Shares which he desires to be purchased and depositing such certificate(s) with the transfer agent of the Corporation for the Series F Preference Shares at any office where transfers of Series F Preference Shares may be registered. Such deposit shall be irrevocable unless the Corporation otherwise agrees, or (a) the Corporation shall fail to make payment on or before the Series F Retraction Date of the Retraction Price for the Series F Preference Shares in respect of which the Retraction Privilege is made, in which event such holder shall be entitled to revoke his retraction in respect of all or part of his Series F Preference Shares not so purchased by the 52 Corporation by delivering a notice to that effect to the transfer agent at the office where his Series F Preference Shares were deposited at least five business days prior to any succeeding dividend payment date on which such Series F Preference Shares are required to be purchased as set forth in paragraph 2.5, or (b) the Corporation agrees and offers on or before the Series F Retraction Date to convert as set forth in paragraph 3 the Series F Preference Shares into a further series of Preference Shares, in which event the holder may revoke his retraction in respect of all or part of his Series F Preference Shares by delivering a notice to that effect to the transfer agent at the office where his Series F Preference Shares were deposited on or before five business days prior to the Series F Retraction Date. 2.4 Subject as provided below, the Corporation shall on the Series F Retraction Date purchase all Series F Preference Shares in respect of which holders shall have duly exercised the Retraction Privilege. Payment of the purchase price shall be made by cheque payable at par at any branch or branches of a bank or banks in Canada selected by the Corporation and mailed to such holders. Upon payment of the Series F Retraction Price for the Series F Preference Shares so purchased, the Series F Preference Shares purchased shall cease to be entitled to dividends or any other participation in the assets of the Corporation and the holders shall not be entitled to exercise any of the rights of shareholders in respect thereof. If prior to the giving of the Retraction Notice, the Corporation determines that it will not be permitted under paragraph 4 to purchase all the Series F Preference Shares then outstanding, the Corporation shall include in the Retraction Notice a statement of the maximum number of Series F Preference Shares which it then believes it will be permitted to purchase on the Series F Retraction Date and, provided that the Corporation has acted in good faith in making such determination, the Corporation shall have no liability in the event that such determination proves inaccurate. If the purchase by the Corporation of all Series F Preference Shares in respect of which the holders thereof have exercised their rights under the Retraction Privilege would not be permitted under paragraph 4, the maximum sum of money that may be applied to such purchase shall be rounded to the next lower multiple of $1,000 and the shares to be purchased shall be selected pro rata, disregarding fractions. 2.5 If because of the application of paragraph 4 the Corporation fails to purchase all of the Series F Preference Shares in respect of which the holders thereof have exercised the Retraction Privilege, thereafter the Corporation shall be required to purchase pro rata on each succeeding dividend payment date on the basis set forth in paragraph 2.4 such further number of such shares as it is permitted to purchase until all shares required to be purchased have been purchased. Notwithstanding the foregoing, if at any date the Corporation is obliged to purchase any Series F Preference Shares pursuant to this paragraph 2.5 but cannot purchase all such shares without being in breach of the provisions of paragraph 4 and the maximum number of such shares it can then so purchase is less than 1,000 it need not purchase any such shares. 3. Conversion into Further Series The Series F Preference Shares shall be convertible into shares of one or more series of Preference Shares upon the amendment of the Articles of the Corporation or the enactment of a resolution by the Board of Directors setting out the terms and conditions of such conversion and the time or times during which such conversion shall be effected. 4. Purchase Restrictions The Corporation shall not be obliged to purchase any Series F Preference Shares under paragraph 2 to the extent that such purchase: i) would be contrary to any applicable law; or 53 ii) would constitute a breach by the Corporation of the rights, privileges, restrictions and conditions attaching to the 1975 Series Preferred Shares. 5. Redemption The Series F Preference Shares shall not be redeemable before March 31, 1992, but shall be redeemable on or after that date at the option of the Corporation on at least 30 days' notice prior to the date fixed for redemption in whole at any time or in part from time to time on payment of the $25.00 per share together with all accrued and unpaid dividends to and excluding the date fixed for redemption. In case a part only of the Series F Preference Shares is to be redeemed, the shares to be so redeemed shall be selected by lot in such manner as the Board of Directors shall by resolution determine. 6. Purchase for cancellation The Corporation shall have the right at its option at any time and from time to time to purchase for cancellation the whole or any part of the Series F Preference Shares, at a price per share not exceeding $25.00 plus accrued and unpaid dividends to and excluding the date of purchase and costs of purchase. 7. Creation or Issue of Additional Shares So long as any of the Series F Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series F Preference Shares given as hereinafter specified, create or issue any shares ranking prior to or on a parity with the Series F Preference Shares with respect to return of capital or payment of dividends, provided that the Corporation may without such approval, if all dividends then payable on the Series F Preference Shares shall have been declared and paid or set apart for payment: i) issue additional series of Preference Shares; and ii) create additional series of First Preferred Shares to be issued upon the exercise of a right of conversion which may hereafter be attached to the 1975 Series Preferred Shares provided that the date of retraction at the option of the holder attached to such additional series shall not be earlier than the Series F Retraction Date. 8. Restriction on Dividends, Retirement of Shares and Certain Investments 8.1 So long as any of the Series F Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series F Preference Shares given as hereinafter specified, declare any dividends on any class of its Common Shares (other than dividends payable solely in such shares) to, or make any payment on account of the purchase, redemption or other retirement of any shares of any class to, or make any distribution in respect thereof to, or make or permit any Subsidiary to make any Investment in, or permit to exist any Extended Short-Term Investment in, the Parent Corporation or any subsidiary thereof (other than the Corporation or a Subsidiary) either directly or indirectly, unless any such dividends are declared to be payable not more than 120 days after the day of declaration, and unless (a) all dividends then payable on the Series F Preference Shares shall have been declared and paid or set apart for payment and (b) after giving effect to such proposed dividend or other payment or distribution or Investment and the application of the proceeds thereof and to any other dividends declared but not yet paid, at the Computation Date, the sum of: (i) $350,000,000 in United States currency plus (or minus in the case of a deficit), 54 (ii) the Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to the Computation Date, plus (iii) the aggregate amount of the net cash proceeds to the Corporation from sales subsequent to December 31, 1981 of shares of its capital stock, shall be greater than the sum of the aggregate amount of all such dividends and all such other payments and distributions declared or made during the period commencing January 1, 1982 to and including the Computation Date, plus the Net Amount of Investments outstanding on such date, provided however that with regard to the foregoing restrictions of this paragraph 8.1, the Corporation may purchase, redeem or retire any shares of any class by exchange for or out of the proceeds of the substantially concurrent sale of other shares ranking either (1) junior to the Series F Preference Shares, or (2) equally with or junior to the shares being purchased, redeemed or retired and neither any such purchase, redemption or retirement nor any such proceeds shall be included in any computation provided for in this paragraph 8.1. For the purposes of this paragraph 8.1 all sums shall be determined in United States currency. As used in this paragraph 8.1, the following terms shall have the meanings set forth below: "Computation Date" shall mean (i) in the case of a dividend, the date of the declaration thereof, (ii) in the case of any payment on account of the purchase, redemption, or retirement of, or any distribution with respect to, shares, or any Investment, the date of the making thereof and (iii) in the case of Extended Short-Term Investment, any date. "Consolidated Net Income" shall mean the Net Income of the Corporation and its Subsidiaries, all consolidated in accordance with generally accepted accounting principles. The Consolidated Net Income of the Corporation and its Subsidiaries computed for the period commencing January 1, 1982 to and including a date not more than 135 days prior to any Computation Date shall conclusively be deemed to be that shown by an interim statement of the Consolidated Net Income of the Corporation and its Subsidiaries for such period prepared by the Corporation. "Investment" shall mean all loans, advances and capital contributions in cash to any Person, and all cash payments in respect of the purchase from any Person of evidences of indebtedness, capital stock or other securities of such Person, but shall not include any Short-Term Investment. "Short-Term Investment" shall mean all Investments repayable on demand or within one year from the making thereof. "Net Amount of Short-Term Investment" outstanding on any day shall mean all Short-Term Investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Short-Term Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day. "Net Amount of Investment" outstanding on any day shall mean all investments by the Corporation or any Subsidiary in the Parent Corporation or any subsidiary thereof (other than a Subsidiary), less the aggregate amount of all cash received by the Corporation or any Subsidiary, as payments of principal or premium, returns of capital, liquidation dividends or distributions, proceeds of sale or other dispositions, or otherwise, in respect of such Investments (except to the extent any such cash has been included in the Consolidated Net Income of the Corporation and its Subsidiaries), during the period commencing January 1, 1982 to and including such day, provided however, that Net Amount of Investment shall include 55 Extended Short-Term Investment. "Extended Short-Term Investment" shall mean the highest Net Amount of Short-Term Investment outstanding during any period of 30 consecutive days within the 12 months preceding the date of determination, such 30-day period to be selected by the Corporation. "Net Income" of any corporation for any period shall mean the net income (or net deficit) of such corporation for such period, determined in accordance with generally accepted accounting principles. "Parent Corporation" shall mean any corporation which owns together with its subsidiaries, at least a majority of the outstanding Voting Stock of the Corporation. "Person" shall mean any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Stock" shall include any and all shares, interests, participations or other equivalents (however designated) of corporate stock, and the term "Voting Stock", as applied to the stock of any corporation, shall mean Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Stock having such power only by reason of the happening of a contingency. "subsidiary" shall mean any corporation at least a majority of whose outstanding Voting Stocks shall at the time be owned by another corporation or by one or more subsidiaries of such other corporation or by such other corporation and one or more subsidiaries thereof. "Subsidiary" shall mean a subsidiary of the Corporation. 8.2 So long as any of the Series F Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series F Preference Shares given as hereinafter specified: (i) pay any dividends (other than stock dividends) or make any other distributions on any shares of the Corporation ranking junior to the Series F Preference Shares with respect to payment of dividends or return of capital, or (ii) retire for value any shares of the Corporation ranking junior to the Series F Preference Shares with respect to payment of dividends or return of capital, or (iii) except in connection with the exercise of the Retraction Privilege attaching thereto, retire less than all the Series F Preference Shares, unless all dividends then payable on the Series F Preference Shares shall have been declared and paid or set apart for payment. 9. Voting Rights 9.1 The holders of the Series F Preference Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay in the aggregate six quarterly dividends on the Series F Preference Shares on the dividend payment dates whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the Series F Preference Shares remain in arrears, the holders of the Series F Preference Shares shall be entitled to receive notice of and to attend, but not to vote at, all meetings of shareholders of the Corporation and shall be entitled on any election of Directors, together with holders of shares of all other series of Preference Shares having the right to vote in similar circumstances, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation. Each holder of Preference Shares entitled to so vote shall be 56 entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. 9.2 Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of Series F Preference Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at least one-tenth of the outstanding Series F Preference Shares. In default of the calling of such general meeting by the Secretary within 15 days after the meeting of such request, such meeting may be called by any holder of record of Series F Preference Shares. 9.3 Any Vacancy occurring among members of the Board elected by the holders of Preference Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of Preference Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding Series F Preference Shares shall have the right to require the Secretary, of the Corporation to call a meeting of the holders of Preference Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of paragraph 9.2 shall apply with respect to the calling of any such meeting. 9.4 Notwithstanding anything contained in the by-laws of the Corporation upon any termination of the said right to elect Directors, the term of office of the Directors elected or appointed to represent the holders of Preference Shares exclusively shall forthwith terminate. 10. Rights on Liquidation In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the Series F Preference Shares shall be entitled to receive the sum of $25.00 per share together with all accrued and unpaid dividends up to and excluding the date of distribution, before any amount shall be paid to, or any property or assets of the Corporation distributed among, the holders of any shares of the Corporation ranking junior to the Series F Preference Shares. After payment to the holders of the Series F Preference Shares of the amounts so payable to them, they shall not be entitled to share in any further distribution of the property or assets of the Corporation. 11. Amendments The rights, privileges, restrictions and conditions attaching to the Series F Preference Shares may be repealed or amended in whole or in part but only with the approval of the holders of the Series F Preference Shares, given as hereinafter specified; provided, however, that the Directors of the Corporation may at any time or from time to time, without such shareholder approval, but subject to the provisions of any applicable law, attach the right, exercisable at the option of the holder, to convert on such terms and conditions and in such manner as the Directors shall determine each Series F Preference Share into a Preference Share of another series. 57 12. Approvals 12.1 The approval of the holders of the Series F Preference Shares as to any and all matters hereinbefore referred to may be given in writing by all the holders of the outstanding Series F Preference Shares or by resolution passed or by-law sanctioned at a meeting of holders of Series F Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding Series F Preference Shares are present or represented by proxy and carried by not less than two-thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding Series F Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting the holders of Series F Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the Series F Preference Shares referred to above. 12.2 Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of Series F Preference Shares, shall not invalidate any action taken at any meeting. 12.3 The formalities to be observed with respect to the giving of notice of any meeting of holders of Series F Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 13. Notices Any notice required to be given under the provisions attaching to the Series F Preference Shares to the holders thereof shall be given by posting the same in a postage-paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon. In the event of a threatened or actual disruption in the mail service, notice as aforesaid shall be given to registered holders of Series F Preference Shares by advertisement twice in successive weeks in a newspaper published or distributed in the place where the Corporation has its registered office and in each place in Canada where the Corporation has a transfer agent for the Series F Preference Shares or where a transfer of Series F Preference Shares may be recorded. Publication in each week in agent for the Series F Preference Shares or where a transfer each newspaper shall be made within a period of seven days of publication in each other newspaper. Any notice given by mail shall be deemed to be given on the day on which it is mailed. Any notice given by publication shall be deemed to be given on the day on which the first publication is completed in all of the cities in which publication is required. 58 PART B . 7 PROVISIONS OF THE NINTH SERIES OF PREFERENCE SHARES CONSISTING OF 300 FLOATING RATE CUMULATIVE REDEEMABLE PREFERENCE SHARES, SERIES G (hereinafter referred to as "Series G Preference Shares") The Series G Preference Shares shall, in addition to the rights, privileges, restrictions and conditions attaching to the Preference Shares as a class, have the following rights, privileges, restrictions and conditions: 1. Issue Price The Series G Preference Shares will have an issue price of U.S. $500,000 each. 2. Dividends The holders of the Series G Preference Shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the Board of Directors of the Corporation, cumulative preferential cash dividends payable in U.S. currency as set forth below: (i) An initial dividend in respect of the Initial Dividend Period, payable on August 20, 1992 in an amount per Series G Preference Share determined by applying to the U.S. $500,000 issue price per share the Annual Dividend Rate multiplied by the number of days in the Initial Dividend Period, all divided by 360; (ii) Quarterly dividends in respect of each Dividend Period falling within the Initial Term, payable on the Dividend Payment Date immediately following the end of such Dividend Period, in an amount per Series G Preference Share determined by applying to the U.S. $500,000 issue price per share the Annual Dividend Rate applicable to the Dividend Period preceding the Dividend Payment Date for which the determination is being made multiplied by the number of days in the Dividend Period, all divided by 360; (iii) After the expiry of the Initial Term, quarterly dividends in respect of each Dividend Period falling within a Corporation Determined Term, payable on the Dividend Payment Date immediately following the end of such Dividend Period, in an amount per Series G Preference Share determined by applying to the U.S. S500,000 issue price per share the Corporation Determined Dividend Rate for such Dividend Period determined in accordance with Schedule I hereof multiplied by the number of days in the Dividend Period, all divided by 360; (iv) After the expiry of the Initial Term, quarterly dividends in respect of each Dividend Period falling within a Dealer Determined Term, payable on the Dividend Payment Date immediately following the end of such Dividend Period, in an amount per Series G Preference Share determined by applying to the U.S. S500,000 issue price per share the Dealer Determined Dividend Rate for such Dividend Period determined in accordance with Schedule II hereof multiplied by the number of days in the Dividend Period, all divided by 360; (v) After the expiry of the Initial Term, quarterly dividends in respect of each Auction Dividend Period, payable on the Auction Dividend Payment Date immediately following the end of such Auction Dividend Period, in an amount per Series G Preference Share determined by applying to the U.S. S500,000 issue price per share the Auction 59 Dividend Rate for such Auction Dividend Period determined in accordance with Schedule III multiplied by the number of days in the Auction Dividend Period, all divided by 360. The record date for the payment of dividends will be the fifth day preceding the applicable Dividend Payment Date and, in respect of any Auction Dividend Payment Date, the day preceding the Auction Date. In any case where a dividend is payable for a period that ends on a date ("reference date") other than the last day of a Dividend Period or Auction Dividend Period, as the case may be, the amount of such dividend shall be determined by applying to U.S. $500,000 the dividend rate applicable to such Dividend Period or Auction Dividend Period preceding the reference date multiplied by the number of days in such reduced period preceding the reference date and excluding the reference date, all divided by 360. The provisions of Schedule I hereto with respect to the fixing of a Corporation Determined Dividend Rate for a Corporation Determined Term may be initiated by the Corporation, not earlier than 60 days and not later than 45 days before the expiry of the Initial Term and, thereafter, may be used by the Corporation from time to time during a Corporation Determined Term or a Dealer Determined Term or any Auction Dividend Period, as the case may be, provided that, in such circumstances, such provisions are initiated not earlier than 60 days and not later than 45 days before the expiry of the then current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be. The provisions of Schedule II hereto with respect to solicitation of Dealer Offers for the purpose of fixing a Dealer Determined Dividend Rate for a Dealer Determined Term may be initiated by the Corporation, unless at any such time a Corporation Determined Dividend Rate has been accepted in accordance with the provisions of Schedule I, not earlier than 30 days and not later than 25 days before the expiry of the Initial Term and, thereafter, may be used by the Corporation from time to time during a Corporation Determined Term, a Dealer Term or any Auction Dividend Period, as the case may be, provided that in such circumstances, such provisions are initiated not earlier than 30 days and not later than 25 days before the expiry of such Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be. The provisions of Schedule III hereto shall apply from and after the end of the Initial Term and from and after the end of any Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, unless at any such time a Corporation Determined Dividend Rate for a Corporation Determined Term has been accepted and fully implemented in accordance with the provisions of Schedule I hereto or a Dealer Determined Dividend Rate for a Dealer Determined Term has been accepted in accordance with the provisions of Schedule II hereto and the provisions of paragraph 2(7) of Schedule II hereto are fully implemented in accordance with the terms of that paragraph. Any defined terms in the Articles relating to the Series G Preference Shares including the Schedules thereto shall have the meaning ascribed thereto throughout such Articles and Schedules. "accrued and unpaid dividends" means an amount computed at the applicable rates as though dividends had been accruing on a day-to-day basis from and including the date of issue to and excluding the date to which the computation of accrued dividends is to be made, after deducting all dividend payments made; "Annual Dividend Rate" means 60% of LIBOR plus 2.25% per annum; "Auction" means the periodic operation of the procedures set forth in Schedule III hereto; 60 "Auction Date" means the last Tuesday of any Dividend Period or any Auction Dividend Period which Tuesday is at least two Business Days prior to the 20th of February, May, August or November, as the case may be, or if such Tuesday is not a Business Day, the next preceding Business Day, regardless of whether an Auction is in fact conducted; "Auction Dividend Period" means the period from and including a Settlement Date to but excluding the next succeeding Settlement Date except for the first Auction Dividend Period following a Dividend Period in which case "Auction Dividend Period" shall mean the period from and including the Dividend Payment Date for and immediately following such Dividend Period to and excluding the Settlement Date immediately following the Auction Date occurring during the Auction Dividend Period; "Auction Dividend Payment Date" means the first Business Day following the Settlement Date; "Business Day" means a day on which all of The Montreal Exchange and The Toronto Stock Exchange or any successor facilities and the Auction Manager, if and when appointed, are open for business; "Corporation Determined Term" has the meaning ascribed to that term in Schedule I hereto; "Dealer Determined Term" has the meaning ascribed to that term in Schedule II hereto; "Dividend Payment Date" means the 20th day of February, May, August and November in each year; "Dividend Period" means the period from and including each Dividend Payment Date to but excluding the next succeeding Dividend Payment Date except for the first Dividend Period following an Auction Dividend Period in which case "Dividend Period" shall mean the period from and including the Settlement Date immediately following such Auction Dividend Period to but excluding the next succeeding Dividend Payment Date which falls at least three calendar months after the said Settlement Date; "Initial Dividend Period" means the period from and including the date of issue of a Series G Preference Share to but excluding August 20, 1992; "Initial Term" means the period from the date of issue of the Series G Preference Shares to but excluding August 20, 1995; "LIBOR" in respect of the Initial Dividend Period, a Dividend Period or Auction Dividend Period means the rate for U.S. LIBOR which appears on page 3750 of Telerate at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of the Initial Dividend Period, a Dividend Period or an Auction Dividend Period, as the case may be, for a period substantially equal to that of such dividend period and for an amount substantially equal to the aggregate issue price of the total outstanding Series G Preference Shares or if no such rate is available the average (rounded upward to the nearest 1/16th percent as necessary) of the respective annual interest rates quoted by the principal London branches of two prime banks, designated by the Corporation, as being that at which each such bank is offering deposits in U.S. dollars to prime banks in the London Inter Bank Market at approximately 11:00 a.m. (London time) two business days prior to the commencement of the Initial Dividend Period, a Dividend Period or an Auction Dividend Period, as the case may be, for a period substantially equal to that of such dividend period and for an amount substantially equal to the aggregate issue price of the total outstanding Series G Preference Shares; and "Settlement Date" means the Business Day immediately following the Auction Date. 61 3. Redemption The Series G Preference Shares shall not be redeemable before August 20, 1995, but thereafter shall be redeemable on August 20, 1995, or any Dividend Payment Date following a Corporation Determined Term or a Dealer Determined Term or on any Settlement Date following an Auction Dividend Period during which the procedures set out in Schedule III hereto have been implemented at the option of the Corporation on at least 30 days' notice before the date fixed for redemption in whole at any time or in part from time to time on payment for each share held of an amount of U.S. $500,000 per share together with all accrued and unpaid dividends thereon up to and excluding the date of such redemption (which for such purpose shall be calculated as provided in paragraph 2 hereof). In case a part only of the Series G Preference Shares is to be redeemed, the shares to be redeemed shall be selected by lot in such manner as the Board of Directors shall by resolution determine. 4. Conversion into Common Shares at Option of the Holder 4.1 A holder of Series G Preference Shares shall have the privilege ("Conversion Privilege") of converting all or any of the holder's Series G Preference Shares on May 21, 2002 into that number of Common Shares of the Corporation determined by dividing the aggregate issue price of the Series G Preference shares surrendered for conversion, together with all accrued and unpaid dividends thereon to and excluding May 21, 2002, by the greater of (i) 95% of the weighted average trading price of such Common Shares of the Corporation reported as New York Stock Exchange-Consolidated Trading, for the 20 trading days ending two trading days prior to May 21, 2002 adjusted as necessary for (a) any subdivision, consolidation or reclassification of the Common Shares of the Corporation, (b) any distribution, payment or dividend, any of which is capital or extraordinary, on or in respect of the outstanding Common Shares of the Corporation or (c) any amalgamation, reorganization or merger, occurring during the period from the first of such trading days to and including May 21, 2002 and (ii) U.S. $l. Only whole Common Shares of the Corporation will be issued and the Corporation shall pay, in U.S. dollars, to or to the order of a holder, a cash amount equal to the value of any fraction of a Common Share of the Corporation calculated in accordance with the same formula. 4.2 Not more than 120 days and not less than 90 days prior to May 21, 2002 the Corporation shall give to each person who is then a registered holder of Series G Preference Shares a written notice of such person's right to exercise the Conversion Privilege on May 21, 2002. 4.3 A holder of Series G Preference Shares desiring to exercise the Conversion Privilege shall, not more than 90 days and not less than 60 days prior to May 21, 2002, complete the conversion panel on the certificate(s) representing the Series G Preference Shares to be converted by specifying the number of Series G Preference Shares which he desires to be converted and depositing such certificate(s) with the transfer agent and registrar of the Corporation for the Series G Preference Shares at any office where transfers of Series G Preference Shares may be registered. Such deposit shall be irrevocable unless the Corporation otherwise agrees. 4.4 The Corporation may by notice, given not later than 23 Business Days prior to May 21, 2002, to all holders who have given a conversion notice either (i) redeem on May 21, 2002 all or a portion of the Series G Preference Shares forming the subject matter of the applicable conversion notices; or (ii) cause the holders of such Series G Preference Shares to sell on May 21, 2002 all or a portion of such Series G Preference Shares to another purchaser or purchasers. Any such redemption or purchase shall be made by the payment of an amount of U.S. $500,000 per/share, together with all accrued and unpaid dividends thereon to and excluding May 21, 2002. The Series G Preference Shares to be so redeemed or purchased shall not be converted on May 21, 2002. 62 5. Creation or Issue of Additional Shares So long as any of the Series G Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series G Preference Shares given as hereinafter specified, create or issue any shares ranking prior to or on a parity with the Series G Preference Shares with respect to return of capital or payment of dividends, provided that the Corporation may without such approval issue additional series of Preference Shares, if all dividends then payable on the Series G Preference Shares shall have been declared and paid or set apart for payment. 6. Restrictions on Dividends and Retirement of Shares 6.1 So long as any of the Series G Preference Shares are outstanding, the Corporation shall not, without the prior approval of the holders of the Series G Preference Shares given as hereinafter specified: (i) pay any dividends (other than stock dividends) or make any distributions on any shares of the Corporation ranking junior to the Series G Preference Shares with respect to payment of dividends or return of capital, or (ii) retire for value any shares of the corporation ranking junior to the Series G Preference Shares with respect to payment of dividends or return of capital, or (iii) retire less than all the Series G Preference Shares, unless all dividends then payable on the Series G Preference Shares shall have been declared and paid or set apart for payment. 7. Voting Rights 7.1 The holders of the Series G Preference Shares shall not be entitled as such (except as hereinafter specifically provided) to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting unless and until the Corporation from time to time shall fail to pay in the aggregate, six quarterly dividends on the Series G Preference Shares on a Dividend Payment Date or Auction Dividend Payment Date whether or not consecutive and whether or not such dividends have been declared and whether or not there are any moneys of the Corporation properly applicable to the payment of dividends. Thereafter, but only so long as any dividends on the Series G Preference Shares remain in arrears, the holders of the Series G Preference Shares shall be entitled to receive notice of and to attend, but not to vote at, all meetings of shareholders of the Corporation and shall be entitled on any election of Directors, together with holders of shares of all other series of Preference Shares having the right to vote in similar circumstances, voting separately and exclusively as a class, to elect two members of the Board of Directors of the Corporation, provided that in the event that there are fewer than three other members of the Board of Directors, the holders of the Series G Preference Shares shall not be entitled to vote in any such election. Each holder of Preference Shares entitled to so vote shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. Nothing herein contained shall be deemed to limit the right of the Corporation from time to time to increase or decrease the number of its Directors. 7.2 Notwithstanding anything contained in the by-laws of the Corporation, the term of office of all persons who may be Directors of the Corporation at any time when the right to elect Directors shall accrue to the holders of Series G Preference Shares as herein provided, or who may be appointed as Directors thereafter and before a meeting of shareholders shall have been held, shall terminate upon the election of Directors at the next annual meeting of shareholders or at an earlier general meeting of shareholders which may be held for the purpose of electing Directors and which shall be called by the Secretary of the Corporation upon the written request of the holders of record of at least one-tenth of the outstanding Series G Preference Shares. In default of the calling of such general meeting by the Secretary within 15 days after the making of such request, such meeting may be called by any holder of record of Series G Preference Shares. 63 7.3 Any vacancy occurring among members of the Board elected by the holders of Preference Shares may be filled by the Board of Directors with the consent and approval of the remaining Director elected by the holders of Preference Shares. Whether or not such vacancy is so filled by the Board, the holders of record of at least one-tenth of the outstanding Series G Preference Shares shall have the right to require the Secretary of the Corporation to call a meeting of the holders of Preference Shares for the purpose of filling the vacancy or replacing any person elected or appointed by the Board of Directors to fill such vacancy and the provisions of paragraph 7.2 shall apply with respect to the calling of any such meeting. 7.4 Notwithstanding anything contained in the by-laws of the Corporation upon any termination of the said right to elect Directors, the term of office of the Directors elected or appointed to represent the holders of Preference Shares exclusively shall forthwith terminate. 8. Rights on Liquidation In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the Series G Preference Shares shall be entitled to receive the sum of U.S. S500,000 per share together with all accrued and unpaid dividends thereon up to and excluding the date of distribution, (which for such purpose shall be calculated as provided in paragraph 2 hereof) before any amount shall be paid to, or any property or assets of the Corporation distributed among, the holders of any shares of the Corporation ranking junior to the Series G Preference Shares. After payment to the holders of the Series G Preference Shares of the amounts so payable to them, they shall not be entitled to share in any further distributions of the property or assets of the Corporation. 9. Amendments The rights, privileges, restrictions and conditions attaching to the Series G Preference Shares may be repealed or amended in whole or in part but only with the approval of the holders of the Series G Preference Shares, given as hereinafter specified; provided, however, that the Directors of the Corporation may at any time or from time to time, without such shareholder approval, but subject to the provisions of any applicable law, attach the right, exercisable at the option of the holder, to convert on such terms and conditions and in such manner as the Directors shall determine each Series G Preference Share into a Preference Share of another series provided that any such right shall not permit the conversion of the Series G Preference Shares into "Short-Term Preferred Shares" or "Term Preferred Shares" within the meaning of the Income Tax Act (Canada). 10. Approvals 10.1 The approval of the holders of the Series G Preference Shares as to any and all matters hereinbefore referred to or any other matter requiring the consent of the holders of the Series G Preference Shares may be given in writing by all the holders of the outstanding Series G Preference Shares or by resolution passed or by-law sanctioned at a meeting of holders of Series G Preference Shares duly called for the purpose and held upon at least 21 days' notice at which the holders of at least 50% of the outstanding Series G Preference Shares are present or represented by proxy and carried by not less than two-thirds of the votes cast on a poll at such meeting. If at any such meeting the holders of 50% of the outstanding Series G Preference Shares are not present or represented by proxy within half an hour after the time appointed for the meeting, then the meeting shall be adjourned to such date being not less than 15 days later and to such time and place as may be appointed by the shareholders present and at least ten days' notice shall be given of such 64 adjourned meeting, but it shall not be necessary in such notice to specify the purpose for which the meeting was originally called. At such adjourned meeting the holders of Series G Preference Shares present or represented by proxy may transact the business for which the meeting was originally convened, and a resolution passed thereat by not less than two-thirds of the votes cast on a poll at such adjourned meeting shall constitute the approval of the holders of the Series G Preference Shares referred to above. Each holder of Preference Shares entitled to so vote shall be entitled to one vote in respect of each dollar of issue price of Preference Shares held by him whether such issue price is in Canadian or United States currency. 10.2 Irregularities in the notice or in the giving thereof as well as the accidental omission to give notice of any meeting to, or the non-receipt of any notice by, any holder of Series G Preference Shares, shall not invalidate any action taken at any meeting. 10.3 The formalities to be observed with respect to the giving of notice of any meeting of holders of the Series G Preference Shares and the conduct thereof shall be those from time to time prescribed in the by-laws of the Corporation with respect to meetings of shareholders. 11. Notices Any notice required to be given under the provisions attached to the Series G Preference Shares to the holders hereof shall be in writing and shall be sufficiently given if delivered, sent by telecopier or by posting the same in a postage-paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon but, upon such failure or omission being discovered, the notice or other communication, as the case may be, shall be given forthwith to such holder or holders. In the event of a threatened or actual disruption in the mail service, notice as aforesaid shall be given to registered holders of Series G Preference Shares by delivery or by telecopier or by means of publication twice in successive weeks in a daily newspaper of general circulation in each of the cities of Montreal and Toronto. Publication in each week in each newspaper shall be made within a period of seven days of publication in each other newspaper. If at any time any notice is required under the provisions of this paragraph 11 to be published in a particular city and no newspaper of general circulation is then being published and circulated on a daily basis in that city, the Corporation shall not be required to publish in that city. Any notice given by mail shall be deemed to be given on the day on which it is mailed except notices given pursuant to Schedule I and Schedule 11 hereto in which case notice shall be deemed to have been given two Business Days after the day on which it is mailed. Notice given by telecopier shall be deemed to have been given on the day on which it is sent. Any notice given by publication shall be deemed to be given on the day on which the first publication is completed in all of the cities in which publication is required. All notices or other communications relating to the auction procedures set forth in Schedule III hereto shall be sent by telecopy or delivered. 12. Tax Election The Corporation shall make the election provided under sub-section 191.2(1) of the Income Tax Act (Canada) or any successor or replacement provision of similar effect in the manner described therein and within the time provided by paragraph (a) thereof, and take all other necessary action under such Act such that no holder of the Series G Preference Shares will be required to pay tax, on dividends received on the Series G Preference Shares, under section 187.2 of Part IV.1 of such Act or any successor or replacement provision of similar effect. 65 SCHEDULE I CORPORATION DETERMINED RATE PROCEDURES 1. Definitions "Corporation Determined Percentage" means a percentage of LIBOR to be selected by the Corporation and to be set forth in the notice referred to in paragraph 2 of this Schedule I; "Corporation Determined Dividend Rate" means the annual dividend rate specified by the Corporation in its notice pursuant to paragraph 2 of this Schedule I, which shall be one of: (i) The Corporation Determined Percentage of LIBOR for the Dividend Period for which such determination is being made, or (ii) a fixed annual percentage rate; "Corporation Determined Term" means a term, selected by the Corporation, consisting of one or more consecutive Dividend Periods commencing on a Dividend Payment Date or a Settlement Date on or after the expiry of the Initial Term and terminating on the last day of the last Dividend Period selected by the Corporation, to which the provisions of this Schedule I shall apply for the purpose of determining the dividend to be paid on each Dividend Payment Date relating to such term, provided that such term and the dividend rate applicable thereto have been approved by the holders of the Series G Preference Shares in accordance with paragraph 2 of this Schedule I. 2. Determination of New Dividend Rate At least 45 and not more than 60 days before the expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation may notify the holders of the Series G Preference Shares of a proposed Corporation Determined Dividend Rate for a proposed Corporation Determined Term. Such notification to such holders shall also: (a) specify a date by which each holder must notify the Corporation in writing of its acceptance of the proposed Corporation Determined Dividend Rate and the Corporation Determined Term, if such holder intends to accept such terms, which date shall be at least 35 days before the expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be; and (b) specify that the proposed Corporation Determined Dividend Rate and proposed Corporation Determined Term shall become effective for the purposes of determining the dividends to be paid on the Dividend Payment Dates for Dividend Periods during such proposed Corporation Determined Term only if all of the holders of Series G Preference Shares accept such terms. 3. Acceptance of Corporation Determined Dividend Rate If, (a) by the time prescribed in paragraph 2(a) of this Schedule I, all of the holders of the Series G Preference Shares have accepted the Corporation Determined Dividend Rate and the Corporation Determined Term as evidenced by notice in writing to the Corporation, and (b) at least 30 days before the expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation has notified all of such holders that each of them has agreed with the Corporation on such terms; 66 such Corporation Determined Dividend Rate and Corporation Determined Term shall apply for the purposes of determining the dividend to be paid to the holders of Series G Preference Shares, from time to time, on each of the Series G Preference Shares on each Dividend Payment Date for Dividend Periods during such Corporation Determined Term. 67 SCHEDULE II DEALER BIDS PROCEDURES 1. Definitions "Dealer" means any registered investment dealer or other entity permitted by law to perform the functions required of a dealer in this Schedule II; "Dealer Determined Percentage" means a percentage of LIBOR to be selected by each Dealer and to be set forth in each Dealer Offer in accordance with paragraph 2 of this Schedule II; "Dealer Determined Dividend Rate" means the annual dividend rate specified by the Dealer in the Accepted Dealer Offer (as defined in sub-paragraph 2(3) of this Schedule II) which shall be one of: (i) the Dealer Determined Percentage of LIBOR for the Dividend Period for which such determination is being made, or (ii) a fixed annual percentage rate; "Dealer Determined Term" means a term, selected by a Dealer, consisting of one or more consecutive Dividend Periods commencing on a Dividend Payment Date or Settlement Date on or after the expiry of the Initial Term and terminating on the last day of the Last Dividend Period selected by such Dealer, to which the provisions of this Schedule II shall apply for the purpose of determining the dividend to be paid on each Dividend Payment Date relating to such term; "Dealer Offer" means a written irrevocable and unconditional offer from a Dealer in response to a Notice Requesting Bids to purchase all of the Series G Preference Shares on the day of expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or on the Settlement Date immediately following the expiry of the then current Auction Dividend Period, as the case may be, at a purchase price per Series G Preference Share equal to U.S. $500,000 (except in the ease of a purchase on the Settlement Date immediately following the expiry of the then current Auction Dividend Period, less an amount that is calculated by (i) multiplying U.S. $500,000 by the applicable annual rate at which dividends are accruing on the Series G Preference Shares for the Dividend Period ending on the date of purchase and (ii) multiplying the product thereof by a fraction of which the numerator is that number of days from and including the date of purchase to and excluding the Dividend Payment Date and the denominator is 360) and containing the information specified in sub-paragraph 2(2) of this Schedule II; "Dealer Response Date" has the meaning ascribed thereto in sub-paragraph 2(1) of this Schedule II; "Notice Requesting Bids" means a notice from the Corporation to one or more Dealers requesting them to submit Dealer Offers as provided for in sub-paragraph 2(1) of this Schedule II; and "Notification to Holders" means the notification from the Corporation to holders of Series G Preference Shares of the acceptance of a Dealer Offer as provided for in sub-paragraph 2(4) of this Schedule II. 2. Bids by Dealers (1) At least 25 and not more than 30 days before expiry of the Initial Term, the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation may solicit bids from one or more Dealers for the purchase of all of the 68 Series G Preference Shares. Such solicitation shall be contained in a notice ("Notice Requesting Bids") to be sent by the Corporation to such Dealers, which notice shall: (a) invite each Dealer to submit to the Corporation a Dealer Offer; and (b) specify a date (the "Dealer Response Date"), which shall be not more than five days after the giving of such notice, by which any such offer must be received by the Corporation. (2) Each Dealer receiving a Notice Requesting Bits may submit a Dealer Offer provided such Dealer does so by the Dealer Response Date and provided that such Dealer Offer specifies: (a) a Dealer Determined Dividend Rate (and, in connection therewith, unless a fixed annual percentage rate is specified, the Dealer Determined Percentage of LIBOR; (b) a Dealer Determined Term for which the Dealer Determined Dividend Rate referred to in sub-paragraph 2(2)(a) of this Schedule II will apply; and (c) the amount of any fee to be paid by the Corporation to the Dealer in connection with the purchase of Series G Preference Shares in the event the Dealer Offer is accepted by the Corporation. (3) If the Corporation wishes to accept a Dealer Offer, it shall signify such acceptance on or before 15 days before the expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, by notice to the Dealer whose Dealer Offer it accepts ("Accepted Dealer Offer"). The Dealer Determined Dividend Rate and Dealer Determined Term specified in the Accepted Dealer Offer shall apply for the purposes of determining the dividends to be paid to the holders of the Series G Preference Shares, from time to time, on each Dividend Payment Date for Dividend Periods during such Dealer Determined Term, provided the provisions of this Schedule II are fully implemented in accordance with the terms of this Schedule II. The Dealer whose Dealer Offer is accepted will be required to purchase all of the Series G Preference Shares not retained by the existing holders upon the expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or on the Settlement Date immediately following the current Auction Dividend Period, as the case may be, on the terms contained in the Accepted Dealer Offer. (4) Concurrently with its acceptance of a Dealer Offer, and in any event not later than 15 days before the expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation shall notify ("Notification to Holders") each existing holder of Series G Preference Shares that the Corporation has accepted a Dealer Offer. Such notification shall: (a) specify the Dealer Determined Dividend Rate to apply to the Series G Preference Shares; (b) specify the Dealer Determined Term for which the Dealer Determined Dividend Rate referred to in sub-paragraph 2(4) (a) of this Schedule II will apply; (c) notify such holders of the right of each holder either to sell all or some of the Series G Preference Shares it holds to such Dealer or to continue to hold all or some of the Series G Preference Shares it then holds; (d) notify such holders of the date (which shall be not more than 10 days nor less than six days before the expiry of the Initial Term or the then current Corporation Determined Term or Dealer Determined Term or on or before the second day before the expiry of the then current Auction Dividend Period, as the case may be) by which the Corporation must have received written notice from such holder of its decision to sell some or all of the Series G Preference Shares it holds as provided for in sub-paragraph 2(5) of this Schedule II; and 69 (e) identify the Dealer whose Dealer Offer has been accepted. (5) Upon receipt of the Notification to Holders, an existing holder of Series G preference Shares may elect to sell Series G Preference Shares in accordance with the terms specified in such Notification to Holders by notifying the Corporation at its registered office in writing, to the Corporation to the attention of the Treasurer, of such decision and the number of shares to be sold. Each holder of Series G Preference Shares who elects to sell all or a part of its holdings of Series G Preference Shares shall, together with such notice, deposit the certificate or certificates representing Series G Preference Shares which such holder desires to sell (with the transfer panel on such certificate duly completed and signed or, in the alternative, with a duly completed stock transfer power of attorney accompanying such certificate or certificates) at the registered office of the Corporation, or at any place where the Series G Preference Shares may be transferred or at any other place or places in Canada specified by the Corporation to the holders of the Series G Preference Shares in the Notification to Holders. If a holder of Series G Preference Shares wishes to sell only some of the Series G Preference Shares represented by any share certificate or certificates, the holder may deposit the certificate or certificates with the Corporation, as aforementioned, and the Corporation shall issue and deliver to such holder, at the expense of the Corporation, a new share certificate representing the Series G Preference Shares which are not being delivered for sale. Any holder of Series G Preference Shares that fails to respond to the Notification to Holders by the date specified for response therein will be deemed to have elected to continue to hold all of the Series G Preference Shares then held by it subject to the terms and conditions as to the Dealer Determined Dividend Rate and the Dealer Determined Term which are set forth in the Notification to holders. The corporation shall have all such powers and authority as may be necessary to determine finally the adequacy of all transfer instruments and related matters with respect to the sale of shares by an existing holder of the Series G Preference Shares to a Dealer hereunder. Any determination by the Corporation to the effect that any instrument of transfer is incomplete or ineffective shall bind the Holder intending to sell any of its Series G Preference Shares pursuant to the provisions of this Schedule II and shall also bind the Dealer in question. (6) At least one Business Day before the expiry of the Initial Term, or the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation shall notify the Dealer submitting the Accepted Dealer Offer of the number of shares to be purchased by such Dealer in accordance with sub-paragraph 2(7) of this Schedule II and of the identity of the vendor or vendors thereof. (7) On the day of the expiry of the Initial Term, the then current Corporation Determined Term, the Dealer Determined Term or on the Settlement Date immediately following the expiry of the then current Auction Dividend Period, as the case may be, the Dealer submitting the Accepted Dealer Offer shall purchase the Series G Preference Shares from the holders referred to in sub-paragraph 2(6) of this Schedule II at the purchase price as set out in the definition of "Dealer Offer" in paragraph I of this Schedule II. For the purposes of completing such purchase, the Dealer submitting the Accepted Dealer Offer shall deposit with the Corporation, at its registered office, on or before noon (Montreal time) on such date, a certified cheque payable to the Corporation, as agent for the vendors referred to in sub-paragraph 2(6) of this Schedule II, representing the aggregate purchase price of the Series G Preference Shares to be purchased pursuant to this sub-paragraph 2(7) together with a direction as to registration particulars with respect to such Series G Preference Shares to be purchased upon receipt of such certified cheque as aforesaid, the Corporation shall deliver to the vendor or vendors at the registered office of the Corporation cheques payable to the vendor or vendors in payment of the purchase price for such Series G Preference Shares and delivery of such cheques shall be deemed to be payment and shall satisfy and discharge all liability for such purchase price to the extent of the amount represented by such cheques, unless 70 such cheques are not paid on due presentation. In the event that the date specified for the closing of a Dealer Offer is not a Business Day, the date of closing thereof shall be the immediately preceding Business Day. 3. Termination of Application Notwithstanding the acceptance of a Dealer Offer as provided for in this Schedule II, the Corporation may notify the holders that the Corporation does not intend to proceed to implement application of the Dealer Determined Dividend Rate and Dealer Determined Term as set forth in the Notification to Holders provided that such notification is given by the Corporation to existing holders on or before the expiry of the Initial Term or the then current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be. In such circumstances, the provisions of Schedule III to the rights, privileges, restrictions and conditions attaching to the Series G Preference Shares shall be applied in accordance with such Schedule and, for greater certainty, the Dealer whose Dealer Offer has been accepted shall not be obliged to purchase any Series G Preference Shares pursuant to such Dealer Offer. Any such notification shall not limit or restrict the right of the Corporation, before the expiry of any subsequent Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, to implement the provisions of this Schedule II by forwarding a Notice Requesting Bids to one or more Dealers. 71 SCHEDULE III AUCTION PROCEDURES 1. Definitions "Auction Dividend Rate" means the rate per annum which the Auction Manager advises the Corporation has been determined in accordance with paragraph 1.3(b) of this Schedule III; "Auction Manager" means the Corporation, or a trust company registered under appropriate legislation or any successor thereto, entering into an Auction Manager Agreement with the Corporation in respect of the Series G Preference Shares; "Auction Manager Agreement" means an agreement made between the Auction Manager and the Corporation which provides, among other things, that the Auction Manager will follow the procedures set forth in this Schedule III for the purpose of determining the Auction Dividend Rate for the Series G Preference Shares as long as any of the Series G Preference Shares remain outstanding or if the Corporation is the Auction Manager an undertaking by the Corporation to follow the procedures set out therein; "Available Shares" shall have the meaning specified in sub-paragraph (i) of paragraph 1.3(a) of this Schedule III; "Bid" and "Bids" shall have the respective meanings specified in paragraph 1.1 (a) of this Schedule III; "Bidder" and "Bidders" shall have the respective meanings specified in paragraph 1.1 (a) of this Schedule III; "Dealer" means any registered investment dealer or other entity permitted by law to perform the functions required of a dealer in this Schedule III that has entered into a Dealer Agreement with the Auction Manager that remains effective; "Dealer Agreement" means an agreement between the Auction Manager and a Dealer pursuant to which the Dealer agrees to participate in Auctions in compliance with the procedures set forth in this Schedule III; "Existing Holder" means a holder of Series G Preference Shares (i) who has signed a Purchaser's Letter, (ii) who has delivered or caused to be delivered such Purchaser's Letter to the Auction Manager and to any Dealer to which such Existing Holder submits information pursuant to paragraph l.l(a) of this Schedule III and (iii) who is registered in the ledger maintained by the Auction Manager in respect of holders of Series G Preference Shares; "Hold Order" and "Hold Orders" shall have the respective meanings specified in paragraph l.l(a) of this Schedule III; "Maximum Rate" with respect to any Auction Dividend Period shall mean 60% of LIBOR plus 2.85% per annum when LIBOR is less than 5.625% per annum, and, LIBOR plus 0.60% per annum when LIBOR is equal to or greater than 5.625% per annum; "Order" and "Orders" shall have the respective meanings specified in paragraph 1.1(a) of this Schedule III; 72 "Potential Holder" means any person, including any Existing Holder, (i) who has executed a Purchaser's Letter, (ii) who has delivered or caused to be delivered such Purchaser's Letter to the Auction Manager and to any Dealer to which such Potential Holder submits information pursuant to paragraph 1.1 (a) of this Schedule III and (iii) who may be interested in acquiring Series G Preference Shares (or, in the case of an Existing Holder, additional Series G Preference Shares); "Purchaser's Letter" means a letter addressed to the Auction Manager and a Dealer in which a person agrees, among other things, to be bound by the procedures set forth in this Schedule III in the event such person participates in an Auction; "Remaining Shares" shall have the meaning specified in sub-paragraph (iv) of paragraph 1.4(a) of this Schedule III; "Sell Order" and "Sell Orders" shall have the respective meanings specified in paragraph l.l(a) of this Schedule III; "Submission Deadline" means 11:00 a.m. Montreal time, on any Auction Date or such later time on any Auction Date, as specified by the Auction Manager from time to time, by which Dealers are required to submit Orders to the Auction Manager; "Submitted Bid" and "Submitted Bids" shall have the respective meanings specified in paragraph 1.3(a) of this Schedule III; "Submitted Hold Order" and "Submitted Hold Orders" shall have the respective meanings specified in paragraph 1.3(a) of this Schedule III; "Submitted Order" and "Submitted Orders" shall have the respective meanings specified in paragraph 1.3(a) of this Schedule III; "Submitted Sell Order" and "Submitted Sell Orders" shall have the respective meanings specified in paragraph 1.3(a) of this Schedule III; "Sufficient Clearing Bids" shall have the meaning specified in paragraph 1.3(a) of this Schedule III; and "Winning Bid Rate" means the rate per annum determined in accordance with paragraph 1.3(a) of this Schedule III. 1.1 Orders by Existing Holders and Potential Holders (a) Before the Submission deadline of each Auction Date: (i) each Existing Holder may submit to a Dealer information as to the number of Series G Preference Shares, if any, held by such Existing Holder which such Existing Holder: (A) desires to continue to hold without regard to the Auction Dividend Rate for the next succeeding Auction Dividend Period; and/or (B) desires to continue to hold, provided that the Auction Dividend Rate for the next succeeding Auction Dividend Period shall not be less than the dividend rate per annum specified by such Existing Holder; and/or 73 (C) offers to sell without regard to the Auction Dividend Rate for the next succeeding Auction Dividend Period; and (ii) Potential Holders may submit to a Dealer offers to purchase Series G Preference Shares, provided that any such offer shall be effective only if the Auction Dividend Rate for the next succeeding Auction Dividend Period shall not be less than the dividend rate per annum specified by such Potential Holder. The communication to a Dealer of the information referred to in this paragraph l.l(a) is an "Order" and, collectively, are "Orders", and each Existing Holder and each Potential Holder placing an Order is a "Bidder" and, collectively, are "Bidders"; an Order containing the information referred to in sub-paragraph (i)(A) of this paragraph 1.1 (a) is a "Hold Order" and, collectively, are "Hold Orders"; an Order containing the information referred to in sub-paragraph (i) (B) or paragraph (ii) of this paragraph 1.1 (a) is a "Bid" and, collectively, are "Bids"; and an Order containing the information referred to in sub-paragraph (i) (C) of this paragraph 1.1 (a) is a "Sell Order" and, collectively, are "Sell Orders". (b) (i) A Bid by an Existing Holder shall constitute an irrevocable offer to sell at a price of U.S. $500,000 per Series G Preference Share: (A) the number of Series G Preference Shares specified in such Bid if the Winning Bid Rate determined on such Auction Date is less than the specified rate; or (B) the specified number of Series G Preference Shares or a lesser number to be determined as set forth in sub-paragraph (iv) of paragraph 1.4(a) of this Schedule III if the Winning Bid Rate determined on such Auction Date is equal to the specified rate; or (C) the number of Series G Preference Shares specified in such Bid if the specified rate is higher than the Maximum Rate and Sufficient Clearing Bids do exist; or (D) a lesser number of Series G Preference Shares to be determined as set forth in sub-paragraph (iii) of paragraph 1.4(b) of this Schedule III if the specified rate is higher than the Maximum Rate and Sufficient Clearing Bids do not exist. (ii) A Sell Order by an Existing Holder shall constitute an irrevocable offer to sell at a price of U.S. $500,000 per Series G Preference Share: (A) the number of Series G Preference Shares specified in such Sell Order provided Sufficient Clearing Bids exist; or (B) a lesser number of Series G Preference Shares to be determined as set forth in sub-paragraph (iii) of paragraph 1.4(b) of this Schedule III if Sufficient Clearing Bids do not exist. (iii) A Bid by a Potential Holder shall constitute an irrevocable offer to purchase at a price of U.S. $500,000 per Series G Preference Share: (A) the number of Series G Preference Shares specified in such Bid if the Winning Bid Rate determined on the applicable Auction Date is higher than the specified rate; or (B) the specified number or a lesser number of Series G Preference Shares to be determined as set forth in sub-paragraph (v) of paragraph 1.4(a) of this Schedule III if the Winning Bid Rate determined on such Auction Date is equal to the specified rate; or 74 (C) the specified number of Series G Preference Shares if the specified rate is equal to or lower than the Maximum Rate and Sufficient Clearing Bids do not exist. (c) A rate specified by an Existing Holder or Potential Holder in any Bid shall be a fixed annual percentage rate or a specified percentage of LIBOR. 1.2 Submission of Orders by Dealers to Auction Manager (a) Each Dealer shall submit to the Auction Manager in writing in accordance with its Dealer Agreement before the Submission Deadline on each Auction Date all Orders obtained by such Dealer and specifying with respect to each Order; (i) the name of the Bidder placing such Order; (ii) the aggregate number of Series G Preference Shares that are the subject of the Order, (iii) to the extent that the Bidder is an Existing Holder, the number of Series G Preference Shares, if any, subject to any: (A) Hold Order placed by such Existing Holder; (B) Bid placed by such Existing Holder and the rate specified in such Bid; and/or (C) Sell Order placed by such Existing Holder; and (iv) to the extent the Bidder is a Potential Holder, the rate specified in the Bid of such Potential Holder. (b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Manager shall round such rate up to the next highest one-thousandth of one percent. (c) If for any reason an Order or Orders covering in the aggregate all the Series G Preference Shares held by any Existing Holder are not submitted to the Auction Manager before the Submission Deadline, the Auction Manager shall deem a Hold Order to have been submitted on behalf of such Existing Holder covering the number of Series G Preference Shares held by such Existing Holder and not subject to Orders submitted to the Auction Manager. (d) If one or more Orders covering in the aggregate more than the number of Series G Preference Shares held by any Existing Holder are submitted to the Auction Manager, such Orders shall be considered valid as follows and in the following order of priority: (i) all Hold Orders shall be considered valid, but only up to and including, in the aggregate, the number of Series G Preference Shares held by such Existing Holder, and, solely for purposes of allocating compensation among the Dealers submitting Hold Orders, if the number of Series G Preference Shares subject to such Hold Orders exceeds the number of Series G Preference Shares held by such Existing Holder, the number of Series G Preference Shares subject to each such Hold Order shall be reduced pro rata to cover the number of Series G Preference Shares held by such Existing Holder; 75 (ii) (A) any Bid shall be considered valid, but only up to and including, in the aggregate, the excess of the number of Series G Preference Shares held by such Existing Holder over the number of Series G Preference Shares subject to any Hold Order referred to in sub-paragraph (i) of this paragraph 1.2(d), (B) subject to sub-paragraph (A) hereof, if more than one Bid with the same rate is submitted on behalf of such Existing Holder and the Number of Series G Preference Shares subject to such Bids is greater than such excess, such Bids shall be considered valid up to the amount of such excess, and, solely for purposes of allocating compensation among the Dealers submitting Bids with the same rate, the number of Series G Preference Shares subject to each Bid with the same rate shall be reduced pro rata to cover the number of Series G Preference Shares equal to such excess, (C) subject to sub-paragraph (A) hereof, if more than one Bid with different rates if submitted on behalf of such Existing Holder, such Bids shall be considered valid in the ascending order of their respective rates up to the amount of such excess, and (D) in any such event, the number, if any, of such Series G Preference Shares subject to Bids not valid under this sub-paragraph (ii) shall be treated as the subject of a Bid by a Potential Holder, and (iii) all Sell Orders shall be considered valid, but only up to and including, in the aggregate, the excess of the number of Series G Preference Shares held by such Existing Holder over the sum of the Series G Preference Shares subject to Hold Orders referred to in sub-paragraph (i) of paragraph 1.2(d) of this Schedule III and valid Bids by Existing Holders referred to in sub-paragraph (ii) of paragraph 1.2(d) of this Schedule III. (e) If more than one Bid is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid with the rate therein specified. 1.3 Determination of Sufficient Clearing Bids, Winning Bid Rate and Auction Dividend Rate (a) On the Submission Deadline on each Auction Date, the Auction Manager shall assemble all Orders submitted or deemed to it by the Dealers (each such Order as submitted or deemed submitted by a Dealer being individually a "Submitted Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or a "Submitted Order" and collectively "Submitted Hold Orders", "Submitted Bids" or "Submitted Sell Orders", as the case may be, or "Submitted Orders") and shall determine: (i) the excess of (A) the total number of Series G Preference Shares issues and outstanding held by Existing Holders over (B) the number of Series G Preference Shares that are the subject of Submitted Hold Orders (such excess being the "Available Shares"); (ii) from the Submitted Orders, whether (A) the number of Series G Preference Shares that are the subject of Submitted Bids by Potential Holders specifying one or more rates equal to or lower than the Maximum Rate; exceeds or is equal to the sum of: (B) (I) the number of Series G Preference Shares that are the subject of Submitted Bids by Existing Holders specifying one or more rates higher than the Maximum Rate; and (II) the number of Series G Preference Shares that are the subject of Submitted Sell Orders; 76 and if such excess or equality exists (other than because all of the Series G Preference Shares held by Existing Holders are the subject of Submitted Hold Orders), then such Submitted Bids in sub-paragraph (A) hereof shall be "Sufficient Clearing Bids"; and (iii) if Sufficient Clearing Bids exist, the lowest rate per annum specified in the Submitted Bids which if the Auction Manager accepted: (A) (I) each Submitted Bid from Existing Holders specifying that lowest rate, and (II) all other Submitted Bids from Existing Holders specifying lower rates, thus entitling those Existing Holders to continue to hold the Series G Preference Shares that are the subject of those Submitted Bids; and (B) (I) each Submitted Bid from Potential Holders specifying that lowest rate, and (II) all other Submitted Bits from Potential Holders specifying lower rates, thus entitling those Potential Holders to purchase the Series G Preference Shares that are the subject of those Submitted Bids, would result in such Existing Holders described in sub-paragraph (A) hereof continuing to hold an aggregate number of Series G Preference Shares which, when added to the aggregate number of Series G Preference Shares to be purchased by such Potential Holders described in sub-paragraph (B) hereof, would equal not less than the number of Available Shares. This lowest rate is the "Winning Bid Rate". (iv) Promptly after the Auction Manager has made the determinations pursuant to paragraph 1.3(a) of this Schedule III, the Auction Manager shall advise the Corporation of LIBOR and, based on such determinations, of the dividend rate applicable to the Series G Preference Shares for the next succeeding Dividend Period (the "Auction Dividend Rate") as follows: (i) if Sufficient Clearing Bids exist, that the Auction Dividend Rate for the next succeeding Auction Dividend Period shall be equal to the Winning Bid Rate so determined; (ii) if Sufficient Clearing Bids to not exist (other than because all of the Series G Preference Shares held by Existing Holders are the subject of Submitted Hold Orders or there are no Existing Holders), that the Auction Dividend Rate for the next succeeding Auction Dividend Period shall be equal to the Maximum Rate; or (iii) if all of the Series G Preference Shares held by Existing Holders are the subject of Submitted Hold Orders or there are no Existing Holders, that the Auction Dividend Rate for the next succeeding Auction Dividend Period shall be equal to 50% of LIBOR. 1.4 Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares Based on the determinations made pursuant to paragraph 1.3(a) of this Schedule III, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Manager shall take such other action as set forth below: (a) If Sufficient Clearing Bids have been made, subject to the provisions of paragraphs 1.4(c) and 1.4(d) of this Schedule III, Submitted Bids and Submitted Sell Orders shall be accepted and rejected in the following order of priority and all other Submitted Bids shall be rejected: (i) (A) the Submitted Sell Order of each Existing Holder shall be accepted and (B) the Submitted Bid of each Existing Holder specifying any rate that is higher than the Winning Bid Rate shall be rejected, thus requiring each such Existing Holder to sell the Series G Preference Shares that are the subject of such Submitted Sell Order and such Submitted Bid; 77 (ii) the Submitted Bid of each Existing Holder specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Series G Preference Shares that are the subject of such Submitted Bid; (iii) the Submitted Bid of each Potential Holder specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Potential Holder to purchase the Series G Preference Shares that are the subject of such Submitted Bid; (iv) the Submitted Bid of each Existing Holder specifying a rate that is equal to the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Series G Preference Shares that are the subject of such Submitted Bid, unless the number of Series G Preference Shares subject to all such Submitted Bids is greater than the total number of Available Shares minus the number of Series G Preference Shares subject to Submitted Bids described in sub- paragraphs (ii) and (iii) of this paragraph 1.4(a) (the "Remaining Shares"). In this event, the Submitted Bids of each such Existing Holder described in this sub-paragraph (iv) shall be rejected, and each such Existing Holder shall be required to sell Series G Preference Shares, but only in an amount equal to the difference between (A) the number of Series G Preference Shares then held by such Existing Holder subject to such Submitted Bid and (B) the number of Series G Preference Shares obtained by multiplying (x) the number of Remaining Shares by (y) a fraction, the numerator of which shall be the number of Series G Preference Shares held by such Existing Holder subject to such Submitted Bid, and the denominator of which shall be the sum of the number of Series G Preference Shares subject to such Submitted Bids made by all such Existing Holders who specified a rate equal to the Winning Bid Rate; and (v) the Submitted Bid of each Potential Holder specifying a rate that is equal to the Winning Bid Rate shall be accepted but only in an amount equal to the number of Series G Preference Shares obtained by multiplying (A) the excess, if any, of the total number of Available Shares over the number of Series G Preference Shares subject to Submitted Bids described in sub-paragraphs (ii), (iii) and (iv) of this paragraph 1.4(a) by (B) a fraction, the numerator of which shall be the number of Series G Preference Shares subject to such Submitted Bid and the denominator of which shall be the sum of the number of Series G Preference Shares subject to such Submitted Bids made by all Potential Holders who specified rates equal to the Winning Bid Rate; (b) If Sufficient Clearing Bids have not been made (other than because all of the Series G Preference Shares held by Existing Holders are subject to Submitted Hold Orders or there are no Existing Holders), subject to the provisions of paragraphs 1.4(c) and 1.4(d) of this Schedule III, Submitted Bids and Submitted Sell Orders shall be accepted or rejected in the following order of priority and all other Submitted Bids shall be rejected: (i) the Submitted Bid of each Existing Holder specifying any rate that is equal to or lower than the Maximum Rate shall be accepted, thus entitling that Existing Holder to continue to hold the Series G Preference Shares that are the subject of such Submitted Bid; (ii) the Submitted Bid of each Potential Holder specifying any rate that is equal to or lower than the Maximum Rate shall be accepted, thus requiring such Potential Holder to purchase the Series G Preference Shares that are the subject of such Submitted Bid; and 78 (iii) the Submitted Bid of each Existing Holder specifying any rate that is higher than the Maximum Rate shall be rejected and the Submitted Sell Order of each Existing Holder shall be accepted, in both cases only in an amount equal to the difference between (A) the number of Series G Preference Shares then held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and (B) the number of Series G Preference Shares obtained by multiplying (x) the difference between the total number of Available Shares and the aggregate number of Series G Preference Shares subject to Submitted Bids described in sub-paragraphs (i) and (ii) of this paragraph 1.4(b) by (y) a fraction, the numerator of which shall be the number of Series G Preference Shares held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the number of Series G Preference Shares subject to all such Submitted Bids and Submitted Sell Orders. (c) If, as a result of the procedures described in paragraphs 1.4(a) or 1.4(b) of this Schedule III, any Existing Holder would be entitled or required to sell a fraction of a Series G Preference Share on any Auction Date, the Auction Manager shall, in such manner as it shall determine in its sole discretion, round up or down the number of Series G Preference Shares to be sold by any Existing Holder on such Auction Date so that the number of shares sold by each Existing Holder shall be a whole number of Series G Preference Shares; (d) If, as a result of the procedures described in paragraphs 1.4(a) and 1.4(b) of this Schedule III, any Potential Holder would be entitled or required to purchase a fraction of a Series G Preference Share on any Auction Date, the Auction Manager shall, in such manner as it shall determine in its sole discretion, allocate shares for purchase among Potential Holders so that only whole Series G Preference Shares are purchased on such Auction Date by any Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing Series G Preference Shares on such Auction Date; and (e) Based on the results of each Auction, the Auction Manager shall determine to which Potential Holder or Potential Holders purchasing Series G Preference Shares an Existing Holder or Existing Holders shall sell Series G Preference Shares being sold by such Existing Holder or Existing Holders. Such purchases and sales of Series G Preference Shares shall be completed on the Settlement Date by payment by such Potential Holder purchasing Series G Preference Shares of the aggregate purchase price of the Series G Preference Shares to be purchased (at U.S. $500,000 per share) against delivery by each Existing Holder selling Series G Preference Shares of certificates for the number of Series G Preference Shares being sold. 1.5 Miscellaneous Notwithstanding the provisions of this Schedule III, the Auction Manager shall not follow the auction procedures contained in this Schedule III on the Auction Date immediately preceding the Redemption Date in the event that written notice of redemption of all the outstanding Series G Preference Shares has been given. 79 PART C AN UNLIMITED NUMBER OF COMMON SHARES WITHOUT NOMINAL OR PAR VALUE The Common Shares shall be subject to the prior rights, privileges, restrictions and conditions attached to the Preferred Shares and the Preference Shares and the holders of the Common Shares shall, amongst other things, be entitled: (a) to vote at all meetings of Shareholders of the Corporation except meetings at which only holders of other classes of shares are entitled to vote; and (b) to receive the remaining property of the Corporation upon dissolution. 80 PART D JUNIOR PREFERRED SHARES THE RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO THE JUNIOR PREFERRED SHARES SHALL BE AS FOLLOWS: (a) The Junior Preferred Shares shall rank after the First Preferred Shares and Preference Shares with respect to payment of dividends and distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs. (b) The holders of record of the Junior Preferred Shares shall be entitled to receive in each financial year of the Corporation, when and as declared by the Board of Directors, fixed, cumulative preferential dividends at the rate of but not exceeding $4.95 per share per annum. Such dividends shall accrue and be cumulative from the date of change of the Corporation's 13,691,325 common shares into 13,691,325 Junior Preferred Shares. Such dividends shall be payable in semi-annual installments on the first days of January and July in each year. Cheques of the Corporation payable at par at any branch of the Corporation's bankers in Canada shall be issued in respect of such dividends (less any taxes required to be deducted) and the mailing of such a cheque to any holder shall satisfy the dividend represented thereby. If on any dividend payment date the Corporation shall not have paid the said dividends in full on all Junior Preferred Shares then outstanding, such dividends or the unpaid part thereof shall be paid on a subsequent date or dates in priority to dividends on the common shares and on any shares of any other class ranking junior as to the payment of dividends to the Junior Preferred Shares. (c) The Corporation may redeem in the manner hereinafter provided all or from time to time any part of the outstanding Junior Preferred Shares on payment to the holders thereof for each share to be redeemed of the amount of $55.199716 per share ("redemption price") together with all unpaid cumulative dividends whether or not earned or declared which shall have accrued thereon and which for such purpose shall be treated as accruing up to the date of such redemption. (d) Before redeeming any Junior Preferred Shares the Corporation shall mail to each person who, at the date of such mailing, is a registered holder of shares to be redeemed notice of the intention of the Corporation to redeem such shares held by such registered holder. Such notice shall be mailed by ordinary prepaid post addressed to the last address of such holder as it appears on the registers of the Corporation or, in the event of the address of any such holder not appearing on the registers of the Corporation, then to the last known address of such holder, at least 30 days before the date specified for redemption. Such notice shall set out the redemption price. The date on which redemption is to take place and, if part only of the shares held by the person to whom it is addressed is to be redeemed the number thereof so to be redeemed. In case a part only of the then outstanding Junior Preferred Shares is at any time to be redeemed, the shares so to be redeemed shall be selected by lot in such manner as the Directors in their discretion shall decide or, if the Directors so determine, may be redeemed pro rata disregarding fractions, and the Directors may make such adjustments as may be necessary to avoid the redemption of fractional parts of shares. On and after the date so specified for redemption the Corporation shall pay or cause to be paid to the registered holders the redemption price of the shares to be redeemed, on presentation and surrender of the certificates for the shares so called for redemption at the registered office of the Corporation or at such other place or places as may be specified in such notice, and the certificates for such shares shall thereupon be canceled and the shares represented thereby shall thereupon be and be deemed to be redeemed. From and after the date specified in such notice for redemption, the holders of such 81 shares called for redemption shall cease to be entitled to dividends and shall not be entitled to any rights in respect thereof, except to receive the redemption price, unless payment of the redemption price shall not be made by the Corporation in accordance with the foregoing provisions, in which case the rights of the holders of such shares shall remain unimpaired. On or before the date specified for redemption the Corporation shall have the right to deposit the redemption price of the shares called for redemption in a special account with any chartered bank or trust company named in the notice of redemption to be paid, without interest, to or to the order of the respective holders of such shares called for redemption upon presentation and surrender of the certificates representing the same and, upon such deposit being made, the shares in respect whereof such deposit shall have been made shall be deemed to be redeemed and the rights of the several holders thereof, after such deposit, shall be limited to receiving, out of the moneys so deposited, without interest, the redemption price payable with respect to their respective shares against presentation and surrender of the certificates representing such shares. (e) The Corporation shall have the right at its option at any time and from time to time to purchase for cancellation the whole or any part of the Junior Preferred Shares, pursuant to tenders received by the Corporation soon request for tenders addressed to all holders of Junior Preferred Shares or with the unanimous consent of the holders of all Junior Preferred Shares by private contract at the lowest price at which, in the opinion of the Directors, such shares are obtainable, but not exceeding the redemption price per share together with all unpaid cumulative dividends, whether or not earned or declared, which shall have accrued thereon and which, for such purpose shall be treated as accruing up to the date of such purchase. If in response to an invitation for tenders, two or more shareholders submit tenders at the same price and if such tenders are accepted by the Corporation in whole or in part, then, unless the Corporation accepts all such tenders in whole, the Corporation shall accept such tenders in proportion as nearly as may be to the number of shares offered in each such tender. (f) The holders of the Junior Preferred Shares may at any time and from time to time call upon the Corporation, by written request, to purchase or redeem all or part of such shares and, subject to Section 34 of the Canada Business Corporation Act, the Corporation within 30 days of receipt of such request, shall purchase or redeem such shares at an amount equal to the redemption price per share together with all unpaid cumulative dividends, whether or not earned or declared, which shall have accrued thereon and which for such purpose shall be treated as accruing up to the date of such purchase. (g) In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, after distribution to the holders of the First Preferred Shares and the Preference Shares, the holders of the Junior Preferred Shares shall be entitled to receive before any distribution of any part of the assets of the Corporation among the holders of any other shares, an amount equal to the redemption price per share together with all unpaid cumulative dividends, whether or not earned or declared, which shall have accrued thereon and which, for such purpose shall be treated as accruing up to the date of such purchase. (h) The holders of the Junior Preferred Shares are entitled to one vote for each share held at all meetings of shareholders prior to the issue of a certificate of amendment giving effect to an arrangement whereby each shareholder of Alcan Aluminium Limited would receive, in exchange for each Common Share of Alcan Aluminium Limited owned by such shareholder, a Common Share of the Corporation and shall not be entitled to vote, except as provided by law, at any meeting of shareholders held after the issue of such certificate of amendment. EX-10.1.5 3 AMENDMENTS FOR SCHEDULE 96-1 1 EXHIBIT 10.1.5 Page 1 of 4 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 96-1 1. In Subsection 4.03 insert the following new paragraph (g): "(g) For the determination of the Number of Points of a Member who, on 30 June 1996, is contributing to the Plan, or is on an authorized leave of absence (with the exception of (i) a Member in receipt of a Disability Pension whose commencement date of his permanent disability is on or after 1 January 1992 or (ii) a Member who is a transferred employee under the terms of an agreement relating to the sale of a business of a Participating Company which closing date is on or before 30 June 1996, as determined by the Administrator), or is a Suspended Member in accordance with subsection 4.05, a number of years in accordance with the following: (i) 5 years, if such Member had attained the age of 55 or had completed 30 years of Credited Service at 1 January 1996; (ii) 4 years, if such Member had not met the conditions in (i) at 1 January 1996 but had attained the age of 50 or had completed 25 years of Credited Service; (iii) 3 years, if such Member had not met the conditions in (i) and (ii) at 1 January 1996 but had attained the age of 45 or had completed 20 years of Credited Service; (iv) 2 years, if such Member had not met any of the conditions above." 2. In subsection 8.02: 2.1 Replace the first sentence of paragraph (c) by the following sentence: "(c) A Member whose Early Retirement Date occurs on or after his attainment of the age of 60 and whose Number of Points is equal to at least 75 at that Date, or whose Early Retirement Date occurs before his attainment of the age of 60 and whose Number of Points is equal to at least 90 at that Date, and who is (i) contributing to the Plan at his Early Retirement Date, or (ii) on an authorized leave of absence without pay and in receipt of an Approved Disability Benefit at that date other than a Disability Pension under the Plan in respect of a Member whose commencement date of his permanent disability is on or after 1 January 1992 is entitled to a bridge benefit in addition to his retirement pension." 2.2 Replace "$200" in paragraph (c) by "$250". 2.3 Delete paragraph (d). 1 2 EXHIBIT 10.1.5 Page 2 of 4 3. In subsection 8.03: 3.1 Add the words "and the amount of the bridge benefit is determined in accordance with subsection 8.02 (c)" at the end of the third paragraph. 3.2 delete the fourth paragraph. This schedule of amendments is effective 1 July 1996. 2 3 EXHIBIT 10.1.5 Page 3 of 4 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 96-2 1. In paragraph 3.07 (ii)(a) the words "Section 14" are replaced by the words "Sections 8 and 14". 2. The following paragraph is added at the end of subsection 8.02(b): "Notwithstanding the above, the early retirement factor is 100% if the Member meets the following conditions at Early Retirement Date: (i) his Number of Points equals 90 or more or his Number of Points is 75 and he is age 60 or over ; and (ii) he is in receipt of an Approved Disability Benefit which is fully integrated with this early retirement pension and the bridge benefit described hereafter. The Member on a leave of absence without pay who is in receipt of an Approved Disability Benefit, stops accruing Credited Service upon meeting the above conditions" This Schedule of Amendments is effective 1 November 1996. 3 4 EXHIBIT 10.1.5 Page 4 of 4 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 96-3 The purpose of this Schedule of Amendments is to make certain modifications to the Plan at the request of Revenue Canada. 1. In subsection 2.07, the word "practitioner" is replaced by the word "doctor". 2. In paragraph 5.01, the word "deductible" in the last sentence is deleted. 3. In subsection 14.06, the words "augmented by the augmentation percentage applied to his Disability Pension at that Date" at the end are deleted and the following sentence is added: "The Augmentation percentage applied to his Disability Pension at that date will continue to apply to the retirement pension." 4. In subsection 19.04, the following paragraph is added at the end: (7) The compounded Augmentation Factor under this and any previous augmentation granted from Pension Commencement Date, multiplied by the retirement pension payable for a particular month on or after the effective date of this augmentation, plus any other pension increase which may have been granted in previous schedules of amendments, cannot exceed the maximum pension augmented with increases of the Consumer Price Index as determined by Revenue Rules. Paragraphs 1, 2 and 3 are effective 1 January 1992 and paragraph 4 is effective 1 January 1996. 4 EX-10.10.1 4 AMENDMENT DATED 1 JANUARY 1997 1 EXHIBIT 10.10.1 Page 1 of 9 ALCAN ALUMINIUM LIMITED AMENDMENT NO. 1 TO THE RETIREMENT COMPENSATION PLAN FOR NON-EXECUTIVE DIRECTORS Adopted with effect from 1 January 1997 2 EXHIBIT 10.10.1 Page 2 of 9 I. PREAMBLE AND DEFINITIONS I.A) Title This Amendment No.1 to the Retirement Compensation Plan for Non-Executive Directors (the "Plan") is hereinafter referred to as "Amendment No.1." I.B) Object and Effective Date of Amendment No. 1 The object of Amendment No.1 is to make changes to certain provisions of the Plan with effect from 1 January 1997. I.C) Additional Definitions The following additional definitions are incorporated into the Plan: 1.3.10 "Account" means a book account maintained by the Company reflecting the Units credited to each Member pursuant to Article 9 of the Plan. 1.3.11 "Average Share Price" means the average of the closing sale prices for board lots for the Shares on The Montreal Exchange and The Toronto Stock Exchange and for record lots for the Shares as reported on the New York Stock Exchange - Consolidated Trading, on each day during the last five trading days prior to the dividend declaration date (pursuant to Article 9.2), any currency conversion being made at the Bank of Canada noon rate of exchange on the relevant day. 1.3.12 "Board" means the board of directors of the Company. 1.3.13 "Committee" means any committee of the Board and any successor committee (and includes the Personnel Committee). 1.3.14 "Non-Executive Director" means a Director of the Company who is not an Employee of the Company nor of any company in which the Company holds more than fifty percent of the outstanding voting shares. 1.3.15 "Personnel Committee" means the Personnel Committee of the Board and any successor committee. 1.3.16 "Secretary" means the Secretary of the Company. 1.3.17 "Share" means a Common Share of the Company. 3 EXHIBIT 10.10.1 Page 3 of 9 1.3.18 "Unit" means a unit of measurement for record-keeping purposes under the Plan, and shall include fractional units. I.D) Replacement of a definition Article 1.3.8 of the Plan is hereby deleted and replaced by the following: 1.3.8 "Retirement Date" means the date on which a Member ceases to be a Director. II. DELETIONS Articles 7 and 8 of the Plan are deleted. III. ADDITIONS III.A) The following paragraph is added to Article 3.1.2 of the Plan: A person who becomes a Non-Executive Director after 1 January 1997 shall not be eligible to become a Member of the Plan. III.B) The following additional Articles are incorporated into the Plan: 7. TERMINATION OF ACCRUALS OF BENEFITS UNDER THE PLAN 7.1 Effective 1 January 1997, there shall be no further accruals of benefits under the Plan in respect of Members of the Plan as of that day. 7.2 The rights of retired Members under the Plan shall not be affected by Articles 7, 8, 9 and 10. 4 EXHIBIT 10.10.1 Page 4 of 9 8. IRREVOCABLE ELECTION Every Member who is a Director on 1 January 1997 shall, on or before 31 March 1997, make an election in writing with the Secretary (pursuant to the adjoining Form and which will be irrevocable once made) to continue membership in the Plan in accordance either with Article 9 or with Article 10 of the Plan. In default of making such option, a Member shall be deemed to have elected to continue membership under Article 10 of the Plan. 9. CONVERSION OF BENEFITS ACCRUED UNDER THE PLAN 9.1 A Member, as of 1 January 1997, may convert the entire amount of benefits accrued to such Member up to and including 31 December 1996 into Units (in the following manner) and the number of such Units shall be credited to the Member s Account on 1 January 1997: The number of Units will be determined by dividing (a) the present value (determined in accordance with a method approved by the Personnel Committee) on 31 December 1996 of the retirement income stream under the Plan based on total Board and Committee service to that date, using level of Fees in effect on 31 December 1996, by (b) the average of the closing sale prices for board lots for the Shares on The Montreal Exchange and The Toronto Stock Exchange and for record lots for the Shares as reported on the New York Stock Exchange - Consolidated Trading, on the last trading day of each of the 36 months immediately prior to 1 January 1997, any currency conversion being made at the Bank of Canada noon rate of exchange on the relevant day. 9.2 Additional Units In respect of every cash dividend declared on the Shares, each Member's Account will be credited with an additional number of Units, determined as follows: Units held in each respective Account on dividend declaration date multiplied by a dollar amount equal to the dividend declared per Share 5 EXHIBIT 10.10.1 Page 5 of 9 divided by the Average Share Price. The credit of such additional Units shall be made on the dividend declaration date. 9.3 Certain Adjustments In the event of a reorganization, recapitalization, reclassification, stock split, stock dividend, combination of shares, merger, amalgamation or consolidation, or the sale, conveyance, lease or other transfer by the Company of all or substantially all of the assets of the Company, pursuant to any of which such events the then outstanding Shares are split or combined or changed into, become exchangeable at the holder's election for, or entitle the holder thereof to, other shares of stock, or any similar change in the Shares or other similar event, each Member's Account shall be adjusted in an equitable manner to reflect such change or other event. Such adjustment shall be made by the Personnel Committee and shall be conclusive and binding for all purposes of the Plan. Except as provided for in this Article, Members shall have no other rights as a result of any change in the Shares or of any other event. 9.4 Unit Conversion On a Member's Retirement Date, the Units credited to such Member's Account will be converted into a cash value determined by multiplying the number of Units by the average of the closing sale prices for board lots for the Shares on The Montreal Exchange and The Toronto Stock Exchange and for record lots for the Shares as reported on the New York Stock Exchange - Consolidated Trading, on the last trading day of each of the 36 months immediately prior to the Retirement Date. This cash value will, at the Member's irrevocable option, either be paid by the Company to the Member as a lump sum or be converted into a stream of annuity payments to be determined in accordance with a method approved by the Personnel Committee and such annuity payments shall be paid by the Company for the duration of the Payment Period. If a Member fails to declare his option, as aforesaid, 20 days prior to his Retirement Date, the cash value will be converted into a stream of annuity payments to be paid to the 6 EXHIBIT 10.10.1 Page 6 of 9 Member for the duration of the Payment Period. 9.5 Death In the event of death of a Member prior to Retirement Date, the Spouse of such Member, or where there is no surviving Spouse the Member's legal representative, shall be paid a lump sum equivalent to the benefits which the Member would have received had he retired on that date. 9.6 Death After Retirement In the event that a Member dies after Retirement Date, the Spouse of such Member, or where there is no surviving Spouse the Member's legal representative, shall receive from the Company a lump sum equivalent to the present value of any remaining annuity payments in respect of the Member's converted Account until the expiry of the Payment Period. 10. NON-CONVERSION OF BENEFITS ACCRUED UNDER THE PLAN 10.1 A Member, as of 1 January 1997, may instead of converting his benefits as provided in Article 9, retain his accrued benefits under the Plan based on total Board and Committee service up to 31 December 1996. The accrued amount so determined shall remain unchanged until Retirement Date, at which time installment payments will commence under the Plan provided that (a) the Payment Period shall be calculated up to and including 31 December 1996, and that (b) the Fees shall mean the level of Fees in effect on 31 December 1996. 10.2 For the purpose of Article 10.1, in the event that a Member dies, the Spouse of such Member, or where there is no surviving Spouse the Member's legal representative, shall be paid a lump sum equivalent to the present value of the annuity payments the Member would have received, had he not died, until the expiry of the Payment Period. 11. ADMINISTRATION 11.1 Unless otherwise determined by the Board, the Plan shall remain an unfunded obligation of the Company and all benefits payable to Members under the Plan represent merely unfunded, 7 EXHIBIT 10.10.1 Page 7 of 9 unsecured promises of the Company to pay a sum of money to the Members in the future. 11.2 The Plan shall be administered by the Personnel Committee and any question regarding the proper administration of the Plan or the construction of any term of the Plan shall be resolved by the Personnel Committee, in its sole discretion. 11.3 The Plan may be amended or terminated at any time by the Board, except as to rights already accrued hereunder by the Members. 11.4 For the purpose of the above Article 11.3, the accrued right in respect of a Member prior to his Retirement Date shall be a right to receive benefits in accordance with the terms of the Plan up to but excluding the date of the amendment or termination of the Plan. 11.5 The Company shall keep accurate and detailed records of all transactions for all Accounts and provide quarterly benefit statements to Members. 11.6 All expenses associated with the establishment, maintenance and termination of this Plan shall be borne by the Company. 12. NON-ALIENATION 12.1 Except as provided for herein, no transfer by a Member of any right to any payment or benefit under the Plan, whether voluntary or involuntary, by operation of law or otherwise, and whether by means of alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, shall vest the transferee with any interest or right, and any attempt to so alienate, sell, transfer, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable shall be void and of no force or effect. ______________________________ 8 EXHIBIT 10.10.1 Page 8 of 9 (FORM FOR CONVERTING BENEFITS UNDER THE PLAN) The Secretary Alcan Aluminium Limited Montreal, Canada I, _________________________ , being a member of the Alcan Aluminium Limited Retirement Compensation Plan for Non-Executive Directors ("Plan") amended as of 1 January 1997 ("Plan"), hereby agree that the actuarial value of all benefits accrued by me under the Plan up to and including 31 December 1996 which amounts to USD _____ be converted into _____ Units and credited to my Account on 1 January 1997 pursuant to Article 9 of the Plan. I have also noted Article 7 of the Plan which provides that there shall be no further accruals of benefits under the Plan effective 1 January 1997 _________________________ Signature _________________________ Date 9 EXHIBIT 10.10.1 Page 9 of 9 (FORM FOR CONTINUING MEMBERSHIP IN THE PLAN) The Secretary Alcan Aluminium Limited Montreal, Canada I, _________________________ , being a member of the Alcan Aluminium Limited Retirement Compensation Plan for Non-Executive Directors amended as of 1 January 1997 ("Plan"), hereby declare that I wish to continue membership in the Plan as provided in Article 10 thereof. I have also noted Article 7 of the Plan which provides that there shall be no further accruals of benefits under the Plan effective 1 January 1997. _________________________ Signature _________________________ Date EX-10.11 5 DEFERRED SHARE UNIT PLAN 1 EXHIBIT 10.11 Page 1 of 12 ALCAN ALUMINIUM LIMITED DEFERRED SHARE UNIT PLAN FOR NON-EXECUTIVE DIRECTORS Adopted with effect from 1 January 1997 2 EXHIBIT 10.11 Page 2 of 12 1. PURPOSE AND DEFINITIONS 1.1 Purpose The purpose of this Plan is to enhance the Company's ability to attract and retain talented individual to serve as members of the Board of Directors of the Company and to promote a greater alignment of interests between Members and the Shareholders of the Company. 1.2 Definitions Unless the context indicates otherwise, the following terms have the following meanings: (a) "Account" means a book account maintained by the Company reflecting the Units credited to each Member pursuant to Article 4.1. (b) "Average Share Price" means the average of the closing sale prices for board lots for the Shares on The Montreal Exchange and The Toronto Stock Exchange and for record lots for the Shares as reported on the New York Stock Exchange - Consolidated Trading, on each day during the last five trading days prior to either the dividend declaration date (pursuant to Article 4.1.2) or the redemption date (pursuant to Article 4.2.1), any currency conversion being made at the Bank of Canada noon rate of exchange on the relevant day. (c) "Board" means the board of directors of the Company. (d) "Committee" means any committee of the Board and any successor committee (and includes the Personnel Committee). (e) "Company" means Alcan Aluminium Limited and any successor corporation whether by amalgamation, merger or otherwise. (f) "Director" means a director of the Company. 3 EXHIBIT 10.11 Page 3 of 12 (g) "Employee" means an employee of the Company or of any company in which the Company holds more than fifty percent of the outstanding voting shares. (h) "Fees" means any and all fees paid in cash by the Company to a Director during a financial year for his service as a Director, Chairman of the Board, a Member of a Committee, or Chairman of such a Committee. (i) "Member" means an individual who joins the Plan in accordance with Article 3. (j) "Non-Executive Director" means a Director of the Company who is not an Employee of the Company nor of any company in which the Company holds more than fifty percent of the outstanding voting shares. (k) "Personnel Committee" means the Personnel Committee of the Board and any successor committee. (l) "Plan" means this Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors, as amended by the Board from time to time. (m) "Quarter" means a period of three consecutive calendar months commencing on the first day of the months of January, April, July or October, as the case may be. (n) "Retirement Date" means the date on which a Member ceases to be a Director (subject to Article 4.5.1). (o) "Secretary" means the Secretary of the Company. (p) "Share" means a Common Share of the Company. (q) "Spouse" means the person who, on the day preceding the death of a Member, is the person who has been designated in accordance with Article 5.1 of the Plan and who is legally married to the Member or, in the event the Member is not married, the person who qualifies as a spouse under the laws applying to the Plan. 4 EXHIBIT 10.11 Page 4 of 12 (r) "Unit" means a unit of measurement for record-keeping purposes under the Plan, and shall include fractional units. 2. CONSTRUCTION AND INTERPRETATION 2.1 The effective date of the Plan shall be 1 January 1997. 2.2 The Plan shall be governed and interpreted in accordance with the laws of the Province of Quebec and the applicable laws of Canada. 2.3 If any provision of the Plan is determined to be void or unenforceable in whole or in part, such determination shall not affect the validity or enforcement of any other provision or part thereof. 2.4 Headings are for reference purposes only and do not limit or extend the meaning of the provisions of the Plan. 2.5 References to the masculine include the feminine; references to the singular shall include the plural and vice versa. 3. ELIGIBILITY, MEMBERSHIP AND RETIREMENT 3.1 Every person who is a Non-Executive Director on 1 January 1997 shall be eligible to become a Member as of that date. 3.2 Every person who becomes a Non-Executive Director after 1 January 1997 shall be eligible to become a Member as of the date he becomes such a Director. 3.3 Upon becoming eligible to become a Member, the Director shall signify his intention of becoming a Member by signing a form prescribed for this purpose and delivering it to the Secretary. Membership of the Plan becomes effective upon receipt by the Secretary of such duly executed prescribed form. 3.4 Subject to Article 4.5.1, a Member shall be deemed to retire on the date he ceases to be a Director. 5 EXHIBIT 10.11 Page 5 of 12 3.5 Nothing herein shall be deemed to give any Member the right to be retained as a Director of the Company. 4. BENEFITS 4.1 Calculation of Benefits 4.1.1 Quarterly Grant of Units Effective 1 January 1997, each Member will be granted Units on a quarterly basis for his service as a Non- Executive Director as follows: * for Board membership: 62.5 Units per Quarter, * for Committee membership: 12.5 Units per Quarter in addition to the foregoing, and * for Committee chairmanship: 15 Units per Quarter in addition to both of the foregoing.
A Non-Executive Director serving as Chairman of the Board will be granted 300 Units per Quarter in lieu of all of the above. Units granted to a Member pursuant to this Article 4.1.1 shall be credited to the Member's Account on the first day following the end of every applicable Quarter. If a Member serves on the Board or on any Committee for part of a Quarter, Units will be granted to the Member for the full Quarter. 4.1.2 Additional Units In respect of every cash dividend declared on the Shares, each Member's Account will be credited with an additional number of Units, determined as follows: Units held in each respective Account on dividend declaration date multiplied by 6 EXHIBIT 10.11 Page 6 of 12 a dollar amount equal to the dividend declared per Share divided by the Average Share Price. The credit of such additional Units shall be made on the dividend declaration date. 4.1.3 Certain Adjustments In the event of a reorganization, recapitalization, reclassification, stock split, stock dividend, combination of shares, merger, amalgamation or consolidation, or the sale, conveyance, lease or other transfer by the Company of all or substantially all of the assets of the Company, pursuant to any of which such events the then outstanding Shares are split or combined or changed into, become exchangeable at the holder's election for, or entitle the holder thereof to, other shares of stock, or any similar change in the Shares or other similar event, each Member's Account shall be adjusted in an equitable manner to reflect such change or other event. Such adjustment shall be made by the Personnel Committee and shall be conclusive and binding for all purposes of the Plan. Except as provided for in this Article, Members shall have no other rights as a result of any change in the Shares or of any other event. 4.2 Payment of Benefits on Retirement 4.2.1 On a Member's Retirement Date, the Member will be able to redeem the Units credited to its Account by filing a written notice of redemption with Alcan, specifying a redemption date of at least five business days from the delivery of the said notice to Alcan but no later than 15 December of the first calendar year commencing after the Director's Retirement Date. The Units credited to such Member's Account will then be multiplied by the Average Share Price on such redemption date. In any event, the payment of the Member's 7 EXHIBIT 10.11 Page 7 of 12 benefits under the Plan will take place no later than 31 December of the first calendar year commencing after the Director's Retirement Date. If a Member fails to advise the Company of his selection of a redemption date within the above-mentioned period, the redemption date shall be considered to be 15 December of the first calendar year commencing after the Director's Retirement Date. 4.2.2 The value of the redeemed Units shall be paid by the Company to the Member as soon as possible after the determination of the redemption date and the deduction of appropriate taxes; at the Member's option, in either: a) cash, b) Shares, or c) a combination thereof. In the case of a payment in Shares, the Company will purchase the Shares on the open market, through a broker, on behalf of the Member. 4.3 Benefit Before Retirement 4.3.1 Death In the event of death of a Member prior to Retirement Date, the Spouse of such Member, or where there is no surviving Spouse the Member's legal representative, shall be able to redeem the Units credited to the Member's Account by filing a written notice of redemption with Alcan, specifying a redemption date of at least five business days from the delivery of the said notice to Alcan but no later than 15 December of the first calendar year commencing after the death of the Member. The same conditions of payment will then apply to the Spouse (or the Member's legal representative, as the case may be) as they would have applied to the Member had he retired on that date. 8 EXHIBIT 10.11 Page 8 of 12 4.4 Death After Retirement In the event that a Member dies after Retirement Date, the Spouse of such Member, or where there is no surviving Spouse the Member's legal representative, shall, provided the Member had not already done so, be able to redeem the Units credited to the Members Account by filing a written notice of redemption with Alcan, specifying a redemption date of at least five business days from the delivery of the said notice to Alcan but no later than 15 December of the first calendar year commencing after the death of the Member. The same conditions of payment will then apply to the Spouse (or the Member's legal representative, as the case may be) as they would have applied to the Member. 4.5 Suspension of Benefits upon becoming an Employee 4.5.1 Director becoming an Employee If a Member becomes an Employee but continues to be a Director, his membership in the Plan shall be suspended effective the date of the commencement of his employment and shall resume upon termination of such employment. If prior to the termination of his employment, such Employee Director ceases to be a Director, such Member will be deemed to retire on the date he ceases to be an Director. 4.6 Taxes All benefits paid under the Plan are subject to applicable tax legislation. 4.7 Currency 4.7.1 Unless Article 4.7.2 applies, all benefits under the Plan shall be determined in the same currency as the Fees. 4.7.2 A Member or his Spouse, or where there is no surviving Spouse the Member's legal representative, may request the Company to pay his benefits in a currency other than the designated currency under Article 4.7.1, in which event the currency conversion shall be made at the Bank of Canada noon rate of exchange on the day preceding the date of payment. 9 EXHIBIT 10.11 Page 9 of 12 5. BENEFICIARIES AND CLAIMS FOR BENEFITS 5.1 Every Member, upon becoming a Member, shall advise the Company in writing of the name and address of his Spouse on a prescribed form. Every Member shall advise the Company of any change in such information. 5.2 In the event of death of a Member, the benefits under the Plan shall only be paid to the Spouse of such Member as named on the latest filing on prescribed form which has been delivered to the Secretary. 6. ADMINISTRATION 6.1 Unless otherwise determined by the Board, the Plan shall remain an unfunded obligation of the Company and all benefits payable to Members under the Plan represent merely unfunded, unsecured promises of the Company to pay a sum of money to the Members in the future. 6.2 The Plan shall be administered by the Personnel Committee and any question regarding the proper administration of the Plan or the construction of any term of the Plan shall be resolved by the Personnel Committee, in its sole discretion. 6.3 The Plan may be amended or terminated at any time by the Board, except as to rights already accrued hereunder by the Members. 6.4 For the purpose of the above Article 6.3, the accrued right in respect of a Member prior to his Retirement Date shall be a right to receive benefits in accordance with the terms of the Plan up to but excluding the date of the amendment or termination of the Plan. 6.5 The Company shall keep accurate and detailed records of all transactions for all Accounts and provide quarterly benefit statements to Members. 10 EXHIBIT 10.11 Page 10 of 12 6.6 All expenses associated with the establishment, maintenance and termination of this Plan shall be borne by the Company. 7. NON-ALIENATION 7.1 Except as provided for herein, no transfer by a Member of any right to any payment or benefit under the Plan, whether voluntary or involuntary, by operation of law or otherwise, and whether by means of alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance or any kind, shall vest the transferee with any interest or right, and any attempt to so alienate, sell, transfer, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable shall be void and of no force or effect. ______________________________ 11 EXHIBIT 10.11 Page 11 of 12 (FORM FOR JOINING) The Secretary Alcan Aluminium Limited Montreal, Canada I, _________________________ , a Director of Alcan Aluminium Limited, hereby elect to become a member of the Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors ("Plan"). I hereby designate the following person as my Spouse for purposes of the Plan: Name: ____________________ Address: ____________________ ____________________ ____________________ Under the terms of the Plan, I reserve the right to revoke this designation and to designate another person as my Spouse. _________________________ Signature _________________________ Date 12 EXHIBIT 10.11 Page 12 of 12 (FORM FOR CHANGING DESIGNATION OF SPOUSE) The Secretary Alcan Aluminium Limited Montreal, Canada I, ________________________, being a member of the Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors ("Plan") revoke the designation of ____________________ as my Spouse for purposes of the Plan and designate instead: Name: ____________________ Address: ____________________ ____________________ ____________________ as my Spouse for purposes thereof. Under the terms of the Plan, I reserve the right to revoke this designation and to designate another person as my Spouse. _________________________ Signature _________________________ Date EX-13 6 ANNUAL REPORT 1 (COVER) (PICTURE OF ALUMINUM PRODUCT) ALCAN ALUMINIUM LIMITED ALUMINUM... THE MATERIAL OF CHOICE 1996 ANNUAL REPORT (ALCAN LOGO) 2 Alcan Aluminium Limited, a Canadian corporation, is the parent company of an international group involved in all aspects of the aluminum industry. Through subsidiaries and related companies around the world, the activities of the Alcan Group include bauxite mining, alumina refining, power generation, aluminum smelting, manufacturing and recycling. Approximately 33,000 people are directly employed by the Company, with thousands more employed in its related companies. In the 95 years since it was established, Alcan has developed a unique combination of competitive strengths, with owned hydroelectricity in Canada, proprietary process technology and international presence. With operations and sales offices in more than 30 countries, the Alcan Group is the most international aluminum company as well as the largest producer and marketer of flat-rolled aluminum products. The word ALCAN and the Alcan symbol are registered trademarks in more than 100 countries and are synonymous with aluminum the world over. The Alcan Group is a multicultural and multilingual enterprise reflecting the differing corporate and social characteristics of the many countries in which it operates. Within a universal framework of policies and objectives, individual subsidiaries conduct their operations with a large measure of autonomy. Alcan Aluminium Limited has approximately 21,550 registered holders of its common shares and 1,430 registered holders of its preference shares. While distributed internationally, the Company's shares are mostly held in North America. Further information on Alcan and its activities is contained in various company publications such as A Commitment to Continual Environmental Improvement, published in 1996. These publications are available by writing to the address shown on page 65. TERMS The word "Alcan" or "Company" means Alcan Aluminium Limited and, where applicable, one or more consolidated subsidiaries. A "subsidiary" is a company controlled by Alcan. A "related company" is one in which Alcan has significant influence over management but owns 50% or less of the voting stock. The "Alcan Group" refers to Alcan Aluminium Limited, its subsidiaries and related companies. In this report, unless stated otherwise, all dollar amounts are stated in United States dollars and all quantities in metric tons, or tonnes. A tonne is 1,000 kilograms, or 2,204.6 pounds. The following abbreviations are used: /t per tonne kt thousand tonnes kt/y thousand tonnes per year Mt million tonnes Mt/y million tonnes per year ANNUAL MEETING The Annual Meeting of the holders of common shares of Alcan Aluminium Limited will be held on Thursday, April 24, 1997. The meeting will take place at 10:00 a.m. in the Ballroom of the Marriott Chateau Champlain, 1 Place du Canada, Montreal, Quebec, Canada. COVER Aluminum is no longer simply the metal of choice, it is now the material of choice for Alcan customers around the globe. CONTENTS 1 Highlights of the Year 2 The Alcan Group's Businesses at a Glance 4 Message to Shareholders 9 Aluminum . . . the Material of Choice 16 Corporate Social Responsibility 18 Business Review 30 Financial Review
3 37 Responsibility for the Annual Report, OECD Guidelines and Auditors' Report 38 Consolidated Financial Statements 41 Notes to Consolidated Financial Statements 59 Quarterly Financial Data 60 Eleven-Year Summary 62 Corporate Governance 63 Directors and Officers 64 Shareholder Information 65 The Alcan Group Worldwide
4 HIGHLIGHTS OF THE YEAR FABRICATED PRODUCTS SHIPMENTS (Chart) kt 1992 = 1,595 1993 = 1,651 1994 = 1,952 1995 = 1,958 1996 = 1,797 Lower fabricated products volumes in 1996 reflect the divestment of non-strategic businesses. Revenues were further impacted by lower prices. NET INCOME (LOSS)* (Chart) millions of US$ 1992 = (112) 1993 = (104) 1994 = 96 1995 = 543 1996 = 410 * Before extraordinary item. Net income declined in 1996 due to lower metal prices and reduced fabricated products margins in Europe.
1996 1995 1994 FINANCIAL DATA (in millions of US$, except per common share amountS) Sales and operating revenues 7,614 9,287 8,216 Net income before extraordinary item 410 543 96 Net income 410 263 96 Return (%) on average common shareholders' equity 9 11* 2 Total assets (at year-end) 9,325 9,736 10,003 Capital expenditures 482 441 356 Ratio of borrowings to equity (at year-end) 23:77 29:71 35:65 Per common share (in US$) Net income before extraordinary item 1.74 2.30 0.34 Net income 1.74 1.06 0.34 Cash from operating activities 4.34 4.63 0.29 Dividends 0.60 0.45 0.30 Common shareholders' equity (at year-end) 20.57 19.84 19.17 Operating Data (in thousands of tonnes) Fabricated products shipments** 1,797 1,958 1,952 Ingot products shipments*** 810 801 897 Primary aluminum production 1,407 1,278 1,435 Secondary/recycled aluminum production 639 523 496
* Before extraordinary item. ** Includes products fabricated from customer-owned metal. *** Includes primary and secondary ingot and scrap. 1 5 THE ALCAN GROUP'S BUSINESSES AT A GLANCE (NORTH AND SOUTH AMERICA MAP) Bauxite Mining/Reserves Alumina Refining Specialty Chemicals Primary Aluminum Smelting Super Purity Aluminum Refining Recycling/Secondary Smelting Sheet and/or Foil Rolling Other Fabricating Alcan also has sales/marketing offices, research and technology facilities or other activities in Austria, Belgium, Bermuda, Denmark, Finland, Hong Kong, Hungary, Korea, Poland, Portugal, Russia, Sweden and The Netherlands. RAW MATERIALS AND CHEMICALS (picture) BAUXITE MINING - - 11 bauxite mines/reserves in six countries (including related companies). - - 330 Mt of demonstrated reserves in subsidiaries+ and related companies. - - 11.1 Mt used in 1996. - - $53 million in bauxite sales. (picture) ALUMINA REFINING - - 12 alumina plants in nine countries (including related companies). - - 5.0 Mt of annual capacity in subsidiaries+ and related companies. - - 4.8 Mt produced in subsidiaries+ and related companies. - - $293 million in alumina sales. (picture) SPECIALTY CHEMICALS - - 8 specialty chemicals plants in four countries (including related companies). - - $174 million in sales. In addition to the sales of bauxite, alumina and specialty chemicals indicated above, Alcan's non-aluminum products account for $257 million in sales. METAL SUPPLY (picture) PURCHASED INGOT AND FABRICATED PRODUCTS++ - - 507 kt of primary ingot, 2 kt of secondary ingot and 48 kt of fabricated products purchased. (picture) PRIMARY PRODUCTION++ - - 13 smelters in four countries. - - 1.6 Mt of annual capacity. - - 1.4 Mt produced in 1996. - - $1.0 billion (592 kt) in ingot sales.+++ (picture) SECONDARY/RECYCLED ALUMINUM - - 7 recycling plants in four countries. - - 653 kt of annual capacity. - - 639 kt produced in 1996. - - 446 kt of scrap purchased. - - $190 million (119 kt) in ingot sales. - - $134 million (99 kt) in scrap sales. Post-Consumer Scrap 2 6 (ASIAN AND EUROPEAN MAP) FABRICATED PRODUCTS (picture) ROLLED PRODUCTS++ - - $3.6 billion (1,304 kt) in sales.++++ - - Fabricated 258 kt of customer-owned metal. (picture) OTHER FABRICATED PRODUCTS++ - - $1.4 billion (235 kt) in sales. TOTAL FABRICATED PRODUCTS++ - - Over 60 manufacturing plants in 10 countries. - - $5.0 billion in sales in 1996.++++ - - 1.8 Mt of aluminum fabricated in Alcan facilities. CUSTOMERS AND MARKETS (picture) CONTAINERS AND PACKAGING - - $2.6 billion in sales. - - 44% of total fabricated and non-aluminum product sales. - - End uses include beverage cans, household foil, foil dishes and containers, bottle closures and foil laminates for packaging applications. (picture) TRANSPORTATION - - $457 million in sales. - - 8% of total fabricated and non-aluminum product sales. - - End uses include automotive structures, body panels and engine parts, wheels and radiators, aircraft structures, rail carriages, freight cars and ships. (picture) ELECTRICAL - - $589 million in sales. - - 10% of total fabricated and non-aluminum product sales. - - End uses include overhead transmission cable, cable wrap, condenser windings, underground distribution cable, heat sinks and house wiring. (picture) BUILDING AND CONSTRUCTION - - $911 million in sales. - - 16% of total fabricated and non-aluminum product sales. - - End uses include windows and doors, roofing and cladding, lighting poles and fixtures, structures and handrails. (picture) OTHER MARKETS - - $1.3 billion in sales. - - 22% of total fabricated and non-aluminum product sales. - - End uses include machinery, appliances, heat exchangers, PVC pipe, wear components, synthetic marble and zirconium chemicals + Includes joint ventures, proportionately consolidated. ++ Excluding related companies. +++ Also includes purchased ingot. ++++ Excluding fabrication of customer-owned metal. 3 7 Photo: Jacques Bougie (left), President and Chief Executive Officer, and Dr. John R. Evans, Chairman of the Board. OUR 1997 STRATEGIC PRIORITIES Implement Full Business Potential with the target of increasing after-tax returns by $300 million and earning our cost of capital within three years. Strengthen the position of aluminum in the marketplace and ensure its future as the material of choice. Aggressively seek out opportunities to maximize shareholder value. 4 8 MESSAGE TO SHAREHOLDERS Slower than expected economic growth -- particularly in Europe -- and widespread inventory reductions by customers kept primary metal prices under pressure through most of 1996, and resulted in the first year-over-year decline in Western World demand for aluminum since the early 1980s. By year-end, however, it appeared that we had finally seen the end of the prolonged period of inventory "destocking" that began in 1995. Aluminum shipments recovered steadily to levels more in line with industrial production. The return to a healthier, balanced market was reflected in improved bookings. ALCAN'S 1996 MILESTONES Despite a challenging business environment last year, we achieved some important milestones. We further strengthened our balance sheet and completed our program to divest ourselves of non-strategic businesses. While business divestments have naturally led to lower shipments and revenues, the real result of our efforts is that Alcan is now financially stronger and focussed on its core activities. This provides a solid platform for future growth. Net income for 1996 was US$410 million. Alcan's fabricated products volumes were comparable to year-earlier levels after adjusting for the impact of business disposals, but average realized prices were markedly lower. The difficult market conditions -- and their impact on earnings -- served to underscore the significance of what we did achieve in terms of building a stronger, more competitive Alcan for the future. Having eliminated some $600 million from our permanent cost base earlier in the 1990s, we managed during 1996 to complete the divestiture of those businesses -- mostly downstream operations -- that did not fit with our core strategies. We substantially strengthened Alcan's balance sheet -- attaining a debt:equity ratio of 17:83 (net of surplus cash) at year-end 1996, thereby exceeding the target we had identified last year as a top priority. So far as those two key initiatives are concerned -- tightening Alcan's strategic focus and increasing its financial flexibility -- the job is essentially done. However, we still have work to do in other crucial areas -- such as raw material costs, which have not come down as far or as fast as we had aimed. Consequently, raw material costs will be subjected to close scrutiny during 1997. Cost considerations were also behind a decision to undertake a feasibility study into opening up our own bauxite mine in Australia. 5 9 - -- health and safety... a key indicator of operational excellence - -- fully utilize the very considerable resources of the worldwide Alcan organization Also worthy of note is the 1996 restructuring of Alcan's holdings in Japan and the rest of Asia, which put in place the main elements for a comprehensive, integrated Asian strategy that reflects the changing dynamics of the marketplace. The restructuring essentially reinforces Alcan's support of its subsidiaries and related companies in Southeast Asia and China, while enabling Nippon Light Metal Company, Ltd. to focus on strengthening its businesses in Japan. In another area, Alcan considers the health and safety of its employees to be of paramount importance -- and a key indicator of operational excellence. We are continually striving to improve our performance in this regard, with the ultimate goal of achieving zero work-related injuries and illnesses. We are pleased to report that in 1996 we recorded the lowest days-lost rate since we began tracking this indicator on a company-wide basis. FULL BUSINESS POTENTIAL -- A PRIORITY FOR 1997 On balance, we made significant progress in implementing our strategy and shaping a stronger, more competitive Alcan. The fact remains, however, that neither Alcan -- nor, for that matter, our industry -- has yet succeeded in creating the sort of business environment that can produce satisfactory returns on a sustained basis. Alcan has generated returns exceeding its cost of capital in only two of the past 14 years. The industry as a whole has managed to do it only once during the same time frame. It is evident that we have to start doing something different, in order to provide shareholders with improved value and sustained returns of a magnitude that will merit continued confidence. Accordingly, in 1997, Alcan will be implementing a program aimed at tapping the "full business potential" of its entire operations. The goal is to ensure that, within the next three years, we will reach the point where we are able to earn at least our cost of capital even at the relatively low metal prices prevailing today. Attaining this goal will entail increasing ongoing annual profitability by some $300 million, after tax, by the end of that period. The process of achieving our full business potential is already under way. During 1996, we analyzed each business to identify the optimal, realizable return from existing assets -- equipment, systems, people and technology. In 1997, appropriate action plans are being implemented. Although further reductions to both fixed and variable costs are an essential element of the drive to realize full business potential, this is a multi-faceted effort that will also encompass reassessing such areas as product mix, distribution channels, customer profiles and changes to the capital base. Specific measures that might be undertaken as part of this process could range from adding finishing equipment at an existing facility to new strategic initiatives. 6 10 - -- fundamental characteristics of aluminum make it second to none - -- working relentlessly as an industry to drive down the cost of the metal The overriding objective is to utilize fully the very considerable resources of the worldwide Alcan organization, moulding people and plants into a unified force capable of delivering superior value to customers and shareholders alike on a sustained basis. ALUMINUM... THE MATERIAL OF CHOICE The long-term well-being of our own organization is, of course, inextricably linked to the long-term health of our industry. Fortunately, the fundamental characteristics of aluminum make it second to none from an engineering, from a metallurgical and, especially, from an environmental standpoint, given the metal's high recyclability and residual value. The future looks bright for the industry as a whole -- and for Alcan in particular. As the most international of the major aluminum companies in an increasingly global marketplace, we are well positioned. Alcan is a leading international producer of rolled products such as the aluminum sheet that is emerging as the universal standard for beverage cans. And our proprietary Aluminum Vehicle Technology puts us in an advantageous position in a fast-growing segment of the aluminum market -- the automotive industry. However, we must not just sit back and take success for granted -- there is no room for complacency. We have to develop other new technologies and other new uses for our product, while safeguarding existing markets from encroachment by competing materials. In the process we must make a concerted effort to capitalize on the environmental and economic benefits inherent in aluminum, thereby enhancing its image. Image is important. But if aluminum is indeed to remain the material of choice for the 21st century, it must remain cost-competitive with rival products. That means that the industry must work relentlessly to drive down the cost of the metal. Only by ensuring the cost competitiveness and attractiveness of aluminum over the long run, can the substantial investments required be justified. Throughout this process, Alcan will continue to nurture partnerships with its customers and strive to meet or surpass their expectations. Another critical issue for our industry concerns impediments to global trade, such as the European Union's (E.U.) 6% tariff on imports of primary aluminum. The tariff is an incongruous policy for a continent that relies on imports of the metal. Not only does it provide unfair protection to Europe's primary aluminum producers, it also discriminates against the semi-fabricating sector, which accounts for 94% of the E.U. aluminum industry's workforce. 7 11 ACKNOWLEDGEMENTS When all is said and done, it is our people that really make the difference in determining whether or not we are successful as a company. On behalf of the Board, we would like to thank all Alcan employees for their hard work and dedication in 1996. We are especially proud of the courage and generosity with which employees around the world responded to the disastrous flooding that occurred in Quebec's Saguenay -- Lac-Saint-Jean region last summer. Their humanitarian efforts on behalf of flood victims, as well as the professionalism displayed in quickly getting our Saguenay facilities up and running normally, demonstrated the values and spirit that are hallmarks of the Alcan family. Finally, Alcan's Board of Directors broadened its global perspective with the appointment, in July, of a new director, Gerhard Schulmeyer. Mr. Schulmeyer is President and Chief Executive Officer of Siemens Nixdorf Informationssysteme AG, Europe's largest computer company. LOOKING AHEAD We enter 1997 on an optimistic note. Industry fundamentals are improving, with Western World aluminum demand and prices on the upswing, spurred by increased economic activity and lower inventories in the hands of customers. Assuming, as expected, that these positive signals translate into increased volumes and better margins, Alcan's results should improve. Of course, we have no intention of simply relying on external factors to bolster our performance. On the contrary, our business strategy in 1997 will focus on maximizing the value of our assets -- and returns to our shareholders -- by aggressively implementing the actions identified through the full-business-potential initiative. We will also place a premium on identifying appropriate new opportunities for profitable growth. /s/ Dr. John R. Evans /s/ Jacques Bougie DR. JOHN R. EVANS JACQUES BOUGIE Chairman of the Board President and Chief Executive Officer
February 13, 1997 8 12 (PICTURE OF ALUMINUM PRODUCT) ALUMINUM THE MATERIAL OF CHOICE Aluminum is no longer simply the metal of choice, it is now the material of choice for Alcan customers around the globe. Aluminum is LIGHT, offering a high STRENGTH-TO-WEIGHT ratio so important to industries like transportation, where Alcan is an industry leader in developing new applications. Aluminum's BARRIER QUALITIES, blocking out light, oxygen and moisture, are of great advantage to the food, beverage and pharmaceutical industries. Equally important are aluminum's THERMAL CONDUCTIVITY, VERSATILITY and DECORATIVE POTENTIAL, especially for packaging and building products. And its HIGH ELECTRICAL CONDUCTIVITY has long made aluminum a material of choice in the electrical industry. Environmental responsibility includes RECYCLABILITY -- aluminum is usable over and over again without any loss in quality. Recycling preserves resources, CONSERVES ENERGY and, because of aluminum's HIGH SALVAGE VALUE, generates funds for recycling programs around the globe. In the world of aluminum, Alcan is committed to excellence, no matter what the domain -- research and technology, raw materials, chemicals, casting ingot, extrusion billet, rolled products, or aluminum/ceramic composite. 9 13 AUTOMOTIVE CUSTOMER DRIVEN "In order to meet our mass-reduction targets in Project 2000, we, at Ford, are making extensive use of aluminum in the body structure, exterior body panels, chassis and drivetrain components. A critical goal in this program is to make significant progress towards realizing the full value potential of aluminum in an affordable, high-volume vehicle." ROBERT MULL Director, Partnership for a New Generation of Vehicles, Ford Motor Company (Photo of Donald Macmilan and Robert Mull) Photo: Alcan and Ford's long-term relationship continues to explore and introduce aluminum as a material of choice in the next generation of automobiles. Donald Macmillan (left), Vice President and General Manager, Automotive Products, Alcan Rolled Products Company, discusses aluminum sheet stamping applications with Robert Mull, Director of the PNGV program at the Ford Motor Company -- a world leader in integrating aluminum into its vehicles. FROM THE EARLY DAYS OF THE AUTOMOBILE TO TODAY'S HIGH-SPEED TRAINS AND PLANES, ALUMINUM HAS PLAYED AN IMPORTANT ROLE IN ADVANCING THE TRANSPORTATION INDUSTRY. ALUMINUM IS NOW HERALDED AS THE MATERIAL OF CHOICE, AS IT ALLOWS DESIGNERS TO SUCCESSFULLY RESPOND TO ENVIRONMENTAL CHALLENGES WITHOUT SACRIFICING COMFORT, SAFETY, PERFORMANCE OR DESIGN. The automobile industry is already the largest consumer of aluminum in the world -- roughly 4 million tonnes per year -- even though it is only recently that aluminum has been used in automotive skin, closure and structure applications. Over the past four years alone, the use of aluminum in automobiles has jumped by 35 per cent -- driven by the need to produce vehicles that offer increased safety and fuel economy without sacrificing performance and comfort. In the U.S., the federal government has challenged automakers with its Partnership for a New Generation of Vehicles (PNGV) program 10 14 which promises a car weighing less than 2,000 pounds that operates at an 80-miles-per-gallon fuel efficiency. Automakers have turned to aluminum to meet this challenge. With help from aluminum producers, they are developing technological advances to facilitate the use of aluminum in both limited and mass production vehicles. Alcan's Aluminum Vehicle Technology (AVT) already enables auto manufacturers to economically introduce aluminum into the traditional sheet stamping process. Automakers such as Jaguar, Ford and GM all have vehicles on the road that were built using Alcan's AVT system. Aluminum's high strength-to-weight ratio, corrosion resistance, and recyclability are other reasons why automotive designers are choosing aluminum. Alcan offers the technology and the metal -- automotive sheet or extrusion billet for automotive structures; sheet for exterior body panels; and aluminum/ceramic composite for brake parts. Aluminum is also used in fin stock for heat exchanger components as well as engine parts such as Alcan's high performance pistons made from advanced alloys for the latest low-emission engines. Whether it be passenger cars, high speed trains, planes, or ships and coastal ferries, Alcan is committed to solidifying aluminum's position as the new material of choice for the next generation of transportation industry needs. (picture of EV1) General Motors built the EV1 -- the revolutionary electric car-- using Alcan's Aluminum Vehicle Technology. The all-aluminum body structure accounts for only 10 per cent of the car's total curb weight, contributing significantly to its energy management, safety, performance and environmental goals. (Pistons and brake rotors picture) Aluminum is used in engine parts such as pistons while DURALCAN aluminum/ceramic composite is used for brake rotors. GLOBAL MARKET GROWTH FORECAST OF ALUMINUM IN AUTOMOBILES (thousands of tonnes) (Graph) Source: Industry forecasts The use of aluminum in cars is expected to double over the next 10 years. 11 15 PACKAGING (Alcan aluminum paper boxes picture) WRAPPING THE MARKET FROM BEVERAGE CANS TO FOIL PRODUCTS, ALUMINUM IS THE MATERIAL OF CHOICE FOR A GROWING SEGMENT OF THE PACKAGING MARKET. NOT ONLY DOES ALUMINUM PROVIDE SUPERIOR BARRIER QUALITIES, IT ALSO OFFERS GRAPHIC DESIGN POSSIBILITIES AS WELL AS BEING ECONOMICAL, CONVENIENT AND RECYCLABLE. "Aluminum's unique properties -- light-weight formability, absolute moisture barrier, ability to withstand high temperatures including direct flame applications, and the ability to be coated and embossed for functional and decorative purposes -- combine superbly to create a totally effective and economical food service system." RICHARD L. WAMBOLD Executive Vice President, Specialty and Consumer Products Tenneco Packaging (Photo of Ian Hewett and Richard L. Wambold) 12 16 WEIGHT REDUCTION OF THE ALUMINUM CAN AND LID net weight (pounds per 1,000 cans) (Graph) Source: Can Manufacturers Institute and Aluminum Association Achieving a 30% weight reduction is quite a technological and engineering feat! It has helped keep costs down and aluminum competitive in the marketplace as well as reducing energy consumption. (Picture of Aluminum Can) By far the best-known aluminum package is the beverage can. On a worldwide basis, 80 per cent of beverage cans are made of aluminum. In North America, where the aluminum can first appeared on grocery store shelves in 1968, an incredible 290 million aluminum cans are now used every day, 175 million of which are recycled! Aluminum is considered as a material of choice in Europe, thanks to Alcan's active involvement in promoting and initiating recycling programs. In the United Kingdom, Alcan has established its own used beverage can recovery network, which is a key reason for the dramatic increase in consumer acceptance of aluminum beverage containers. In South America too, the aluminum beverage can is enjoying rapid acceptance, with Alcan playing a prominent role. With a worldwide recycling rate in excess of 55 per cent, aluminum cans are, by far, the most recycled beverage container of any kind. Beverage producers commit to aluminum not only because of its packaging benefits, but also because of its high salvage value, which contributes to the success of many local recycling programs. As recycling efforts take hold in newer markets, the recycling rate will increase, thus further protecting natural resources for future generations. Aluminum's excellent barrier qualities, recyclability and design benefits have also contributed to its success in other areas of the packaging business. Alcan research has led to the development of a variety of aluminum lidding systems, blister packs, foil packages and semi-rigid containers for use in the food and pharmaceutical sectors. As the world's leading rolled products producer, with global representation, Alcan's dedication to supplying aluminum for innovative packaging applications is second to none. (Picture of scrap collection facilities) From working with schools to operating scrap collection facilities, Alcan is dedicated to conserving natural resources and saving energy through the recycling of aluminum at facilities such as Latchford Locks in the U.K. Photo at left: Ian Hewett (left), Vice President and General Manager of Alcan's Light Gauge Products business unit, reviews the many benefits of aluminum with Tenneco Packaging's Richard L. Wambold, Executive Vice President, Specialty and Consumer Products. (Picture of Aluminum foil packaging) Aluminum foil packaging is economical, convenient and recyclable. Manufacturers also find it ideal for innovative design and decoration for a variety of aluminum lidding systems, blister packs and semi-rigid containers for use in the food and pharmaceutical sectors. 13 17 BUILDING BUILDING FOR TOMORROW FROM OFFICE TOWERS AND ELECTRICAL CABLE TO WINDOW FRAMES AND LADDERS, ALUMINUM IS THE MATERIAL OF CHOICE FOR ARCHITECTS, ENGINEERS AND DESIGNERS AROUND THE GLOBE. The advantages of aluminum building products are well known in North America and Europe. Now, those advantages are also being put to the test in fast-growing markets such as the Asia-Pacific region. Architects and designers are finding that aluminum's high strength-to-weight ratio, versatility, durability and decorative potential offer unique advantages over alternative materials. Aluminum reduces the load demand on foundations in both industrial and residential buildings; it can be anodized or painted, meeting designers' aesthetic needs; and, when extruded, aluminum offers an almost unlimited range of profiles and shapes. As labour costs rise, designers and builders are also paying closer attention to installation costs and maintenance requirements over the total life cycle of a project. Today, aluminum is increasingly selected as the material of choice in roadway guard rails, wind breaks and standards for lighting and signs. (Photo of Michel Traulle and Juge Boulogne) Photo: Michel Traulle (left), Sales Manager for Technal in France -- Alcan France, and Juge Boulogne, President and Managing Director, of Societe Juge Boulogne, examine the plans for the aluminum building system of the SCI Alliance Habitat project in France. "Following the architect's specifications, I carried out this project with Technal -- the leading name in aluminum systems. I appreciate the quality and reliability of its products and the help from its design office which created specific and innovative aluminum extrusions, meeting the architect's requirements." JUGE BOULOGNE President and Managing Director Societe Juge Boulogne Technal Authorized Dealer 14 18 ELECTRICAL (Photo of Tom Sapitowicz and Jery Uvira at Atlanta Olympic Stadium) The electrical contracting firm of Inglett & Stubbs chose STABILOY as the main feeder cables for the 1996 Olympic Stadium in Atlanta, Georgia. Tom Sapitowicz (right), Project Manager with Inglett & Stubbs, discusses the advantages of STABILOY cable with Jerry Uvira, Alcan Cable's Director of Distributor Marketing. ALUMINUM, DUE TO ITS HIGH ELECTRICAL CONDUCTIVITY, HAS BEEN PART OF THE ELECTRICAL INDUSTRY SINCE THE BEGINNING OF THIS CENTURY. Today, the use of aluminum is on the rise, not only for its intrinsic benefits, but also because of the value-added enhancements such as those found in Alcan electrical cable. Innovations such as compact stranding, high-strength alloys, self-damping conductors and Stabiloy conductors have all been developed by Alcan with customers' needs in mind. Because of such technological advances, designers, engineers and architects are turning to Alcan's electrical cable to minimize installation and maintenance costs over the life span of a project. When electrical system costs are compared over the short and long term, the benefits of aluminum cable become readily apparent. Alcan is recognized as a world leader in aluminum alloy building wire and low-voltage insulation materials -- its electrical cable is found, as the material of choice, in major projects around the globe. (Picture of wire and low-voltage insulation materials) Alcan is a world leader in light-weight aluminum building wire and low-voltage insulation materials. STABILOY building wires are known for their superior flexibility, strength retention and thermal stability. 15 19 CORPORATE SOCIAL RESPONSIBILITY (Photo of Marie Loiselle, Pierre Bergevin, Myriam Brisson, Richard Saint-Denis and Didier Chapron) PARTNERS FOR PROGRESS Regular training on proper use of personal protective equipment is a key to ensuring a healthy, injury-free work place. Above, occupational health nurse Marie Loiselle reviews procedures, at Beauharnois Works, for respiratory equipment with Pierre Bergevin, Myriam Brisson, Richard Saint-Denis, and Didier Chapron (standing). Zero work-related injuries and illnesses are achievable objectives. Continual environmental improvement of products and processes. Community partnerships built on communication and involvement. 16 20 After floods devastated Quebec's Saguenay--Lac-Saint-Jean region, Alcan people were instrumental in restoring the community. Alcan rebuilt bridges, loaned equipment and encouraged employee volunteers. On the initiative of employees worldwide, the Company created a relief fund and matched their donations, resulting in a total Alcan contribution of CAN$1.3 million. (Picture of Lac-Saint-Jean region floods) (Picture of health and safety products) HEALTH AND SAFETY POLICY It is Alcan Aluminium Limited's commitment to safeguard the health and safety of all its employees by providing a healthy and safe work environment and by managing its operations with the conviction that all occupational injuries and illnesses are preventable. Alcan's management believes that health and safety are paramount criteria of operational excellence. Indeed, the mindset of zero work-related injuries and illnesses is the ultimate goal of every employee in all our operations. HEALTH AND SAFETY FROM THE GROUND UP Alcan installations achieved new milestones in 1996 for occupational health and safety. Many Alcan facilities went the entire year without a lost-time accident and are still improving upon those records. Alcan's success in health and safety relies on individual employee and plant initiatives. These are an integral part of both long- range planning and day-to-day operations. As outlined in the new global health and safety policy, the elimination of work-related injuries and illnesses is the ultimate objective at all Alcan locations. This policy was developed with worldwide input, and line managers have the responsibility for ensuring the development of locally- targeted programs. ENVIRONMENTAL IMPROVEMENT FOR ALL LOCATIONS Alcan recognizes that environmental responsibility is synonymous with good business. Air emissions, water effluents, resource management and waste reduction are all areas where Alcan has worked to ensure environmental improvement. In 1996, Alcan introduced a global Environmental Management System(EMS) that focuses on processes. Several Alcan facilities have already achieved the ISO 14001 EMS standard sanctioned by the International Organization for Standardization. Complementing EMS is product stewardship, an initiative to ensure that Alcan's product, in every stage of its life cycle, makes the most of the inherent value of aluminum's properties, including its recyclability. Effective product stewardship starts with design; it is at this point that environmental features can be built right into a product. Alcan is committed to working with suppliers and customers to design and manufacture products that maximize environmental value. COMMUNITY PARTNERSHIPS IN PROGRESS Whether it's the restoration of exhausted mine sites or the voluntary sponsorships of local events, Alcan supports the communities in which it operates. If a natural disaster strikes, Alcan people are among the first to lend a hand. Alcan is committed to long-term relationships with its communities; Alcan employees live, work and often retire in these communities. This community commitment was especially visible last summer, when Quebec's Saguenay--Lac-Saint-Jean region was devastated by severe flooding with damages totalling more than CAN$600 million. Alcan assisted on all fronts. 17 21 BUSINESS REVIEW (Picture of sheet ingot and extrusion billet products) 1996 -- A YEAR OF CONSOLIDATION Surpassed our debt:equity ratio target. Restructured holdings in Japan and the rest of Asia. Completed divestment program of non-strategic businesses. Photo: Alcan's attention to meeting customer needs for quality sheet ingot and extrusion billet products is essential for continued growth. 18 22 WORLD MARKET REVIEW PRIMARY ALUMINUM Following two years of good demand growth, the aluminum industry entered 1996 on a soft footing. Slowing business conditions in North America and Europe, together with customer inventory reductions, saw primary aluminum demand fall off sharply in the latter stages of 1995. While demand recovered steadily during the course of 1996 in most countries, it continued to be hampered by poor business conditions in Europe. In the United States and Japan, aluminum markets registered positive growth in the second half of the year. For the year as a whole, Western World demand is estimated to have declined by 1%, to 17.7 million tonnes (Mt), the first decline in 14 years. Western World primary aluminum production increased for the second year in a row, up 6% in 1996 to 15.5 Mt. The mid-year start-up of a new smelter in South Africa accounted for most of the increase. At year-end, 860 thousand tonnes (kt), or 5%, of Western World smelter capacity remained idled. Smelter expansions in 1997 are expected to add about 400 kt per year (kt/y) to industry capacity. Russian exports of aluminum grew by 18% in 1996 to a record level of 2.5 Mt, made possible by a 4% increase in aluminum production and a further decline in domestic usage. However, greater imports of aluminum by China absorbed much of the additional metal coming from Russia. While growth in Chinese aluminum demand WESTERN WORLD PRIMARY ALUMINUM SUPPLY AND DEMAND - - Production plus imports from CIS - - Shipments (seasonally adjusted) Mt/y (Graph) Demand recovered steadily during 1996, but for the year as a whole was down 1%. While this was the first decline in 14 years, the aluminum market remained in reasonable balance. TOTAL ALUMINUM INVENTORIES AND INGOT PRICES - - Total inventories (IPAI, LME) - - LME three-month prices Mt US$/t (Graph) Following two years of sharp decline, inventory levels stabilized in 1996. Prices, however, remained under pressure throughout most of the year, recovering somewhat towards year-end. 19 23 continues to be strong, Chinese primary aluminum output is constrained by power availability. Following two years of decline, inventories held by aluminum producers and in London Metal Exchange (LME) warehouses stabilized. At year-end, inventories totalled 4.0 Mt, down 100 kt from the end of 1995. Ingot prices trended down through the first ten months of 1996. Aluminum opened the year at $1,706 per tonne (/t), the high for 1996, and hit a low of $1,305/t in October. During the last two months of the year, prices staged a rally, finishing 1996 at $1,546/t. The average price for 1996 was $1,536/t, well below the average for 1995 of $1,830/t and only slightly above the average of $1,500/t in 1994. WESTERN WORLD CONSUMPTION VERSUS ALCAN SALES In 1996, it is estimated that Western World aluminum consumption was 23.9 Mt, three-quarters of which was supplied from primary aluminum and the remainder from recycled metal. This represented a slight decline from the 1995 level. Divestments of non-strategic assets, coupled with difficult market conditions, resulted in an overall decline in Alcan's volumes and revenues for the year. Transportation, the largest market for aluminum, consumed 6.1 Mt of aluminum in 1996, unchanged from 1995. This reflected a 2% decline in the U.S., principally due to a strike by General Motors workers, offset by modest growth elsewhere in the Western World. Alcan's sales revenues from this market fell 18%, reflecting a 10% volume decline due to the sale of businesses in the U.K. and to lower prices. The containers and packaging market, which used 4.7 Mt of aluminum in 1996, declined by 3% in 1996 mainly due to a 4% fall in can sheet demand following increases in 1994 and 1995. Sharp declines in North America and Europe, reflecting inventory adjustments by customers, continued downgauging and inroads by competing materials, were offset in part by strong growth in South America and Asia. Alcan's shipments were 3% lower than in 1995, in line with the market. Revenues, however, were down 14%, reflecting lower prices. Building and construction markets recovered in 1996, growing a little over 1% to 4.7 Mt. Growth came primarily from North America, while Europe declined with the end of the German reunification boom. Alcan's sales revenues in this market were down 26% from 1995 due to lower metal prices and an 18% volume reduction, reflecting the sale of businesses in the U.K. and Brazil. Aluminum consumption in the electrical market was down marginally from 1995, to 2.1 Mt, largely reflecting lower infrastructure investments in Latin America and Asia. Alcan's sales volumes and revenues were flat after taking account of divested businesses. Other markets include machinery and equipment, durable goods, and several smaller end-use markets. In aggregate, aluminum consumption in these markets was unchanged from 1995 reflecting slow economic activity. Alcan's sales revenues in other markets were down 28% due to the disposal of businesses. However, the Company's alumina sales, also included in this category, were higher than in 1995. REVIEW OF ALCAN'S OPERATIONS Starting with 1996, Alcan is reporting selected information by major product sector, viewing each sector on a stand-alone basis. Transactions between sectors are conducted on an arm's length basis and reflect market-related prices. Thus, profit on all alumina produced by the Company, whether sold to third parties or used in the Company's smelters, is included in the raw materials and chemicals sector. Similarly, income from primary metal operations is principally profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from fabricated products businesses represents only the fabricating profit from rolled products and downstream businesses. Product sector information is presented in note 21 to the financial statements. 1996 WESTERN WORLD ALUMINUM CONSUMPTION BY END-USE MARKET (23.9 million tonnes) (Pie chart) - - 9% Electrical - - 20% Containers and packaging - - 20% Building and construction - - 26% Transportation - - 25% Other 20 24 RAW MATERIALS AND CHEMICALS OPERATIONS Higher alumina production in 1996 was not sufficient to offset the impact of lower alumina prices. As a result, profits for the sector were down sharply from the previous year. Prices for third-party sales of alumina were down on average 3% from 1995, influenced by weaker metal prices.
(millions of US$) 1996 1995 Sales and operating revenues Third parties 529 618 Intersector 507 555 Operating income 95 203 Shipments -- third parties (kt) Alumina 1,585 1,325 Alumina hydrate production (kt) 4,536 4,209
Unit production costs increased in 1996 mainly due to higher oil prices and lower operating rates at the Vaudreuil alumina complex in Quebec as described below. ALUMINA With productivity gains in recent years, the sale of Alcan Australia in 1994, and the acquisition of full ownership of the Aughinish, Ireland, refinery in 1995, Alcan has become a major supplier of alumina to third parties. The Company currently has approximately 1.5 Mt/y of alumina capacity surplus to its internal requirements. Alumina hydrate production hit 4.5 Mt in 1996, an 8% increase over 1995 and the highest level ever for the Company. New production records were set in Australia, Ireland and Jamaica. In July, severe flooding in the Saguenay--Lac-Saint-Jean region of Quebec destroyed a water pumping station that supplied the Vaudreuil alumina complex. As a consequence, operations were temporarily disrupted, leading to the loss of approximately 70 kt of alumina production. The financial impact of this loss was fully covered by insurance. CHEMICALS The specialty chemicals group posted improved performance in 1996. In Europe, where markets suffer from overcapacity and low economic activity, Alcan's operations made steady progress on increasing their share of the value-added chemicals market. In North America, operations benefited from steady demand and good prices. BAUXITE Through subsidiaries and related companies, Alcan has approximately 330 Mt of demonstrated bauxite reserves, sufficient to meet its needs for the next 30 years. The Company also has access to additional resources to meet its needs beyond this period. During 1996, several initiatives were launched aimed at lowering the Company's bauxite costs. The most important of these initiatives was a detailed feasibility study on the development of the Company's Ely bauxite reserves in Northern Queensland, Australia. A decision on the project is expected in the second half of 1997. Bauxite from this new source would replace third-party purchases and would be used to supply alumina operations in Australia and Ireland. ALCAN'S 1996 FABRICATED AND NON-ALUMINUM SALES BY MARKET (US$5.8 billion) (Pie chart) - - 10% Electrical - - 44% Containers and packaging - - 16% Building and construction - - 8% Transportation - - 22% Other 21 25 PRIMARY METAL OPERATIONS
(millions of US$) 1996 1995 Sales and operating revenues Third parties 1,472 1,612 Intersector 1,653 2,286 Operating income 519 701 Shipments (kt) Primary aluminum Third parties 592 549 Intersector 1,008 1,193 Primary production (kt) 1,407 1,278
Operating profits for the primary metal sector were down in 1996 as the benefit of higher production was more than offset by the impact of lower metal prices. Profits for the sector arise not only from third- party sales but also from the transfer of metal to the Company's fabricating operations at market-related prices. The average realized price on third-party sales of primary ingot was $1,721 per tonne in 1996 versus $2,057 per tonne in 1995. Alumina from Alcan's raw materials operations is transferred to the Company's smelters at market-related prices. Prices for alumina were, on average, lower in 1996 than in 1995. Smelter conversion costs were little changed from the previous year, which had been adversely affected by a strike in Quebec. Removing the impact of the strike from 1995 costs, conversion costs were $44/t higher in 1996, reflecting higher anode, maintenance and overhead costs. Alcan's average production cost of primary aluminum (mainly in the form of extrusion billet and sheet ingot), including alumina at market prices, was $1,328/t in 1996 versus $1,336/t in 1995. Of Alcan's primary ingot sales to third parties, nearly 85% is in the form of value- added products, mainly extrusion billet. Shipments of value-added ingot were up 6% in 1996, with volume gains seen in North America and Japan. Alcan purchases ingot largely for logistical reasons in order to balance its metal supply system. For example, by purchasing ingot in Europe, where the Company is short of metal, Alcan is able to avoid the freight and duty costs associated with moving metal from its North American smelters to fabricating plants in Europe. However, this results in an equivalent quantity of metal being available for sale from the smelters in North America. In 1996, total purchases of aluminum were down from the levels of the previous two years largely due to the impact of business disposals and increased primary production. PRIMARY PRODUCTION Since 1991, Alcan's worldwide smelter system has operated at less than its full capacity, primarily due to temporary closures made in response to weak industry fundamentals. Three of Alcan's smelters in Quebec, which had been affected by a 10-day strike in October 1995, returned to full operation early in 1996. Also to compensate for ingot production lost due to the strike, the Company restarted about 60 kt/y of idled capacity in Quebec, British Columbia and the U.K., which had been part of previous temporary shut downs. As a result, primary production for 1996 was 129 kt higher than in the previous year, which had been negatively impacted by the strike to the extent of 75 kt. Alcan continues to have approximately 160 kt/y, or 10%, of its total rated smelter capacity temporarily idled. This capacity will be restarted when warranted by industry conditions. In the U.K., a two-year program is being undertaken to upgrade and refurbish the closed potline at the Lynemouth smelter, with a view to restoring the plant to full operation when market conditions allow. 22 26 In Quebec, Alcan commenced environmental reviews and community consultations for a proposed new 350-kt/y smelter. The plant would be built in Alma, Quebec, where the Company's existing 73-kt/y Isle-Maligne smelter would be shut down. In July 1996, Alcan reached a three-year agreement with unionized workers at its Kitimat, B.C., smelter. In 1995, the Company signed a three-year collective agreement with unionized workers in Quebec and a four-year labour agreement with employees at the Sebree, Kentucky, smelter. SECONDARY PRODUCTION In addition to its used beverage can recycling activities, Alcan recycles other forms of aluminum scrap at three secondary smelters in Italy, the U.K. and the U.S. that have a combined capacity of 152 kt/y. These facilities produce foundry alloys mainly for the automotive market. The Company sold 119 kt of such products in 1996 versus 124 kt in 1995. The Company sold its 70-kt/y Guelph, Ontario, secondary smelter towards the end of 1996. FABRICATED PRODUCTS OPERATIONS
(millions of US$) 1996 1995 Sales and operating revenues 5,593 6,983 Operating income 127 346 Shipments (kt) 1,539 1,733 Fabrication of customer-owned metal 258 225 Total volume 1,797 1,958
Alcan's fabricated products volumes in 1996 were 161 kt lower than in the previous year, mainly reflecting the divestment of non- strategic businesses. While business conditions were generally slow in 1996, volumes from ongoing businesses were about even with those of the previous year. In 1995, Alcan's total fabricated products volumes matched the record level of close to 2 Mt set in 1994. Adjusting for the impact of divestments made over the last three years, fabricated products volumes have risen by 36% since 1993. The operating profit of $127 million in 1996 was $219 million lower than in 1995. In addition to the impact of lower prices for some products, profits were reduced due to expenses associated with the expansion of rolled products operations in Europe. In North America, margins for rolled products were stable during the year, reflecting the continuation of "metal plus conversion fee" pricing for the majority of products. ROLLED PRODUCTS As a result of expansions undertaken in recent years, Alcan is now the largest producer of rolled aluminum products in the world, with a strong base of operations in North America, Europe and South America. Together with products fabricated from customer-owned metal, total rolled products volumes were 1,562 kt in 1996, the same as in 1995. Rolled products sales declined to $3,645 million in 1996 from $3,946 million in 1995 mainly due to lower prices. Shipments of rolled products were 1,304 kt as compared to 1,337 kt in 1995. The average realized price on shipments in 1996 was $2,797/t, down from $2,950/t in 1995. 23 27 ALUMINUM SHIPMENTS AND PURCHASES (Graph) kt
Ingot products* Fabricated products** Total purchases 1992 870 1,595 675 1993 887 1,651 865 1994 897 1,952 1,350 1995 801 1,958 1,365 1996 810 1,797 1,003
* Includes primary and secondary ingot and scrap. ** Includes products fabricated from customer-owned metal. Purchases of aluminum decreased in 1996 due to increased primary ingot production and the divestment of non-strategic downstream businesses. In 1996, North American rolled products demand softened from the previous year's robust level. In the beverage can sheet market, an important market for both the industry and Alcan, demand was affected by customer inventory reductions and the impact of further downgauging. While shipments of finished cans by can manufacturers were up 1% over 1995, aluminum industry shipments of can sheet were down an estimated 6%. Alcan's shipments, while reflecting the general state of the market, were down to a lesser extent. Alcan's North American exports of can sheet were also lower in 1996, reflecting competition from new capacity. In the distributor sheet market, shipments were adversely affected by inventory adjustments by customers, as well as lacklustre demand. Shipments of building sheet and light-gauge products, such as finstock and foil container stock, were higher in 1996. In Europe, consumption of rolled products was down 4% on 1995 levels, a result of weak underlying demand and destocking by customers. The beverage can sheet market was particularly hard hit by lower demand for canned drinks and the conversion of some beverage can lines in the U.K. and Italy from aluminum to steel. Building products was the other area of depressed demand during the year. For Alcan, shipments were down for can sheet, painted sheet and foil stock, while increases were seen in plain and heavy-gauge sheet. Production in 1996 averaged a similar level to the previous year, with few rolling plants working at capacity during the period. In Germany, there was considerable unused capacity at the Norf (50%-owned) and Nachterstedt rolling mills. At the latter facility, the effective capacity increased near year-end with the completion of a modernization program. With a recovery in demand towards the end of 1996, most of Alcan's other rolled products facilities in Europe started operating at close to full capacity. A new marketing organization was put in place in the second half of 1996 to coordinate Alcan's European sales and the development of markets. 24 28 In South America, growth in rolled products demand continued to be led by beverage can sheet. Alcan's sheet production increased 30% in 1996 with the expansion of the Pinda rolling mill in Brazil in the previous year. Can sheet production was up 70%, while foil output increased 10%. Further increases in output are planned over the next few years. AUTOMOTIVE During 1996, the Company made significant progress in growing its North American automotive sheet business. Alcan's Aluminum Vehicle Technology (AVT) reached auto dealer showrooms in December in the form of General Motor's EV1, the first commercially available electric passenger car and the first North American production vehicle to feature an all-aluminum structure. The EV1 is the centerpiece of GM's contribution to the PNGV (Partnership for a New Generation of Vehicles) program, a joint auto industry and U.S. government initiative aimed at the development of fuel-efficient and environment-friendly cars. Alcan's AVT has also been chosen by Ford as the structural technology for its PNGV activities. Ford is currently applying the technology to its new Class 8 truck cab, the Aeromax. Through partnerships with carmakers, Alcan's AVT has evolved into a fully validated system for the production of high- volume aluminum vehicles on existing production lines. During the year, progress was made towards establishing Alcan's proprietary exterior body panel alloy as the North American standard. Either directly from Alcan, or under license, the 6111 alloy is being used in over 1.6 million new vehicles. Alcan's latest closure application, the hood of the Lincoln Mark VIII, made its showroom debut in November. This was the first application developed using Alcan's full-part modeling capability, reducing cost and time to market. Alcan has an extensive and growing program of closure and other applications for high-volume vehicles scheduled for production over the balance of the decade. Progress was also made in broadening the automotive applications for Alcan's metal matrix composite material, Duralcan. Production contracts were signed with Chrysler and GM for the supply of Duralcan material for brake rotors and driveshaft applications. OTHER FABRICATED PRODUCTS Over the past three years, Alcan has divested itself of a number of non-strategic businesses, mostly involved in the downstream fabrication of aluminum products. Proceeds from business disposals totalled $1.2 billion. Reflecting the impact of divestments, sales revenues and shipments from downstream businesses have been declining in recent years. In 1996, shipments of other fabricated products were 235 kt, down from 396 kt in the previous year. Sales revenues declined to $1,404 million from $2,219 million in 1995. The average realized price on sales of other fabricated products was $5,946/t in 1996 versus $5,611/t in 1995. 25 29 In North America, results from Alcan's cable business improved. Good growth was seen in building wire markets, while demand for overhead transmission cable and service entrance cable remained stable. In Europe, the building products market continued to be weak in 1996. However, Alcan's architectural products business, based in France, saw its performance improve through successful sales and marketing and cost reduction efforts. RECYCLING ACTIVITIES In the U.S., Alcan achieved record output at its used beverage can (UBC) recycling plants. Recycling plants in the states of Kentucky, Georgia and New York processed more than 17 billion used aluminum beverage cans during 1996, or approximately 12% more than 1995's record level. Nearly 2 billion of these UBCs were collected by Alcan in Canada, which represents roughly 60% of all aluminum cans recycled in the country. Alcan's recycling operations in the U.K. set a new record for general-purpose sheet ingot production. However, can sheet ingot output was lower due to lower demand. While the total volume of UBCs collected in the U.K. fell, the overall recycling rate for aluminum cans continued to rise. Alcan sold 99 kt of manufacturing scrap in 1996 versus 128 kt in 1995. GEOGRAPHIC REVIEW In all geographic regions, with the exception of South America, Alcan suffered declines in earnings in 1996. Slow economic activity and customer destocking, which began in the second half of 1995, continued into the first half of 1996. Towards the end of the year, however, most areas were showing improvement. The shipment data provided in this Geographic Review is classified according to third-party customer location. CANADA
(millions of US$) 1996 1995 1994 Net income* 175 216 16 Net income excluding special items* 188 231 32 Shipments (kt) Ingot products 120 120 105 Fabricated products 120 112 152
*Net income in 1995 is before an extraordinary loss. Special items include: 1996 rationalization expenses and loss on early retirement of debt, 1995 loss on early retirement of debt, 1994 losses on sale of businesses and rationalization expenses. Lower ingot prices in 1996 resulted in earnings from Canadian operations falling below the previous year's level, which had been adversely affected to the extent of $70 million due to a strike in Quebec. The 1996 result, however, remained well above that of 1994 when primary aluminum prices began their recovery. Domestic aluminum consumption declined by 1% in 1996, with good growth in the building and transportation markets offset by a sharp decline in beverage can sheet demand. Alcan's shipments in Canada were higher in 1996 due to increased sales of can sheet. In 1995, the decline in Alcan's shipments was due to the impact of businesses sold in 1994. Alcan continues to maintain its leading market position in the household foil and industrial container markets. 26 30 1996 ALUMINUM SHIPMENTS BY REGION (Graph)
Western World consumption Alcan Group shipments (includes Alcan's share of related companies) North America 37% 51% South America 4% 6% Europe 27% 26% Asia and Pacific 31% 17% Africa 1% --
Alcan is the most international aluminum company with operations and sales offices in over 30 countries. This is an important competitive advantage in an increasingly global market place. During 1996, a project team was established to evaluate the construction of a 350-kt/y smelter in Quebec. Environmental impact studies have been initiated, and an agreement in principle was reached with Hydro-Quebec that ensures that the Company will have access to sufficient power at a competitive cost. A final decision on this project is not expected to be made before late 1997 -- early 1998. UNITED STATES
(millions of US$) 1996 1995 1994 Net income 70 123 16 Net income excluding special items* 72 99 22 Shipments (kt)** Ingot products 380 380 421 Fabricated products 874 918 960
* Special items include: 1996 loss on sale of business and tax write-backs, 1995 gain on sale of a business, 1994 net loss on sale of businesses and rationalization expenses. ** Includes fabrication of customer-owned metal. The strong recovery in net income experienced in 1995 was moderated in 1996. Industry rolled products shipments declined by some 5%, and Alcan's shipments were similarly affected. This volume reduction, together with generally lower realizations, meant that net income declined but remained above the 1994 level. In the beverage can sheet market the industry volume shortfall was some 6%, reflecting some reversal of earlier inventory build-ups by customers and the continuing impact of downgauging. The Company's shipments of can sheet were down less than the overall market. A similar pattern was seen in the distributor sheet market, while Alcan's shipments of building sheet were higher than in 1995. SOUTH AMERICA
(millions of US$) 1996 1995 1994 Net income 42 15 9 Net income excluding special items* 29 15 17 Shipments (kt) Ingot products 21 13 4 Fabricated products 153 133 116
* Special items include: 1996 gain on sale of business, 1994 rationalization expenses. Alcan's operations in South America further consolidated their return to profitability in 1996 with net income of $29 million, excluding an after-tax gain of $13 million on the sale of a non-core business. Brazil's economy continued to stabilize with slower, but still positive, growth and most notably, single-digit inflation for the first time in almost 40 years. While domestic aluminum demand increased by 11%, reflecting a wider distribution of purchasing power, prices and margins came under pressure from the lower- inflation environment. A major element in the growth in demand for aluminum was beverage can sheet, where consumption increased 37%. A further phase of expansion of Alcan's Pinda rolling mill in Brazil is under consideration in order 27 31 to increase can sheet capacity. Alcan's shipments in South America were higher, despite the divestment of businesses, with improved volumes from continuing businesses and increased ingot sales to former Alcan operations. EUROPE
(millions of US$) 1996 1995 1994 Net income 21 161 76 Net income excluding special items* 26 161 87 Shipments (kt)** Ingot products 89 95 63 Fabricated products 620 756 675
* Special items include: 1996 rationalization expenses and tax write-backs, 1994 rationalization expenses. ** Includes fabrication of customer-owned metal. Net income from European operations was sharply lower in 1996 largely reflecting difficult market conditions for rolled products, lower alumina prices and the sale of downstream businesses in the U.K. European rolled products demand fell just over 4% from the 1995 level as a result of weak underlying demand and customer destocking. This, coupled with falling metal prices and excess rolling capacity in Europe, resulted in intense price competition and lower margins. Can sheet shipments were particularly badly hit due to weaker demand for canned drinks and the conversion of some can-making lines in the U.K. and Italy from aluminum to steel. Some recovery in demand was felt towards the end of the year as the destocking process appeared to be complete. The reduction in shipments in 1996 is primarily due to the sale of downstream businesses in the U.K. In the U.K., net income was down from the 1995 record level reflecting the sale of downstream businesses early in the year, lower prices and reduced rolled products margins. Primary ingot production was curtailed by water shortages in the Highlands of Scotland in the middle of the year. By year-end, however, production was running close to capacity. A two-year $80-million investment to upgrade and refurbish environmental controls at the closed potline at the Lynemouth smelter is being implemented to allow resumption to full capacity when warranted by market conditions. The sale of downstream businesses took place in February 1996, raising some $300 million. Alcan's operations in Germany were particularly affected by weak demand and lower prices for rolled products as well as higher costs related to the expansion of capacity at the Norf and Nachterstedt rolling mills. With some recovery in shipment volumes towards the end of the year, capacity utilization has begun to improve. Sales volumes of the Italian business were similar to 1995, but margins suffered, with a lower proportion of sales of higher margin products. In France, despite a 3% drop in the building systems market, income in 1996 was higher than in 1995 due to cost reductions and marketing improvements. The alumina refinery in Ireland suffered a decline in net income resulting from lower alumina prices. Cost control continues to be excellent. 28 32 ASIA AND PACIFIC
(millions of US$) 1996 1995 1994 Net income 13 43 28 Net income (Loss) excluding special items* 25 43 (21) Shipments (kt) Ingot products 199 193 274 Fabricated products 13 32 44
* Special items include: 1996 rationalization expenses, 1994 gains from the sale of Alcan Australia Limited and a dilution of Alcan's interest in Indal. The improvement in net income from operations experienced in 1995 was partially reversed in 1996 by the effect of lower alumina and metal prices and some slowing in the rate of growth of the Southeast Asian economies. During the year, Alcan and its related companies in Japan, Nippon Light Metal Company, Ltd. (NLM) and Toyo Aluminium K.K. (Toyal), restructured certain of their holdings in the region. The restructuring will reinforce the Alcan Group's support to its subsidiaries and related companies in Southeast Asia and China while enabling NLM to focus on opportunities and strengthen its position in Japan. Additional information is provided in note 11 of the financial statements. The recovery in the Japanese economy continued, albeit at a subdued rate. For NLM, owned 45.6% (47.4% in 1995) by Alcan, 1996 was a year of some improvement. During the year, several of its businesses were restructured and staff reduced. As a result, Alcan's share of rationalization expenses was $12 million, which is included in Equity loss. In India, economic growth slowed during 1996 with building and manufacturing being particularly affected. This, together with lower aluminum and alumina prices, resulted in a 25% decline in net income for Indian Aluminium Company, Limited (Indal), 34.6%-owned by Alcan. During the year, Indal increased its metallurgical and special-grade alumina capacity by 65 kt/y through a brownfield expansion program. OTHER AREAS
(millions of US$) 1996 1995 1994 Net income 31 39 7 Net income excluding special items* 35 39 13 Shipments (kt) Ingot products 1 -- 31 Fabricated products 7 7 4
* Special items in 1996 and 1994 were mainly rationalization expenses. Activities in other areas include raw materials operations in Jamaica, Guinea and Ghana, and trading, shipping and insurance activities in Bermuda. Alcan also sells metal in other parts of the world such as the Middle East and Africa. 29 33 FINANCIAL REVIEW Slow economic growth and customer inventory reductions in 1996 kept primary aluminum prices under pressure through most of the year. Although Alcan's profits and cash from operating activities were lower than in 1995, the Company continued to strengthen its balance sheet. By year-end, Alcan had improved its debt-to-equity ratio, net of surplus cash, to 17:83, below its stated target of 20:80. RESULTS OF OPERATIONS
(millions of US$) 1996 1995 1994 Net income before extraordinary item 410 543 96 Extraordinary loss -- (280) -- Net income 410 263 96
For 1996, Alcan reported consolidated net income of $410 million. Included in the year were net after-tax charges of $23 million, comprising $30 million of restructuring charges and $12 million of charges for the early retirement of debt offset by $8 million of gains arising on disposals of businesses and $11 million of tax adjustments for prior periods. In 1995, consolidated net income, before an extraordinary loss, was $543 million. The extraordinary loss of $280 million, after tax, was for the write-down of the Company's investment in the Kemano Completion Project (KCP). An update on KCP can be found on page 34. Net income for 1995 was also reduced by approximately $70 million due to a strike at the Company's operations in Quebec, and by charges of $15 million for the early retirement of debt. These items were partially offset by a gain of $24 million, which arose from the sale of a metals distribution business in the U.S. Net income for 1994 included $43 million in after-tax gains from the disposal of several businesses, offset by charges of $41 million, after tax, largely for the rationalization of ongoing businesses and the early retirement of debt. Other income, which principally includes non-operating gains and interest revenue, totalled $75 million in 1996 compared to $100 million in 1995 and $109 million in 1994. Income in the two earlier years included pre-tax gains on the disposal of downstream businesses. COSTS AND EXPENSES Cost of sales and operating expenses were $5,905 million in 1996, 18% lower than in the previous year. The decrease in the cost of products sold largely reflects the impact of business disposals, as well as the lower cost of purchased metal and certain raw materials, such as caustic soda. In 1995, costs rose by 7% due to higher purchase prices for metal and raw materials, as well as the additional costs incurred due to the Quebec strike.
(kt) 1996 1995 1994 Purchases of aluminum Ingot products 509 789 759 Scrap 446 509 460 Fabricated products 48 67 131 1,003 1,365 1,350
In 1996, total purchases of aluminum, at 1,003 kt, were down from the levels of the previous two years largely due to the impact of business disposals and increased primary production. Market prices for ingot were on average $1,536/t in 1996 compared to $1,830/t in 1995 and $1,500/t in 1994. Depreciation expense was $431 million in 1996, compared to $447 million in 1995 and $431 million in 1994. After having risen in 1995 as a result of the consolidation of joint ventures previously accounted for as equity companies, depreciation declined in 1996 due to the sale of some downstream businesses. 30 34 NUMBER OF EMPLOYEES (Graph) Adjusted for Business Acquisitions and Disposals (at year-end) thousands 1992 = 36.8 1993 = 34.6 1994 = 33.5 1995 = 33.5 1996 = 33.2 Reflecting Alcan's ongoing efforts to contain costs and improve productivity, employment levels remained under tight control in 1996. Selling, administrative and general expenses declined for the sixth consecutive year. In 1996, these expenses were $422 million, 13% lower than in 1995 and 20% lower than in 1994. Since their peak in 1990, these expenses have declined by $237 million, or 36%, largely due to divestitures, employee and other reductions, and weaker local currencies against the U.S. dollar. Research and development expenses were $71 million in 1996, little changed from 1994 and 1995. The fairly stable level of expenses over the last three years reflects Alcan's efforts to align R & D activities more closely with the technology needs of its core businesses, principally raw materials, smelting and rolling. In 1997, spending is expected to be about the same as in 1996. INTEREST COSTS
(millions of US$) 1996 1995 1994 Interest expense 125 204 219 Interest capitalized -- 2 16 Total interest costs 125 206 235 Effective average interest rate 7.3% 8.2% 8.7%
During 1996, Alcan continued to reduce its total borrowings, as discussed on page 32. As a consequence, total interest costs for the year declined by $81 million. The average effective interest rate for the year also declined, reflecting the repayment of higher cost long-term debt and the impact of lower interest rates. Other expenses, which include items such as rationalization expenses and exchange losses, were $88 million in 1996, versus $61 million in 1995 and $95 million in 1994. The increase in 1996 was mainly due to rationalization expenses. INCOME TAXES Income taxes of $226 million for 1996 represent an effective tax rate of 35% versus a composite statutory rate of 40%. The difference in rates is mainly due to the realization of previously unrecorded tax benefits on losses, investment and other allowances and tax adjustments for prior periods, partially offset by non-deductible expenses. In 1995, there was little difference between the two rates. In 1994, Alcan's effective rate was 47%, primarily due to non-deductible currency translation losses and withholding taxes, partially offset by reduced rate or tax exempt items. 31 35 TOTAL BORROWINGS AND EQUITY (Graph) (at year-end)
millions of US$ ratio Total borrowings Equity Ratio of total (includes minority interests borrowings to equity and preference shares) 1992 2,794 4,667 37:63 1993 2,652 4,519 37:63 1994 2,485 4,689 35:65 1995 1,985 4,863 29:71 1996 1,516 4,937 23:77
Continued good cash generation, together with proceeds from the divestment of businesses, allowed Alcan to further improve its borrowings-to-equity ratio to 23:77. Adjusted for surplus cash at year-end, the ratio was 17:83. EQUITY COMPANIES Alcan's share of the losses of equity-accounted companies was $10 million in 1996 versus $3 million in 1995 and $29 million in 1994. The increase over 1995 is largely due to restructuring costs incurred by Alcan's related company in Japan, Nippon Light Metal Company, Ltd. (NLM). LIQUIDITY AND CAPITAL RESOURCES Declining fabricated products prices and lower volumes, due to the divestment of businesses, led to a reduction in cash generation in 1996. Calculated by taking the net income for the year, before extraordinary items, and adding back depreciation and deferred income taxes, cash generation was $856 million, as compared to $1,164 million in 1995 and $563 million in 1994. For 1996, cash generation exceeded the Company's combined cash requirements for capital expenditures and dividends, by $222 million. Proceeds from the disposal of non-strategic businesses and other assets totalled $660 million, further increasing available cash resources. During the year, Alcan reduced its total borrowings by $414 million and redeemed $150 million of preference shares. At year-end, the Company had cash and time deposits of $546 million, up from $66 million at the end of 1995. The ratio of total borrowings to equity continued to improve during 1996, reaching 23:77 by year-end, down from 29:71 at the end of 1995 and 35:65 at the end of 1994. The 1996 ratio improves further to 17:83 when adjusted to reflect surplus cash at year-end. Net operating working capital decreased by $63 million in 1996. This was principally due to the impact of lower metal prices on inventories and accounts receivable. In 1994 and 1995, net operating working capital increased in order to meet increased business activity. INVESTMENT ACTIVITIES Capital spending for the year totalled $482 million, versus $441 million in 1995 and $356 million in 1994. On an ongoing basis, annual spending of approximately $400 million is required to maintain the integrity of the Company's existing assets. The remaining expenditures were mainly to improve and round-out fabricating facilities and to extend the lives of the Company's smelters. 32 36 CASH FLOWS (Graph) millions of US$
Sales of assets Cash from Dividends paid Capital expenditures and investments operating activities 1992 24 465 124 474 1993 31 444 85 370 1994 427 65 88 356 1995 168 1,044 125 441 1996 660 981 152 482
Cash generation, together with proceeds from divestments, far exceeded cash requirements. After the repayment of debt and redemption of preference shares, Alcan had $546 million of cash at the end of the year. The increase in spending in 1995 was largely due to the impact of consolidating joint ventures previously accounted for as equity companies, as well as the acquisition of the minority interest in the Aughinish alumina refinery in Ireland. Projects, in 1997, other than those to maintain existing assets, include the upgrade of environmental systems at the Lynemouth smelter in the U.K. In 1996, Alcan completed its major program to divest itself of non-strategic businesses. Over the last three years, the Company has sold a 73.3% interest in Alcan Australia Limited and a large number of downstream businesses in Canada, the U.S., the U.K. and Brazil. Proceeds generated from the sales of non-strategic businesses total $1.2 billion, which has been used mainly to reduce debt. In the third quarter of 1996, Alcan undertook a restructuring of its investments in Asia. As a first step, Alcan sold a related company in Japan, Toyo Aluminium K.K. (Toyal), to Nippon Light Metal Company, Ltd., another related company in Japan, for cash proceeds of $207 million. As Toyal remains within the Alcan Group, the gain on the transaction was deferred. In November, Alcan and NLM created a new company, Alcan Nikkei Asia Holdings Ltd. (ANAH), owned 60% by Alcan and 40% by NLM. In exchange for shares of ANAH, Alcan contributed a portion of its holdings in NLM, while NLM contributed its shareholdings in a number of companies in Southeast Asia and China. As a result of the transaction, Alcan's effective ownership in NLM fell from 47.4% to 45.6%. FINANCING ACTIVITIES As discussed earlier, Alcan further reduced total borrowings in 1996, bringing the total reduction over the last three years to approximately $1.2 billion. During the year, the Company prepaid $367 million of debentures, including, the 12.45% debentures due in 1997, the 9.1% debentures due in 1998 and the 6.375% debentures due in 1997. Other repayments of long-term debt amounted to $36 million, while short-term borrowings were reduced by $11 million. In addition, Alcan redeemed $150 million of its Series G preference shares. 33 37 As a result of the early retirement of the debentures, which carried interest rates that were higher than current market rates, Alcan incurred after-tax charges of $12 million in 1996 and $15 million in 1995. Interest charges were down in 1996 due to lower debt and interest rates. As a consequence, Alcan's pre-tax interest coverage ratio improved to 5.6 times as compared to 4.8 times in 1995 and 1.8 times in 1994. The quarterly dividend on common shares was unchanged in 1996 at 15 cents per share. The dividend had been increased from 7.5 cents to 15 cents per common share in July 1995. Total dividends paid to common shareholders in 1996 were $136 million versus $101 million in 1995 and $67 million in 1994. With the redemption of preference shares in 1996, dividends to preference shareholders declined to $16 million for the year from $24 million in 1995 and $21 million in 1994. In December 1996, Alcan entered into a $1-billion global multicurrency credit facility with a syndicate of banks, in replacement of its other existing credit lines. At year-end, the full amount of the new facility was available and unutilized. For 1997, the Company expects that its cash generation and cash reserves will be more than sufficient to meet planned capital expenditures and dividends. Moreover, the Company's investment-grade rating gives it ready access to capital markets, through the issuance of a wide range of securities. In addition, should any major unforeseeable events occur, the above-mentioned $1-billion credit facility should provide more than adequate liquidity. KEMANO COMPLETION PROJECT In the third quarter of 1995, the Company wrote down its investment in Kemano Completion Project (KCP). After estimated disposal proceeds and site restoration costs, the amount of the write-down was $420 million, resulting in an extraordinary loss of $280 million on an after-tax basis, or US$1.24 per common share. In January 1995, the government of British Columbia unilaterally announced that it would not allow KCP to proceed and indicated its preparedness to confirm this prohibition by legislation. This highly unusual action by the government was in breach of certain legal agreements among the Province, the Company and the government of Canada under which the Company was granted certain rights in connection with the development of hydroelectric facilities. Shortly after the government's announcement, Alcan and the government began talks for the purpose of attempting to reach a satisfactory resolution of this matter. The write-down of KCP in 1995 recognized that the project could not be completed due to the government's prohibition. Any future quantifiable benefit received as compensation for the government's rejection of KCP will be treated as an extraordinary gain when realized. On January 22, 1997, the Company filed, in the British Columbia Supreme Court, a writ of summons which names the Province of British Columbia as defendant in a lawsuit for damages arising from its rejection of KCP. The Company continues negotiations with the government in an attempt to reach an out-of-court settlement. 34 38 ENVIRONMENTAL MATTERS Alcan is committed to the continued environmental improvement of its operations and products. The Company has devoted, and will continue to devote, significant resources to control air and water pollutants, to safely dispose of wastes and to remediate sites of past waste disposal. Alcan estimates that annual environment-related spending, both capital and expense, will average about $170 million per year over the next several years and is not expected to have a material effect on its competitive position. While the Company does not anticipate a material increase in the projected level of such expenditures, there is always a possibility that such increases may occur in the future in view of the uncertainties associated with environmental exposures, including new information concerning sites with identified environmental liabilities and changes in laws and regulations and their application. Included in total operating costs and expenses for the year are amounts for safeguarding the environment and improving working conditions in plants. In 1996, such expenses totalled $96 million. This amount was largely for costs associated with reducing air emissions and mitigating the impact of waste and by-products. In 1994 and 1995, these expenses totalled $47 million and $76 million, respectively. Included in capital spending in 1996 was $60 million for environment-related projects. Such spending was largely on equipment designed to reduce or contain air emissions generated by Alcan plants. Spending in 1994 and 1995 was $39 million and $53 million, respectively. RISKS AND UNCERTAINTIES RISK MANAGEMENT As a multinational company engaged in a commodity-related business, Alcan's financial performance is significantly impacted by fluctuations in metal prices and exchange rates. In order to reduce the associated risks, the Company uses a variety of financial instruments and commodity contracts. All risk management activities are governed by clearly defined policies and management controls. Transactions in financial instruments for which there is no underlying exposure are prohibited. The decision whether and when to commence a hedge, along with the duration of the hedge, can vary from period to period depending on market conditions and the relative costs of various hedging instruments. The duration of a hedge is always linked to the timing of the underlying transaction, with the connection between the two being constantly monitored to ensure effectiveness. 35 39 FOREIGN CURRENCY EXCHANGE Exchange rate movements, particularly between the Canadian dollar and U.S. dollar, have an important impact on Alcan's results. For example, on an annual basis, each US$0.01 permanent change in the value of the Canadian dollar has an after-tax impact of approximately $11 million on the Company's long-term profitability. Alcan benefits from a weakening in the Canadian dollar, but, conversely, is disadvantaged if it strengthens. In order to reduce the short-term volatility in costs arising from movements in exchange rates, Alcan hedges a substantial portion of its Canadian dollar exposure through the use of forward exchange contracts and currency options. For further details, refer to note 17 of the financial statements. ALUMINUM PRICES Depending on market conditions and logistical considerations, Alcan may sell primary aluminum to third parties and may purchase primary aluminum and secondary aluminum, including scrap, on the open market to meet the requirements of its fabricating businesses. In addition, depending on pricing arrangements with fabricated products customers, Alcan may hedge some of its purchased metal supply in support of those sales. Through the use of forward purchase and sale contracts and options, Alcan seeks to limit the impact of lower metal prices, while retaining the ability to benefit from higher prices. The Company may also, through a combination of hedging instruments, establish a range of sales prices for a certain portion of its future revenues. Alcan estimates that on an annual basis, each $100 per tonne change in the price of aluminum has an after-tax impact of approximately $100 million on the Company's profitability. For further details, refer to note 17 of the financial statements. 36 40 RESPONSIBILITY FOR THE ANNUAL REPORT Alcan's management is responsible for the preparation, integrity and fair presentation of the financial statements and other information in the Annual Report. The financial statements have been prepared in accordance with accounting principles generally accepted in Canada and include, where appropriate, estimates based on the best judgement of management. They conform in all material respects with accounting principles established by the International Accounting Standards Committee. A reconciliation with accounting principles generally accepted in the United States is also presented. Financial and operating data elsewhere in the Annual Report are consistent with that contained in the accompanying financial statements. Alcan's policy is to maintain systems of internal accounting and administrative controls of high quality consistent with reasonable cost. Such systems are designed to provide reasonable assurance that the financial information is accurate and reliable and that Company assets are adequately accounted for and safeguarded. The Board of Directors oversees the Company's systems of internal accounting and administrative controls through its Audit Committee, which is comprised of directors who are not employees. The Audit Committee meets regularly with representatives of the shareholders' independent auditors and management, including internal audit staff, to satisfy themselves that Alcan's policy is being followed. The Audit Committee has recommended the reappointment of Price Waterhouse as the independent auditors, subject to approval by the shareholders. The financial statements have been reviewed by the Audit Committee and, together with the other required information in this Annual Report, approved by the Board of Directors. In addition, the financial statements have been audited by Price Waterhouse, whose report is provided below. /s/ Jacques Bougie /s/ Suresh Thadhani Jacques Bougie, Suresh Thadhani, Chief Executive Officer Chief Financial Officer
February 13, 1997 OECD GUIDELINES The Organization for Economic Cooperation and Development (OECD), which consists of 24 industrialized countries including Canada, has established guidelines setting out an acceptable framework of reciprocal rights and responsibilities between multinational enterprises and host governments. Alcan supports and complies with the OECD guidelines, and the Company's own statement, Alcan, Its Purpose, Objectives and Policies, is consistent with them. This statement, first published in 1978, has been distributed in 11 languages to Alcan employees worldwide to strengthen the awareness of the basic principles and policies which have guided the conduct of Alcan's business over the years. The statement of Alcan's purpose, objectives and policies, the Company's annual information form and its 10-K report are all available to shareholders on request. The latter two documents contain a complete list of significant Alcan Group companies worldwide. AUDITORS' REPORT To the Shareholders of Alcan Aluminium Limited We have audited the consolidated balance sheet of Alcan Aluminium Limited as at December 31, 1996, 1995 and 1994 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 41 We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1996, 1995 and 1994 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996 in accordance with Canadian generally accepted accounting principles. /s/ /s/ Price Waterhouse Montreal, Canada Price Waterhouse February 13, 1997 Chartered Accountants
37 42 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (in millions of US$, except per share amounts)
Year ended December 31 1996 1995 1994 REVENUES Sales and operating revenues $7,614 $9,287 $8,216 Other income 75 100 109 7,689 9,387 8,325 COSTS AND EXPENSES Cost of sales and operating expenses 5,905 7,233 6,740 Depreciation (note 2) 431 447 431 Selling, administrative and general expenses 422 484 528 Research and development expenses 71 76 72 Interest 125 204 219 Other expenses 88 61 95 7,042 8,505 8,085 Income before income taxes and other items 647 882 240 Income taxes (note 6) 226 340 112 Income before other items 421 542 128 Equity loss (note 8) (10) (3) (29) Minority interests (1) 4 (3) NET INCOME BEFORE EXTRAORDINARY ITEM $ 410 $ 543 $ 96 Extraordinary loss (note 4) -- 280 -- NET INCOME $ 410 $ 263 $ 96 Dividends on preference shares 16 24 21 NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 394 $ 239 $ 75 NET INCOME PER COMMON SHARE BEFORE EXTRAORDINARY ITEM (NOTE 2) $ 1.74 $ 2.30 $ 0.34 Extraordinary loss per common share (note 4) -- 1.24 -- NET INCOME PER COMMON SHARE (NOTE 2) $ 1.74 $ 1.06 $ 0.34 DIVIDENDS PER COMMON SHARE $ 0.60 $ 0.45 $ 0.30
CONSOLIDATED STATEMENT OF RETAINED EARNINGS (in millions of US$)
Year ended December 31 1996 1995 1994 RETAINED EARNINGS -- BEGINNING OF YEAR $2,959 $2,821 $2,813 Net income 410 263 96 3,369 3,084 2,909 Dividends -- Common 136 101 67 -- Preference 16 24 21 RETAINED EARNINGS -- END OF YEAR (NOTE 15) $3,217 $2,959 $2,821
38 43 CONSOLIDATED BALANCE SHEET (in millions of US$)
December 31 1996 1995 1994 ASSETS CURRENT ASSETS Cash and time deposits $ 546 $ 66 $ 27 Receivables 1,262 1,449 1,410 Inventories Aluminum 736 888 863 Raw materials 325 321 228 Other supplies 244 281 293 1,305 1,490 1,384 3,113 3,005 2,821 Deferred charges and other assets (note 3) 314 364 455 Investments (notes 3, 8 and 11) 428 695 1,193 Property, plant and equipment (notes 3, 4 and 9) Cost 11,517 11,735 10,718 Accumulated depreciation 6,047 6,063 5,184 5,470 5,672 5,534 TOTAL ASSETS $ 9,325 $ 9,736 $ 10,003 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables $ 1,008 $ 1,107 $ 1,096 Short-term borrowings 178 212 195 Income and other taxes 98 101 23 Debt maturing within one year (note 10) 19 28 70 1,303 1,448 1,384 Debt not maturing within one year (notes 3, 10 and 17) 1,319 1,745 2,220 Deferred credits and other liabilities (note 12) 770 701 796 Deferred income taxes 996 979 914 Minority interests (note 11) 73 28 28 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares (note 13) 203 353 353 Common shareholders' equity Common shares (note 14) 1,235 1,219 1,195 Retained earnings (note 15) 3,217 2,959 2,821 Deferred translation adjustments (note 16) 209 304 292 4,661 4,482 4,308 4,864 4,835 4,661 Commitments and contingencies (note 18) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,325 $ 9,736 $ 10,003
Approved by the Board: /s/ Jacques Bougie /s/ W.R.C. Blundell Jacques Bougie, W.R.C. Blundell, Director Director
39 44 CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of US$)
YEAR ENDED DECEMBER 31 1996 1995 1994 OPERATING ACTIVITIES Net income before extraordinary item $ 410 $ 543 $ 96 Adjustments to determine cash from operating activities: Depreciation 431 447 431 Deferred income taxes 15 174 36 Equity income -- net of dividends 21 12 51 Change in receivables 187 (38) (345) Change in inventories 185 (107) (128) Change in payables (99) 11 168 Change in income and other taxes payable (3) 78 7 Changes in operating working capital due to: Deferred translation adjustments (29) 33 60 Acquisitions, disposals and consolidations/ deconsolidations (178) (77) (173) Change in deferred charges, other assets, deferred credits and other liabilities -- net 25 30 (86) Gain on sales of businesses -- net (8) (34) (35) Other -- net 24 (28) (17) CASH FROM OPERATING ACTIVITIES 981 1,044 65 FINANCING ACTIVITIES New debt 56 90 339 Debt repayments (459) (738) (464) (403) (648) (125) Short-term borrowings -- net (11) 4 8 Common shares issued 16 24 12 Shares issued by subsidiary companies -- 1 2 Redemption of preference shares (150) -- -- Dividends -- Alcan shareholders (including preference) (152) (125) (88) CASH USED FOR FINANCING ACTIVITIES (700) (744) (191) INVESTMENT ACTIVITIES Property, plant and equipment (482) (390) (264) Investments -- (38) (81) Other -- (13) (11) (482) (441) (356) Net proceeds from disposal of businesses and other assets 660 168 427 CASH FROM (USED FOR) INVESTMENT ACTIVITIES 178 (273) 71 Effect of exchange rate changes on cash and time deposits (1) 1 5 INCREASE (DECREASE) IN CASH AND TIME DEPOSITS 458 28 (50) Cash of companies consolidated (deconsolidated) -- net 22 11 (4) Cash and time deposits -- beginning of year 66 27 81 Cash and time deposits -- end of year $ 546 $ 66 $ 27
40 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of US$, except where indicated) 1. NATURE OF OPERATIONS Alcan is engaged, together with subsidiaries and related companies, in all aspects of the aluminum business on an international scale. Its operations include the mining and processing of bauxite, the basic aluminum ore; the refining of bauxite into alumina; the generation of electric power for use in smelting aluminum; the smelting of aluminum from alumina; the recycling of used and scrap aluminum; the fabrication of aluminum, aluminum alloys and non-aluminum materials into semi- fabricated and finished products; the distribution and marketing of aluminum and non-aluminum products; and, in connection with its aluminum operations, the production and sale of industrial chemicals. Alcan, together with its subsidiaries and related companies, has bauxite holdings in six countries, produces alumina in nine, smelts primary aluminum in six, operates aluminum fabricating plants in 16 and has sales outlets and maintains warehouse inventories in the larger markets of the world. Alcan also operates a global transportation network that includes bulk cargo vessels, port facilities and freight trains. Since the metal aluminum, from the raw material to the semi-fabricated or finished product, is the prime concern of the Company, and since its operations are vertically integrated on an international basis, the Company is engaged in one industry. Operations other than those related to aluminum, process materials and by-products are not material. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements, which are expressed in U.S. dollars, the principal currency of Alcan's business, are prepared in accordance with generally accepted accounting principles (GAAP) in Canada. They include the accounts of companies controlled by Alcan, virtually all of which are majority owned. Joint ventures, irrespective of percentage of ownership, are proportionately consolidated to the extent of Alcan's participation. Consolidated net income also includes Alcan's equity in the net income or loss of companies owned 50% or less where Alcan has significant influence over management, and the investment in these companies is increased or decreased by Alcan's share of their undistributed net income or loss and deferred translation adjustments since acquisition. Investments in companies in which Alcan does not have significant influence over management are carried at cost less amounts written off. Intercompany balances and transactions, including profits in inventories, are eliminated. FOREIGN CURRENCY The financial statements of self-sustaining foreign operations are translated into U.S. dollars at prevailing exchange rates. Differences arising from exchange rate changes are included in the Deferred translation adjustments (DTA) component of Common shareholders' equity. If there is a reduction in the Company's ownership in a foreign operation, the relevant portion of DTA is recognized in Other income or Other expenses at that time. Gains or losses on forward exchange contracts or currency options, all of which serve to hedge certain future identifiable foreign currency exposures, are included, together with related hedging costs, in Sales and operating revenues or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. Unrealized gains or losses on currency swaps, all of which are used to hedge certain identifiable foreign currency debt obligations, are recorded concurrently with the unrealized gains or losses on the debt obligations being hedged. Other gains and losses from foreign currency denominated items are included in Other income or Other expenses. 41 46 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) COMMODITY CONTRACTS AND OPTIONS Gains or losses on forward metal contracts and options, all of which serve to hedge certain future identifiable aluminum price exposures, are included, together with related hedging costs, in Sales and operating revenues or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. INTEREST RATE SWAPS Net cash flows related to interest rate swaps are recorded in Interest concurrently with the interest expense on the underlying debt. INVENTORIES Aluminum, raw materials and other supplies are stated at cost (determined for the most part on the monthly average method) or net realizable value, whichever is the lower. DEPRECIATION Depreciation is calculated on the straight-line method using rates based on the estimated useful lives of the respective assets. The principal rates are 21/2% for buildings and range from 1% to 4% for power assets and 3% to 121/2% for chemical, smelter and fabricating assets. ENVIRONMENTAL COSTS AND LIABILITIES Environmental expenses are accrued when it is probable that a liability for past events exists. For future removal and site restoration costs, provision is made in a systematic manner by periodic charges to income, except for assets that are no longer in use, in which case full provision is charged immediately to income. Environmental expenses are normally included in Cost of sales and operating expenses except for large, unusual amounts which are included in Other expenses. Accruals related to environmental costs are included in Payables and Deferred credits and other liabilities. Environmental expenditures of a capital nature that extend the life, increase the capacity or improve the safety of an asset or that mitigate or prevent environmental contamination that has yet to occur are included in Property, plant and equipment and are depreciated generally over the remaining useful life of the underlying asset. POST-RETIREMENT BENEFITS OTHER THAN PENSIONS The costs of post-retirement benefits other than pensions are recognized on an accrual basis over the working lives of employees. NET INCOME PER COMMON SHARE Net income per common share is calculated by dividing Net income attributable to common shareholders by the average number of common shares outstanding (1996: 226.2 million; 1995: 225.3 million; 1994: 224.3 million). 3. ACCOUNTING CHANGES In the first quarter of 1996, the Company adopted new recommendations of the Canadian Institute of Chartered Accountants (CICA) on disclosure and presentation of financial instruments. The new recommendations, which have no impact on earnings or cash flow, have been applied retroactively and the December 31, 1995 balance sheet has been restated to increase both Debt not maturing within one year and Deferred charges and other assets by $34 ($14 in 1994). In the first quarter of 1995, the Company adopted new recommendations of the CICA, which require that all joint ventures be accounted for using the proportionate consolidation method. Prior to 1995, incorporated joint ventures had been accounted for using the equity method. This change has been applied prospectively and has no impact on net income. The impact on revenues and expenses is not significant. The major impact of the change was to replace $461 of Investments as at January 1, 1995, by the Company's proportionate share of the underlying assets (principally Property, plant and equipment of $574) and liabilities (including total debt of $94) in incorporated joint ventures. 42 47 4. EXTRAORDINARY LOSS -- KEMANO COMPLETION PROJECT In the third quarter of 1995, the Company wrote down its investment in Kemano Completion Project (KCP). After estimated disposal proceeds and site restoration costs, the amount of the write-down was $420, resulting in an extraordinary loss of $280 on an after-tax basis, or US$1.24 per common share. In January 1995, the government of British Columbia unilaterally announced that it would not allow KCP to proceed and indicated its preparedness to confirm this prohibition by legislation. This highly unusual action by the government was in breach of certain legal agreements among the Province, the Company and the government of Canada under which the Company was granted certain rights in connection with the development of hydroelectric facilities. Shortly after the government's announcement, Alcan and the government began talks for the purpose of attempting to reach a satisfactory resolution of this matter. The write-down of KCP in 1995 recognized that the project could not be completed due to the government's prohibition. Any future quantifiable benefit received as compensation for the government's rejection of KCP will be treated as an extraordinary gain when realized. On January 22, 1997, the Company filed, in the British Columbia Supreme Court, a writ of summons which names the Province of British Columbia as defendant in a lawsuit for damages arising from its rejection of KCP. The Company continues negotiations with the government in an attempt to reach an out-of-court settlement. 5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) DEFERRED INCOME TAXES Under Canadian GAAP, deferred income taxes are measured at tax rates prevailing at the time the provisions for deferred taxes are made. Deferred income taxes for U.S. GAAP are revalued each period using currently enacted tax rates. Under Canadian GAAP, deferred income taxes of operations using the temporal method (integrated operations and foreign operations located in hyperinflationary economies) are translated at historical exchange rates, while under U.S. GAAP, deferred income taxes of all operations are translated at current exchange rates. CURRENCY TRANSLATION Under Canadian GAAP, unrealized exchange gains and losses on translation of long-term monetary items are deferred and amortized over the life of those items, whereas, under U.S. GAAP, such gains and losses are absorbed in income immediately. SHARE PURCHASE LOANS Under Canadian GAAP, share purchase loans to employees are classified as receivables, whereas such loans are deducted from the stated value of common shares under U.S. GAAP. 43 48 5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (CONT'D) RECONCILIATION OF CANADIAN AND U.S. GAAP
1996 1995 1994 AS U.S. As U.S. As U.S. REPORTED GAAP Reported GAAP Reported GAAP Net income from continuing operations before extraordinary item $ 410 $ 420 $ 543 $ 561 $ 96 $ 175 Extraordinary loss -- -- 280 295 -- -- Net income* $ 410 $ 420 $ 263 $ 266 $ 96 $ 175 Net income attributable to common shareholders $ 394 $ 404 $ 239 $ 242 $ 75 $ 154 Extraordinary loss per common share $ -- $ -- $ 1.24 $ 1.31 $ -- $ -- Net income per common share $ 1.74 $ 1.79 $ 1.06 $ 1.07 $ 0.34 $ 0.69 Deferred income taxes -- December 31 $ 996 $ 755 $ 979 $ 762 $ 914 $ 703 Common shares -- December 31 $1,235 $1,231 $ 1,219 $1,213 $1,195 $1,187 Retained earnings -- December 31 $3,217 $3,520 $ 2,959 $3,252 $2,821 $3,111 Deferred translation adjustments (DTA) -- December 31 $ 209 $ 141 $ 304 $ 214 $ 292 $ 197
*In 1996, $2 ($1 in 1995 and $85 in 1994) of the net difference between "As Reported" and "U.S. GAAP" relates to accounting for deferred income taxes. In 1994, $68 of this difference arose from changes in tax rates enacted during the year. 44 49 5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)(CONT'D) The principal items included in Deferred income taxes under U.S. GAAP are: December 31
1996 1995 1994 LIABILITIES: Depreciation $ 810 $ 844 $ 933 Undistributed earnings of equity companies 60 86 93 Inventory valuation 43 48 74 Other 77 57 45 990 1,035 1,145 ASSETS: Tax benefit carryovers 121 184 346 Accounting provisions not currently deductible for tax 180 199 195 Other 18 9 12 319 392 553 VALUATION ALLOWANCE (AMOUNT NOT LIKELY TO BE RECOVERED) 84 119 111 235 273 442 NET DEFERRED INCOME TAX LIABILITY $ 755 $ 762 $ 703
The difference between DTA under Canadian GAAP and U.S. GAAP arises principally from the impact of FASB Statement No. 109 and from the different treatment of exchange on long-term debt at January 1, 1983, resulting from the adoption of new accounting standards on foreign currency translation. Net income (Loss) from continuing operations, before cumulative effect on prior years of accounting change, on a U.S. GAAP basis for the years 1993 and 1992 was $(89) and $(39), respectively, compared to $(104) and $(112), respectively, as reported. Net income (Loss) from continuing operations, before cumulative effect on prior years of accounting change, per common share on a U.S. GAAP basis for the years 1993 and 1992 was $(0.47) and $(0.28), respectively, compared to $(0.54) and $(0.60), respectively, as reported. 6. INCOME TAXES
1996 1995 1994 INCOME (LOSS) BEFORE INCOME TAXES AND OTHER ITEMS Canada $ 235 $ 300 $ (15) Other countries 412 582 255 647 882 240 CURRENT INCOME TAXES Canada 87 29 5 Other countries 124 137 71 211 166 76 DEFERRED INCOME TAXES Canada (5) 114 30 Other countries 20 60 6 15 174 36 INCOME TAX PROVISION $ 226 $ 340 $ 112
45 50 6. INCOME TAXES (CONT'D) The composite of the applicable statutory corporate income tax rates in Canada is 40.1% (1995: 40.3%; 1994: 40.1%). The following is a reconciliation of income taxes calculated at the above composite statutory rates with the income tax provision:
1996 1995 1994 Income taxes at the composite statutory rate $ 259 $ 355 $ 96 Differences attributable to: Exchange translation items 11 17 39 Unrecorded tax benefits on losses -- net (33) (5) -- Investment and other allowances (24) (24) (14) Large corporations tax 3 6 7 Withholding taxes 6 6 20 Reduced rate or tax exempt items 17 (21) (29) Foreign tax rate differences (9) (6) (19) Prior years' tax adjustments (11) (6) (3) Other -- net 7 18 15 INCOME TAX PROVISION $ 226 $ 340 $ 112
In 1996, $7 ($2 in 1995; $4 in 1994) of benefits related to income tax loss carryforwards were recorded in deferred income tax expense. Based on rates of exchange at December 31, 1996, additional benefits of approximately $68 relating to prior and current years' tax losses will only be recognized in income when realized. 7. JOINT VENTURES The activities of the Company's major joint ventures are the procurement and processing of raw materials in Australia, Brazil and Guinea, as well as aluminum rolling operations in Germany and the United States. Beginning in 1995, Alcan's proportionate interest in all joint ventures is included in the consolidated financial statements (see note 3). Summarized financial information relating to Alcan's share of these joint ventures is provided below. Because most of the activities of the Company's joint ventures relate to supplying the Company's other operations, the portion of the Company's third-party revenues, and related costs and expenses, conducted through joint ventures is insignificant.
1996 1995 FINANCIAL POSITION AT DECEMBER 31 Inventories $ 159 $ 158 Property, plant and equipment -- net 1,001 1,037 Other assets 95 114 Total assets $1,255 $1,309 Short-term debt $ 17 $ 15 Debt not maturing within one year 106 102 Other liabilities 152 145 Total liabilities $ 275 $ 262 CASH FLOW INFORMATION FOR THE YEAR ENDED DECEMBER 31 Cash from financing activities $ 12 $ 18 Cash used for investment activities $ (76) $ (28)
46 51 8. INVESTMENTS
1996 1995 1994 Companies accounted for under the equity method $ 421 $688 $1,185 Other investments -- at cost, less amounts written off 7 7 8 $ 428 $695 $1,193
The activities of the major equity-accounted companies are diversified aluminum operations in Japan and India. On December 31, 1996, the quoted market value of the Company's investments in Nippon Light Metal Company, Ltd. (NLM) and Indian Aluminium Company, Limited (Indal) exceeds their book value by $632. Their combined results of operations and financial position are included in the summary below. The 1996 information for NLM excludes, from the date of acquisition, the interest in those subsidiaries acquired by the Company from NLM as a result of the restructuring of the Company's holdings in Asia, explained in note 11. The information for 1994 also includes the results of operations and financial position for an aluminum rolling operation in Germany and for operations related to the procurement and processing of raw materials in Australia, Brazil and Guinea. Beginning in 1995, these joint ventures are proportionately consolidated and summarized financial information about these is included in note 7.
1996 1995 1994 RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31 Revenues $ 6,483 $ 7,896 $ 8,073 Costs and expenses 6,457 7,816 7,892 Income before income taxes 26 80 181 Income taxes 65 84 218 Net income (Loss) $ (39) $ (4) $ (37) Alcan's share of Net income (Loss) $ (10) $ (3) $ (29) Dividends received by Alcan $ 11 $ 9 $ 22 FINANCIAL POSITION AT DECEMBER 31 Current assets $ 3,013 $ 3,842 $ 4,029 Current liabilities 2,735 3,438 3,699 Working capital 278 404 330 Property, plant and equipment -- net 1,916 2,347 4,209 Other assets -- net 261 153 261 2,455 2,904 4,800 Debt not maturing within one year 1,422 1,351 1,713 Net assets $ 1,033 $ 1,553 $ 3,087 Alcan's equity in net assets $ 421 $ 688 $ 1,185
52 9. PROPERTY, PLANT AND EQUIPMENT
1996 1995 1994 Cost Land and property rights $ 236 $ 247 $ 140 Buildings, machinery and equipment 10,886 11,201 9,930 Construction work in progress 395 287 648 $11,517 $11,735 $10,718
Accumulated depreciation relates primarily to Buildings, machinery and equipment. Capital expenditures for maintaining the productive capacity of the Company's existing assets are estimated at $400 per year. 47 53 10. DEBT NOT MATURING WITHIN ONE YEAR
1996 1995 1994 ALCAN ALUMINIUM LIMITED Deutschmark bank loans, due 2004/2005 (DM391 million) (a) $ 251 $ 276 $ 256 5.875% Debentures, due 2000 (b) 150 150 150 5.375% Swiss franc bonds, due 2003 (c) 132 154 137 CARIFA loan, due 2006 (d) 60 60 60 9.5% Debentures, due 2010 (e) 100 100 100 9.625% Sinking fund debentures, due 2019 (e) 150 150 150 8.875% Debentures, due 2022 (f) 150 150 150 Other debt, due 2001 8 8 8 12.45% Canadian dollar debentures, due 1997 (c)(g) -- 92 89 9.1% Debentures, due 1998 (g) -- 125 125 Commercial paper (h) -- -- 117 8.2% Debentures (g) -- -- 150 9.7% Debentures (g) -- -- 125 9.2% Debentures, due 2001 (g) -- -- 150 Lira bank loans -- -- 46 9.4% Debentures (g) -- -- -- ALCAN ALUMINUM CORPORATION 7.25% Debentures, due 1999 (i) 100 100 100 Other debt, due 1997/2013 6 6 12 6.375% Debentures, due 1997 (g)(i) -- 150 150 9.956% Bank loan -- -- 25 BRITISH ALCAN ALUMINIUM PLC AND SUBSIDIARY COMPANIES Other debt, due 1998 7 -- -- Bank loans -- 54 94 ALCAN DEUTSCHLAND GMBH AND SUBSIDIARY COMPANIES 6.78% Bank loans, due 1997 (DM3 million) 2 4 17 7.75% Bank loans, due 2001 (DM15 million) 10 11 -- Bank loans, due 2000/2001 (DM101 million) (a) 65 38 36 QUEENSLAND ALUMINA LIMITED Bank loans, due 2000/2003 (a) 71 67 -- OTHER COMPANIES Bank loans, due 1997/2011 (a) 48 48 13 4% Eurodollar exchangeable debentures, due 2003 (j) 24 24 24 Other debt, due 1997/2025 4 6 6 1,338 1,773 2,290 Debt maturing within one year included in current liabilities (19) (28) (70) $1,319 $1,745 $2,220
(a) Interest rates fluctuate principally with the lender's prime commercial rate, the commercial bank bill rate, or are tied to LIBOR rates. (b) Through an interest rate swap the Company had effectively converted the interest on the debentures to a rate tied to U.S. LIBOR for the period to October 1996. (c) The Canadian dollar debentures were issued as CAN$125 million and the Swiss franc bonds as SFr178 million. Both debts were swapped for $107 and $105 at effective interest rates of 9.82% and 8.98%, respectively. (d) The Caribbean Basin Projects Financing Authority (CARIFA) loan bears interest at a rate related to U.S. LIBOR. The interest was swapped until April 1996 for a fixed rate of 6.74%. Certain terms and conditions of the loan are being renegotiated in 1997. 48 54 10. DEBT NOT MATURING WITHIN ONE YEAR (CONT'D) (e) The Company can redeem the 9.5% debentures between the years 2000 and 2007 at amounts declining from 104% to 100% of the principal and can redeem the 9.625% debentures between the years 1999 and 2009 at amounts declining from 105% to 100% of the principal. In certain circumstances prior to January 30, 2000, for the 9.5% debentures, or prior to July 30, 1999, for the 9.625% debentures, the holders may retract the debentures at 100%. (f) The interest was swapped until 1995 at a rate tied to U.S. LIBOR. The Company has the right to redeem the debentures during the years 2002 to 2012 at amounts declining from 104% to 100% of the principal amount. (g) The 9.4% debentures due June 1995, the 8.2% debentures due 1996, the 9.7% debentures due 1996, the 9.2% debentures due 2001 (callable in 1998), the CAN$ 12.45% debentures due 1997, the 9.1% debentures due 1998 and the 6.375% debentures due 1997 were effectively extinguished in December 1994, June 1995, September 1995, December 1995, February 1996, February 1996 and September 1996, respectively, through transactions whereby the Company placed government securities in trusts, the sole purpose of which was to fund the repayment of the debentures and related interest. (h) Commercial paper is issuable in Canada at market rates and is fully backed by a long-term global multicurrency credit facility with a syndicate of banks amounting to $1,000. This facility is available for use by the Company and designated subsidiaries. (i) The following is summarized consolidated financial information for Alcan Aluminum Corporation, a wholly-owned subsidiary which consolidates virtually all of the Company's operations in the United States:
1996 1995 1994 RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31 Revenues $3,389 $3,937 $3,753 Costs and expenses 3,242 3,708 3,806 Income (Loss) before income taxes 147 229 (53) Income taxes 55 86 (18) Net income (Loss) $ 92 $ 143 $ (35) FINANCIAL POSITION AT DECEMBER 31 Current assets $ 868 $ 615 $ 737 Current liabilities 578 353 676 Working capital 290 262 61 Property, plant and equipment -- net 756 795 840 Other liabilities -- net (186) (138) (124) 860 919 777 Debt not maturing within one year 105 256 257 Net assets $ 755 $ 663 $ 520
The above figures are prepared using the accounting principles followed by the Company (see note 2), except that inventories have been valued principally by the last-in, first-out (LIFO) method. Results of operations in 1995 included net after-tax gains on disposals of businesses of $24. In 1994, results of operations included after-tax rationalization charges, net of gains on disposals of businesses, of $6. (j) Debenture holders are entitled to receive at their option 1,772 common shares held by the Company in NLM, a related company, in exchange for each ten thousand dollar principal amount of debentures. The Company can redeem the debentures between the years 1997 and 1999 at amounts declining from 102% to 100% of the principal. The Company has swapped, to 1998, the interest payments on $100 of its floating rate debt in exchange for fixed interest payments. Based on rates of exchange at year-end, debt repayment requirements over the next five years amount to $19 in 1997, $32 in 1998, $126 in 1999, $224 in 2000 and $113 in 2001. 49 55 11. RESTRUCTURING OF HOLDINGS IN ASIA In the third quarter of 1996, the Company sold its equity-accounted investment in Toyo Aluminium K.K. (Toyal) to the Company's Japanese affiliate, Nippon Light Metal Company, Ltd. (NLM), for cash proceeds of $207. The after-tax gain of $128, including deferred translation adjustments, on this sale has been deferred. Approximately one half of the gain is being recognized over the period related to the utilization of the underlying assets by Toyal, while the remainder will be recognized if certain non-depreciable assets are sold by Toyal. In November 1996, the Company and NLM created a new company, Alcan Nikkei Asia Holdings Ltd. (ANAH), owned 60% by Alcan and 40% by NLM. In exchange for shares in ANAH the Company contributed a portion of its holdings in NLM while NLM contributed its shareholdings in a number of companies located in Malaysia, Thailand and China. The Company's effective ownership of ANAH, including the interests held through NLM, is 78.2% and the minority interest in ANAH's subsidiaries is presented on this basis. As a result of this transaction, Alcan's effective ownership in NLM falls from 47.4% to 45.6%. The gain on the partial sale of the Company's investment in NLM has been deferred and will be recognized over the period related to the utilization or disposition of the underlying assets by ANAH's subsidiaries. Included in the Company's balance sheet at the date of acquisition were the following assets and liabilities of ANAH's Asian subsidiaries: Working capital $ 49 Property, plant and equipment 99 Other assets -- net 9 157 Long-term debt 4 Minority interest 71 Net assets $ 82
The Company's share of net income for the month since acquisition is not significant. 12. DEFERRED CREDITS AND OTHER LIABILITIES Deferred credits and other liabilities comprise the following elements:
1996 1995 1994 Deferred revenues $ 74 $ 87 $117 Deferred profit on sale of investments 113 -- -- Post-retirement and post-employment benefits 405 426 432 Environmental liabilities 32 38 58 Rationalization costs 31 27 48 Claims 39 41 46 Other 76 82 95 $770 $701 $796
50 56 13. PREFERENCE SHARES AUTHORIZED An unlimited number of Preference Shares issuable in series. All shares are without nominal or par value. AUTHORIZED AND OUTSTANDING In each of the years 1996, 1995 and 1994, there were authorized and outstanding 5,700,000 series C, 1,700,000 series D, and 3,000,000 series E, redeemable non-retractable preference shares with stated values of $106, $43 and $54, respectively. The 300 series G redeemable non-retractable preference shares with stated value of $150, authorized and outstanding throughout 1994 and 1995, were redeemed in August 1996. Outstanding shares are eligible for quarterly dividends as follows: -- Preference, series C, D and E -- An amount related to the average of the Canadian prime interest rates for series C and E, and the average of the U.S. prime interest rates for series D, quoted by two major Canadian banks for stated periods. Outstanding shares may be called for redemption at the option of the Company on 30 days' notice as follows: -- Preference, series C and E (denominated in Canadian dollars) and D (denominated in U.S. dollars) -- At $25.00 per share. Any partial redemption must be made on a pro rata basis or by lot. 14. COMMON SHARES The authorized common share capital is an unlimited number of common shares without nominal or par value. Changes in outstanding common shares are summarized below:
NUMBER (IN THOUSANDS) STATED VALUE 1996 1995 1994 1996 1995 1994 OUTSTANDING -- BEGINNING OF YEAR 225,913 224,685 224,060 $1,219 $1,195 $1,183 ISSUED FOR CASH: Executive share option plan 549 1,039 433 11 18 7 Dividend reinvestment and share purchase plans 158 189 192 5 6 5 OUTSTANDING -- END OF YEAR 226,620 225,913 224,685 $1,235 $1,219 $1,195
51 57 14. COMMON SHARES (CONT'D) Under the executive share option plan, certain employees may purchase common shares at market value on the effective date of the grant of each option. The average price of the shares covered by the outstanding options is CAN$33.87 per share. These options vest generally over a period of four years from the grant date and expire at various dates during the next 10 years. Changes in the number of shares under option are summarized below:
NUMBER (IN THOUSANDS) 1996 1995 1994 OUTSTANDING -- BEGINNING OF YEAR 3,473 3,934 3,740 Granted 853 752 1,022 Exercised (549) (1,039) (433) Cancelled (62) (174) (395) OUTSTANDING -- END OF YEAR 3,715 3,473 3,934
At December 31, 1996, the Company had reserved for issue under the executive share option plan 19,251,288 shares. The Company does not recognize compensation expense for options granted under the executive share option plan. If the Company had elected to recognize compensation expense for these options in accordance with the methodology prescribed by Statement No. 123 of the U.S. Financial Accounting Standards Board, net income would have been lower by $8, or $0.04 per share, ($7, or $0.03 per share, in 1995). SHAREHOLDER RIGHTS PLAN In 1990, shareholders approved a plan whereby each common share of the Company carries one right to purchase additional common shares. The plan, with certain amendments, was reconfirmed at the 1995 Annual Meeting. The rights under the plan are not currently exercisable but may become so upon the acquisition by a person or group of affiliated or associated persons ("Acquiring Person") of beneficial ownership of 20% or more of the Company's outstanding voting shares or upon the commencement of a takeover bid. Holders of rights, with the exception of an Acquiring Person, in such circumstances will be entitled to purchase from the Company, upon payment of the exercise price (currently $100.00), such number of additional common shares as can be purchased for twice the exercise price based on the market value of the Company's common shares at the time the rights become exercisable. The plan has a permitted bid feature which allows a takeover bid to proceed without the rights under the plan becoming exercisable, provided that it meets certain minimum specified standards of fairness and disclosure, even if the Board does not support the bid. The rights expire in 1999, but may be redeemed earlier by the Board, with the prior consent of the holders of rights or common shares, for 1 cent per right. In addition, should a person or group of persons acquire outstanding voting shares pursuant to a permitted bid or a share acquisition in respect of which the Board has waived the application of the plan, the Board shall be deemed to have elected to redeem the rights at 1 cent per right. 15. RETAINED EARNINGS Consolidated retained earnings at December 31, 1996, includes $186 of undistributed earnings of companies accounted for under the equity method and $1,810 of undistributed earnings of subsidiaries and joint ventures, some part of which may be subject to certain taxes and other restrictions on distribution to the parent company; no provision is made for such taxes because these earnings are reinvested in the business. 52 58 16. CURRENCY GAINS AND LOSSES The following are the amounts recognized in the financial statements:
1996 1995 1994 CURRENCY GAINS (LOSSES) EXCLUDING REALIZED DEFERRED TRANSLATION ADJUSTMENTS: Forward exchange contracts and currency options $ 40 $(56) $(62) Other (4) (1) (8) $ 36 $(57) $(70) DEFERRED TRANSLATION ADJUSTMENTS: Balance -- beginning of year $304 $292 $100 Effect of exchange rate changes (94) 12 152 Losses (gains) realized (1) -- 40* Balance -- end of year $209 $304 $292
*Related principally to the sale of Alcan Australia Limited. 17. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS In conducting its business, the Company uses various instruments, including forward contracts and options, to manage the risks arising from fluctuations in exchange rates, interest rates and aluminum prices. All such instruments are used for risk management purposes only. FINANCIAL INSTRUMENTS -- CURRENCY The Company seeks to manage the risks arising from movements in exchange rates on identifiable firm cost commitments (principally Canadian dollar) and certain foreign currency denominated revenues. A combination of forward exchange contracts and options, covering periods of up to three years, are used to manage these risks. At December 31, 1996, the contract amount of forward exchange contracts outstanding used to hedge future firm cost commitments was $1,791 ($2,017 in 1995 and $1,568 in 1994) while the contract amount of purchased options (range forward contracts) outstanding used to hedge future firm cost commitments was $614 ($550 in 1995 and $145 in 1994). At December 31, 1996, the contract amount of outstanding forward exchange contracts used to hedge future revenues was $387 ($256 in 1995 and $268 in 1994). The market value of outstanding forward exchange contracts related to hedges of costs or revenues at December 31, 1996, was such that if these contracts had been closed out, the Company would have received $17 ($37 in 1995 and $5 in 1994). Based on prevailing market prices, if the currency option contracts (range forward contracts) had been closed out on December 31, 1996, the Company would have received $1 (paid $2 in 1995 and paid $12 in 1994). Unrealized gains and losses on outstanding forward contracts and options are not recorded in the financial statements until maturity of the underlying transactions. In addition, certain intercompany foreign currency denominated loans are hedged through the use of forward exchange contracts. At December 31, 1996, the contract amount of such forward contracts was $231 ($236 in 1995 and $208 in 1994) and the market value was such that if these contracts had been closed out, the Company would have received $2 (received $4 in 1995 and paid $2 in 1994). Included in Deferred charges and other assets is an amount of $2 ($3 in 1995 and $4 in 1994) consisting of net losses on terminated forward exchange contracts and options used to hedge future costs. These deferred charges will be included in Cost of sales and operating expenses at the same time as the underlying transactions being hedged are recognized. FINANCIAL INSTRUMENTS -- DEBT NOT MATURING WITHIN ONE YEAR As explained in note 10, the 5.375% Swiss franc bonds of principal amount SFr178 have been swapped for $105 at an effective interest rate of 8.98%. If the swap had been closed out at December 31, 1996, the Company would have received $32 ($47 in 1995 and $27 in 1994) of which an amount of $27 related to the swap of the principal ($49 in 1995 and $32 in 1994) has been recorded in Deferred charges and other assets. FINANCIAL INSTRUMENTS -- INTEREST RATES As stated in note 10, the Company enters into a number of interest rate swaps to manage funding costs as well as the volatility of interest rates. Net cash flows related to swaps are recorded in Interest concurrently with the interest expense on the underlying debt. 53 59 17. FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS (CONT'D) Changes in the fair value of the interest rate swaps are not recognized on a mark to market basis since these relate specifically to interest costs on identifiable debt. If all interest rate swap agreements had been closed out on December 31, 1996, the Company would have paid $6 ($12 in 1995 and $20 in 1994), based on prevailing interest rates. COMMODITY CONTRACTS -- METAL Depending on supply and market conditions, as well as for logistical reasons, the Company may sell primary metal to third parties and may purchase primary and secondary aluminum on the open market to meet its fabricated products requirements. In addition, the Company may hedge certain commitments arising from pricing arrangements with some of its customers. Through the use of forward purchase and sales contracts and options, the Company seeks to limit the negative impact of low metal prices whilst retaining most of the benefit from higher metal prices. At December 31, 1996, the Company had outstanding forward purchase contracts covering 474,300 tonnes (472,400 tonnes in 1995 and 490,000 tonnes at December 31, 1994), maturing at various dates in 1997, 1998 and 1999 (1996 and 1997 at December 31, 1995 and 1995 at December 31, 1994). In addition, the Company held call options outstanding for 591,300 tonnes (146,500 tonnes at December 31, 1995, and 46,000 tonnes at December 31, 1994) maturing at various dates in 1997 and 1998 (1996 and 1997 at December 31, 1995, and 1995 at December 31, 1994). At December 31, 1994, the Company held 558,000 tonnes of put options which matured in 1995. The Company also had sold 415,000 tonnes of call options which gave the purchaser the right, at various dates in 1995, to any excess in metal prices above a predetermined level. This resulted in the metal price component of revenues for 415,000 tonnes of the Company's 1995 sales being established within a range and a minimum price being established in respect of 143,000 tonnes. Included in Deferred charges and other assets is $25 ($7 in 1995 and $19 in 1994) representing the net cost of outstanding options. The option premiums paid and received, together with the realized gains or losses on the contracts, are included in Sales and operating revenues or Cost of sales and operating expenses, as applicable, concurrently with recognition of the underlying items being hedged. Based on metal prices prevailing on December 31, 1996, if all commodity forward purchase contracts and options had been closed out, the net amount received by the Company would have been $20 ($5 in 1995 and $37 in 1994). COUNTERPARTY RISK As exchange rates, interest rates and metal prices fluctuate, the above contracts will generate gains and losses that will be offset by changes in the value of the underlying items being hedged. The Company may be exposed to losses in the future if the counterparties to the above contracts fail to perform. However, the Company is satisfied that the risk of such non-performance is remote, due to its controls on credit exposures. FINANCIAL INSTRUMENTS -- MARKET VALUE On December 31, 1996, the fair value of the Company's long-term debt totalling $1,338 ($1,773 in 1995 and $2,290 in 1994) was $1,363 ($1,868 in 1995 and $2,308 in 1994), based on market prices for the Company's fixed rate securities and the book value of variable-rate debt. The market values of all other financial assets and liabilities and preference shares are approximately equal to their carrying values. 18. COMMITMENTS AND CONTINGENCIES The Company has guaranteed the repayment of approximately $21 of indebtedness by third parties. Alcan believes that none of these guarantees is likely to be invoked. Commitments with third parties and certain related companies for supplies of goods and services are estimated at $49 in 1997, $64 in 1998, $56 in 1999, $34 in 2000, $34 in 2001, and $170 thereafter. Total fixed charges from these entities were $14 in 1996, $62 in 1995 and $55 in 1994. Minimum rental obligations are estimated at $51 in 1997, $47 in 1998, $43 in 1999, $16 in 2000, $15 in 2001 and $30 thereafter. Total rental expenses amounted to $80 in 1996, $94 in 1995 and $94 in 1994. Alcan, in the course of its operations, is subject to environmental and other claims, lawsuits and contingencies. Accruals have been made in specific instances where it is probable that liabilities will be incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may arise in other instances for which no accruals have been made, the Company does not believe that such an outcome will significantly impair its operations or have a material adverse effect on its financial position. In addition, see reference to capital expenditures in note 9, debt repayments in note 10, and financial instruments and commodity contracts in note 17. 54 60 19. SUPPLEMENTARY INFORMATION
1996 1995 1994 INCOME STATEMENT Interest on long-term debt $ 109 $ 175 $ 208 Capitalized interest -- (2) (16) BALANCE SHEET Payables Accrued employment costs $ 167 $ 150 $ 145 Short-term borrowings (principally from banks) 178 212 195
At December 31, 1996, the weighted average interest rate on short-term borrowings was 4.8% (7.3% in 1995 and 9.1% in 1994). STATEMENT OF CASH FLOWS Interest paid $ 133 $ 218 $ 237 Income taxes paid 214 71 62 All time deposits qualify as cash equivalents.
20. POST-RETIREMENT BENEFITS PENSION PLANS Alcan and its subsidiaries have established pension plans in the principal countries where they operate, for the greater part contributory and generally open to all employees. Most plans provide pension benefits that are based on the employee's highest average eligible compensation during any consecutive 36-month period before retirement. Plan assets consist primarily of listed stocks and bonds. Alcan's funding policy is to contribute the amount required to provide for benefits attributed to service to date, with projection of salaries to retirement, and to amortize unfunded actuarial liabilities for the most part over periods of 15 years or less.
1996 1995 1994 Service cost for the year $ 69 $ 76 $ 85 Interest cost on projected benefit obligation 225 215 206 Actual return on assets (505) (483) 64 Variance of actual return from expected long-term rate of 7.3% (7.5% in 1995 and 7.4% in 1994) being deferred, and amortization of gains and losses 241 221 (312) NET COST FOR THE YEAR $ 30 $ 29 $ 43
Included in the net cost for 1996 are $27 of settlement gains ($16 in 1995 and $16 in 1994) and $22 of curtailment losses ($1 in 1995 and $11 in 1994) related to the disposal of certain businesses. The plans' funded status at December 31 was: Actuarial accumulated benefit obligation, which is substantially vested* $3,117 $2,818 $2,553 Plan assets at market value $3,986 $3,447 $3,087 Actuarial projected benefit obligation based on average compensation growth of 4.9% (4.8% in 1995 and 5.0% in 1994) and discount rate of 7.2% (7.1% in 1995 and 7.4% in 1994) 3,506 3,210 2,900 Plan assets in excess of projected benefit obligation 480 237 187 Unamortized actuarial gains -- net** (779) (495) (430) Unamortized prior service cost** 313 287 300 Unamortized portion of net surplus at January 1, 1986** (71) (93) (117) NET PENSION LIABILITY IN BALANCE SHEET $ (57) $ (64) $ (60)
* Includes commitments for which the actuarial accumulated benefit obligation exceeds plan assets by $147 in 1996 ($108 in 1995 and $109 in 1994). These have been fully provided in the Company's accounts (see note 12). ** Being amortized over expected average remaining service of employees, generally 15 years. 55 61 20. POST-RETIREMENT BENEFITS (CONT'D) OTHER The Company provides life insurance benefits under some of its retirement plans. Certain early retirement arrangements also provide for medical benefits, generally only until the age of 65. These plans are not funded.
1996 1995 1994 Service cost for the year $ 4 $ 4 $ 6 Interest cost on accumulated benefit obligation 12 13 14 Amortization of gains and losses (5) (15) (12) TOTAL COST FOR THE YEAR $ 11 $ 2 $ 8
Included in the total cost for 1996 is $1 of curtailment gains ($12 in 1995 and $11 in 1994) related to the disposal of certain businesses. Accumulated benefit obligation (ABO) based on average compensation growth of 5.2% (5.2% in 1995 and 5.2% in 1994) and discount rate of 7.0% (7.0% in 1995 and 7.6% in 1994): Active employees -- not fully eligible $ 61 $ 66 $ 66 -- fully eligible 29 28 25 Retired employees 88 97 91 Total ABO 178 191 182 Unamortized gains -- net 24 11 28 ABO IN BALANCE SHEET $202 $202 $210
The assumed health care cost trend rate used in calculating the above amounts was 8.5% in 1996 (11.0% in 1995 and 11.0% in 1994), decreasing gradually to 5.0% (5.0% in 1995 and 6.0% in 1994) in 2006. If the average of such rate was increased by 1.0%, the ABO would increase by approximately $8 and the periodic cost of post-retirement benefits other than pensions would increase by approximately $1 per year. 56 62 21. INFORMATION BY PRODUCT SECTORS The following presents selected information by major product sector, viewed on a stand-alone basis. Transactions between product sectors are conducted on an arm's length basis and reflect market-related prices. Thus, profit on all alumina produced by the Company, whether sold to third parties or used in the Company's smelters, is included in the raw materials and chemicals sector. Similarly, income from primary metal operations is mainly profit on metal produced by the Company, whether sold to third parties or used in the Company's fabricating operations. Income from fabricated product businesses represents only the fabricating profit on rolled products and downstream businesses. Capital employed is defined as the sum of short and long-term debt, deferred income taxes, minority interests, preference shares and common shareholders'equity.
SALES AND OPERATING REVENUES OPERATING INCOME INTERSECTOR THIRD PARTIES 1996 1995 1996 1995 1996 1995 Raw materials and chemicals $ 507 $ 555 $ 529 $ 618 $ 95 $ 203 Primary metal 1,653 2,286 1,472 1,612 519 701 Fabricated products -- -- 5,593 6,983 127 346 Intersector and other items (2,160) (2,841) 20 74 147 (49) $ -- $ -- $7,614 $9,287 $ 888 $1,201 RECONCILIATION TO NET INCOME BEFORE EXTRAORDINARY ITEM Equity loss $ (10) $ (3) Corporate offices (117) (111) Interest (125) (204) Income taxes (226) (340) NET INCOME BEFORE EXTRAORDINARY ITEM $ 410 $ 543 CAPITAL EMPLOYED AT DECEMBER 31 1996 1995 Raw materials and chemicals $1,173 $1,146 Primary metal 2,430 2,596 Fabricated products 3,365 3,797 Equity companies less intersector items 481 288 $7,449 $7,827
57 63 22. INFORMATION BY GEOGRAPHIC AREAS
Location 1996 1995 1994 SALES AND OPERATING Canada $ 2,169 $ 2,740 $ 2,300 REVENUES -- SUBSIDIARIES United States 499 552 453 South America 25 41 15 Europe 216 222 174 Asia and Pacific 78 96 53 All other 349 338 266 Sub-total 3,336 3,989 3,261 Consolidation eliminations (3,336) (3,989) (3,261) Total $ -- $ -- $ -- Sales to subsidiary companies are made at fair market prices recognizing volume, continuity of supply and other factors. SALES AND OPERATING Canada $ 1,210 $ 1,258 $ 952 REVENUES -- THIRD PARTIES United States 2,871 3,306 3,288 South America 579 719 556 Europe 2,633 3,632 2,813 Asia and Pacific 290 326 567 All other 31 46 40 Total $ 7,614 $ 9,287 $ 8,216 NET INCOME Canada $ 175 $ 216 $ 16 United States 70 123 16 South America 42 15 9 Europe 21 161 76 Asia and Pacific 13 43 28 All other 31 39 7 Consolidation eliminations 58 (54) (56) Net income before extraordinary item 410 543 96 Extraordinary loss -- Canada -- 280 -- Total $ 410 $ 263 $ 96 TOTAL ASSETS Canada $ 4,159 $ 4,033 $ 4,589 AT DECEMBER 31 United States 1,820 1,679 1,872 South America 739 854 859 Europe 3,189 3,520 3,087 Asia and Pacific 983 1,078 1,019 All other 477 463 373 Consolidation eliminations (2,042) (1,891) (1,796) Total $ 9,325 $ 9,736 $10,003 CAPITAL EXPENDITURES Canada $ 143 $ 99 $ 65 AND INVESTMENTS United States 55 63 58 South America 43 45 22 Europe 185 196 197 Asia and Pacific 7 3 4 All other 49 35 10 Total $ 482 $ 441 $ 356 AVERAGE NUMBER Canada 11 11 12 OF EMPLOYEES United States 4 4 7 (in thousands) South America 4 6 6 Europe 12 15 14 Asia and Pacific 1 -- 2 All other 2 3 1 Total 34 39 42
58 64 QUARTERLY FINANCIAL DATA (in millions of US$)
(unaudited) First Second Third Fourth Year 1996 Revenues $2,015 $1,972 $1,881 $1,821 $7,689 Cost of sales and operating expenses 1,528 1,501 1,460 1,416 5,905 Depreciation 110 108 108 105 431 Income taxes 69 74 57 26 226 Other items 183 177 155 202 717 Net income(1) $ 125 $ 112 $ 101 $ 72 $ 410 Dividends on preference shares 5 5 4 2 16 Net income attributable to common shareholders $ 120 $ 107 $ 97 $ 70 $ 394 Net income per common share (in US$)(2) $ 0.53 $ 0.47 $ 0.43 $ 0.31 $ 1.74 Net income under U.S. GAAP(3) $ 120 $ 118 $ 111 $ 71 $ 420 1995 Revenues $2,455 $2,449 $2,288 $2,195 $9,387 Cost of sales and operating expenses 1,874 1,843 1,750 1,766 7,233 Depreciation 109 113 115 110 447 Income taxes 102 99 86 53 340 Other items 196 214 194 220 824 Net income before extraordinary item 174 180 143 46 543 Extraordinary loss -- -- 280 -- 280 Net income (Loss)(1) $ 174 $ 180 $ (137) $ 46 $ 263 Dividends on preference shares 6 6 5 7 24 Net income (Loss) attributable to common shareholders $ 168 $ 174 $ (142) $ 39 $ 239 Net income before extraordinary item per common share (in US$)(2) $ 0.75 $ 0.77 $ 0.61 $ 0.17 $ 2.30 Extraordinary loss per common share (in US$) -- -- 1.24 -- 1.24 Net income (Loss) per common share (in US$)(2) $ 0.75 $ 0.77 $(0.63) $ 0.17 $ 1.06 Net income before extraordinary item under U.S. GAAP(3) $ 176 $ 172 $ 119 $ 94 $ 561 Net income (Loss) under U.S. GAAP(3) $ 176 $ 172 $ (176) $ 94 $ 266 1994 Revenues $1,809 $2,068 $2,196 $2,252 $8,325 Cost of sales and operating expenses 1,497 1,689 1,757 1,797 6,740 Depreciation 109 113 104 105 431 Income taxes -- 28 51 33 112 Other items 228 231 218 269 946 Net income (Loss)(1) $ (25) $ 7 $ 66 $ 48 $ 96 Dividends on preference shares 4 5 6 6 21 Net income (Loss) attributable to common shareholders $ (29) $ 2 $ 60 $ 42 $ 75 Net income (Loss) per common share (in US$)(2) $(0.13) $ 0.01 $ 0.27 $ 0.19 $ 0.34 Net income under U.S. GAAP(3) $ 5 $ 18 $ 15 $ 137 $ 175
(1) The first quarter of 1996 included an after-tax charge of $12 on the in-substance defeasance of debentures. The third quarter of 1996 included an after-tax gain of $8 from the sale of businesses. The first quarter of 1995 included an after-tax gain of $24 from the sale of Alcan's metal distribution business in the U.S. The second, third and fourth quarters of 1995 included after-tax charges of $3, $4 and $8 respectively on the in-substance defeasance of debentures. The first quarter of 1994 included an after-tax rationalization charge of $11 and an offsetting gain of $11 from the dilution in Alcan's ownership in Indian Aluminium Company, Limited. The third quarter of 1994 included a net gain of $39 on disposal of businesses partly offset by after-tax provisions of $12 related to restructuring charges in Brazil and early retirement of debt in the U.K. The fourth quarter of 1994 included special charges of $25 after tax, related largely to the rationalization of ongoing businesses and losses on the disposal of certain other businesses. (2) Net income (Loss) per common share calculations are based on the average number of common shares outstanding in each period. (3) See note 5 to the consolidated financial statements for explanation of differences between Canadian and U.S. GAAP. 59 65 ELEVEN-YEAR SUMMARY
1996 1995 1994 1993 1992 1991 CONSOLIDATED INCOME REVENUES STATEMENT ITEMS Sales and operating revenues 7,614 9,287 8,216 7,232 7,596 7,748 (in millions of US$) Other income 75 100 109 75 69 82 Total revenues 7,689 9,387 8,325 7,307 7,665 7,830 COSTS AND EXPENSES Cost of sales and operating expenses 5,905 7,233 6,740 6,002 6,300 6,455 Depreciation 431 447 431 443 449 429 Selling, administrative and general expenses 422 484 528 551 596 635 Research and development expenses 71 76 72 99 125 131 Interest 125 204 219 212 254 246 Other expenses 88 61 95 106 118 163 Income taxes 226 340 112 (13) (17) (104) Equity income (loss) (10) (3) (29) (12) 53 89 Minority interests (1) 4 (3) 1 (5) -- Net income (Loss) before extraordinary item 410 543 96 (104) (112) (36) Extraordinary loss -- 280 -- -- -- -- Net income (Loss) 410 263 96 (104) (112) (36) Preference dividends 16 24 21 18 23 20 Net income (Loss) attributable to common shareholders 394 239 75 (122) (135) (56) CONSOLIDATED BALANCE Operating working capital 1,461 1,731 1,675 1,314 1,460 1,717 SHEET ITEMS Property, plant and equipment (in millions of US$) -- net 5,470 5,672 5,534 6,005 6,256 6,525 Total assets 9,325 9,736 10,003 9,812 10,154 10,843 Total debt 1,516 1,985 2,485 2,652 2,794 3,024 Deferred income taxes 996 979 914 888 955 1,126 Preference shares 203 353 353 353 353 212 Common shareholders' equity 4,661 4,482 4,308 4,096 4,266 4,730 PER COMMON SHARE Net income (Loss) before (in US$) extraordinary item 1.74 2.30 0.34 (0.54) (0.60) (0.25) Net income (Loss) 1.74 1.06 0.34 (0.54) (0.60) (0.25) Dividends paid 0.60 0.45 0.30 0.30 0.45 0.86 Common shareholders' equity 20.57 19.84 19.17 18.28 19.06 21.17 Market price -- NYSE close 33.63 31.13 25.38 20.75 17.63 20.00 OPERATING DATA CONSOLIDATED ALUMINUM SHIPMENTS (in thousands of tonnes) Ingot products* 810 801 897 887 870 866 Fabricated products 1,539 1,733 1,763 1,560 1,389 1,333 Fabrication of customer- owned metal 258 225 189 91 206 145 Total aluminum shipments 2,607 2,759 2,849 2,538 2,465 2,344 Consolidated primary aluminum production 1,407 1,278 1,435 1,631 1,612 1,695 Consolidated aluminum purchases 1,003 1,365 1,350 865 675 591 Consolidated aluminum inventories (end of year) 408 449 435 403 418 463 **Primary aluminum capacity Consolidated subsidiaries 1,561 1,561 1,561 1,711 1,711 1,676 Total consolidated subsidiaries and related companies 1,698 1,712 1,712 1,862 1,862 1,827 Other Statistics Cash from operating activities (in millions of US$) 981 1,044 65 444 465 659 Capital expenditures (in millions of US$) 482 441 356 370 474 880 Ratio of total borrowings to equity (%) 23:77 29:71 35:65 37:63 37:63 37:63 Average number of employees (in thousands) 34 39 42 46 49 54 Common shareholders -- registered (in thousands at end of year) 22 23 26 28 32 34 Common shares outstanding (in millions at end of year) 227 226 225 224 224 223 Registered in Canada (%) 61 61 55 59 69 68 Registered in the United States (%) 39 38 44 40 30 31 Registered in other countries (%) - 1 1 1 1 1 Return on average common shareholders' equity (%) 9 5 2 (3) (3) (1) Before extraordinary item (%) 11
1990 1989 1988 1987 1986 CONSOLIDATED INCOME REVENUES STATEMENT ITEMS Sales and operating revenues 8,757 8,839 8,529 6,797 5,956 (in millions of US$) Other income 162 208 97 81 100 Total revenues 8,919 9,047 8,626 6,878 6,056 COSTS AND EXPENSES Cost of sales and operating expenses 6,996 6,682 6,072 5,117 4,635 Depreciation 393 333 316 296 276 Selling, administrative and general expenses 659 600 525 447 406 Research and development expenses 150 136 132 95 77 Interest 197 130 137 177 202 Other expenses 65 62 91 113 52 Income taxes 126 350 497 230 134 Equity income (loss) 211 97 97 35 5 Minority interests (1) (16) (22) (5) (2) Net income (Loss) before extraordinary item 543 835 931 433 277 Extraordinary loss -- -- -- -- -- Net income (Loss) 543 835 931 433 277 Preference dividends 22 21 30 36 33 Net income (Loss) attributable to common shareholders 521 814 901 397 244 CONSOLIDATED BALANCE Operating working capital 1,842 1,774 1,764 1,735 1,594 SHEET ITEMS Property, plant and equipment (in millions of US$) -- net 6,167 5,260 4,280 3,965 3,949 Total assets 10,681 9,518 8,627 7,693 7,118 Total debt 2,648 1,734 1,530 1,558 1,616 Deferred income taxes 1,092 1,044 1,006 754 554 Preference shares 212 212 211 405 421 Common shareholders' equity 4,942 4,610 4,109 3,565 3,116 PER COMMON SHARE Net income (Loss) before (in US$) extraordinary item 2.33 3.58 3.85 1.68 1.09 Net income (Loss) 2.33 3.58 3.85 1.68 1.09 Dividends paid 1.12 1.12 0.59 0.39 0.35 Common shareholders' equity 22.19 20.30 18.06 15.05 13.18 Market price -- NYSE close 19.50 22.88 21.75 17.92 12.55 OPERATING DATA CONSOLIDATED ALUMINUM SHIPMENTS (in thousands of tonnes) Ingot products* 857 743 832 787 731 Fabricated products 1,488 1,518 1,446 1,410 1,388 Fabrication of customer- owned metal 81 75 80 99 107 Total aluminum shipments 2,426 2,336 2,358 2,296 2,226 Consolidated primary aluminum production 1,651 1,643 1,619 1,587 1,641 Consolidated aluminum purchases 646 718 716 593 489 Consolidated aluminum inventories (end of year) 447 539 480 496 579 **Primary aluminum capacity Consolidated subsidiaries 1,685 1,685 1,680 1,680 1,841 Total consolidated subsidiaries and related companies 1,836 1,836 1,831 1,861 1,905 Other Statistics Cash from operating activities (in millions of US$) 760 970 1,370 879 725 Capital expenditures (in millions of US$) 1,367 1,466 676 415 342 Ratio of total borrowings to equity (%) 33:67 26:74 26:74 27:73 31:69 Average number of employees (in thousands) 57 57 56 63 67 Common shareholders -- registered (in thousands at end of year) 38 40 41 46 49 Common shares outstanding (in millions at end of year) 223 227 228 237 237 Registered in Canada (%) 54 44 54 44 43 Registered in the United States (%) 44 54 43 53 52 Registered in other countries (%) 2 2 3 3 5 Return on average common shareholders' equity (%) 11 19 24 12 8 Before extraordinary item (%)
*Includes primary and secondary ingot and scrap. **Primary aluminum capacity has been restated to reflect better the actual production levels achieved over a period of time. All per-share amounts reflect the three-for-two share splits on May 5, 1987, and May 9, 1989. See note 5 to the consolidated financial statements for U.S. GAAP information. 60-61 66 CORPORATE GOVERNANCE The business and affairs of Alcan are managed by its Board of Directors acting through the Management of the Company. The Directors and Officers of Alcan are named on the opposite page. In discharging its duties and obligations, the Alcan Board acts in accordance with the provisions of the Canada Business Corporations Act, the Company's constituting documents and by-laws and other applicable legislation and Alcan policies. Alcan does not have a controlling shareholder nor do any of the Directors represent the investment of any minority shareholder. Corporate governance has traditionally received the active attention of Alcan's Board. For instance, an intensive review of the guiding principles of Alcan conducted by the Board in the 1970s led to the publication in 1978 of a policy statement entitled ALCAN, ITS PURPOSE, OBJECTIVES AND POLICIES, which has remained fundamentally unchanged. That statement represents the basic business principles which guide Alcan employees in conducting a widespread international enterprise and has helped Alcan achieve public understanding and trust. To that original document, a CODE OF CONDUCT is now added to reinforce it with more detailed guidelines for Alcan employees as well as consultants and contractors engaged by Alcan. The Montreal and Toronto stock exchanges now require a formal description of corporate governance practices by all listed companies. Alcan's disclosure in this regard is published in the Management Proxy Circular issued in connection with the forthcoming Annual Meeting; a copy is available from Shareholder Services at the address on page 65. Committees of the Board (described briefly below) assist the Board in carrying out its functions and make recommendations to it on various matters. Membership of these Committees is indicated on the opposite page. The CORPORATE GOVERNANCE COMMITTEE has the responsibility for reviewing Board practices and performance, candidates for directorship and Board Committee membership. It also considers recommendations from the Personnel Committee regarding Board compensation and the appointments of the Chairman of the Board and the Chief Executive Officer. The AUDIT COMMITTEE assists the Board in fulfilling its functions relating to corporate accounting and reporting practices as well as financial and accounting controls, in order to provide effective oversight of the financial reporting process; it also reviews financial statements as well as proposals for issues of securities. The ENVIRONMENT COMMITTEE has the responsibility for reviewing policy, management practices and performance of Alcan in environmental matters. The PERSONNEL COMMITTEE has the responsibility for reviewing all personnel policy and employee relations matters (including compensation), and for making recommendations to the Corporate Governance Committee on Board compensation and on the appointments of the Chairman of the Board and the Chief Executive Officer. All matters relating to the Chief Executive Officer are dealt with by non-executive members of the Committee. A special committee composed of members of the Personnel Committee, except the Chief Executive Officer, administers the Alcan Executive Share Option Plan. 62 67 DIRECTORS AND OFFICERS As at February 13, 1997 DIRECTORS OFFICERS Dr. John R. Evans, C.C.1,3,8 Jacques Bougie Chairman of the Board President and Chief Executive Officer of Alcan Aluminium Limited, Montreal Robert L. Ball Age 67, director since 1986 Executive Vice President, Corporate Development and Technology Sonja I. Bata, O.C.5,7 Director of Bata Limited, Claude Chamberland Toronto Executive Vice President Age 70, director since 1979 Smelting and Power W.R.C. Blundell 2,7 Jean-Pierre M. Ergas Director of various companies, Executive Vice President, Toronto Europe Age 69, director since 1987 Robert J. Fox Jacques Bougie, O.C.3,5 Executive Vice President, President and Chief Executive Officer South Pacific and Japan; of Alcan Aluminium Limited, Environment, Occupational Montreal Health and Safety Age 49, director since 1989 S. Bruce Heister Warren Chippendale, F.C.A.1,4,7 Executive Vice President Director of various companies, Asia Montreal Age 68, director since 1986 Emery P. LeBlanc Executive Vice President, D. Travis Engen 1,7 Raw Materials and Chemicals Chairman, President and Chief Executive Officer Everaldo N. Santos of ITT Industries, Inc. Executive Vice President, New York South America Age 52, director since 1996 Brian W. Sturgell Allan E. Gotlieb, C.C.3,5,7 Executive Vice President, Director of various companies, Fabricated Products, North America Toronto Age 68, director since 1989 Daniel Gagnier Vice President, Corporate Affairs J.E. Newall, O.C.3,6,7 Vice Chairman and Chief Executive Officer Gaston Ouellet of NOVA Corporation, Vice President, Human Resources Calgary Age 61, director since 1985 P.K. Pal Vice President, Chief legal Officer Dr. Peter H. Pearse, C.M.5,7 and Secretary President of Pearse Ventures Limited, Vancouver Suresh Thadhani Age 64, director since 1989 Vice President and Chief Financial Officer Sir George Russell, C.B.E.1,3,7 Chairman of Marley plc. Geraldo Nogueira de Aguiar Kent, England Treasurer Age 61, director since 1987 Denis G. O'Brien Guy Saint-Pierre, O.C.1,7 Controller Chairman of SNC-Lavalin Group Inc., Montreal Age 62, director since 1994 Gerhard Schulmeyer 7 President and Chief Executive Officer of Siemens Nixdorf Informationssysteme AG, Munich Age 58, director since 1996
1 Member of Audit Committee 2 Chairman of Audit Committee 3 Member of Personnel Committee 4 Chairman of Personnel Committee 5 Member of Environment Committee 6 Chairman of Environment Committee 7 Member of Corporate Governance Committee 8 Chairman of Corporate Governance Committee 63 68 SHAREHOLDER INFORMATION COMMON SHARES The principal markets for trading in Alcan's common shares are the New York and Toronto stock exchanges. The common shares are also traded on the Montreal, Vancouver, Chicago, Pacific, London, Paris, Brussels, Amsterdam, Frankfurt, Swiss and Tokyo stock exchanges. The transfer agents for the common shares are The R-M Trust Company in Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver, Chemical Mellon Shareholder Services, L.L.C. in New York, and The R-M Trust Company in England. Common Share dividends are paid quarterly on or about the 20th of March, June, September and December to shareholders of record on or about the 20th of February, May, August and November, respectively.
DIVIDEND PRICES* AND AVERAGE DAILY TRADING VOLUMES NEW YORK STOCK EXCHANGE (US$) TORONTO STOCK EXCHANGE (CAN$) 1996 US$ HIGH LOW CLOSE AVG. DAILY HIGH LOW CLOSE AVG. DAILY Quarter VOLUME VOLUME First 0.150 33 7/8 28 3/8 32 1/4 398,500 46 38 3/4 44 709,100 Second 0.150 34 1/8 30 1/8 30 1/2 367,400 46.40 40.75 41.55 468,100 Third 0.150 32 3/8 28 5/8 30 327,200 44.45 39.35 40.70 406,500 Fourth 0.150 36 1/8 29 3/4 33 5/8 435,200 48.50 40.10 46.25 664,500 YEAR 0.600 1995 Quarter First 0.075 27 1/4 23 3/8 26 5/8 446,694 38 5/8 33 1/8 37 1/8 540,557 Second 0.075 30 3/8 26 1/4 30 1/4 394,053 41 3/4 36 5/8 41 1/2 638,672 Third 0.150 36 5/8 30 1/2 32 3/8 734,227 49 5/8 41 3/4 43 1/2 778,956 Fourth 0.150 34 1/2 28 5/8 31 1/8 492,815 47 1/8 39 3/8 42 3/8 811,183 Year 0.450
*The share prices are those reported as New York Stock Exchange -- Consolidated Trading and reported by the Toronto Stock Exchange. Since April 15, 1996, share prices on the Toronto Stock Exchange are expressed in decimals. PREFERENCE SHARES The preference shares are listed on the Montreal, Toronto and Vancouver stock exchanges. The transfer agent for the preference shares is The R-M Trust Company. INVESTMENT PLANS The Company offers holders of common shares two convenient ways of buying additional Alcan common shares without payment of brokerage commissions. These are known as the Dividend Reinvestment Plan and the Share Purchase Plan. Copies of the prospectus describing these Plans may be obtained from Shareholder Services at the address on page 65. SECURITIES REPORTS FOR 1996 The Company's annual information form, to be filed with the Canadian securities commissions, and the annual 10-K report, to be filed with the Securities and Exchange Commission in the United States, will be available to shareholders after April 1, 1997. Copies of both may be obtained from Shareholder Services at the address on page 65. FURTHER INFORMATION Contact for shareholder account inquiries: Investor contact: Media contact: Linda Burton Alan G. Brown Charles Belbin Manager, Director, Investor Manager, Investor Shareholder Services and Media Relations and Media Relations Telephone: (514) 848-8050 Telephone: (514) 848-8368 Telephone: (514) 848-8232 or 1-888-252-5226 (toll free)
Copies of the Company's press releases are available by fax. Call 1-800-251-3553. There is no charge for this service. 64 69 THE ALCAN GROUP WORLDWIDE* *This list names only the principal subsidiaries, related companies or divisions in each country where the Alcan Group had a significant presence as at December 31, 1996, unless otherwise indicated. A complete list is contained in the Company's 10-K Report, available from Alcan's headquarters in Montreal. PARENT COMPANY AND WORLD HEADQUARTERS ALCAN ALUMINIUM LIMITED 1188 Sherbrooke Street West Montreal, Quebec, Canada H3A 3G2 Mailing Address: P.O. Box 6090 Montreal, Quebec, Canada H3C 3A7 Telephone: (514) 848-8000 Telecopier: (514) 848-8115 VERSION FRANCAISE Pour obtenir la version francaise de ce rapport, veuillez ecrire aux Services aux actionnaires dont l'adresse figure ci-dessus. This report is printed on recycled paper using vegetable-based inks. NORTH AMERICA BERMUDA Alcan (Bermuda) Limited Alcan Nikkei Asia Holdings Ltd. (78.2%)1 CANADA Alcan Aluminium Limited Alcan Cable Alcan International Limited Alcan Rolled Products Company Alcan Smelters and Chemicals Ltd. JAMAICA Alcan Jamaica Company UNITED STATES Alcan Aluminum Corporation Alcan Cable Alcan Ingot Alcan Recycling Alcan Rolled Products Company 70 SOUTH AMERICA BRAZIL Alcan Aluminio do Brasil S.A. Consorcio Aluminio do Maranhao (Alumar Consortium) (10%) Mineracao Rio do Norte S.A. (12.5%) Petrocoque S.A. - Industria & Comercio (25%) URUGUAY Alcan Aluminio del Uruguay S.A. (89.9%) AFRICA GHANA Ghana Bauxite Company Limited (45%) GUINEA Compagnie des Bauxites de Guinee (16.8%) Friguia (10.2%) EUROPE FRANCE Alcan France (Technal) GERMANY Alcan Deutschland GmbH Aluminium Norf GmbH (50%) IRELAND Aughinish Alumina Limited ITALY Alcan Alluminio S.p.A. NORWAY Vigeland Metal Refinery A/S (50%) SPAIN Alcan Palco S.A. SWITZERLAND Alcan Aluminium AG Alcan Rorschach AG UNITED KINGDOM British Alcan Aluminium plc 71 PACIFIC AUSTRALIA Alcan South Pacific Pty Ltd. Queensland Alumina Limited (21.4%) CHINA Nonfemet International (China-Canada-Japan) Aluminium Company Limited (35.2%)3 HONG KONG Alcan Asia Limited Alcan Nikkei China Limited (72.3%)2 Alcan Nikkei Korea Limited (72.3%)2 INDIA Indian Aluminium Company, Limited (34.6%) JAPAN Alcan Pacific Limited Alcan Asia Limited (Japan Branch) Nippon Light Metal Company, Ltd. (45.6%) KOREA Alcan Nikkei Korea Limited (Seoul Branch) MALAYSIA Alcan Nikkei Asia Company Ltd.(78.2%)1 Aluminium Company of Malaysia Berhad (46.3%)3 THAILAND Nikkei Siam Aluminium Company, Ltd.(54.8%)3 Nikkei-Thai Aluminium Company, Ltd.(60.7%)3 1Alcan's direct interest is 60%, the remaining interest is held through Nippon Light Metal Company, Ltd. 2Alcan's direct interest is 49%, the remaining interest is held through Nippon Light Metal Company, Ltd. 3Interest held through Alcan Nikkei Asia Holdings Ltd. which is 78.2% owned by Alcan. 65 72 THE MATERIAL OF CHOICE (PICTURE OF EARTH) ALCAN ALUMINIUM LIMITED (ALCAN LOGO) EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 546 0 1,262 0 1,305 3,113 11,517 6,047 9,325 1,303 1,319 0 203 1,235 3,426 9,325 7,614 7,689 5,905 5,905 431 0 125 647 226 410 0 0 0 410 1.74 1.74
EX-99 8 CAUTIONARY STATEMENT 1 EXHIBIT 99 Page 1 of 1 EXHIBIT NO. 99: CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Written or oral statements made by Alcan or its representatives, including statement set forth in Alcan's Form 10-K for the year ended 31 December 1996, which describe the Company's or management's objectives, projections, estimates, expectations or predictions of the future may be "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "estimates," "anticipates" or the negative thereof or other variations thereon. The Company cautions that, by their nature, forward- looking statements involve risk and uncertainty and that the Company's actual results could differ materially from those expressed or implied in such forward-looking statements or could affect the extent to which a particular projection is realized. Important factors which could cause the Company's actual performance to differ materially from projections or expectations included in forward-looking statements include global aluminum supply and demand conditions, aluminum ingot prices and changes in other raw materials costs and availability, cyclical demand and pricing within the principal markets for the Company's products, changes in government regulations, particularly those affecting environmental, health or safety compliance, economic developments and other factors within the countries in which the Company operates or sells its products and other factors relating to the company's ongoing operations including, but not limited to, litigation, labour negotiations and fiscal regimes. Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements include, but are not necessarily limited to, those discussed under the heading "Risks and Uncertainties" in the Financial Review section of Alcan's Annual Report 1996, incorporated by reference in Part II, Item 7 of, and filed as an exhibit to, the Company's report on Form 10-K for the year ended 31 December 1996. The text under such heading is incorporated herein by reference. Copies of the Company's filings may be obtained by contacting the company or the United States Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----