-----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, QL9Z9bbHRn12iqMtnhq1EaOT6J8mX/vmK7NmO+4qJCTlwj3QcAta/cwENkqIxeeR hGq3kRAbSKHA5PsfFxtUaA== 0000950123-99-002749.txt : 19990331 0000950123-99-002749.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950123-99-002749 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: SEC FILE NUMBER: 001-03677 FILM NUMBER: 99578849 BUSINESS ADDRESS: STREET 1: 1188 SHERBROOKE ST WEST CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148488000 10-K405 1 ALCAN ALUMINIUM 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 1998 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: $5,163 million, as of 3 March 1999 COMMON STOCK OF REGISTRANT OUTSTANDING: 220,873,108 Common Shares, as of 3 March 1999 DOCUMENTS INCORPORATED BY REFERENCE: Annual Report to security holders for the fiscal year ended 31 December 1998 (Parts I, II and IV) Management Proxy Circular for the Annual meeting to be held on 22 April 1999 (Parts III and IV)
2 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...................................................... 8 Electricity................................................................. 8 Fabricating................................................................. 10 Research and Development.................................................... 12 Environmental Protection.................................................... 13 Employees................................................................... 13 Patents, Licenses and Trademarks............................................ 14 Competition and Government Regulations...................................... 14 Year 2000................................................................... 14 Property.................................................................... 15 Item 3 Legal Proceedings........................................................ 15 Environmental Matters....................................................... 15 Aboriginal Issues........................................................... 17 Other Matters............................................................... 17 Item 4 Submission of Matters to a Vote of Security Holders...................... 18 PART II Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters 18 Item 6 Selected Financial Data.................................................. 18 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 19 Item 7a Quantitative and Qualitative Disclosures about Market Risk.............. 19 Item 8 Financial Statements and Supplementary Data.............................. 20 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................... 20 PART III Item 10 Directors and Executive Officers of the Registrant...................... 20 Item 11 Executive Compensation.................................................. 22 Item 12 Security Ownership of Certain Beneficial Owners and Management.......... 22 Item 13 Certain Relationships and Related Transactions.......................... 22 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 22 Signatures...................................................................... 27 Consent of Independent Accountants.............................................. 29 Exhibit No. 21 Subsidiaries, Related Companies, etc............................ 30
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 Subsidiaries, "Annual Report" means the Annual Report for the year ended 31 December 1998, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Dollars" or "$" means U.S. Dollars, "Joint Venture" means an association (incorporated or unincorporated) of companies jointly undertaking some commercial enterprise and proportionately consolidated to the extent of Alcan's participation, "Management Proxy Circular" means the management proxy circular for Alcan's Annual Meeting to be held on 22 April 1999, "Related Company" means a company in which Alcan owns, directly or indirectly, 50% or less of the voting stock and in which Alcan has significant influence over management, but does not include a company in a Joint Venture, "Shares" or "Common Shares" means the Common Shares of Alcan, "Shareholders" means holders of the Shares, "Subsidiary" means a company controlled, directly or indirectly, 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 and the Management Proxy Circular. Such information is specifically identified herein, including by the reference "See Annual Report " or "See Management Proxy Circular ". With the exception of such information specifically incorporated by reference, the Annual Report and the Management Proxy Circular are not to be deemed filed as part of this Form 10-K Report. CAUTIONARY STATEMENT Written or oral statements made by Alcan or its representatives, including statements set forth herein, 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 1 4 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 Management's Discussion and Analysis section of Alcan's Annual Report, on pages 37 to 39 thereof. The text under such heading is incorporated herein by reference. ITEMS 1 AND 2 BUSINESS AND PROPERTIES GENERAL Alcan is a Canadian company, incorporated on 3 June 1902, with headquarters in Montreal, Canada. Alcan is engaged, together with Subsidiaries, Related Companies and Joint Ventures, in all significant aspects of the aluminum business on an international scale. Alcan is independent of, and operates in competition with, all other aluminum companies. Alcan's operations include the mining and processing of bauxite, the basic aluminum ore; the refining of bauxite into alumina; the generation of electricity 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-finished and finished products; the distribution and marketing of aluminum and non-aluminum products; the production and sale of industrial chemicals; and research and technology. Alcan, together with its Subsidiaries, Related Companies and Joint Ventures, has bauxite holdings in six countries, produces alumina in six, smelts primary aluminum in five, operates aluminum fabricating plants in 13 and has sales outlets and maintains warehouse inventories in the larger markets of the world. Alcan also operates a global transportation network which includes bulk cargo vessels, port facilities and freight trains. For 1998, the Company reported a net income of $ 399 million. See the Annual Report "Management's Discussion and Analysis" on page 20. 2 5 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 and China) totalled 17.8 million tonnes in 1996, 18.9 million tonnes in 1997 and 18.8 million tonnes in 1998. For a discussion of the Western World Market and Western World Consumption Versus Alcan Sales, see Annual Report, pages 21 and 22. Alcan's ingot product realizations were $ 1,558 per tonne in 1998 compared to $1,739 per tonne in 1997 and $1,658 per tonne in 1996. These figures relate to primary and secondary ingot and scrap. For a review of Alcan's Raw Materials and Chemicals Operations, Primary Metals Operations and Fabricated Products Operations, see Annual Report, pages 26 through 31. For the Geographic Review, see Annual Report, pages 32 through 35 and pages 60 and 61. For information by Product Sectors, see page 62 (note 23). 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 metallurgical and chemical alumina markets. Alcan obtains its 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 a long-term contract. 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. In 1998, Alcan and the aforementioned Australian third party signed an agreement providing for the future development of Alcan's Ely bauxite mine in Cape York, Australia, with that party"s adjacent operations. 3 6 BRAZIL The Company purchased close to 2 million tonnes of bauxite in 1998 under contracts in effect through 1999 from a 12.5%-owned company, Mineracao Rio do Norte S.A. ("MRN"). MRN's Trombetas mine in the Amazon region has an operating capacity of about 10 million tonnes per year. Bauxite purchased from MRN is processed at the Jonqui#re plant (see above) and at the Alumar alumina refinery in Sao Luis (Brazil) which has an annual capacity of about 1.2 million tonnes; the Company owns a 10% interest and future expansion rights in the latter refinery. The Company owns alumina facilities (and related bauxite mining facilities) with a capacity of about 150,000 tonnes per year at Ouro Preto which supply smelters in Brazil. GHANA The Company purchased about 400,000 tonnes of bauxite in 1998 from Ghana Bauxite Co. Ltd. ("GBC"), in which it holds an interest of 80%. The bauxite purchased is used for processing at the Burntisland plant (see below), the Aughinish plant (see below) and the Jonquiere plant (see above). GUINEA The Company purchased 4 million tonnes of bauxite in 1998 under contracts in effect through 2011 from Compagnie des Bauxites de Guin#e ("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 Jonqui#re plant (see above) and is also sold to third parties. In Guinea, the Company also purchased about 100,000 tonnes of alumina in 1998 from Friguia. The Company holds a 20% interest in Frialco S.A. which held a 51% interest in Friguia, the remaining 49% was 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. Frialco sold its interest in Friguia on 12 October 1998. Frialco will be dissolved. INDIA In May 1998, Alcan acquired a 20% interest in the proposed Utkal alumina project in Orissa, India. A further 20% is held by Alcan's Subsidiary, Indal Aluminium Company, Limited ("Indal"). The project consists of a one million tonne integrated alumina plant and bauxite mine, with potential to further expand production capacity. In February 1999, Alcan increased its direct interest in the project to 35%, subject to regulatory approval. Alcan's decision regarding beginning of construction is expected to be made in late 1999 or early 2000. Indal owns bauxite mining facilities at Chandgad and Lohardaga, as well as alumina facilities at Belgaum and Muri with a total capacity of 360,000 tonnes of alumina per year. IRELAND During 1998, the Company owned an alumina plant at Aughinish which has a capacity of about 1.4 million tonnes of alumina per year. Bauxite for this operation is purchased almost exclusively from Guinea (see above). In 1998, the alumina produced at Aughinish was consumed by Alcan smelters in the United Kingdom and North America or sold to third parties. The Company sold the Aughinish plant on 25 February 1999, maintaining certain bauxite supply and alumina purchase arrangements with the new owners. JAMAICA The Company has a 93% interest in alumina facilities (and related bauxite mining facilities) with an annual capacity of about 1.2 million tonnes. The Government of Jamaica owns the remaining 7% interest in these facilities. The Company is responsible for management of the operations. In 4 7 1998, most of the Company's share of the alumina produced was supplied to Alcan smelters in Canada and the United States. UNITED KINGDOM The Company operates an alumina plant in Burntisland (Scotland), which has an annual capacity of approximately 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. BAUXITE RESERVES Through Subsidiaries, Related Companies and Joint Ventures, Alcan has approximately 400 million tonnes of demonstrated bauxite reserves, which the Company believes are 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. In 1997 and 1998, the Company spent $1.6 million and $ 2.9 million, respectively, on exploration and development of bauxite reserves. CHEMICALS AND OTHER MATERIALS The Company, together with its Subsidiaries, Related Companies and Joint Ventures, produces a wide range of specialty aluminas and aluminum hydroxides for different markets, such as ceramics, refractories, water treatment chemicals, 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. 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. In December 1998, Alcan sold its Subsidiary, Handy Chemicals Limited, which produces water treatment chemicals and cement superplasticizers. SMELTING At the end of 1998, the Company owned 16 primary aluminum smelters with a total annual rated capacity of 1,706,000 tonnes. Seven of these smelters, having a total annual rated capacity of 1,118,000 tonnes, are located in Canada; the other smelters are located in Brazil, India, the U.K. and the U.S.A. 5 8 The table below summarizes the primary aluminum production for 1998, together with annual rated capacities of smelters referred to above:
RATED CAPACITY OWNERSHIP AT 1998 ('000 TONNES) COMPANY AND SUBSIDIARY 31 DECEMBER 1998 PRODUCTION (at 31 December 1998) LOCATED IN: (%) ('000 TONNES) Canada 100 1,107 1,118 United States 100 129 186 United Kingdom 100 124 176 Brazil 100 103 109 India 54.6 18 117 Total 1,481 1,706
6 9 The Company's smelter facilities are as listed below:
RATED CAPACITY SMELTER LOCATION ('000 TONNES P.A.) - ------- -------- ------------------ Arvida Jonquiere, Quebec, Canada 238 Beauharnois Melocheville, Quebec, Canada 49 Grande Baie Ville de la Baie, Quebec, Canada 186 Isle Maligne Alma, Quebec, Canada 75 Laterriere Chicoutimi, Quebec, Canada 210 Shawinigan Shawinigan, Quebec, Canada 88 Kitimat Kitimat, British Columbia, Canada 272 Sebree Sebree, Kentucky, U.S.A. 186 Kinlochleven Kinlochleven, Scotland, U.K. 8 Lochaber Fort William, Scotland, U.K. 38 Lynemouth Ashington, England, U.K. 130 Ouro Preto Saramenha, Minas Gerais, Brazil 51 Aratu Bahia, Brazil 58 Belgaum Belgaum, Karnataka, India 66 Hirakud Hirakud, Orissa, India 30 Alupuram Alupuram, Kerala, India 21 ----- Total 1,706
Utilization of smelting capacities varies from time to time according to business conditions. Approximately 204,000 tonnes of capacity remain shut down at smelters in the U.S.A., the U.K. and India. 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. In 1998, Alcan announced the construction of a 375,000-tonne annual capacity aluminum smelter in Alma, Quebec. The total cost for the new smelter is estimated at $1.6 billion, and construction is expected to be completed in 2001. 7 10 On 22 March 1999, Alcan announced the closure of the Isle Maligne smelter, such closure to be completed by December 1999. It had been previously intended that the Isle Maligne smelter be shut down when the new Alma smelter becomes operational. 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 1998 of aluminum of all types from all sources amounted to 1,227,000 tonnes, compared with 1,254,000 tonnes in 1997 and 1,003,000 tonnes in 1996. The Company operates three specialized plants in the U.S.A, with a total annual capacity of 481,000 tonnes, for the recycling of used beverage cans and process scrap returned from customers. A similar plant in the U.K. operates with a capacity of 70,000 tonnes per year. The Company also operates a facility in the U.K. for the production of 70,000 tonnes per year of sheet ingot from aluminum scrap. In Brazil, the Company operates a dedicated used beverage can recycling facility with an initial capacity of 40,000 tonnes per year. The Company operated secondary aluminum smelters in Italy, India, the U.S.A. and Thailand which have capacities of 56,000, 25,000, 59,000 and 30,000 tonnes per year, respectively, for the production of secondary aluminum from aluminum scrap. In February 1999, the U.S. facility, at Shelbyville, Tennessee, was sold. ELECTRICITY Aluminum is produced from alumina by an electrolytic process requiring large amounts of electricity. The smelting of one tonne of aluminum requires between 14 and 18.5 megawatt-hours of electric energy. The Company produces low-cost electricity at its own hydro-electric generating plants in Canada. These plants have an installed generating capacity of 3,600 megawatts, of which 2,700 megawatts may be considered to be hydraulically available over the long term. 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 energy generation, escalating at the same rate as the Consumer Price Index in Canada. In British Columbia, rentals and generation taxes for electricity used in smelting and related purposes are directly related to the sales realizations of aluminum produced at Kitimat. For electricity sold to third parties within that province, the Company pays provincial water rentals at rates which are fixed by the provincial government, similar to those paid by B.C. Hydro, the provincially-owned electric utility. 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. 8 11 In addition to electricity generated at its generating plants, as described above, the Company has agreed to purchase, under a long-term agreement, between one and three billion KWh of electrical energy annually from Hydro-Quebec beginning in 2001. Electricity required by the Company's smelters in Canada is obtained from the foregoing sources. Electricity which is surplus to the Company's needs is sold to neighbouring utilities or customers under both long-term and short-term arrangements. For smelters located outside of Canada, electricity is obtained from a variety of sources. The smelters in England and Scotland operate their own coal-fired and hydro-electric generating plants, respectively. A Subsidiary in India operates its own coal-fired generating plant for one of its smelters, while its two other smelters are dependent upon purchased electricity. The smelters in Brazil obtain some of their electricity requirements from owned hydro-electric generating plants and purchase the balance. The smelter in the U.S.A. purchases electricity under a long-term contract. The Company's electricity generating facilities are listed below:
INSTALLED CAPACITY METHOD OF (NAMEPLATE RATING) GENERATING STATION GENERATION LOCATION (MEGAWATTS) - ------------------ ---------- -------- ------------------ Chute-des-Passes Hydro-electric Peribonka River, Quebec, Canada 750 Chute-du-Diable Hydro-electric Peribonka River, Quebec, Canada 205 Chute-a-la-Savane Hydro-electric Peribonka River, Quebec, Canada 210 Isle Maligne Hydro-electric Saguenay River, Quebec, Canada 402 Chute-a-Caron Hydro-electric Saguenay River, Quebec, Canada 224 Shipshaw Hydro-electric Saguenay River, Quebec, Canada 896 Kemano Hydro-electric Kemano, British Columbia, Canada 896 Kinlochleven Hydro-electric Kinlochleven, Scotland, U.K. 24 Lochaber Hydro-electric Fort William, Scotland, U.K. 76 Lynemouth Coal-fired Ashington, England, U.K. 390 Hirakud Coal-fired Hirakud, Orissa, India 60 Piranga Hydro-electric Saramenha, Minas Gerais, Brazil 15 Mynart Hydro-electric Saramenha, Minas Gerais, Brazil 14 ----- Total 4,162 =====
9 12 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 which 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 1998, Alcan shipped 1,823,000 tonnes of fabricated products and manufactured another 289,000 tonnes from customer-owned metal, which together represented 72% of Alcan's total volume for the year. Alcan's fabricated aluminum products business is mainly composed of a number of large, capital-intensive rolling operations as well as some smaller downstream businesses, and represents over 75% of Alcan's total sales and operating revenues. Alcan, together with its Subsidiaries, Related Companies and Joint Ventures, carries out fabricating operations in more than 50 plants in 13 countries. Flat-rolled Products Alcan is the world's largest producer and marketer of flat-rolled aluminum products (sheet and foil), which constitute 90% of Alcan's fabricated product volume. At the end of 1998, the Company's annual sheet and foil manufacturing capacity in its principal fabricating markets was as follows: over 1,100,000 tonnes in North America; 150,000 tonnes in South America; over 950 tonnes in Europe; and 140 tonnes in Asia. 10 13 Alcan's principal rolling operations are as follows:
Rolling Mill Location Kingston Kingston, Ontario, Canada Saguenay Jonquiere, Quebec, Canada Oswego Oswego, New York, U.S.A. Fairmont Fairmont, West Virginia, U.S.A. Louisville Louisville, Kentucky, U.S.A. Terre Haute Terre Haute, Indiana, U.S.A. Warren Warren, Ohio, U.S.A. Logan Logan County, Kentucky, U.S.A. Rogerstone Newport, Wales, U.K. Falkirk Falkirk , Scotland, U.K. Glasgow Glasgow, Scotland, U.K. Gottingen Gottingen , Germany Ludenscheid Ludenscheid , Germany Ohle Plettenberg, Germany Norf Neuss, Germany Nachterstedt Nachterstedt, Germany Bresso Milan, Italy Pieve Emanuele Milan, Italy Pindamonhangaba Pindamonhangaba, Brazil Utinga Santo Andre, Brazil Belur Belurmath, West Bengal, India Taloja Taloja, Maharashtra, India Bukit Raja Klang, Malaysia Rangsit Rangsit, Thailand
A major portion of Alcan sheet is in the form of 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. The Company's project to expand capacity at its Pindamonhangaba, Brazil rolling mill to 280,000 tonnes is expected to be completed by the second half of 1999. The Company will invest $46 million to expand production of aluminum rolled sheet for the automotive and distribution markets at its Kingston, Ontario mill. The expansion is expected to be complete by the end of 2000. 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. Rod is also used for mechanical applications such as 11 14 screen wire and cable armouring. Alcan's main wire and cable businesses are located in Canada and the U.S.A. Castings Another method of fabrication is the casting of molten aluminum into components for machinery, automotive products and aircraft. During 1998, Alcan was a supplier of aluminum pistons and other engine components to the automotive industry in Germany, the U.S.A. and Canada. On 7 January 1999, Alcan reached an agreement to sell its piston plant in Nuremberg, Germany. During 1998, Alcan closed its Joint Venture casting operation in St. Catharines, Ontario, Canada. The Company also sells aluminum alloys to independent foundries in Canada, Italy, the U.K. and the U.S.A. Extrusions The Company's Subsidiaries, Related Companies and Joint Ventures produce extruded products in several countries (including France, India, Italy, China, Malaysia and Thailand) 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. Acquisitions / Divestment / Restructuring 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 1996, Alcan sold 12 non-strategic downstream businesses in the U.K. and in the U.S.A. During 1998, the Company increased its shareholding in Indian Aluminium Company, Limited from 34.6% to 54.6%, which thereby became a Subsidiary. The Company also decreased its shareholding in Nippon Light Metal Company, Ltd from 45.6% to 11.2%. 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, Related Companies and Joint Ventures. The R&D division of Alcan constitutes 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 U.K. (Banbury, Oxfordshire). At Kingston and Banbury, efforts are related mainly to fabricating processes and aluminum product systems as well as developing and improving aluminum alloys. At Jonquiere, efforts are directed more towards primary alumina production, smelter operations and molten metal treatment. The Company's expenditures on research and development amounted to $70 million in 1998 compared to $ 72 million in 1997 and $ 71 million in 1996. Corresponding expenditures are expected to be approximately $ 79 million for 1999. 12 15 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 $71 million in 1998. Similar expenditures for 1999 and 2000 are expected to be $115 million and $190 million, respectively. In addition, expenditures charged against revenue for environmental protection were $91 million in 1998 and are expected to be $95 million in 1999 and $90 million in 2000. In respect of years beyond 2000, the Company expects that capital and operating expenditures will continue at approximately the same levels. EMPLOYEES The following table shows the average number of employees of Alcan on a geographical basis for the year ended 31 December 1998:
COUNTRY / REGION EMPLOYEES ('000) - ---------------- ---------------- Canada 11 United States 4 United Kingdom 3 Germany 5 Other Europe 3 South America 3 Asia and Pacific 5 Other 2 -- Total 36
A majority of the hourly-paid employees is represented by labour unions. There are 24 collective labour agreements in effect in Canada, the majority of which expire in 2003 or later. In February 1998, Alcan and the unions representing Alcan hourly-paid employees in Quebec signed agreements with 18-year terms collectively known as the "Framework Agreement on Operational Stability", under which the parties commit to attempt all means to renew collective agreements and settle disputes without recourse to traditional leverage tools such as strikes, lockouts and pressure tactics. 13 16 PATENTS, LICENSES AND TRADEMARKS The Company owns, directly or through Subsidiaries, a large number of patents in Canada, the United States and other countries which relate to the products, uses and processes of its businesses. The Company has also acquired certain intellectual property rights under licenses from others for use in its businesses. The Company owns a number of trademarks which are used to identify its businesses and products. The Company's patents, licenses and trademarks constitute valuable assets; however, the Company does not regard any single patent, license or trademark as being material to its sales and operations viewed as a whole. 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 several other materials such as 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 requirements for its Canadian and U.K. 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, import duties. These affect the Company's sales realizations and may affect the Company's competitive position. Shipments of the Company's 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. YEAR 2000 See the Annual Report, the section titled "The Year 2000 Issue" on pages 38 and 39 and page 58, note 19. Such disclosure is "Year 2000 Readiness Disclosure" as defined by the Year 2000 Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat. 2386, a U.S. statute) enacted on 19 October 1998, to the extent applicable under the Act. 14 17 PROPERTY Alcan believes that its properties, most of which are owned, are suitable and adequate for its operations. 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 lawsuit 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. 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 has funded a total of $13,100,000 for a treatment plant designed to help clean up the site. In December 1998, Alcancorp and several other parties filed appeals with the Circuit Court on numerous counts including whether liability was correctly imposed on Alcancorp. In January 1999, Alcancorp entered into a structured settlement with the State of California whereby California will accept liability for all clean-up costs from 1 January 1999 onward and Alcancorp will accept responsibility for past clean-up costs. The appeals have been stayed pending finalization of the settlement and satisfaction of certain other conditions. 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 $3,175,683. 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. After unsuccessful appeals, Alcancorp paid $652,371.09 representing the judgment amount plus interest, and is disputing about $400,000 associated with that judgment representing additional enforcement costs incurred after the date of the initial judgment. Alcancorp has been notified by the EPA that it may seek additional sums for further remedial activities at the Butler Tunnel site. In February 1996, the Company's U.K. Subsidiary (British Alcan Aluminium plc ("British Alcan")) sold its investments in several of its Subsidiaries, including Magnesium Elektron, Inc. and Luxfer USA 15 18 Limited, both located in the U.S.A. As part of the sale, British Alcan agreed to indemnify the purchaser for certain liabilities including those, inter alia, arising out of the following proceedings: (a) Magnesium Elektron, Inc. ("MEI"; at the time, a Subsidiary of British Alcan) was sued, together with approximately 70 other defendants, alleging that MEI is a former owner / operator of a site which the plaintiffs currently own and that MEI's activities contributed to environmental contamination on the site. British Alcan believes that it has legal defences and intends to pursue them vigorously. (b) Luxfer USA Limited ("Luxfer"; at the time, a Subsidiary of British Alcan) is a participant in a joint defence 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 totalling $11,800 for defence 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. (c) Luxfer is also a participant in a joint defence group formed to defend claims by numerous homeowners against various companies who allegedly disposed of industrial waste at a landfill in Monterey Park, California. There are many defendants and Luxfer was a minor contributor to the site. The discovery process is underway. In connection with a property in New York State which was the site of an extrusion operation, Alcancorp retained liability for alleged contamination though the property was sold in 1996. The State has approved a Remedial Investigation Report negotiated between the New York State Department of Environmental Conservation ("NYDEC") and Alcancorp. A record of decision has been issued. The parties are negotiating a consent order to implement a modified record of decision. The clean up costs are estimated to be in the order of $500,000. Under the terms of sale of its metal goods division, Alcancorp retains liability for defending, as a third party defendant, a suit initiated in December 1995 by the State of New Jersey alleging that a disposal company used by the division disposed of hazardous material in a landfill. Including Alcancorp, there are 277 third-party defendants in this action. Under the terms of sale of Alcan Building Products US, Alcancorp retains liability for defending against an administrative order and notice of civil penalty issued by the New Jersey EPA in October 1995 in connection with an alleged permit violation involving volatile organic compound emissions. Alcancorp filed an appeal in July 1998. INVESTIGATIONS In certain 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 its liability. The EPA has responded that it may file lawsuits against Alcancorp as to these sites. Alcancorp was advised of additional sites being similarly investigated. 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. There can be no assurance that Alcancorp will not incur material cleanup costs as a result of these investigations. 16 19 At a plant site in Indiana, testing has revealed traces of trichloroethylene in the groundwater. Alcancorp investigated the matter with a third party who is believed to be responsible for the contamination and a voluntary remediation plan was filed with the State of Indiana. Under an interim settlement agreement, the third party agreed to assume 90% of the costs. 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. ABORIGINAL ISSUES A 100-member Indian Band filed a suit against Canada, British Columbia and Alcan on 14 April 1998, seeking a declaration that it be entitled to the exclusive occupancy or possession of certain claimed lands, to damages and to other relief. Alcan obtained its title to certain of its lands in the claimed territory under valid grants from the Government of Canada upon due payment to that Government; other lands were purchased from third parties. The claim appears to rely on the December 1997 decision of the Supreme Court of Canada in the DELGAMUUKW case which deals with issues of aboriginal rights and title, as a consequence of which specific aboriginal rights and titles in Canada will be determined by the courts on a case-by-case basis. Alcan has filed a statement of defence. On 1 March 1999, the suit was withdrawn by the plaintiffs, but, prior to such withdrawal, an organization apparently purporting to represent the same band had filed a suit against Canada and British Columbia, seeking a declaration that it be entitled to fishing rights in an area downstream from Alcan's Nechako Reservoir. Alcan is preparing to join this suit as a defendant in order to protect its water rights. In March 1998, the Haisla Nation wrote to Alcan and to the governments of Canada and British Columbia asserting that Alcan's private lands in Kitimat and Kemano are subject to the aboriginal title of the Haisla Nation, also apparently relying on the decision in the DELGAMUUKW case. 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 judgment, rendered in July 1996, the U.S. District court for the Central District of California (county of Los Angeles) dismissed the case. The U.S. Supreme Court has denied the plaintiff's appeal and subsequent motion for reconsideration. There are no proceedings which, according to management's belief, could have a material effect on the Company's financial position or results of operation. 17 20 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 1998 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required is incorporated by reference to the Annual Report, the section titled "Common Shares" on page 68. The number of holders of record of Shares on 3 March 1999 was approximately 20,041. 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, Joint Ventures and Related Companies. These dividend and interest payments may be subject, from time to time, to regulatory or contractual restraints, withholding taxes (see Annual Report, page 55, note 15 to Consolidated Financial Statements) and foreign governmental restrictions affecting repatriation of earnings. (See section titled "Competition and Government Regulations" on page 14 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 The information required is incorporated by reference to the Annual Report, on pages 64 and 65, 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": 18 21 - Net income (Loss) - Dividends paid Commencing 1995, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") concerning the accounting for joint ventures. Commencing 1996, the Company retroactively adopted the recommendations of the CICA concerning the disclosure and presentation of financial instruments. Commencing 1998, the Company retroactively adopted, without restating prior years, the recommendations of the CICA concerning accounting for income taxes. Commencing 1998, the Company retroactively adopted the recommendations of the CICA concerning segment disclosures. See Annual Report, pages 46 to 48, 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 The information required is incorporated by reference to the Annual Report, pages 20 through 39, the section titled "Management's Discussion and Analysis". As the Company follows Canadian GAAP, reference should be made to note 5 to the Consolidated Financial Statements on pages 46 to 48 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 14 of this report for a brief description of the Investment Canada Act as it applies to the Company. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has estimated the impact on 1999 net income of a 10% adverse change in interest rates, in foreign currency exchange rates or in aluminum prices based upon its financial instrument and derivative commodity contract positions outstanding at 31 December 1998. INTEREST RATES The net income impact of a 10% movement in interest rates on the Company's invested surplus cash and time deposits at 31 December 1998 net of its variable rate debt outstanding at 31 December 1998 is immaterial. FOREIGN CURRENCY EXCHANGE RATES The effect of an adverse movement of 10% in foreign currency exchange rates on the Company's financial instruments (principally Canadian dollar forward and option contracts) outstanding at 31 19 22 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. (b) IDENTIFICATION OF EXECUTIVE OFFICERS The required particulars with respect to the Officers of the Issuer are as follows:
NAME AND MUNICIPALITY OF RESIDENCE POSITION AGE J. BOUGIE, O.C. President and Chief Executive 51 Outremont, Quebec Officer R. L. BALL Executive Vice President 52 Beaconsfield, Bucks., England C. CHAMBERLAND Executive Vice President, 59 Montreal, Quebec Technology and Major Projects J.-P. M. ERGAS Executive Vice President, 59 London, England Europe R. B. EVANS Executive Vice President, 51 Shaker Heights, Ohio Fabricated Products, North America E. P. LEBLANC Executive Vice President, 58 Westmount, Quebec Alumina & Primary Metal E. N. SANTOS Executive Vice President, 59 Sao Paulo, Brazil South America B. W. STURGELL Executive Vice President, 49 Kiawah Island, South Carolina Asia/Pacific and Corporate Development S. THADHANI Executive Vice President and 59 Westmount, Quebec Chief Financial Officer C. CARROLL Vice President, Bauxite, 43 Westmount, Quebec Alumina & Chemicals D. GAGNIER Vice President, Corporate and 52 Beaconsfield, Quebec Environmental Affairs G. OUELLET Vice President, Human 56 Montreal, Quebec Resources, Occupational Health and Safety P.K. PAL Vice President, Chief Legal 63 Montreal, Quebec Officer and Secretary G.R. LUCAS Treasurer 45 (effective 1 April 1999) D.G. O'BRIEN Controller 56 Westmount, Quebec
All of the Officers of the Company have held their present positions or other executive positions with the Company or its Subsidiaries during the past five years, except as hereinafter described: - - prior to joining the Company in January 1995, Mr. Ergas held senior management positions with the Pechiney group of companies; 20 23 December 1998 would be to reduce 1999 net income by approximately $ 60 million of which $5 million relates to the cost of unexercised option premiums. Because all of the Company's foreign currency forward positions are taken out to hedge identifiable foreign currency commitments to purchase or sell goods and services, any negative impact of currency movements on the forward exchange contracts would be offset by an equal and opposite favourable exchange impact on the commitments being hedged. DERIVATIVE COMMODITY CONTRACTS The effect of a reduction of 10% in aluminum prices on the Company's aluminum forward purchase and options contracts outstanding at 31 December 1998 would be to reduce 1999 net income by approximately $44 million, of which $14 million relates to the cost of unexercised option premiums and $30 million to forward purchase contracts. These results reflect a 10% reduction from the 1998 year-end, three-month LME aluminum closing price of $1241 and assume an equal 10% drop has occurred throughout the aluminum forward price curve existing as at 31 December 1998. Because all of the Company's aluminum forward purchase contract positions are taken out to hedge future purchases of metal required for firm sales commitments to fabricated products customers, any negative impact of movements in the price of aluminum on the forward purchase contracts would be offset by an equal and opposite impact on the purchases being hedged. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required is incorporated by reference to the Annual Report, Consolidated Financial Statements on pages 41 through 62 and the "Auditors' Report" on page 40; the section titled "Quarterly Financial Data" on page 63. Location of Financial Statements and other material required under this Item is found under Item 14 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. PART III INFORMATION IN THIS PART IS BASED ON INFORMATION CONTAINED IN THE COMPANY'S MANAGEMENT PROXY CIRCULAR DATED 3 MARCH 1999. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) IDENTIFICATION OF DIRECTORS The information required is incorporated by reference to the Management Proxy circular pages 5 to 8. 21 24 - - prior to joining the Company in January 1997, Mr. Evans held senior management positions with the Kaiser Aluminum organization; - - prior to joining the Company in January 1995, Mr. Gagnier was president of a manufacturers' association in Canada and, prior to that, had held senior administrative positions with the Government of Canada (including its Privy Council Office). ITEM 11 EXECUTIVE COMPENSATION The information required is incorporated by reference to the Management Proxy Circular, pages 12 to 22, the section titled "Executive Compensation". ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required is incorporated by reference to the Management Proxy Circular, page 9, the sections titled "Holdings of Shares and Deferred Share Units by Directors" and "Holdings of Shares by Others". Directors and Executive Officers as a group beneficially own 132,763 Shares (including Shares over which control or direction is exercised). This represents 0.06% of Shares issued and outstanding. In addition, Executive Officers as a group have Options (as defined in the Management Proxy Circular) to purchase 2,321,500 Shares. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS The information required is incorporated by reference to the Management Proxy Circular, pages 23 to 24, the section titled "Indebtedness of Directors and Executive Officers". PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The information required is incorporated by reference to the Annual Report, pages 41 to 62 and the Auditors' Report on page 40 thereof. 2. FINANCIAL STATEMENT SCHEDULES The required information is shown in the consolidated financial statements or notes thereto. 22 25 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. (Incorporated by reference to exhibit 3.1 to the Annual Report on Form 10-K of the Company for 1996.) 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 Form10-K of the Company for 1994.) 23 26 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. (Incorporated by reference to exhibit 10.1.5 to the Annual Report on Form 10-K of the Company for 1996.) 10.1.6 Amendments dated 1 January 1998 in Schedule 97-1, 30 March 1998 in Schedule 98-1 and 1 November 1998 in Schedule 98-2. (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.) 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.) 24 27 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.) 10.8.3 Amendments dated 1 November 1998 in Schedule 98-1. (filed herewith.) 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. (Incorporated by reference to exhibit 10.10.1 to the Annual Report on Form 10-K of the Company for 1996.) 10.11 Alcan Aluminium Limited Deferred Share Unit Plan for Non-Executive Directors dated 1 January 1997. (Incorporated by reference to exhibit 10.11 to the Annual Report on Form 10-K of the Company for 1996.) 10.12 B.C./Alcan 1997 Agreement. (Incorporated by reference to exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the quarter ended 30 June 1997.) 10.13 Employment Agreement dated 24 July 1997 with Jacques Bougie. (Incorporated by reference to exhibit 10.13 to the Annual Report on Form 10-K of the Company for 1997.) (13) Annual Report. (Filed herewith.) (21) Subsidiaries and Related Companies of the Company. (Filed herewith.) (23) Consent of Independent Accountants is on page 29. (24) Powers of Attorney. (Filed herewith.) 24.1 Power of attorney of W. Chippindale 24.2 Power of attorney of T. Engen 24.3 Power of attorney of J.R. Evans 24.4 Power of attorney of J.E. Newall 24.5 Power of attorney of P.H. Pearse 24.6 Power of attorney of G. Russell 24.7 Power of attorney of G. Saint-Pierre 24.8 Power of attorney of G. Schulmeyer 25 28 (27) Financial Data Schedule. (Filed herewith.) (99) Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. (Incorporated by reference to exhibit 99 to the Annual Report on Form 10-K of the Company for 1997.) (99) Management Proxy Circular. (Filed herewith). (b) REPORTS ON FORM 8-K The Company has filed reports on Form 8-K dated 16 October 1998, 28 October 1998 and 27 November 1998 during the quarter ended 31 December 1998 concerning Item 5 thereof: "Other Events". 26 29 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 25 March 1999 By /s/ ------------------------------------- John R. Evans, Chairman of the Board By P.K. Pal, as Attorney-in-Fact
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 25 March 1999. - ------------------------------------- Sonja I. Bata, Director - ------------------------------------- W. R. C. Blundell, Director /s/ - ------------------------------------- Jacques Bougie, Director, President and Chief Executive Officer (Principal Executive Officer) /s/ - ------------------------------------- Warren Chippindale, Director By P.K. Pal, as Attorney-in-Fact /s/ - ------------------------------------- Travis Engen, DIRECTOR By Robert des Trois Maisons, as Attorney-in-Fact 27 30 /s/ - ------------------------------------- John R. Evans, Chairman of the Board By P.K. Pal, as Attorney-in-Fact - ------------------------------------- Allan E. Gotlieb, Director /s/ - ------------------------------------- J. E. Newall, Director By Robert des Trois Maisons, as Attorney-in-Fact /s/ - ------------------------------------- Peter H. Pearse, Director By P.K. Pal, as Attorney-in-Fact /s/ - ------------------------------------- Sir George Russell, Director By P.K. Pal, as Attorney-in-Fact /s/ - ------------------------------------- Guy Saint-Pierre, Director By Robert des Trois Maisons, as Attorney-in-Fact /s/ - ------------------------------------- Gerhard Schulmeyer, Director by Robert des Trois Maisons, as Attorney-in-Fact - ------------------------------------- Paul M. Tellier, Director /s/ - ------------------------------------- Suresh Thadhani, Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ - ------------------------------------- Denis G. O'Brien, Controller (Principal Accounting Officer) 28 31 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 11 February 1999 appearing on page 40 of the 1998 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 25 March 1999 /s/ --------------------------- PricewaterhouseCoopers LLP. COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of a company's financial statements, such as the change described in Note 3 to the Consolidated Financial Statements. Our report to the Shareholders dated 11 February 1999 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditor's report when the change is properly accounted for and adequately disclosed in the financial statements. Montreal, Canada 25 March 1999 /s/ --------------------------- PricewaterhouseCoopers LLP. 29 EX-10.1.6 2 AMENDMENTS IN SCHEDULE 98-2 1 Exhibit 10.1.6 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 97-1 As of 1 January 1998, the Alcan Pension Plan (Canada) is amended by adding the following subsection after subsection 19.4. 19.5 Pension Augmentation at 1 January 1998 19.5.1 The retirement pension, the deferred retirement pension and the Disability Pension of a Member who has retired, terminated his employment or became disabled as the case may be, before 2 September 1996, including the pension payable under any attached elected pension payment guarantee, either contingent or in payment, and the pension, either deferred or in payment, to a surviving spouse, shall be augmented on 1 January 1998. Notwithstanding the preceding, this pension augmentation is not applicable if a Member at his Commencement Date has less than 100% of the Company's contributions to his retirement income vested. 19.5.2 For the purposes of this subsection 19.5 only, the following expressions shall have the meanings set out below: "Commencement Date" means the earliest of a Member's retirement date; the date he became disabled; the date of termination of service, however, in the case where the date of termination of service falls before 1 January 1983 and at such date a Member had not 1 2 commenced to receive a pension, then in such case the date of termination of service shall be deemed to be 1 January 1983; and, in the case of a pre-retirement surviving spouse's pension, the first of the month following the Member's date of death. "Monthly Pension Amount" means the monthly equivalent of the pension referred to in paragraph 19.5.1 less, in the case where the pension commenced between 1 April 1975 and 1 January 1976 inclusively or in the case where the termination date was before 1 February 1976, any increase paid under the provisions of the Government Annuity Improvement Act, Chapter 83, Statutes of Canada 1974-75-76. "Adjusted Monthly Pension Amount" means the Monthly Pension Amount payable at 1 January 1998, excluding that portion which ceases to be paid at age 65, or payable at normal retirement date in the case of a deferred pension. "Canadian Augmentation Factor" means the augmentation factor in respect of a Member's Commencement Date determined as follows: (A) in respect of a Member whose Commencement Date falls after 1 April 1996 but before 2 September 1996, 1.0%; (B) in respect of a Member whose Commencement Date falls after 1 June 1995 but before 2 April 1996, the lesser of (i) 1.0% plus the amount obtained when 0.2% is multiplied by the number of complete months that the Commencement Date precedes 1 May 1996 2 3 and (ii) 2.0% (C) in respect of a Member whose Commencement Date falls after 1 January 1995 but before 2 June 1995, 1.5%; (D) in respect of a Member whose Commencement Date falls after 1 June 1989 but before 2 January 1995, 2.5%; (E) in respect of a Member whose Commencement Date falls after 1 December 1981 but before 2 June 1989, 2.5% plus the amount obtained when 0.1% is multiplied by the number of complete months that the Commencement Date precedes 1 July 1989; (F) in respect of a Member whose Commencement Date falls after 1 December 1980 but before 2 December 1981, 11.5% plus the amount obtained when 0.25% is multiplied by the number of complete months that the Commencement Date precedes 1 January 1982; (G) in respect of a Member whose Commencement Date falls after 1 December 1979 but before 2 December 1980, 14.5% plus the amount obtained when 1.0% is multiplied by the number of complete months that the Commencement Date precedes 1 January 1981; 3 4 (H) in respect of a Member whose Commencement Date falls before 2 December 1979, the lesser of (i) 26.5% plus the amount obtained when 0.25% is multiplied by the number of complete months that the Commencement Date precedes 1 January 1980 and (ii) 41.5%. "Adjusted Canadian Augmentation Factor" means the augmentation factor determined as follows: Canadian Augmentation Factor x A + 1.0% x B ------------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) $8,916.67, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds $8,916.67. "American Augmentation Factor" means the augmentation factor determined as follows: 4.8% plus the amount obtained when 0.15% 4 5 is multiplied by the number of complete months that the Commencement date precedes 1 January 1990. "Adjusted American Augmentation Factor" means the augmentation factor determined as follows: American Augmentation Factor x A + 1.9% x B ------------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) US $6,416.67, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds US $6,416.67. "British Augmentation Factor" means the augmentation factor determined as follows: the lesser of (i) 4.0% plus the amount obtained when 0.25% is multiplied by the number of complete months that the Commencement date precedes 1 May 1991 and (ii) 23.0%. 5 6 "Adjusted British Augmentation Factor" means the augmentation factor determined as follows: British Augmentation Factor x A + 1.8% x B ------------------------------------------ Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) pound sterling (pound)3,833.33, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds pound sterling 3,833.33. "Swiss Augmentation Factor" means the augmentation factor determined as follows: the lesser of (i) 1.0% plus the amount obtained when 2.0% is multiplied by the number of years that the year of the Commencement date precedes 1992 and (ii) 9.0%. "Adjusted Swiss Augmentation Factor" means the augmentation factor determined as follows: 6 7 Swiss Augmentation Factor x A + 0.5% x B ---------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) SF 8,916.67, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds SF 8,916.67. "German Augmentation Factor" means the augmentation factor determined as follows: 5.0% plus the amount obtained when 1.5% is multiplied by the number of years that the year of the Commencement date precedes 1993. "Adjusted German Augmentation Factor" means the augmentation factor determined as follows: German Augmentation Factor x A + 1.6% x B ----------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and 7 8 (ii) DM 11,000.00, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds DM 11,000.00 "French Augmentation Factor: means the augmentation factor determined as follows: 1.5% plus the amount obtained when 0.6% is multiplied by the number of years that the year of the Commencement date precedes 1995. "Adjusted French Augmentation Factor" means the augmentation factor determined as follows: French Augmentation Factor x A + 1.0% x B ----------------------------------------- Adjusted Monthly Pension Amount where A equals the lesser of (i) the Adjusted Monthly Pension Amount and (ii) FF 36,833.33, where B equals the amount, if any, that the Adjusted Monthly Pension Amount exceeds FF 36,833.33. 19.5.3 Other than as provided for in paragraph 19.5.4, the monthly amount of the augmentation on the date of calculation is equal to the amount obtained when the Adjusted Canadian Augmentation Factor is applied to the Monthly Pension Amount. 8 9 19.5.4 If the Monthly Pension Amount is paid in a currency other than in Canadian dollars at a fixed rate of exchange, the monthly amount of the augmentation is equal to: (A) in respect of a Monthly Pension Amount paid in United States Dollars, the amount obtained when the Adjusted American Augmentation Factor is applied to the Monthly Pension Amount; (B) in respect of a Monthly Pension Amount paid in Pounds Sterling, the amount obtained when the Adjusted British Augmentation Factor is applied to the Monthly Pension Amount; (C) in respect of a Member's Monthly Pension Amount paid in Swiss Francs, the amount obtained when the Adjusted Swiss Augmentation Factor is applied to the Monthly Pension Amount; (D) in respect of a Member's Monthly Pension Amount paid in German Marks, the amount obtained when the Adjusted German Augmentation Factor is applied to the Monthly Pension Amount; (E) in respect of a Member's Monthly Pension Amount paid in French Francs, the amount obtained when the Adjusted French Augmentation Factor is applied to the Monthly Pension Amount. 9 10 19.5.5 The compounded augmentation factor under this and any previous pension augmentation, shall, unless it is an integral number of tenths of 1%, be rounded to the next higher multiple of 0.1%. 19.5.6 The retirement pension of a Member, who retires on or after 1 January 1998 and who immediately prior to such retirement was in receipt of an Approved Disability Benefit, shall be augmented from his retirement date by the same augmentation percentage that would otherwise have applied to his retirement pension had his date of disability been his Commencement Date for the purpose of calculating such augmentation. 19.5.7 The compounded augmentation factor under this and any previous pension 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. 10 11 ALCAN PENSION (CANADA) SCHEDULE OF AMENDMENT 98-1 (Reciprocal Transfer Agreement 9 June 1997/Gentek) Certified copy: (signed) ____________________________________ Suresh Thadhani Secretary, Pension Committee Alcan Pension Plan (Canada) Date: 30 March 1998 12 RECIPROCAL TRANSFER AGREEMENT This Agreement is made as of the 9th of June, 1997 BETWEEN ALCAN ADMINCO INC., incorporated under the Canada Business Corporations Act, ("ADMINCO") AND 1087509 ONTARIO INC./ GENTEK BUILDING PRODUCTS LIMITED ("GENTEK") WHEREAS 1087509 ONTARIO INC. and ALCAN ALUMINIUM LIMITED ("ALCAN") entered into a Canadian Asset Purchase Agreement dated as of June 30, 1994 with respect to the assets of Alcan Building Products (Canadian) Division; WHEREAS ALCAN sponsors the Alcan Pension Plan (Canada) ("APP") for the benefit of certain of its employees and former employees; WHEREAS ADMINCO is the delegated administrator of APP; WHEREAS GENTEK sponsors and is the administrator of the GENTEK Building Products Limited Pension Plan for Salaried Employees (Canada) (the "Gentek Plan"); 13 WHEREAS THE GENTEK Plan provides benefits (calculated on the basis of a member's highest average earnings), early retirement rights and form of pension benefit payments that are substantially similar to the comparable terms contained in APP as of December 31, 1994; WHEREAS ALCAN AND GENTEK intend to maintain their respective pension plan indefinitely although they reserve the right to amend it or terminate it at any time; WHEREAS ALCAN and GENTEK have agreed to enter into a reciprocal transfer agreement in respect of APP and the Gentek Plan providing for the transfer of projected accrued pension benefit liabilities at the option of an employee of Alcan or Gentek who transfers employment, and have further agreed that such reciprocal transfer agreement be effective at a date agreed upon by the two parties notwithstanding that the effective date targeted in the Purchase Agreement was 21 December 1995. THE PARTIES AGREE AS FOLLOWS: 1. DEFINITIONS 1.1 "Authorized Leave of Absence" means a paid or unpaid leave of absence, a disability leave, a maternity, paternity or adoption leave or other statutory leave of absence. 1.2 "Effective Date" is the date determined under Section 13. 1.3 "Minimum Transfer Value" means the value of the benefits that the Transferred Member had accumulated in the Transferor Plan at the date of transfer to the Recipient Plan which would have been transferred to a plan 2 14 not governed by this agreement, determined according to actuarial assumptions and methods identical to those which, at the date of transfer, are used in the Transferor Plan to determine the value of pension benefits to which apply sections of the applicable pension benefits legislation in respect of the determination of 50% minimum rule. 1.4 "Purchase Agreement" means the Canadian Asset Purchase Agreement dated as of June 30, 1994 between 1087509 ONTARIO INC. and ALCAN, and amendment No. 1 to such agreement. 1.5 "Recipient Plan" means the Plan into which the Transferred Member transfers. 1.6 "Transfer Value" has the meaning set out in Section 3. 1.7 "Transferor Plan" means the Plan from which the Transferred Member transfers. 1.8 "Transferred Employee" means an employee of the Building Products Division of Alcan at 21 December 1994 ("Closing Date"), and who accepted offers of employment and began active employment with Gentek as of that date. Any employee of the Division on an Authorized Leave of Absence on the Closing Date who accepted offers of employment by Gentek and began active employment with Gentek as of a date after the Closing Date is a Transferred Employee as of the date of the commencement of active employment. 1.9 "Transferred Member" means an individual who meets the conditions set out in Section 2. 3 15 2. ELIGIBILITY 2.1 The following individuals, who in addition meet all of the conditions set out in subsections 2.2, 2.3 and 2.4, are eligible to be Transferred Members under this Agreement: a) Any individual who was actively participating in APP at 21 December 1994 and is a Transferred Employee and whose employment with Gentek is terminated prior to the Effective Date of this Agreement, if at the time of such termination of employment, the individual has elected to be given the option to make an election for a transfer of pension benefits at the Effective Date of this Agreement and has made such an election at that date; b) any individual who was actively participating in APP at 21 December 1994, and who is a Transferred Employee and is actively participating in the Gentek Plan on the Effective Date of this Agreement; or c) any employee of Alcan or Gentek who transfers to the other employer and who is actively participating in APP or the Gentek Plan, as the case may be, immediately prior to the date of transfer while this Agreement is in force. For the purpose of this subsection "actively participating in (the plan at the date)" means "contributing to (the plan at the date)" or, if the Transferred Member was on an Authorized Leave of Absence immediately prior to accepting offers of beginning active employment with the sponsor of the Recipient Plan, "contributing to (the plan) immediately prior to the Authorized Leave of Absence". 4 16 2.2 Termination of participation The individual must have terminated active participation in the Transferor Plan and must be actively participating in the Recipient Plan at the date of his election to transfer (or of being given an option to transfer in the case of an individual described in subsection 2.1a). 2.3 No receipt of benefits The individual must not have received reimbursement of his contributions in the Transferor Plan nor have received any pension benefit under the Transferor or Recipient Plan, other than a disability pension which had ceased to be payable. 2.4 Request for transfer The individual must deliver to the Administrator of the Recipient Plan the Option Statement in the form set out in Schedule I within sixty (60) days of its mailing by the Administrator of the Recipient Plan. The administrator of the Recipient Plan shall upon receipt deliver the Option Statement to the Administrator of the Transferor Plan. 3. TRANSFER VALUE 3.1 The Transfer Value of a Transferred Member's benefits shall be calculated by the actuary of the Transferor Plan according to the formula set out in Schedule II or Schedule III as applicable. 3.2 The Transfer Value shall not be less than the Minimum Transfer Value. 5 17 3.3 Each party's actuary shall have the right to review and approve the calculation of each Transfer Value, and in the event that the actuaries do not agree on the amount of such Transfer Value, within thirty (30) days notice thereof, they shall jointly choose a third independent actuary to make such determination using the actuarial methods and assumptions described in Schedule II or Schedule III as the case may be, whose determination shall be final and binding upon both parties. The independent actuary shall be instructed to make such determination within thirty (30) days of the issue being submitted. Each party shall pay any costs and fees incurred in connection with the services of its actuaries, and in the event that a third independent actuary is appointed pursuant to this Section, each party shall pay one-half of the cost and fees incurred in connection with the services of such third actuary. 4. ADMINISTRATION AND TRANSFER OF AMOUNTS 4.1 Within sixty (60) days of the Effective Date, each Transferred Member, as defined in Section 2, shall be given an Option Statement in the form set out in Schedule I. 4.2 After receipt of the Option Statement provided for in Section 2, signed by the Transferred Member, the Administrator of the Transferor Plan shall within 30 days forward it to the Administrator of the Recipient Plan together with a record of the individual's credited service and payment of the Transfer Value. Payment of the Transfer Values in respect of Transferred Members referred to in subsection 4.1 shall be made in a single payment within 30 days following the end of the 60 day period. 6 18 5. RECOGNITION OF CREDITED SERVICE BY RECIPIENT PLAN The Recipient Plan will recognize, for all purposes, such Transferred Member's pensionable service to the extent recognized by the Transferor Plan. 6. BENEFIT ACCRUAL AFTER TRANSFER The Recipient Plan will provide benefits in respect of such pensionable service which are no lower than the benefits accrued in the Transferor Plan at the date of transfer. The Parties acknowledge that benefits of Transferred Employees were accrued in APP to December 31, 1994 even though offers of employment were made December 21, 1994. The Recipient Plan is not required, however, to guarantee to the Transferred Member a pension benefit in respect of such pensionable service recognized under the Transferor Plan that is equal in value to the amount of the Transfer Value. 7. EMPLOYEE CONTRIBUTIONS WITH INTEREST Employee contributions with interest at the date of transfer under the Transferor Plan shall be recognized as such under the Recipient Plan. 8. RIGHTS AND BENEFITS 8.1 This Agreement shall not have the effect of reducing the rights and benefits to which a Transferred Member would be entitled to under the applicable pension benefits legislation with respect to participation in the Transferor Plan. 7 19 8.2 Any Transferred Employee who does not elect to transfer rights and benefits from APP to the Gentek Plan shall nevertheless: (i) continue to accumulate credited service in APP for the period of employment with Gentek, and (ii) be entitled to credit in the Gentek Plan for the period of membership in APP, for the sole purpose of determining entitlement to benefits under each plan. 9. PLAN AMENDMENTS AND SUSPENSION OF AGREEMENT 9.1 The parties recognize that APP and the Gentek Plan have substantially the same provisions, rights and benefits as of December 31, 1994 and acknowledge that if either plan is amended to alter benefits, this Agreeement will be suspended until the parties review and either confirm that Schedules II and III then in force continue to apply or agree on new Schedules to apply after the effective date of the amendment. 9.2 Each party shall provide the other with a copy of the plan text and undertakes to notify the other of any amendment to APP or the Gentek Plan as the case may be, and to provide copies of any such amendments within 30 days of their effective date. 10. MODIFICATION OF SCHEDULES The parties may agree to amend the Schedules form time to time. However any amendments will only apply to requests for transfer after the effective date of such amendments unless both parties agree otherwise. 8 20 11. TERMINATION OF AGREEMENT This Agreement shall be terminable on the first anniversary of its Effective Date at the option of either party and thereafter upon 90 days prior written notice to the other party. 12. NO LIABILITY Upon the payment of the Transfer Value by the Administrator of the Transferor Plan to the Administrator of the Recipient Plan, the Transferor Plan shall have no further liability for any amount in respect of such Transferred Member. 13. EFFECTIVE DATE 13.1 The Effective Date of this Agreement shall be, if possible, no later than May 1, 1997. 13.2 This Agreement shall not become effective until the Gentek Plan has been duly registered with Revenue Canada and with the applicable provincial pension authorities. 13.3 This Agreement shall not become effective until it has been filed and accepted as satisfactory where required, by Revenue Canada and the applicable provincial pension authorities. 13.4 Upon fulfillment of the conditions set out in subsections 13.2 and 13.3, the parties may agree on the Effective Date. Either party may otherwise give notice to the other of an Effective Date not later than thirty (30) days after fulfillment of the conditions set out in subsections 13.2 and 13.3. 9 21 14. APPLICABLE LAW This Agreement shall be interpreted according to the laws of Ontario. THE PARTIES HAVE SIGNED ALCAN ADMINCO INC. GENTEK BUILDING PRODUCTS LIMITED (signed) (signed) - ---------------------------- ---------------------------- (signed) (signed) - ---------------------------- ---------------------------- 10 22 ALCAN PENSION PLAN (CANADA) SCHEDULE OF AMENDMENTS 98-2 PREAMBLE The amendments under this schedule introduce a reduced age limit for the start of pension benefits, improved and more flexible bridging benefits, a temporary pension, an 85-point rule and finally several minor technical modifications. Following amendments to the Income Tax Regulations (Canada), the Plan is amended to require that benefits start to be paid at the latest by the end of the year in which an individual reaches 69 (instead of 71) years of age. Bridging benefits before age 60 are increased from $250 to $325 per year of credited service and several optional forms of payment of the bridge benefit are introduced. Following amendments introduced to the Supplemental Pension Plans Act (Quebec), the option of electing to receive a temporary pension is introduced replacing the level income benefit option previously offered under the Plan. The new option offers individuals greater flexibility to front load pension benefits in the 55 to 65 age bracket which is prior to entitlement to Old Age Security benefits and unreduced Canada/Quebec Pension Plan benefits. The 90-point rule under the Plan which figures in the calculation of the early retirement factor and eligibility to a bridge benefit and towards which up to 5 extra points were granted in June 1996 is replaced by an 85-point rule. The extra points granted in 1996 will continue to apply only towards the 75-point rule. Several technical modifications with no impact on Plan benefits are made. AMENDMENTS 1. Paragraph 4.03(g) is amended by replacing the first word of the paragraph by the word "for" and by inserting the following words at the beginning of the paragraph: "Except for the purpose of qualifying after 31 October 1998 under a provision of the Plan requiring a Number of Points equal to at least 85, there shall be added". 1 23 2. Subsection 6.03 is amended by replacing the words "first of January of the year following the year in which he attains the age of 71 years" by the following words: "end of the year in which he attains age 69 or such other time as is acceptable under Revenue Rules". 3. Subsection 6.04 is amended by replacing the words "first of January of the year following the year in which he attains the age of 71 years" by the following words: "end of the year in which he attains age 69 or such other time as is acceptable under Revenue Rules". 4. Paragraph 8.02(b) is amended by replacing throughout the paragraph the number "90" by the number "85". 5. Paragraph 8.02(c) is replaced by the following: "(c) For the exclusive purposes of this paragraph 8.02(c), the following definitions apply: "limit date" means the earlier of the following dates: (i) the earliest date on which a retirement pension under the Canada/Quebec Pension Plan is payable without any reduction and, (ii) the Normal Retirement Date; "A" equals the Credited Service of a Member at his Pension Commencement date; "B" equals the number of years (including any fraction of a year) by which the Member's Pension Commencement Date precedes the first day of the month next following the day he attains age 60; "C" equals (i) if the Member's Pension Commencement Date precedes the first day of the month next following the day he attains age 60, the number of years (including any fraction of a year) by which the first day of the month in which he attains age 60 precedes the limit date or, (ii) if the Member's Pension Commencement Date occurs on or after the first day of the month next following the day he attains age 60, the number of years (including any fraction of a year) by which that Pension Commencement Date precedes the first of the month following the limit date; 2 24 "D" equals the total of all amounts paid as a bridge benefit on and before the first day of the month next following the day he attains age 60; "E" equals the number of years (including any fraction of a year) by which the first day of the month next following the day he attains age 60 precedes the limit date; "F" equals the number of years (including any fraction of a year) by which the Member's Pension Commencement Date precedes the first day of the month following the limit date. 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 85 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 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. The bridge benefit begins on the Pension Commencement Date of his retirement pension and is payable in monthly installments until the earlier of the following dates: (i) his date of death and, (ii) the limit date and, is reduced by any bridge benefit or its equivalent payable from a pension plan of an Affiliated Company or a Predecessor Company to the extent that credited service under such plan is recognized as Credited Past Service under the Plan in accordance with paragraphs 4.03(a) or 4.03(b). A Member who is entitled to a bridge benefit may subject to the limitations below, in the written form prescribed by and filed with the Administrator not later than three months prior to his Pension Commencement Date, elect from the following alternate forms of bridge benefit determined at his Pension Commencement date: 3 25 (i) up to the first day of the month in which he attains age 60, an annual amount determined by the formula $325 x A and thereafter, an annual amount determined by the formula $250 x A (ii) up to the first day of the month next following the day he attains age 60, an annual amount equal to the maximum annual amount permitted under Revenue Rules and thereafter, an annual amount determined by the formula ($325 x A x B) + ($250 x A x C) - D ___________________________________ E Form (i) of the bridge benefit is payable if the Member fails to elect within the allowable delay. Form (ii) of the bridge benefit may only be selected if the Member's Pension Commencement Date precedes the first day of the month next following the day he attains age 60. Notwithstanding the options described above, the bridge benefit of a Member (i) who is entitled to benefits from other plans sponsored by a Participating Company shall be adjusted as required to coordinate with those other plans and with the condition that, at its determination, the total of all amounts shall equal the amount determined by the formula ($325 x A x B) + ($250 x A x C) (ii) who elects to receive a temporary pension under subsection 10.06 shall be determined by the formula ($325 x A x B) + ($250 x A x C)". _________________________________ F 6. Subparagraph 9.01.3 (iii) is amended by inserting after the words "Number of Points" the following words: ", without taking into account paragraph 4.03(g),". 4 26 7. Subsection 9.02 is amended by replacing throughout the subsection the words "at the Date of Determination" by the words "for a particular month", by replacing the words "(a), (b) and (c)" by the words "(a) and (b)", by deleting paragraph (a) and by redesignating paragraphs (b) and (c) as paragraphs (a) and (b) respectively. 8. Subsection 10.06 is replaced by the following: 10.06 Temporary Pension "A Member entitled to a retirement pension (other than a Member whose Pension Commencement Date is more than ten years from his Normal Retirement Date and who is a Provincial Employee of Quebec) may, under conditions prescribed by Applicable Pension Laws, elect before Pension Commencement Date to receive a temporary pension, payable in monthly installments, the amount of which is fixed by him before payment begins and which meets the following requirements: (i) the annual amount of the temporary pension must not exceed maximum pension under the Canada/Quebec Pension Plan and the Old Age Security Act at Pension Commencement Date (except for a Provincial Employee of Quebec where the annual amount of the temporary pension must not exceed 40% of the YMPE at Pension Commencement Date or such lesser amount prescribed by Revenue Rules), reduced, where applicable, by the annual amount of the bridge benefit to which he is entitled under paragraph 8.02(c); (ii) payment of the temporary pension must end on (except for a Provincial Employee of Quebec where payment of the temporary pension must end on or before) the last day of the month following the month in which he attains age 65; The retirement pension of the Member who elects to receive a temporary pension is reduced by an Actuarially Equivalent amount for his lifetime. Any payments continuing after the Member's death (whether such payments are for the balance of the term provided for in the normal guarantee or in the 10 year guarantee or are payable under the terms of the Spouse's guarantee or the Contingent Annuitant guarantee) shall be calculated based upon such reduced retirement pension. 5 27 The temporary pension is subject to the Spouse's pension payment guarantee elected by the member in respect of his retirement pension. If the Member dies prior to the end of the period selected for the payment of the temporary pension, the Spouse shall be paid the guaranteed percentage of the temporary pension for the remainder of the period. The temporary pension is not subject to the normal guarantee or the 10 year guarantee or the Contingent Annuitant guarantee and accordingly ends with the last payment due on the first day of the month in which the death of the Member occurs. A Member's Spouse who elects the form of settlement under paragraph 11.04(a) and who, if a Spouse of a Provincial Employee of Quebec, has attained age 55 may elect before payment begins to receive a temporary pension in accordance with the provisions set out in this subsection." TECHNICAL MODIFICATIONS 9. The second paragraph of subsection 2.21 is amended by replacing the word "member" by the world "Member". 10. Subsection 2.30 is amended by replacing the word "practitioner" by the word "doctor". 11. Subparagraph 3.07(ii)(a) is amended by replacing the word "members" by the word "Members". 12. Paragraph 4.03(d) is amended by replacing the word "affiliated" by the word "Affiliated". 13. The third paragraph of subsection 8.03 is amended by replacing the word "member" by the word "Member". 14. Paragraph 9.01.1A is amended by inserting the word "RILA" immediately after the words "for Members who were members of" and immediately after the words "the pension computed on the basis of the terms of". 15. Paragraph 10.02(a) is amended by replacing the words "a Company" by the words "the Company". 6 28 16. Paragraph 10.03(b) is amended by replacing the punctuation "," immediately before the words "66 2/3%" by the word "or". 17. Subsection 11.03 is amended by replacing the word "nul" by the word "null". 18. Subsection 14.04 is amended by replacing the words "disability pension" by the words "Disability Pension" and by further replacing the word "sub-section" by the word "subsection". 19. Subsection 16.09 is amended by replacing the word "sub-section" by the word "subsection". 20. The first paragraph of subsection 16.25 is amended by replacing the word "beneficiary" by the word "Beneficiary". 21. Subsection 19.1(5) is amended by replacing in the first paragraph the word "factor" by the word "Factor" and by replacing in paragraph (5.2) the word "my" by the word "by". 22. Annex B, Names and Addresses of Participating Companies, is amended as attached. EFFECTIVE DATE Sections 2 and 3 shall be effective as of 1 January 1997, section 22 as of 1 January 1998 and the remaining sections as of 1 November 1998. 7 29 ANNEX B NAME AND ADDRESSES OF PARTICIPATING COMPANIES 1. ALCAN ALUMINIUM LIMITED 6. ALCAN ASIA PACIFIC LIMITED 1188 Sherbrooke Street West 1188 Sherbrooke Street West Montreal, Quebec Montreal, Quebec H3A 3G2 H3A 3G2 2. ALCAN ADMINCO INC. 7. ALCAN SHIPPING SERVICES LIMITED 1188 Sherbrooke Street West 1188 Sherbrooke Street West Montreal, Quebec Montreal, Quebec H3A 3G2 H3A 3G2 3. ALCAN ALUMINIO (AMERICA 8. ALCAN SMELTERS AND CHEMICALS LATINA) INC. LIMITED 1188 Sherbrooke Street West 1188 Sherbrooke Street West Montreal, Quebec Montreal, Quebec H3A 3G2 H3A 3G2 4. ALCAN INTERNATIONAL LIMITED 9. THE ROBERVAL AND SAGUENAY 1188 Sherbrooke Street West RAILWAY COMPANY Montreal, Quebec 1188 Sherbrooke Street West H3A 3G2 Montreal, Quebec H3A 3G2 5. ALCAN MANAGEMENT SERVICES CANADA LIMITED 1188 Sherbrooke Street West Montreal, Quebec H3A 3G2 8 EX-10.8.3 3 AMENDMENTS IN SCHEDULE 98-1 1 EXHIBIT 10.8.3 ALCAN SUPPLEMENTAL RETIREMENT BENEFIT PLAN (CANADA) SCHEDULE OF AMENDMENTS 98-1 1. Subsection 20.6 is amended by replacing the opening paragraph by the following paragraph: "Approved Disability Benefit" means a benefit described in (i) or (ii) below paid while the Member is an Executive Employee and suffers from a physical or mental impairment, as certified in writing by a qualified medical doctor, that prevents the Member from performing the duties of employment in which the Member was engaged before the commencement of the impairment:". 2. Subsection 2.10 is amended by replacing the words "a person other than the Member's Spouse" by the words "the person". 3. Subsection 2.27 is amended by adding after the first paragraph the following paragraph: "However, in the event that a Member's contract for employment with a Participating Company for any Plan Year is for less than the number of hours required for full-time employment by the Participating Company, his Pensionable Earnings will be assumed to be that amount that would have been paid had the Member worked full time for the purpose of calculating the Highest Average Earnings". 4. Paragraph 9.02(c) is amended by replacing the words, "66 2/3% (only available to Provincial Employees of Manitoba), 75% or 100%" by the words "or 66 2/3% (only available to Provincial Employees of Manitoba)" and by deleting "85%" and "80%" in the Table A. 5. Subsection 10.01 is amended by replacing the words "section 7" by the words "sections 7 and 8". 6. Subsection 13.02 is amended by deleting the words "with the Royal Trust Corporation of Canada". 7. Subsection 2.24 is amended by inserting after the word "months" the words "which for greater certainty includes the number of years granted by virtue of paragraph 4.03(g) of the Plan". 1 2 8. Paragraph 8.02(b) is amended by inserting the following subparagraph at the end: "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. 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". 9. Subsection 2.24 is amended by inserting after the words "4.03(g) of the Plan" the words "except for the purpose of qualifying after 31 October 1998 under a provision of the Plan requiring a number of points equal to at least 85". 10. Subsection 6.03 is amended by replacing the words "first day of the month in which he attains the age of 71 years" by the words "end of the year in which he attains age 69". 11. Subsection 6.04 is amended by replacing the words "first day of the month in which he attains the age of 71 years" by the words "end of the year in which he attains age 69". 12. Subsection 8.02(b) is amended by replacing throughout the paragraph the number "90" by the number "85". 13. Subsection 8.02 is amended by adding the following paragraph: "(c) For the exclusive purposes of this paragraph 8.02(c), the following definitions apply: "limit date" means the earlier of the following dates: (i) the earliest date on which a retirement pension under the Canada/Quebec Pension Plan is payable without any reduction and, (ii) the Normal Retirement Date; "A" equals the Credited Service of a Member at his Payment Commencement date; 2 3 "B" equals the number of years (including any fraction of a year) by which the Member's Payment Commencement Date precedes the first day of the month next following the day he attains age 60; "C" equals (i) if the Member's Payment Commencement Date precedes the first day of the month next following the day he attains age 60, the number of years (including any fraction of a year) by which the first day of the month in which he attains age 60 precedes the limit date or, (ii) if the Member's Payment Commencement Date occurs on or after the first day of the month next following the day he attains age 60, the number of years (including any fraction of a year) by which that Payment Commencement Date precedes the limit date; "D" equals the total of all amounts paid as a bridge benefit on and before the first day of the month next following the day he attains age 60; "E" equals the number of years (including any fraction of a year) by which the first day of the month next following the day he attains age 60 precedes the limit date; "F" equals the number of years (including any fraction of a year) by which the Member's Payment Commencement Date precedes the first day of the month following the limit date. 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 85 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 is entitled to a bridge benefit in addition to his retirement benefit. The bridge benefit begins on the Payment Commencement Date of his retirement benefit and is payable in monthly instalments until the earlier of the following date: (i) his date of death and, (ii) the limit date and, is reduced by any bridge benefit or its equivalent payable from the Plan and from a pension plan of an Affiliated Company or a Predecessor Company to 3 4 the extent that credited service under such plan is recognized as credited past service under the Plan in accordance with paragraphs 4.03(a) or 4.03(b) of the Plan. A Member who is entitled to a bridge benefit may subject to the limitations below, in the written prescribed by and filed with the Administrator not later than three months prior to his Pension Commencement Date, elect from the following alternate forms of bridge benefit determined at his Payment Commencement date: (i) up to the first day of the month in which he attains age 60, an annual amount determined by the formula $325 x A and thereafter, an annual amount determined by the formula $250 x A (ii) up to the first day of the month next following the day he attains age 60, an annual amount equal to the maximum annual amount permitted under Revenue Rules and thereafter, an annual amount determined by the formula ($325 x A x B) + ($250 x A x C) - D ----------------------------------- E Form (i) of the bridge benefit is payable if the Member fails to elect within the allowable delay. Form (ii) of the bridge benefit may only be selected if the Member's Payment Commencement Date precedes the first day of the month next following the day he attains age 60. Notwithstanding the options described above, the bridge benefit of a Member (i) who is entitled to benefits from the Plan or from other plans sponsored by a Participating Company shall be adjusted as required to coordinate with the Plan or with those other plans and with the condition that, at its determination, the total of all amounts shall equal the amount determined by the formula ($325 x A x B) + ($250 x A x C) 4 5 (ii) who elects to receive a temporary pension under subsection 10.06 of the Plan shall be determined by the formula ($325 x A x B) + ($250 x A x C) ------------------------------- F (iii) whose form of payment of his retirement benefit is a lump sum amount shall receive his bridge benefit in a lump sum amount equal to the Actuarial Equivalent of his bridge benefit otherwise payable in monthly installments". EFFECTIVE DATE Sections 1, 2, 3, 4 and 5 shall be effective as of 1 January 1992, section 6 as of 1 January 1990, sections 7 and 8 as of 1 July 1996, sections 10 and 11 as of 1 January 1997 and sections 9, 12 and 13 as of 1 November 1998. 5 EX-13 4 ANNUAL REPORT 1 Exhibit 13 Alcan Aluminium Limited (Logo) 1998 ANNUAL REPORT GROWTH VALUE STRENGTH (Photo of product.) CONTENTS Highlights of the Year....................................................... 5 Profile: Strength, Growth, Value............................................. 6 Message to Shareholders...................................................... 8 Growing with Our Partners.................................................... 12 Corporate Social Responsibility.............................................. 16 The Alcan Group's Businesses at a Glance..................................... 18 Management's Discussion and Analysis......................................... 22 Responsibility for the Annual Report, OECD Guidelines and Auditors' Report... 43 Consolidated Financial Statements............................................ 45 Notes to Consolidated Financial Statements................................... 49 Quarterly Financial Data..................................................... 76 Eleven-Year Summary.......................................................... 78 Corporate Governance......................................................... 80 Directors and Officers....................................................... 81 Shareholder Information...................................................... 84 The Alcan Group Worldwide.................................................... 86 ANNUAL MEETING The Annual Meeting of the holders of common shares of Alcan Aluminium Limited will be held on Thursday, April 22, 1999. The meeting will take place at 10:00 a.m. in the Assembly Hall of the International Civil Aviation Organization, Atrium Entrance, 999 University Street, Montreal, Quebec, Canada. DEFINITIONS 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 "joint venture" is an association (incorporated or unincorporated) of companies jointly undertaking some commercial enterprise and proportionately consolidated to the extent of Alcan's participation. 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, joint ventures and related companies. 2 2 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 GLOSSARY ALUMINA: Most alumina is a white, powdery substance produced from bauxite by a chemical process during which aluminum oxide is extracted from the ore. Between four and five tonnes of bauxite are required to produce about two tonnes of alumina, which yield one tonne of aluminum. ALUMINUM: Although aluminum is the most common metal on earth, constituting 8% of the planet's crust, it is never found in its pure form. Aluminum metal is produced by separating aluminum from oxygen in alumina. BAUXITE: The most economic source of aluminum is bauxite, an ore or rock composed of hydrous aluminum oxides and aluminum hydroxides. It is predominantly found in tropical and sub-tropical regions. CHEMICALS: The Alcan Group also produces chemical-grade alumina (alumina hydrate), the starting material for a wide variety of specialty chemical products. FABRICATED PRODUCTS: Generally, fabricated products are rolled products (sheet and foil) as well as rod, wire and cable, extruded and drawn products and castings. LITHO SHEET: Aluminum sheet is widely used as the metal plate on which an image is produced for lithographic printing. LONDON METAL EXCHANGE (LME): The LME is a metals trading centre for the Western World. The LME also determines the metal price (per tonne) for aluminum trading for current and future delivery. ROLLED PRODUCTS: At rolling mills, sheet ingots are reduced in thickness by passing them between rollers in a series of reversing hot mills and, finally, in a cold mill. For example, a 30-tonne sheet ingot can be rolled into a coil of up to 2.7 metres in diameter. SECONDARY (RECYCLED) METAL: Aluminum ingot can be made by remelting Used Beverage Cans (UBCs) or any other post-consumer scrap, as well as customer process scrap. Recycling aluminum only requires about 5% of the energy required to produce primary metal. 3 3 SHEET AND FOIL: Sheet is a flat-rolled metal primarily used for the container, lithography, transportation and building end-use markets. Foil is a thin sheet of metal, usually less than 0.006 inch (0.15 millimeter) thick, and it is widely used in household and commercial packaging and industrial product applications. SMELTING: Primary aluminum is originally produced through the electrolytic reduction of alumina (smelting process). The molten aluminum is then cast into ingots and then fabricated into a variety of products. TOLLING: Alcan rolls or converts customer-owned metal. This activity is called tolling. 4 4 Alcan Aluminium Limited HIGHLIGHTS OF THE YEAR (Graph) (Graph)
1998 1997 1996 ---- ---- ---- FINANCIAL DATA (in millions of US$, except per common share amounts) Sales and operating revenues 7,789 7,777 7,614 Net income before extraordinary item 399 468 410 Net income 399 485 410 Economic Value Added (EVA(R))* (285) (285) (310) Return (%) on average common shareholders' equity 7 10 9 Total assets (at year-end) 9,901 9,374 9,228 Capital expenditures 877 641 482 Ratio of borrowings to equity (at year-end) 24:76 23:77 23:77 Per common share (in US$) Net income before extraordinary item 1.71 2.02 1.74 Net income 1.71 2.09 1.74 Cash from operating activities 3.25 3.17 4.34 Dividends 0.60 0.60 0.60 Common shareholders' equity (at year-end) 23.71 21.43 20.57 ===== ===== ===== OPERATING DATA (in thousands of tonnes) Fabricated products shipments** 2,112 1,970 1,797 Ingot products shipments*** 829 858 810 Primary aluminum production 1,481 1,429 1,407 Secondary/recycled aluminum production 684 670 639 ===== ===== ===== AVERAGE THREE-MONTH LME PRICE (in US$/tonne) 1,379 1,620 1,536 ===== ===== =====
[FN] * EVA is a registered trademark of Stern Stewart & Co. ** Includes products fabricated from customer-owned metal. *** Includes primary and secondary ingot and scrap. 5 5 PROFILE Alcan Aluminium Limited, a Canadian corporation, is the parent company of an international group involved in all aspects of the aluminum industry. Through subsidiaries, joint ventures and related companies around the world, the activities of the Alcan Group include bauxite mining, alumina refining, power generation, aluminum smelting, manufacturing and recycling as well as research and technology. Close to 40,000 people are directly employed by the Company. In the 97 years since it was established, Alcan has developed a unique combination of competitive strengths. 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. With operations and sales offices in more than 30 countries, the Alcan Group is one of the most international aluminum companies and a leading producer of flat-rolled aluminum products. Alcan Aluminium Limited has approximately 20,340 registered holders of its common shares and 860 registered holders of its preference shares. While distributed internationally, the Company's shares are mostly held in North America. The word ALCAN and the Alcan symbol are registered trademarks in more than 100 countries and are synonymous with aluminum the world over. (Pull out) Alcan... the partner of choice. (Sidebar) GROWING WITH OUR PARTNERS Growing with Our Partners is the focus of this year's Annual Report, and strength, growth and value are at the core of our strategic intent. Strength reflects Alcan's strong financial state, its healthy debt-to-equity ratio and improved profitability. It also signifies the quality and dedication of Alcan's 40,000 employees. Finally, strength together with light weight, thermal and electrical conductivity, barrier qualities, infinite recyclability and many other characteristics make aluminum... the material of choice. Growth is working with all our stakeholders to develop and deliver value-added, differentiated aluminum products, bringing increased value to our customers. It means continuous improvement in everything we do - earnings, technology, employee development, safety, and environmental stewardship. Growth is about looking to a new future as we enter the new millennium -- fully optimizing our existing assets and aggressively pursuing opportunities to grow shareholder value. 6 6 Value is the reason we're here. It is an ongoing commitment -- to our shareholders, to our customers, to and by our employees -- to create value in everything we do. It also symbolizes Alcan's values -- our ethics, our conduct, our reputation. 7 7 MESSAGE TO SHAREHOLDERS VALUE (Photo of John R. Evans & Jacques Bougie) (Caption) John R. Evans (left), Chairman of the Board, and Jacques Bougie, President and Chief Executive Officer. OUR STRATEGIC PRIORITIES - - Establish and implement aggressive new Full Business Potential targets for 1999 and beyond. - - Strengthen the position of aluminum in the marketplace through industry leadership and position Alcan as the multinational partner of choice for global customers in select primary and semi-fabricated aluminum markets. - - Aggressively seek out opportunities to maximize shareholder value. Alcan's aggressive Full Business Potential process helped offset difficult business conditions during 1998, as commodity markets were under pressure and the price of aluminum declined by 20% in the course of the year. We made significant progress towards meeting our commitments in regard to all three strategic priorities that had been identified for 1998. FULL BUSINESS POTENTIAL ON TARGET In terms of Full Business Potential, we are right on target, having reached two-thirds of our ambitious goal -- to improve pre-tax earnings by $450 million over a three-year period. A substantial portion of the improvement realized during 1998 was accounted for by our fabricated products sector where we gained market share and our shipments worldwide grew by 7% -- for a total increase of 60% since 1993. Also, in our alumina operations we achieved a $10-per-tonne savings in production costs on top of a similar reduction the previous year. Alcan's Full Business Potential program is a continuous improvement process in pursuit of earning, at a minimum, our cost of capital -- the key to creating shareholder value. We are currently setting ambitious new targets for 1999 and beyond. STRENGTHENING ALUMINUM IN THE MARKETPLACE Through active participation of senior managers in major North American and European trade associations, we exercised global leadership on key industry issues ranging from the value of aluminum recycling to trade issues and environmental matters. MAXIMIZING SHAREHOLDER VALUE Certain strategic initiatives in our alumina and chemicals sector were undertaken in 1998, such as our bauxite-related arrangements in Australia and Ghana, modernization of our alumina refinery in Quebec and disposal of certain assets in Ireland, Guinea and Quebec. Other significant achievements in 1998 were: - - A 10-year strategic alliance with General Motors. - - Commencement of construction of the US$1.6-billion Alma, Quebec, smelter project. 8 8 - - An 18-year agreement on operational stability with unionized employees in Quebec. - - Repositioning and consolidation in the Asia/Pacific region, obtaining majority interest in Indian Aluminium Company, Limited (54.6%) in India and reducing our share in Nippon Light Metal Company, Ltd. in Japan to 11.2%. - - Major expansion of the Pindamonhangaba, Brazil, rolling mill, now close to completion with over 5 million construction hours without an accident, and a new recycling plant up and running. - - Dynamic performance by Alcan's North American fabricated products operations, which achieved positive EVA(R) in each of its businesses. Insofar as EVA, or Economic Value Added, is concerned, neither Alcan nor others in the industry have earned their cost of capital for some years now. That was the case again in 1998. On a positive note, however, Alcan was able to maintain the same EVA as in 1997 despite much lower metal prices. In other words, we continue to increase the underlying profitability of the Company. EVA is a registered trademark of Stern Stewart & Co. CUSTOMER FOCUS PAYING OFF There is no doubt that the stellar performance of Alcan's North American fabricating operations -- which are now able to boast of industry-best practices in a number of areas -- was a factor in attaining the multi-billion-dollar General Motors supply agreement. The operational stability agreement with our Quebec workers helps ensure that automobile manufacturers and other customers will have a reliable supply of metal. Alcan's determination to position itself as the most-responsive and lowest-cost supplier in its chosen markets is the main motivation behind the current realignment of our European operations. As such, we must be able to anticipate the changing needs of our customers in Europe, and to provide a consistently high level of customer service. In Brazil, too, Alcan's customer focus is evident in our decision to invest in the expansion of our Pindamonhangaba rolling facility and enhance our position as the only domestic supplier of can sheet to that country's rapidly growing beverage industry -- another of the global customer groups that we have targeted. SETTING NEW STANDARDS FOR WORKPLACE SAFETY AND THE ENVIRONMENT At Alcan, we view our record in the area of employee health and safety as an important indicator of the organization's overall performance. Our ultimate goal is zero work-related injuries and illnesses. We are pleased to note a much-improved performance throughout the Alcan Group in 1998, with significant reductions in key indicators such as Recordable Case and Days Lost rates. Especially noteworthy is the achievement of the workers and managers at our rolling mill expansion project in Brazil, who surpassed 5 million construction hours without a lost-time accident. That is a truly remarkable feat -- and augurs well for a smooth start-up of the expanded facility. (Graph) During the year, Alcan also exercised industry leadership in terms of environmental responsibility, with the revision to its corporate environmental policy. The comprehensive policy statement encompasses six guiding principles, which raise the bar in terms of the standards by which the aluminum industry facilitates sustainable development and operates in a manner compatible with the environment. 9 9 ACKNOWLEDGMENTS An organization's performance stands or falls on the strength of its people -- and the results of Alcan's second global survey of employees underscore how fortunate we are in terms of the remarkable esprit de corps that exists throughout the Alcan family. In terms of teamwork, for instance, the favourable response by Alcan employees was almost 20 percentage points higher than the average for major North American-based businesses. We would like to thank the entire Alcan team for their hard work and dedication during a difficult year. Alcan's Board of Directors also wishes to express its sincere appreciation to Sonja Bata and Bill Blundell, who will not be standing for re-election at the Annual Meeting of Shareholders in April this year, having reached retirement age. We are grateful to Mrs. Bata for her 20 years of valued contribution, serving on the Audit Committee from 1981 to 1992 and then as an ardent member of the Environment Committee. We also wish to express our thanks for the wise counsel of Mr. Blundell, who joined the Board in 1988 and served as a member of the Audit Committee, becoming its Chairman in 1996. We welcome Paul M. Tellier, President and Chief Executive Officer of Canadian National Railway Company, to Alcan's Board of Directors, and wish to thank our fellow Board members for their unstinting support and counsel. OUTLOOK It appears that 1999 will be another challenging year for the aluminum industry, with Western World aluminum consumption forecast to grow by only 1% and metal prices expected to remain low. However, Alcan has a strong balance sheet and intends to be an active participant in the on- going restructuring of the industry. We will seek out appropriate acquisition opportunities as an additional way of building shareholder value. We will optimize our growth potential by strong customer partnerships and market leadership, providing value-added, differentiated aluminum products. We believe we can be the best partner in our chosen markets. Strength, growth and value are the core of our strategic intent. (Signature) John R. Evans Chairman of the Board (Signature) Jacques Bougie President and Chief Executive Officer February 11, 1999 10 10 (Sidebar) EVA -- A KEY MEASURE OF PERFORMANCE FOR ALCAN Alcan has made excellent progress over the past several years in terms of achieving its strategic objectives, thanks in large part to the success of our ongoing Full Business Potential process. As we continue to move forward, it is imperative that we have tools in place that enable us to assess our performance by a consistent measure and -- perhaps more importantly -- help us identify areas that offer the greatest opportunity for further improvement. EVA, an acronym for economic value added, provides us with such a tool. It measures real profitability -- the difference between the return on capital and the cost for using that capital over the same period. If returns exceed our cost of capital, we have created value. EVA also provides a platform for linking management compensation to the creation of value. It enforces an entrepreneurial culture wherein employees think and act like owners of the Company. Dozens of other major corporations worldwide already have adopted EVA, and have found there is a correlation between an improving EVA and an increasing share price. Not surprisingly, many investors now look to EVA as a key indicator of the real return they are receiving on their investments. With EVA in place, Alcan is in a better position to fulfill its commitment to increasing shareholder value and realizing the full potential of all its operations. (Pull out) GROWTH Fabricated products shipments worldwide grew by 7% -- for a total increase of 60% since 1993. STRENGTH We are determined to optimize our growth potential by strong customer partnerships and market leadership, providing value-added, differentiated aluminum products. 11 11 (Photo of plant) GROWING WITH OUR PARTNERS GROWTH STRENGTH, GROWTH AND VALUE (Photo of employee) Are at the core of Alcan's strategic intent. We do more than make and sell aluminum -- we build alliances with all our stakeholders. We also take pride in developing and delivering value-added, technically advanced aluminum products, making Alcan the partner of choice. (Photo of David Moore and Roland Harings) (Caption) David Moore (right), vice president and director of technology for Alcan Global Automotive Products, examines an aluminum deck lid with Roland Harings, sales and marketing manager for European auto sheet. The automotive sector represents one of aluminum's -- and Alcan's -- most exciting opportunities for the next millennium. Significant market growth is anticipated in everything from car structures and body panels to powertrains, chassis components and brake rotors. A decade of automotive research and development has established Alcan as a world leader in delivering solutions to bring the benefits of aluminum to every aspect of the vehicle value chain -- from design to recycling. Alcan's patented alloys and proprietary technologies are key contributors to the growing acceptance of aluminum as the preferred material for a new generation of safe, light-weight and fuel-efficient vehicles. (Photo of product) (Caption) Alcan's technology allows the application of aluminum sheet using techniques that are compatible with existing high-volume automobile production methods -- easing the transition to aluminum. (Graph) (Caption) Aluminum's high strength-to-weight ratio enables car structures and body panels to be lighter than steel but just as strong. As a result, Alcan is positioned to be the leading supplier of aluminum sheet to the global auto industry. This market represents potential annual sales of 300,000 tonnes for Alcan within a decade. Alcan's automotive success is the product not only of technology, creativity and commitment but also the result of building strategic alliances with leading automakers worldwide. An example is the landmark partnership and ten-year supply agreement signed with General Motors in late 1998. This strategic alliance not only helps to resolve the long-standing issue of stable metal costs, it also provides a framework for continued joint research and development aimed at expanding the use of aluminum in GM's cars and trucks. Alcan has planned ahead to meet the demanding requirements of the automotive market, particularly in sheet applications. In the last decade, we have invested over $1 billion in our world-class rolling system. Moreover, the $1.6-billion Alma smelter under construction in Quebec will further ensure the reliability of metal supply to all our customers. Moreover, the recent creation of Alcan Global Automotive Products as a new business unit will enable the seamless, system-wide integration of Alcan's automotive business initiatives worldwide -- advancing our pursuit of aluminum-intensive vehicles with high-volume automakers. 12 12 (Sidebar) Aluminum's combination of light weight and high strength allows automakers to improve fuel economy and reduce emissions without compromising safety. With crash test studies on aluminum cars showing equal or better performance than steel equivalents, aluminum will be key to safely bridging society's environmental needs with regional preferences for size, comfort and affordability. (Pull out) STRENGTH Alcan is positioned to be the leading supplier of aluminum sheet to the global auto industry. GROWTH Alcan has planned ahead to meet the demanding requirements of the automotive market, particularly in sheet applications. (Caption) Kingston Works, in Canada, is an integral part of Alcan's North American rolling system producing aluminum sheet with the exceptional surface quality and formability required by automakers. This plant was the first of several Alcan facilities to earn QS-9000 status -- the auto industry's quality supplier designation. (Photo of product) (Caption) Aluminum use is growing in automotive applications ranging from fenders to radiators, while DURALCAN aluminum-matrix composites are finding increased favour for products such as brake rotors and drums. (Graph) (Caption) The use of aluminum in automobiles is expected to reach between seven and eight million tonnes by 2005. (Graph) (Caption) Extensive use of aluminum could cut the weight of a family sedan by 40% and improve fuel efficiency by 24-32%. 13 13 (Photo of product) By the time the next generation takes to the road, cars will be lighter, even more energy efficient and more responsive. Aluminum will be the prime reason for these advances and Alcan's technology will help to make that happen. Not only is Alcan a supplier of choice in the automotive market, but we also have strategic partnerships in the all-important containers and packaging sector as well as in other products such as lithographic sheet. Similarly, we are pursuing relationships with customers in the fin stock product sector. In the electrical cable market, strong customer alliances build extra value in our products and service, while in the building and construction sector our metal is frequently specified for major projects around the globe. Through these partnerships, Alcan offers unique value. We develop and produce technically advanced, differentiated, semi-fabricated products and our continued investment in rolling and recycling facilities strengthens our position as a market leader in our chosen product sectors. (Photo of product) (Caption) Aluminum beverage cans have a higher salvage value than competing materials -- the economic value of the used beverage cans recycled by Alcan worldwide in 1998 is estimated at $370 million. (Photo of product) (Caption) Aluminum's light weight, formability, barrier qualities and thermal conductivity make it the ideal material for food and beverage packaging. Aluminum containers can be shaped, coated and embossed for functional and decorative purposes. The aluminum beverage can continues to grow as a premier package for end users. Aluminum's properties, including complete recyclability with no deterioration in quality as well as the value incentive for collection, provide a unique market niche for aluminum beverage cans when compared to competing materials. Alcan's North American can stock shipments were up in 1998, eclipsing the previous record, outperforming the industry average and increasing market share. Industry gains were driven by a rise in can shipments to 103 billion cans in the U.S. alone. Alcan's recycling levels in North America also topped the previous year with over 20 billion cans. In South America, can sheet consumption has grown by about 20% per year since 1996. Alcan's $370-million expansion of the Pindamonhangaba plant in Brazil will start up in 1999 -- the largest aluminum rolling operation in the region and the only one capable of producing can sheet. A new recycling facility, with an ultimate capacity of 80,000 tonnes per year, is already operational as part of the Brazilian expansion. In Europe, aluminum food packaging represents about 35% of the European rolled products market, while in Asia, aluminum continues to gain market acceptance. Alcan's other markets for aluminum include lithographic offset printing, where aluminum sheets with unsurpassed surface quality and flatness are imperative. For the printing process, an image is transferred to a flat lithographic sheet, ink is applied and a print is made by passing the image via a rubber roll to the paper. Aluminum lithographic sheets are ideal for this process and, once used, they are easily recycled. Alcan is also a major supplier of aluminum transmission and distribution cable to public utilities as well as a producer of aluminum alloy building wire for the construction industry. Once again, Alcan's strength in innovation, quality and delivery distinguish the Company from the competition and clear the way for developing strategic alliances with customers. 14 14 In addition, Alcan produces value-added extrusion ingot for independent extruders who fabricate products in an almost unlimited range of profiles and shapes. Extrusions are generally destined for the building and construction market, but no matter what the application, architects and designers find that aluminum's high strength-to-weight ratio, versatility, durability and decorative potential offer unique advantages. (Photo of product) (Caption) Alcan aluminum lithographic sheet offers the printing industry unsurpassed surface quality and flatness -- it is also 100% recyclable. (Sidebar) Aluminum is an indispensable part of our modern technological society. Perhaps it is most evident in the form of aluminum beverage cans and foil products, but the metal is now found all around us -- ranging from high speed trains and supersonic airplanes to building products and sporting equipment. The newspapers and magazines that we read are often printed using aluminum lithographic sheets and our refrigeration and electronic components frequently contain aluminum. Aluminum is the material of choice in many applications -- from bridges in Scandinavia and Canada to the curtain-wall cladding on the world's tallest building, the Twin Towers complex in Malaysia. In the automotive sector, fenders, doors and deck lids are now being made of aluminum sheet and soon we'll see more aluminum body structures. Driveshafts and brake rotors made from DURALCAN aluminum-matrix composites are already in production. And we see aluminum signs at the side of the road as we pass towers supporting aluminum electrical cable. As society continues to look for products that can be recycled economically, aluminum will continue to gain ground against competing materials. (Pull out) VALUE Strong customer alliances build extra value in our products and service. (Caption) A body-in-white for an aluminum-intensive vehicle, built with Alcan's exclusive Aluminum Vehicle Technology (AVT) system. 15 15 CORPORATE SOCIAL RESPONSIBILITY STRENGTH (Photo of Jamaican Student and Teacher) (Caption) Community investment programs include initiatives such as this one at Alcan Jamaica Company, where environmental studies for primary school students are part of an Outreach Program. ALCAN IS COMMITTED to industry leadership in occupational health and safety, community relations and environmental performance. The strength of this commitment stems from the participation and determination of our employees, both on the job and as volunteers in local community initiatives. COMMUNITY AND ENVIRONMENT Just as sustainable growth requires an integrated business strategy, Alcan's community programs frequently combine the concepts of environmental management and education with aluminum's recyclability and unique properties. Community recycling programs often depend on collecting used aluminum beverage cans, demonstrating one aspect of aluminum's growing value as a material of choice. Protection of the environment is a high priority for every Alcan employee, requiring a continuing effort to improve our products and processes. HEALTH AND SAFETY A continued trend in the reduction of Alcan's work-related injuries and illnesses was evident in 1998. The commitment of all employees is a key factor in creating a work environment that enhances safety excellence. As we strive for continual improvement in occupational health, industrial hygiene and safety, we are focused on reviewing and updating our methodology for managing these areas within all Alcan Group companies. Similar to the management system approach used to achieve accreditation to quality or environmental standards, these efforts will lead to a global shift in the manner in which all Alcan employees approach workplace health and safety. (Photo Safety helmet) (Caption) All employees have the responsibility of identifying occupational health and safety hazards. In 1998, Behavioural Based Safety (BBS) was reviewed as an innovative tool to improve health and safety performance. Founded on scientific principles, BBS incorporates ongoing problem solving and employee involvement. It identifies and corrects existing systems that produce at-risk behaviour and develops new systems to encourage safe behaviours. BBS will complement our existing management approach and strengthen Alcan's position in occupational health and safety. (Photo of Chantal Petitclerc) (Caption) Alcan sponsors wheelchair athlete Chantal Petitclerc who is on her way -- riding on aluminum -- to the 2000 Olympic Games. COMMUNITY AND EDUCATION Alcan recognizes the need to contribute to the advancement of knowledge and know-how, especially with the leaders of tomorrow. Initiated by Alcan, the popular program, Working for a Better Tomorrow, is now mushrooming into a global network of elementary school, environment-related microbusinesses. Since its launch ten years ago in Quebec, the program has grown to include two regional efforts in Brazil, nine schools in Canada and, this year, the first U.S. project was inaugurated near Alcan's Sebree smelter in Kentucky. 16 16 (Photo of Teacher and Students) (Caption) Ecole Saint-Pierre in Alma, Quebec, was the first school to embark on Alcan's program, Working for a Better Tomorrow. Among other activities, students recycle paper into greeting cards and collect and sell aluminum cans. Mentorship programs in Europe and Canada continue to be very successful. For example, as one of the largest participants in the Canadian apprenticeship program, Career Edge, Alcan has provided, in the past two years, over 100 university graduates with their first work experience. Also, Alcan introduced a Research Fellowships Program for masters or doctoral level students at selected universities in Canada. Sponsoring an international athlete is not an everyday occurrence for Alcan, but with Chantal Petitclerc, a world-class, wheelchair athlete, it is a golden opportunity. Chantal is a five-time medal winner at the 1996 Paralympics at Atlanta and a world-record holder in the 100-metre event. She has also won the hearts of Alcan employees around the globe. Alcan employees worldwide are involved in their communities, offering support to charitable causes and recycling projects. Alcan continues to assist communities in need, such as those affected by hurricanes Georges and Mitch in North and Central America. (Sidebar) In 1998, Alcan set a goal to strive for environmental leadership within the industry. We will continue to develop and implement state-of-the-art environmental systems and adopt world-class practices for land use and residue disposal. And, by working in partnership with customers and suppliers, we will help to create products that take full advantage of aluminum's properties throughout the product life cycle. For all our stakeholders, the message is clear -- at Alcan, environmental standards are not negotiable. (Pull out) VALUE Protection of the environment is a high priority for every Alcan employee. GROWTH Alcan recognizes the need to contribute to the advancement of knowledge and know-how, especially with the young leaders of tomorrow. 17 17 THE ALCAN GROUP'S* BUSINESSES AT A GLANCE (As at February 11, 1999) EUROPE AND PACIFIC (Graph) NORTH AND SOUTH AMERICA (Graph) (Caption) *Includes subsidiaries, joint ventures and related companies and reflects the sale of alumina refining operations in Ireland and Guinea and of a chemicals operation in Canada as well as the reduction of the interest held in Nippon Light Metal Company, Ltd. (NLM) in Japan. ALUMINA AND CHEMICALS (Photo of bauxite) (Caption) Between four-to-five tonnes of bauxite are needed to produce about two tonnes of alumina, which yield one tonne of aluminum. OPERATIONS* - - 10 bauxite mines/reserves in 6 countries with 400 Mt of demonstrated reserves. - - 9 alumina plants in 6 countries with 3.7 Mt of annual capacity. - - 6 specialty chemicals plants in 3 countries. 1998 HIGHLIGHTS - - 11.3 Mt used. - - $29 million in bauxite third-party sales. - - 5.0 Mt produced. - - $288 million in alumina third-party sales. - - $184 million in sales. In addition to the sales of bauxite, alumina and specialty chemicals indicated above, Alcan's non- aluminum products account for $207 million in sales. STRATEGY AND 1998 ACHIEVEMENTS Optimize Alcan's alumina and bauxite asset base, while providing low-cost alumina to the primary metal business. - - Acquired majority control of Ghana Bauxite Company Limited in Africa. - - Agreement on sale of alumina refining operations in Ireland and in Guinea, as well as a chemicals business unit in Quebec. - - Achieved production records in all core refineries. - - Acquired a 20% equity participation in the Utkal alumina project in India. 18 18 PRIMARY METAL (Photo of smelting process) (Caption) Primary aluminum is produced through the electrolytic reduction of alumina (smelting process). OPERATIONS* - - 16 smelters in 5 countries with 1.7 Mt of annual capacity. 1998 HIGHLIGHTS - - 1.5 Mt of ingot produced. - - 648 kt of ingot purchased. - - $1.0 billion (648 kt) in ingot sales.+ STRATEGY AND 1998 ACHIEVEMENTS Be the best producer of low-cost primary aluminum in the world. - - Concluded an 18-year agreement for operational stability with Quebec unionized employees. - - Construction of the 375-kt/y smelter in Alma, Quebec, proceeding on time and on budget. Six smelters achieved record volume production. FABRICATED PRODUCTS (Photo of rolled product) (Caption) Fabricated products are rolled products (sheet and foil) as well as rod, wire and cable, extruded and drawn products and castings. The principal end-use markets are: Containers and Packaging, Transportation, Electrical, and Building and Construction. OPERATIONS* - - Rolled Products - - Other Fabricated Products - - Total Fabricated Products Over 50 manufacturing plants in 13 countries and 2.5 Mt of annual capacity. - - Secondary/Recycled Aluminum 9 recycling plants in 6 countries with 752 kt of annual capacity. 1998 HIGHLIGHTS - - $4.2 billion (1,604 kt) in sales.++ - - $1.1 billion (219 kt) in sales. - - 44 kt of fabricated products purchased. - - $5.3 billion in sales.++ - - 2.1 Mt of aluminum fabricated in Alcan facilities. - - 684 kt produced. - - 535 kt of scrap purchased. - - $142 million (96 kt) in ingot sales. - - $101 million (85 kt) in scrap sales. 19 19 STRATEGY AND 1998 ACHIEVEMENTS Grow Alcan's leading position in differentiated, semi-fabricated products in our chosen markets through long-term customer partnerships and low-cost manufacturing excellence. - - Concluded a 10-year preferred supply agreement with General Motors. - - Realigned our interests in the Asia/Pacific region. Obtained majority interest in Indian Aluminium Company, Limited and divested part of stake in Nippon Light Metal Company, Ltd. - - Negotiated the sale of piston business in Nurnberg, Germany. - - Increased North American sheet sales from existing facilities by 13%, recording market share gain in major segments. * As at February 11, 1999 20 20 ALUMINA AND CHEMICALS ALUMINA HYDRATE PRODUCTION Production increased at most alumina refineries and, in addition, Indian Aluminium Company, Limited in India is included as of the third quarter of 1998. (Graph) TOTAL SECTOR OPERATING INCOME Lower prices for alumina were offset by increased production and cost reductions. (Graph) PRIMARY METAL PRIMARY PRODUCTION (Graph) Record production volume was achieved at six of the Company's smelters. TOTAL SECTOR OPERATING INCOME (Graph) The decline in income reflects lower metal prices mitigated in part by lower alumina costs and higher production. FABRICATED PRODUCTS FABRICATED PRODUCTS SHIPMENTS (Graph) In 1998, market share increased in North America and was consolidated in Europe after a sharp increase the previous year. TOTAL SECTOR OPERATING INCOME (Graph) All North American businesses achieved positive EVA in 1998 and improvements were made in Europe. + also includes purchased ingot. ++ excluding fabrication of customer-owned metal. 21 21 MANAGEMENT'S DISCUSSION AND ANALYSIS VALUE In a tough external environment, Alcan continues to improve its profitability. Despite metal prices 15% lower, Economic Value Added (EVA(R))* was unchanged in 1998. (Graph) (Graph) * EVA is a registered trademark of Stern Stewart & Co. WORLD MARKET REVIEW PRIMARY ALUMINUM Consumption of aluminum in the Western World* fell 1.1% in 1998 as Asia's financial difficulties worsened and spread to the rest of the world. This was the first decline in demand for aluminum since 1982. The Asian downturn spread to the United States and Europe where the rate of growth slowed towards the end of the year. Latin America remained the strongest market, with consumption up 4.9%, but this was far below the 16.7% increase in 1997. Growth rates for both North America and Europe declined by more than half in 1998, to 3.0% and 3.1%, respectively. Aluminum consumption in Asia dropped by 11.6%, after a small gain of 0.7% in 1997. In sum, Western World aluminum demand for 1998 totalled 25.4 Mt of which demand for primary metal was 18.8 Mt. Primary aluminum production in the Western World increased 2.3% in 1998 to 16.4 Mt as brownfield and greenfield capacity came on-stream and some idle capacity was restarted. During the year, about 400 thousand tonnes (kt) of capacity was unutilized because of labour, technical and weather problems. Of this, 300 kt is expected to return to production in 1999. Voluntarily idled capacity accounted for another 700 kt. Exports of primary aluminum from the C.I.S. to the West totalled 2.7 Mt, an increase of some 2% over 1997. Chinese primary production is estimated at 2.38 Mt, an increase of 16% over 1997, which, with lower GDP growth, has eliminated the net imports into China from the West. Supply of primary aluminum increased by 2.1% so, with the decline in demand of 1.1%, the market went into surplus. Inventories in the hands of primary aluminum producers and in London Metal Exchange (LME) warehouses were little changed at 3.7 Mt, equivalent to about 10.3 weeks of consumption. However, total inventories, including unreported stocks are estimated to have increased some 325 kt during 1998 and, assuming only a modest recovery in demand, are expected to build up further in 1999. Ingot prices declined during most of 1998, closing the year near the low point at an LME three-month price of $1,244/t. The average price for the year was $1,379/t, 15% lower than the average of $1,620/t in 1997. * Defined as the world excluding the Commonwealth of Independent States (C.I.S.), Eastern Europe and China. 22 22 WESTERN WORLD CONSUMPTION VERSUS ALCAN SALES (Graph) It is estimated that total Western World aluminum consumption in 1998 was 25.4 Mt, three-quarters of which was supplied from primary sources and the remainder from recycled metal. This decrease of 1.1% from the previous year follows an increase of 5.4% in 1997. Alcan's total shipments increased 4% to 2.9 Mt. Ingot shipments fell 3.4%, while fabricated products shipments rose 7.2% reflecting the achievement of increased market share in a number of key segments. The increased shipments largely offset the metal price decline, resulting in revenues being unchanged at $7.8 billion. (Graph) The largest market for aluminum, namely transportation, grew by only 0.4% to 6.9 Mt following growth of 8.5% the previous year. In the United States, aluminum consumed in the transportation sector grew by 4.9% to 3.1 Mt despite a strike by workers at General Motors Corporation that hurt light vehicle production, but this was offset by a 10% decline in Japan as vehicle production declined. Alcan's revenues from this market increased some 10% in 1998 and accounted for 9% of its revenue. The containers and packaging market held steady at the 1997 level to consume 4.8 Mt of aluminum. It accounted for 45% of Alcan's revenues. Industry can sheet shipments rose 1.3% to 3.4 Mt, with a large 15.4% rise in Brazil, despite the country's economic difficulties. The can sheet market in the United States continued its growth, increasing by 1.5% to 1,849 kt. Alcan's revenues from containers and packaging worldwide increased about 8% led by an increased share of the substantial North American can sheet market. (Photo of Alcan Cable) Strategic alliances and long-term supply partnerships build a strong future at Alcan Cable. Building and construction suffered a 5.2% fall, to 4.8 Mt. Growth in the United States due to strong residential housing starts was offset by major declines in Asian countries such as Japan, where housing starts were down sharply, resulting in a decline in demand from construction of 15%. Alcan's revenues from this sector increased 10% and accounted for 17% of the Company's sales revenue. Consumption of aluminum in the electrical market rose a modest 0.9% to 2.3 Mt. Growth included a strong 28% rise in Brazil with increased investment in electrical distribution. Alcan's revenues from this market were little changed, accounting for 9% of the Company's total revenue. Other markets include machinery and equipment, and durable goods. Total aluminum consumption in these smaller markets fell approximately 1.5%. Alcan's revenues in the "other" category, which include sales of alumina and chemicals, were about 7% lower in 1998, with a strong increase in distributor shipments in the U.S. offset by lower prices for alumina. This comprised 20% of Alcan's revenue. 23 23 (Graph) RESULTS OF OPERATIONS Alcan reported consolidated net income for 1998 of $399 million compared to $485 million in 1997 and $410 million in 1996. The chart above analyzes the principal components of the change in net income between 1997 and 1998. Metal prices were sharply lower -- the average three-month LME price declined 15% from $1,620/t to $1,379/t and was 10% below the 1996 level of $1,536/t. This was offset in large part by continued increases in fabricated products sales volume and improved margins due to cost reductions, improvement in product mix and the lag in passing on lower metal prices. In terms of Economic Value Added (EVA), the metal price decline was fully offset - -- EVA for 1998 was the same as 1997 at $(285) million and improved over the 1996 level of $(310) million. Also included in the 1998 result were a number of offsetting items totalling a net after-tax loss of $9 million. Operating losses and business rationalization costs at Nippon Light Metal Company, Ltd. (NLM) in Japan of $53 million and restructuring costs elsewhere of $15 million were incurred. As a result of the impending sale of the Company's alumina refinery in Ireland, the book value of that asset was written down to the level of the expected sale proceeds, resulting in an after-tax charge of $120 million. These charges were offset by gains on the sale of shares in NLM and a chemicals business in Canada of $148 million after taxes, and a gain on currency revaluation of deferred income taxes of $31 million which resulted from the adoption of a new accounting standard. The 1997 result included an extraordinary gain of $17 million arising from the sale of a portion of a contract to supply power to B.C. Hydro, net of additional write-downs of remaining Kemano Completion Project (KCP) assets. In addition, 1997 earnings included a net after-tax gain of $6 million arising from a favourable tax adjustment and gain on sale of businesses offset in part by contract losses and restructuring at NLM. Operating losses at NLM were $7 million in 1997. For 1996, net income included net after-tax charges of $23 million relating to restructuring and early retirement of debt, offset by gains on business disposals and prior-period tax adjustments. The Company's Full Business Potential program, launched in 1997, continued to make good progress towards achieving its goal of a $450 million pre-tax improvement in profitability compared to the 1996 base, by the end of 1999. Following improvements of $160 million in 1997, a further $140 million has been achieved in 1998 for a total of $300 million at the end of 1998. In the alumina and chemicals sector, gains of $80 million have been made through lower costs and increased production volume. Primary metal operations have achieved $20 million through improved smelter efficiencies resulting in increased output. In fabricated products operations, North America and Europe have achieved improvements of $220 million in the two- year period through higher capacity utilization leading to lower unit costs as well as absolute cost (Graph) 24 24 reductions in Europe. Other regions have shown some slippage amounting to $20 million due to adverse economic conditions in Asia and Brazil. It is anticipated that the goals of the current program will be achieved by the end of 1999 and a further challenging target of earnings improvement will be set for the years beyond.
REVENUES (millions of US$) 1998 1997 1996 ---- ---- ---- Sales and operating revenues 7,789 7,777 7,614 ----- ----- ----- Total aluminum shipments (kt) 2,941 2,828 2,607 ----- ----- ----- Average sales price realizations (US$/t) Ingot products 1,558 1,739 1,658 Fabricated products 2,923 2,999 3,279 ===== ===== =====
Sales and operating revenues, at $7,789 million, were slightly above the 1997 level and 2% higher than in 1996. This essentially stable level of revenues, in the face of lower metal prices, reflects continued increases in sales volume and, in 1998, an improved spread of fabricated products prices over the underlying metal price. This reflects, in part, the time-lag in changes in metal prices flowing through to fabricated products prices. In addition, realizations are affected by the translation into U.S. dollars of sales expressed in European currencies that weakened in 1997 and showed some recovery against the dollar in 1998. Other income, which comprises interest income and other non-operating gains, was $231 million in 1998 compared to $88 million in 1997 and $75 million in 1996. Other than interest received on surplus cash, the main items included under this heading were gains on disposal of assets which, in 1998, amounted to $156 million before taxes, primarily from the sale of shares in NLM. COSTS AND EXPENSES Despite progressively higher sales volumes, cost of sales and operating expenses increased only 1.2% in 1998 and 1.5% in 1997. This improvement in unit costs primarily reflects higher capacity utilization, cost reductions and the lower cost, in 1998, of purchased metal.
(kt) 1998 1997 1996 ---- ---- ---- Purchases of aluminum Ingot products 648 732 509 Scrap 535 482 446 Fabricated products 44 40 48 ----- ----- ----- 1,227 1,254 1,003 ===== ===== =====
Purchases of primary ingot declined in 1998 as more of the fabricating sector's requirements were met by the Company's own smelters and increased recycling of scrap. Depreciation expense increased to $462 million from $436 million in the previous year and a similar level in 1996 reflecting the higher levels of capital expenditure in 1997 and 1998. 25 25 Selling, administrative and general expenses, at $448 million, were little changed from the 1997 level, which was some 5% higher than 1996. This reversal of the declining trend of recent years was due to expenses of some $36 million in 1998 and $42 million in 1997 incurred in renewing and updating information technology systems. These latter expenses are expected to decline in 1999. Research and development expenses were $70 million in 1998, little changed from 1997 and 1996. Alcan's R & D activities are closely aligned with the needs of its core businesses, principally, raw materials, smelting and rolling. The Company is continuing to maintain a strong program for the development of sheet applications and technology for the automotive industry and is working closely with a number of automotive companies in this regard. In addition, opportunities for process optimization to improve EVA are continuing to be explored and implemented in all technology streams. Other expenses were $219 million compared to $54 million in 1997 and $88 million in 1996. The 1998 increase results from the write-down by $143 million before taxes of the Aughinish alumina refinery in anticipation of its sale, and from costs associated with the Company's Year 2000 software remediation program.
INTEREST COSTS (millions of US$) 1998 1997 1996 ---- ---- ---- Interest expense 92 101 125 Interest capitalized 15 2 - ---- ---- ---- Total interest costs 107 103 125 Effective average interest rate 6.3% 6.9% 7.3% ==== ==== ====
Total interest rose slightly in 1998 as borrowings increased, with $15 million being capitalized relating to the Pindamonhangaba (Pinda) and Alma projects in Brazil and Quebec, respectively. From its peak of $267 million in 1992, the Company's interest costs have now fallen by $160 million or 60%. This reflects the debt reduction over that period as well as the benefit of lower interest rates. The pre-tax interest expense coverage ratio was 6.3 times in 1998 compared to 7.4 times in 1997 and 5.6 times in 1996. INCOME TAXES Income taxes of $210 million for 1998 represent an effective rate of 32%, similar to 1997, compared to a composite statutory rate of 40.4%. The difference in the rates in 1998 is due primarily to investment and other allowances, reduced rate or tax-exempt items and the impact of the accounting change related to the currency revaluation of deferred income taxes, partially offset by other exchange translation items. EQUITY COMPANIES Alcan's share of losses of equity-accounted companies in 1998 was $48 million compared to $33 million in 1997 and $10 million in 1996. Business conditions in Japan continued to deteriorate 26 26 and Alcan's Japanese affiliate, NLM, recorded further operating and restructuring losses. In the third quarter, Alcan increased its ownership in Indian Aluminium Company, Limited (Indal) from 34.6% to 54.6% and accordingly that company is now consolidated as a subsidiary. During the fourth quarter, the Company reduced its ownership in NLM from 45.6% to 11.2% and the investment in NLM is now treated as a portfolio investment. PRODUCT SECTOR REVIEW The following information is reported by major product sector, viewing each sector on a stand- alone basis. Transactions between sectors are conducted on an arm's-length basis and reflect market prices. Thus, profit on all alumina produced by the Company, whether sold to third-parties or used in the Company's smelters, is included in the alumina and chemicals sector. Similarly, income from primary metal operations includes profit on metal produced by the Company, whether sold to third-parties or used in the Company's fabricating operations. Income from the fabricated products sector represents only the fabricating profit from rolled products and downstream businesses. Additional product sector information is presented in note 23 to the financial statements.
ALUMINA AND CHEMICALS OPERATIONS (millions of US$) 1998 1997 1996 ---- ---- ---- Sales and operating revenues Third parties 509 536 529 Intersector 516 520 507 Operating income 113 118 84 --- --- -- Shipments - third-parties (kt) Smelter-grade alumina 1,641 1,679 1,585 Alumina chemicals 433 399 387 --- --- --- Alumina hydrate production (kt) 5,013 4,727 4,536 ===== ===== =====
Profits from this sector are little changed from 1997 and ahead of 1996. Alumina prices decreased on average by 14% in 1998, reflecting the decline in metal prices. Alcan reduced its alumina production costs per tonne by 8% compared to 1997. This was the result of continued improvements to productivity and efficiencies in conjunction with the Company's Full Business Potential program. Production costs also benefited from lower market prices for oil and caustic soda. BAUXITE Through subsidiaries, joint ventures and related companies, Alcan has approximately 400 Mt of demonstrated bauxite reserves, which is more than 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. 27 27 Having reached agreement with Comalco Limited in February 1998 with regard to integrated mining of Alcan's Ely bauxite deposit with Comalco reserves in Australia, progress was made during 1998 to define the mining plan for these resources. From the beginning of 2000, Alcan's bauxite costs in Australia will benefit significantly from the economies of scale resulting from this agreement. In March 1998, Alcan increased its equity position in the Ghana Bauxite Company from 45% to 80%, and is pursuing an initiative to expand the mining capacity of that company. ALUMINA Alumina hydrate production reached 5.0 Mt in 1998, a 4% increase over 1997 on a comparable basis. For the second consecutive year, hydrate production was the highest level ever for the Company. Total third-party sales were unchanged at 2,074 kt. In May 1998, Alcan acquired a 20% interest in the proposed Utkal alumina project in Orissa, India, a further 20% of which is held by Alcan's 54.6%-owned subsidiary, Indal. The project consists of a one-million-tonne integrated alumina plant and bauxite mine, with the opportunity to further expand production capacity. This project has the potential to be the lowest cost alumina plant in the world. The detailed feasibility study, most of the environmental clearances, licenses and land acquisitions have been completed. In February 1999, Alcan increased its direct interest in this project to 35%. The Utkal shareholders' decision regarding commencement of construction is expected to be made in late 1999 or early 2000. In December 1998, Alcan announced a $105-million modernization program at its alumina plant in Jonquiere, Quebec. This project will be completed over a four-to-five year period, in conjunction with a major reorganization and substantial reduction in employment levels, in order to significantly reduce the facility's alumina production cost, as well as improve environmental, health and safety conditions. In January 1999, Alcan reached agreement in principle with Glencore Limited for the sale of the Aughinish alumina refinery in Ireland. In anticipation of this sale, the book value of this asset has been written down to the expected sale value resulting in a charge of $120 million after tax. The sale is expected to be completed by the end of the first quarter of 1999 and will make a further contribution towards the reduction of the Company's overall alumina costs. (Photo of Truck) An agreement with Comalco Limited will achieve economies of scale in mining the Ely bauxite reserves in Australia, adding substantial value to Alcan's strategy for raw material supply. CHEMICALS Operating results in 1998 were similar to prior year results, as continued progress made on shifting Alcan's position to specialty alumina chemicals was offset by reduced profit margins in Europe. In December 1998, Alcan concluded the sale of Handy Chemicals Limited located in Candiac, Quebec, in accordance with its strategy to focus on specialty alumina chemicals. 28 28 PRIMARY METAL OPERATIONS (millions of US$)
1998 1997 1996 ----- ----- ----- Sales and operating revenues Third parties 1,304 1,487 1,321 Intersector 1,394 1,486 1,628 Operating income 346 606 523 ----- ----- ----- Shipments (kt) Primary aluminum Third parties 648 661 592 Intersector 904 867 1,017 ----- ----- ----- Primary production (kt) 1,481 1,429 1,407 ===== ===== =====
Operating profits from this sector declined some 43%, to reflect the lower average ingot prices prevailing in 1998 mitigated by lower alumina costs and the benefit of increased production levels. Profits from this sector arise not only from third-party sales but also from the sale of metal at market prices to the Company's own fabricating operations. Intersector shipments increased in 1998 reflecting higher demand from Alcan's North American fabricating operations. Third-party sales of primary ingot are nearly all in added-value forms such as extrusion billet and foundry ingot. Reduced Asian demand for ingot products was offset by a continued high level of demand from the North American market. Billet sales and profitability improved with Alcan's strong market position supported by casting facilities at four smelters. Sales of foundry ingot were maintained despite the 1998 ice storm affecting output in Quebec and a strike at General Motors affecting demand. Increased foundry ingot casting capacity has been installed at the Sebree smelter in the U.S. to support Alcan's automotive products strategy. The average realized price on third-party sales of primary ingot was $1,618/t compared to $1,803/t in 1997 and $1,721/t in 1996. (Photo of smelting plant) (Caption) Alcan's smelting and power strategy moves into a new phase with the construction of the US$1.6-billion, 375,000-tonne capacity smelter in Alma, Quebec, scheduled for start-up in late 2000. Alcan's average cost of production of primary aluminum (mainly in the form of sheet ingot and extrusion billet), including alumina at market prices, was $1,327/t compared to $1,352/t in 1997 and $1,328/t in 1996. The reduction in 1998 was due to lower alumina costs and the benefits to unit costs of increased output. PRIMARY PRODUCTION Primary metal production again increased in 1998 with improved output from most smelters offset by the loss of some 7 kt of production at a Canadian smelter due to the loss of power following an ice storm in January 1998. Alcan continues to have approximately 134 kt/y of production capacity temporarily idled, representing 8% of its capacity. This capacity will be restarted only when warranted by industry conditions. In addition, some 70 kt of capacity in India are idle due to non-availability of power. In February 1998, the Company announced its decision to proceed with construction of a new 375-kt/y smelter at Alma, Quebec. Construction is proceeding according to plan and the first metal will be produced in late 2000. In conjunction with this expansion, the existing 75-kt/y 29 29 smelter at Isle-Maligne, Quebec will be closed. The Alma smelter will employ state-of-the-art technology and will have among the lowest operating costs of new smelter projects in the world today. Feasibility studies are under way into potential smelter projects in British Columbia and Kentucky as well as a potential joint-venture project in Shanxi Province, China. These studies represent opportunities to grow Alcan's low-cost smelting capacity and their completion will allow the Company to move quickly when market conditions are appropriate. In the U.K., the refurbishment of the idle potline at Lynemouth is complete and the line is ready to restart when market conditions allow. In anticipation of the eventual closure of the Kinlochleven smelter, planning permission has been sought to upgrade the power line from the Kinlochleven power system to the Lochaber smelter.
FABRICATED PRODUCTS OPERATIONS (millions of US$) 1998 1997 1996 ----- ----- ----- Sales and operating revenues 5,963 5,737 5,744 Operating income 310 280 124 ----- ----- ----- Shipments (kt) 1,823 1,694 1,539 Fabrication of customer-owned metal 289 276 258 Total volume 2,112 1,970 1,797 ===== ===== =====
Alcan's fabricated products volume, including fabrication of customer-owned metal, grew 7% in 1998 to a record level of 2.1 Mt, following 10% growth in 1997. Adjusted for acquisitions and disposals, fabricated products volume has grown 60% in the five years since 1993. This performance reflects the achievement of increased market share in the Company's chosen market segments.
ROLLED PRODUCTS 1998 1997 1996 ----- ----- ----- Shipments (kt) 1,604 1,476 1,304 Fabrication of customer-owned metal 289 276 258 ----- ----- ----- Total volume 1,893 1,752 1,562 ----- ----- ----- Average price realizations (US$/t) 2,599 2,637 2,797 ===== ===== =====
Alcan continues to consolidate its position of leadership in rolled products markets in North and South America and Europe following capacity expansions and modernization in recent years. The decline in the average price realized on shipments of rolled products was much less than the decline in the underlying metal price due to the time-lag in metal prices flowing through to fabricated products prices as well as to the impact of currency translation. Realizations on sales 30 30 denominated in European currencies declined in dollar terms in 1997 but increased in 1998 as those currencies recovered against the dollar. North American industry aluminum sheet demand grew an estimated 1.5% in 1998 but Alcan achieved growth of 13%, recording market share gains in all major segments and increased exports. Industry can sheet growth was in line with overall sheet demand growth at an estimated 1.5% increase in 1998 driven by an increase in beverage can shipments of about 2.2% to a level of 103 billion cans in the U.S. Alcan continued to increase its share of this market with shipments up 11.6%. The Company made further inroads to the distributor market with shipments up 12% in a relatively flat market. In light gauge products, volume was up 10%, over twice the market growth, led by gains in transportation, packaging and construction. (Graph) Following growth of 7% in 1997, the rolled products market in Western Europe rose by an estimated 1.5% in 1998. However, market conditions weakened as the year progressed with the rolled products market contracting at a rate of 2% during the second half-year, after growth of 5% in the first six months. Having achieved sales growth of 16% in 1997, Alcan consolidated its position with shipments almost unchanged from the previous year, but with improved margins and with a higher added-value product mix. In South America, rolled products growth of 9% slowed somewhat from previous years and was mixed, with can sheet growing an estimated 16% but declines for consumer durable goods, transportation and machinery markets due to very high real interest rates in Brazil. A large proportion of Alcan's shipments is can sheet and the Pinda mill is the only rolling mill in the region with can sheet production capability. This plant is being expanded from 100 kt/y to 280 kt/y with the new capacity scheduled to start coming on stream late in 1999 to continue supporting the expanding South American can sheet market. (Photo of laboratory) (Caption) Alcan's patented allows and proprietary technologies are key contributors to the growing acceptance of aluminum sheet in automobiles. Working in close partnership with the customer, an Alcan laboratory technologist at Kingston, Ontario, simulates a test for the uniformity of temperature distribution on an aluminum hood. AUTOMOTIVE The year 1998 was again one of substantial progress for the automotive group, with significant commercial breakthroughs advancing Alcan's leadership in the application of aluminum sheet and metal matrix composites. During the year, Alcan secured new business with both General Motors and Ford for the increased use of aluminum exterior body panels (closures) on cars and light trucks. Over the next two years, Alcan will begin to supply multiple major new closure panel applications to the two manufacturers, making Alcan the leading supplier of aluminum closures to both companies. Volkswagen selected DURALCAN brake drums for production on its new lightweight, 3.0 liter/100 km Lupo. The Lupo, weighing in at just 800 kg, capitalizes on the lightweight benefits of aluminum throughout the vehicle. Production of this vehicle is now under way. In addition to these successes, significant progress was made toward the prospect of a high- volume aluminum-intensive vehicle (AIV). Alcan Global Automotive Products, a new organization, was created in 1998 to extend Alcan's business development approach into Europe and other regions to ensure the success of critical customer programs, while capturing the value of these business opportunities for Alcan. The strategic alliance signed with General Motors in November, along with continued progress with 31 31 Ford toward developing lighter, more efficient vehicles, provides the underpinning for long-term sustainable market growth. Alcan's reputation as a reliable, quality supplier was also recognized through the achievement of both the QS-9000 and Ford Q1 certifications at the Company's three North American plants involved in the production of automotive sheet.
OTHER FABRICATED PRODUCTS 1998 1997 1996 ---- ---- ---- Shipments (kt) 219 218 235 --- --- --- Average price realizations (US$/t) 5,292 5,445 5,946 ===== ===== =====
Sales of other fabricated products were flat in 1998 after having declined over the previous five years as a result of the divestment of non-strategic downstream businesses, most of which was completed by 1996. The slight decline in realizations in 1998 largely reflects the underlying metal price. In North America, shipments of Alcan Cable products increased in 1998, continuing the positive trend of the past several years. Building wire demand continued to grow and market demand for service cable and transmission cable was stable in 1998, supporting the sales volume needed to maintain continuing excellent profit performance. Alcan Cable employees in Canada and the U.S. extended special efforts in early 1998 in response to emergency demand for cable caused by a severe ice storm that blanketed eastern Canada and the northeastern United States in January. Most dramatic was Alcan Cable's rapid production and delivery of a special high strength alloy conductor cable that electric utility Hydro-Quebec desperately needed to replace steel-reinforced high-voltage lines brought down by the storm. In France, conditions in the building systems market improved, and the overseas business of Alcan France generally performed well. However, sales to Southeast Asia were affected by the much weaker economies in that region. In Germany, Alcan reached agreement to sell the piston manufacturing business during the first quarter of 1999. In Brazil, the flexible packaging business suffered weak market demand. RECYCLING ACTIVITIES Alcan's aluminum can recycling in North America increased by 8.2% in 1998 to a new record, 20.1 billion cans. This represents more than 30% of all the aluminum beverage cans recycled by Americans in the year. In Canada, Alcan collected approximately 2.1 billion cans in Ontario, Quebec and British Columbia during 1998. The economic value of the cans Alcan recycled during the year in North America totalled nearly $325 million. Alcan also operates a used beverage can (UBC) recycling plant in the U.K. and, in early 1998, commissioned a UBC recycling facility with an ultimate capacity of 80 kt/y in Brazil, the first of its kind in South America, supporting growth of the beverage can market in those regions. 32 32 In addition to its UBC recycling facilities, Alcan recycles other forms of aluminum scrap at four facilities in India, Italy, Thailand and the U.K. with a total capacity of 181 kt/y. Third-party sales totalled 96 kt compared to 82 kt in 1997 and 119 kt in 1996. Late in 1996, the Company sold its facility in Guelph, Ontario, and, in the first quarter of 1999, sold its plant in Shelbyville, Tennessee. These steps reflect the decision to concentrate secondary production on supplying sheet ingot to the Company's own fabricating operations and supporting the fabricated products market with a recycling infrastructure. GEOGRAPHIC REVIEW The economic downturn in Japan and the rest of Asia felt in late 1997 accelerated into 1998 and, because of the impact on global demand and prices, adversely affected results in all regions. Net income data included in this Geographic Review relate to Alcan's operations in each region, whereas the shipment data are classified according to third-party customer location.
CANADA (millions of US$) 1998 1997 1996 ---- ---- ---- Net income* 133 245 175 Net income excluding special items* 103 219 188 --- --- --- Shipments (kt) Ingot products 110 101 120 Fabricated products 115 110 120 === === ===
[FN] * Net income in 1997 is before extraordinary gain. Special items include: 1998 currency revaluation of deferred income taxes and gain on sale of a business, 1997 prior year tax adjustments, 1996 rationalization expenses and loss on early retirement of debt. Earnings from Canadian operations, principally primary metal and alumina, declined in 1998 due to lower aluminum ingot prices more than reversing the improvement in 1997. (Graph) The Canadian economy experienced slower growth with the impact of reduced exports to Asia. Alcan's shipments to customers in Canada increased some 7% to 225 kt. The 375-kt/y Alma smelter project in Quebec received its go-ahead early in 1998, and construction is underway. In the fourth quarter, Handy Chemicals was sold in accordance with the Company's strategy of concentrating its chemicals activities on specialty alumina chemicals. 33 33
UNITED STATES (millions of US$) 1998 1997 1996 ----- ----- ----- Net income 144 136 70 Net income excluding special items* 144 136 72 ----- ----- ----- Shipments (kt)** Ingot products 388 379 380 Fabricated products 1,016 905 874 ===== ===== =====
[FN] * Special items comprise loss on sale of business and tax write-backs in 1996. ** Includes fabrication of customer-owned metal. The increase in U.S. net income reflects continued improvements in profitability of the fabricated products business partly offset, in 1998, by reduced earnings from the U.S. smelter operations due to lower metal prices. The U.S. economy remained robust but with some slowing of the growth rate towards the end of the year. Aluminum consumption rose 2.8% after a high, 6.7%, growth rate in 1997. Strong housing activity and transportation markets as well as continuing growth in the can market were the main factors. Despite the slowing in the U.S. growth rate, Alcan's fabricated products operations experienced an excellent year and are achieving good order levels going into 1999.
SOUTH AMERICA (millions of US$) 1998 1997 1996 ----- ----- ----- Net income 13 27 42 Net income excluding special items* 13 17 29 ----- ----- ----- Shipments (kt) Ingot products 26 27 21 Fabricated products 162 146 153 ===== ===== =====
[FN] * Special items include 1997 and 1996 gain on sale of businesses. Operating results in 1998 were affected by the impact of lower metal prices on raw materials and smelting operations. The decline in 1997 was largely due to the divestment of non-core downstream operations. In Brazil, the imposition of very high interest rates in defence of the currency pushed the economy into recession in the fourth quarter. Cars, trucks and consumer durable goods production declined sharply. Despite weakness in these sectors, aluminum consumption grew some 5% with increased demand from the electrical distribution and beverage can markets. The outlook for 1999 is uncertain after the devaluation of the Real in January 1999. It is expected that the first quarter will be difficult with a substantial reduction in GDP. 34 34 The Pinda rolling mill expansion is proceeding well -- on time, on budget and with over 5 million construction hours worked without a lost-time accident. The expansion is scheduled to start coming on stream in the second half of 1999. EUROPE Overall GDP growth in the European Union (EU) 15 countries continued at just under 3% in 1998, a similar rate to the previous year. The economies of Germany and France experienced slightly higher growth, whereas Italy's growth was unchanged, and the U.K. economy began to slow down. Operating profits and net income from the European fabricating businesses showed a significant increase in 1998, partly due to the effect of the improved conversion margins, but mostly due to the benefits of the cost reduction program underway across Europe. Employee numbers in Europe were reduced by some 550, or 5%, during the year and restructuring charges of $19 million before tax were made as Alcan Europe took steps to move towards its full business potential. In 1998, however, this improvement was offset by reduced earnings from alumina and primary metal operations. GERMANY
(millions of US$) 1998 1997 1996 - ----------------- ---- ---- ---- Net income 7 - (25) Net income excluding special items* 10 - (20) ---- ---- ---- Shipments (kt)** Ingot products 19 10 8 Fabricated products 180 183 151 ==== ==== ==== * Special items include 1998 and 1996 rationalization costs. ** Includes fabrication of customer-owned metal.
Alcan's fabricating operations in Germany turned profitable in 1998 but continued to be EVA-negative. Further improvements are expected in 1999, based on actions taken in 1998 and to be taken in 1999. UNITED KINGDOM
(millions of US$) 1998 1997 1996 - ----------------- ---- ---- ---- Net income 2 22 51 Net income excluding special items* 8 22 49 ---- ---- ---- Shipments (kt)** Ingot products 25 25 16 Fabricated products 151 152 141 ==== ==== ==== * Special items include 1998 rationalization costs, 1996 tax write-backs. ** Includes fabrication of customer-owned metal.
35 35 Fabricating operations in the U.K. were affected by the competitive impact of the strength of the pound sterling against continental currencies and by the slowing U.K. economy. In addition, primary metal operations suffered a decline in profitability due to lower metal prices.
OTHER EUROPE (millions of US$) 1998 1997 1996 ---- ---- ---- Net income (98) 33 (5) Net income excluding special items* 25 33 (3) ---- ---- ---- Shipments (kt)** Ingot products 64 71 65 Fabricated products 366 391 338 ==== ==== ====
[FN] * Special items include 1998 write-down of assets and rationalization costs, 1996 rationalization costs. ** Includes fabrication of customer-owned metal. Improved fabricated products earnings were offset by the impact of lower alumina prices on the raw materials operations. Included in the reported earnings for the year is a $120 million after-tax write-down of the Aughinish alumina refinery in anticipation of its sale early in 1999. (Photo of shop floor) (Caption) Indian Aluminium Company, Limited, now a fully consolidated subsidiary, manufactures a range of products such as the high-value rolled products at the Belur sheet mill in West Bengal, India, all the way across the spectrum to specialty alumina chemicals.
ASIA AND PACIFIC (millions of US$) 1998 1997 1996 ---- ---- ---- Net income 117 (1) 13 Net income excluding special items* 8 29 25 ---- ---- ---- Shipments (kt) Ingot products 196 245 199 Fabricated products 119 76 13 ==== ==== ====
[FN] * Special items include: 1998 gain on sale of NLM shares, 1998 and 1997 construction contract losses and rationalization expenses and 1996 rationalization expenses. Income, excluding special items, from this region deteriorated further in 1998 as the weak Japanese economy resulted in increased operating losses from the Company's affiliate, NLM. In the fourth quarter, in line with the strategy of concentrating on upstream and large-scale fabricating operations, Alcan sold shares in NLM reducing its holding to 11.2% and realizing net cash proceeds of $193 million and an after-tax gain of $140 million. This company is now accounted for as a portfolio investment and is no longer equity-accounted. In July 1998, Alcan acquired a further 20% of the shares of Indal for $70 million bringing its total stake to 54.6%. Accordingly, Indal has been consolidated as a subsidiary from that date. Despite slower economic growth in India, Indal improved its profitability by some 50%. The economic crisis, which gripped Southeast Asia in the latter half of 1997, worsened during 1998, plunging most countries in the region into their first recession in over a decade. Alcan's 36 36 exports of ingot products to the region declined by 20%. For fabricated products, the construction and automotive markets, which are important to Alcan's businesses, were especially hard hit, leading to a sharp decline in shipments into these markets. Alcan's businesses in Thailand and Malaysia responded with aggressive cost reduction and productivity improvement, rigorous management of working capital and the development of export opportunities. While profitability declined, cash generation was positive and substantially higher than in 1997. With business conditions expected to remain difficult, all companies will be accelerating their efforts to strengthen their competitive position in the year ahead. In Australia, earnings from raw materials operations declined due to lower alumina prices.
OTHER AREAS (millions of US$) 1998 1997 1996 ---- ---- ---- Net income 39 35 31 Net income excluding special items* 41 35 35 ---- ---- ---- Shipments (kt) Ingot products - - 1 Fabricated products 3 7 7 ==== ==== ====
[FN] * Special items include 1998 loss on sale of business, 1996 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 its products in other parts of the world such as the Middle East and Africa. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Cash generation in 1998 was close to 1997, despite the lower net income. Calculated by taking net income for the year and adding back depreciation and deferred income taxes, cash generation was $890 million compared to $913 million in 1997 and $856 million in 1996. Net operating working capital requirements increased by $106 million in 1998 and by $125 million in 1997 due in part to higher fabricated products sales volumes. Inventories increased at the end of 1998 reflecting lower than expected shipments at the end of the year in Europe and realignment of sheet ingot work-in-progress in North America. (Graph) (Photo of recycling facility) (Caption) With can sheet consumption in South America growing by about 20% per year since 1996, Alcan's new recycling facility at Pindamonhangaba, Brazil, completes the circle of domestic production, consumption and recycling of aluminum cans. INVESTMENT ACTIVITIES Capital investment in the year was $877 million, an increase from the previous two years, which were $641 million and $482 million respectively. On an ongoing basis approximately $450 million is required annually to maintain the integrity and competitiveness of the Company's assets. Additional investment during 1998 principally comprised the expansion of rolling capacity in Brazil, initial expenditure on the Alma smelter project in Quebec and the acquisition of a controlling interest in Indal, India. 37 37 (Graph) In 1999, total investment is anticipated to be approximately $1.2 billion including, in addition to projects to maintain existing assets, the Alma smelter construction and the conclusion of the Pinda rolling mill expansion in Brazil. Disposal proceeds from the sale of non-strategic businesses were $221 million in 1998, compared to $54 million in 1997 and $660 million in 1996. Disposal of assets in 1998 comprised the sale of shares in NLM, Japan, and the sale of Handy Chemicals in Quebec. In addition, the divestment of a recycling facility in Shelbyville, Tennessee, was completed in the first quarter of 1999, and the sale of the Aughinish alumina refinery in Ireland and a piston manufacturing business in Nurnberg, Germany, are under way. FINANCING ACTIVITIES Total borrowings at the end of 1998 were $1.8 billion, which was $274 million above the 1997 level. Alcan's debt-to-equity ratio rose slightly to 24:76 compared to 23:77 at the end of 1997, which was the lowest level in decades. Net of surplus cash, the 1998 ratio was 18:82. The quarterly common share dividend remained at 15 cents per share in 1998. Total dividends paid to common shareholders were $136 million, the same as in 1996 and 1997. Dividends to preference shareholders were $10 million in both 1998 and 1997 compared to $16 million in 1996. In March of 1998, Alcan redeemed $43 million of its Series D preference shares. These shares were relatively high cost financing in the current interest rate environment. In addition, in September, the Company took advantage of historically low long-term interest rates to issue debentures totalling $300 million -- $200 million 6.25% debentures due 2008 and $100 million 7.25% debentures due 2028. In September 1998, Alcan announced a common share repurchase program for up to 22.7 million common shares over a 12-month period. During the fourth quarter, Alcan purchased 1.73 million common shares. Purchases under this program may be made until September 28, 1999, at the Company's discretion. Cash reserves totalled $615 million at the end of 1998 compared to $608 million and $546 million at the ends of 1997 and 1996 respectively. The Company continues to have a $1-billion global, multi-year and multi-currency credit facility with a syndicate of major international banks. At December 31, 1998, no funds had been borrowed under this facility and the full amount continues to be available. The Company's investment grade rating also provides Alcan with access to global capital markets through the issuance of debt and equity instruments. The Company expects that cash generated from operations, combined with the above resources, will be more than sufficient to meet the cash requirements of operations, planned capital expenditures and dividends. In addition, ready access to capital markets should provide adequate liquidity to meet unforeseen events. 38 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 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 $190 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 1998, such expenses totalled $91 million. This amount was largely for costs associated with reducing air emissions and mitigating the impact of waste and by-products. In 1996 and 1997, these expenses totalled $96 million and $88 million, respectively. Included in capital spending in 1998 was $71 million for environment-related projects. Such spending was largely on equipment designed to reduce or contain air emissions generated by Alcan plants. Spending in 1996 and 1997 was $60 million and $84 million, respectively. RISKS AND UNCERTAINTIES RISK MANAGEMENT As a multinational company engaged in a commodity-related business, Alcan's financial performance is heavily influenced 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. 39 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. From the beginning of 1998, following a change to the accounting standards of the Canadian Institute of Chartered Accountants on accounting for income taxes, the Company's deferred income tax liability is translated into U.S. dollars at current rates. The resultant exchange gains or losses are included in income. The impact of a US$0.01 movement in the value of the Canadian dollar on deferred income taxes is approximately $6 million. During 1998, a gain of $31 million was recorded in this regard. 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 long-term profitability. For further details, refer to note 17 of the financial statements. THE YEAR 2000 ISSUE Alcan is addressing the Year 2000 issue through a formal program (the Project) designed with the assistance of outside consultants. Products made and sold by Alcan do not contain date-sensitive software or electronic components. The Project is therefore focused on evaluation and remediation of systems hardware and related software used in business applications, process controls and instrumentation used in the manufacturing process, and on risks associated with suppliers and other third-parties not being Year 2000 compliant. 40 40 Remediation of all critical systems was approximately 90% complete at the target date of December 31, 1998. Although minor slippage has occurred, Alcan expects to complete remediation of the remaining critical systems in a timely manner and this is not expected to have a material adverse effect on Alcan's Year 2000 preparedness. Remediation means an item has been repaired or replaced and has been unit tested or otherwise demonstrated to be compliant. Other key project phases are generally on target with Alcan's milestone dates. Testing is expected to be substantially complete by the end of the second quarter of 1999. All critical systems are being evaluated for full integration testing; however, integration testing will not necessarily be undertaken for all systems. Alcan is dependent upon a number of third parties including utilities and raw material suppliers. Alternative suppliers are not available in all cases. Alcan operates or controls, through direct ownership or joint ventures, the supply of a majority of its requirements for bauxite and alumina. This will assist Alcan in assessing and managing risk with respect to these key raw materials. Additionally, Alcan generates its own power for its core North American smelter facilities which will enable Alcan to deal directly with those power supply risks. Contingency planning and business continuity planning will receive increased attention over the next several months. Contingency planning includes examining options for minimizing impact where third-party supplies are interrupted, the availability of alternative electrical power from third-party sources and examining how dual source energy options, available at several key fabricating facilities, can best be utilized. As systems testing and integration testing advances, Alcan will evaluate most reasonably likely worst case scenarios. These will also become clearer in relation to third-party dependencies as the position of key suppliers becomes better known. Detailed business continuity plans will then be developed in light of the results of these reviews. Alcan believes that the Project continues to reduce significantly the possibility of material interruptions in normal operations. Third-party failures or unexpected impediments to timely completion of Year 2000 remediation could result in business interruptions or delays that could have a material adverse effect on Alcan's business and financial condition. Costs of repair and replacement of systems at Alcan facilities are expensed as incurred and are estimated at $50 million. Costs to the end of 1998 were $23 million. Any additional costs for testing, implementation and contingency planning are not expected to have a material adverse effect on Alcan's liquidity, results or financial condition. ABORIGINAL ISSUES In April 1998, the 100-member Cheslatta Nation Indian Band filed suit against Alcan, Canada and British Columbia (B.C.) seeking a declaration that they be entitled to the exclusive occupancy or possession of certain claimed lands, to damages and to other relief, relying on the decision of the Supreme Court of Canada in the Delgamuukw case. Alcan obtained its title to certain land in the claimed territory under valid grants from the Government of Canada upon due payment. Alcan filed its statement of defence in October 1998. The day-to-day operations of Alcan's facilities will not be impeded. Alcan believes that this claim is without merit and will not succeed in court. 41 41 In March 1998, the Haisla Nation wrote to Alcan, Canada and B.C. asserting that Alcan's lands in Kitimat and Kemano are subject to their aboriginal title, also apparently relying on the Delgamuukw case. CAUTIONARY STATEMENT Statements in this report that describe the Company's objectives, projections, estimates, expectations or predictions may be "forward looking statements" within the meaning of applicable securities laws and regulations. The Company cautions that such statements involve risk and uncertainty and that actual results could differ materially from those expressed or implied. Important factors that could cause differences include global aluminum supply and demand conditions, aluminum ingot prices and other raw materials' costs or availability, cyclical demand and pricing in the Company's principal markets, changes in government regulations, economic developments within the countries in which the Company conducts business, and other factors relating to the Company's operations, such as litigation, labour negotiations and fiscal regimes. (Pull out) GROWTH Fabricated products shipments continued to rise in 1998 as Alcan increased its share of key markets. STRENGTH Alcan's leadership in automotive sheet and metal matrix composites is evidenced by a strategic alliance with General Motors. 42 42 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 appointment of PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP, whose report is provided below. (Signature) Jacques Bougie, Chief Executive Officer (Signature) Suresh Thadhani, Chief Financial Officer February 11, 1999 43 43 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, 1998, 1997 and 1996 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 1998. 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. 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, 1998, 1997 and 1996 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998 in accordance with Canadian generally accepted accounting principles. (Signature) PricewaterhouseCoopers LLP Chartered Accountants February 11, 1999 Montreal, Canada 44 44 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME (in millions of US$, except per share amounts)
Year ended December 31 1998 1997 1996 ---- ---- ---- REVENUES Sales and operating revenues $7,789 $7,777 $7,614 Other income (note 10) 231 88 75 ------ ------ ------ 8,020 7,865 7,689 ------ ------ ------ COSTS AND EXPENSES Cost of sales and operating expenses 6,076 6,005 5,919 Depreciation (note 2) 462 436 431 Selling, administrative and general expenses 448 444 422 Research and development expenses 70 72 71 Interest 92 101 125 Other expenses (note 9) 219 54 88 ------ ------ ------ 7,367 7,112 7,056 ------ ------ ------ Income before income taxes and other items 653 753 633 Income taxes (notes 3 and 6) 210 248 212 ------ ------ ------ Income before other items 443 505 421 Equity loss (note 8) (48) (33) (10) Minority interests 4 (4) (1) ------ ------ ------ NET INCOME BEFORE EXTRAORDINARY ITEM $ 399 $ 468 $ 410 Extraordinary gain (note 4) -- 17 -- ------ ------ ------ NET INCOME $ 399 $ 485 $ 410 Dividends on preference shares 10 10 16 ------ ------ ------ NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 389 $ 475 $ 394 ------ ------ ------ NET INCOME PER COMMON SHARE BEFORE EXTRAORDINARY ITEM (note 2) $ 1.71 $ 2.02 $ 1.74 Extraordinary gain per common share (note 4) -- 0.07 -- ------ ------ ------- NET INCOME PER COMMON SHARE (note 2) $ 1.71 $ 2.09 $ 1.74 ====== ====== ======= DIVIDENDS PER COMMON SHARE $ 0.60 $ 0.60 $ 0.60 ====== ====== =======
45 45 CONSOLIDATED STATEMENT OF RETAINED EARNINGS (in millions of US$)
Year ended December 31 1998 1997 1996 ---- ---- ---- RETAINED EARNINGS -- BEGINNING OF YEAR As previously reported $3,556 $3,217 $2,959 Accounting change (note 3) 306 -- -- ------ ------ ------ As restated 3,862 3,217 2,959 Net income 399 485 410 ------ ------ ------ 4,261 3,702 3,369 Amount related to common shares purchased for cancellation 37 -- -- Dividends - Common 136 136 136 - Preference 10 10 16 ------ ------ ------ RETAINED EARNINGS - END OF YEAR (note 15) $4,078 $3,556 $3,217 ====== ====== ======
46 46 CONSOLIDATED BALANCE SHEET (in millions of US$)
December 31 1998 1997 1996 ---- ---- ---- ASSETS CURRENT ASSETS Cash and time deposits $ 615 $ 608 $ 546 Receivables 1,401 1,292 1,262 Inventories Aluminum 826 800 736 Raw materials 345 307 325 Other supplies 242 234 244 ------- ------- ------- 1,413 1,341 1,305 ------- ------- ------- 3,429 3,241 3,113 ------- ------- ------- Deferred charges and other assets 517 424 314 Investments (notes 8 and 10) 58 251 331 Property, plant and equipment (note 9) Cost (excluding Construction work in progress) 11,758 11,133 11,122 Construction work in progress 911 582 395 Accumulated depreciation 6,772 6,257 6,047 ------- ------- ------- 5,897 5,458 5,470 ------- ------- ------- Total assets $ 9,901 $ 9,374 $ 9,228 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Payables $ 1,104 $ 1,052 $ 1,008 Short-term borrowings 86 238 178 Income and other taxes 28 98 98 Debt maturing within one year (note 12) 166 36 19 ------- ------- ------- 1,384 1,424 1,303 ------- ------- ------- Debt not maturing within one year (notes 12 and 17) 1,537 1,241 1,319 Deferred credits and other liabilities (note 11) 604 623 673 Deferred income taxes (notes 3 and 6) 747 969 996 Minority interests (note 10) 110 43 73 SHAREHOLDERS' EQUITY Redeemable non-retractable preference shares (note 13) 160 203 203 Common shareholders' equity Common shares (note 14) 1,251 1,251 1,235 Retained earnings (note 15) 4,078 3,556 3,217 Deferred translation adjustments (note 16) 30 64 209 ------- ------- ------- 5,359 4,871 4,661 ------- ------- ------- 5,519 5,074 4,864 ------- ------- ------- Commitments and contingencies (notes 18 and 19) ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,901 $ 9,374 $ 9,228 ======= ======= =======
Approved by the Board: (Signature) (Signature) Jacques Bougie, Director W.R.C. Blundell, Director 47 47 CONSOLIDATED STATEMENT OF CASH FLOWS (in millions of US$)
Year ended December 31 1998 1997 1996 - ---------------------- ------ ------ ------ OPERATING ACTIVITIES Net income $ 399 $ 485 $ 410 Adjustments to determine cash from operating activities: Depreciation 462 436 431 Deferred income taxes 29 (8) 15 Equity loss - net of dividends 53 39 21 Change in operating working capital Change in receivables (109) (30) 187 Change in inventories (72) (37) 185 Change in payables 52 44 (99) Change in income and other taxes payable (70) -- (3) Changes in operating working capital due to: Deferred translation adjustments 46 (93) (29) Acquisitions, disposals and consolidations/deconsolidations 47 (9) (178) ------ ------ ------ (106) (125) 63 Change in deferred charges, other assets, deferred credits and other liabilities - net (113) (139) 25 Gain on sales of businesses - net (156) (12) (8) Impairment in value of property, plant and equipment 143 -- -- Other - net 28 43 24 ------ ------ ------ CASH FROM OPERATING ACTIVITIES 739 719 981 ------ ------ ------ FINANCING ACTIVITIES New debt 359 22 56 Debt repayments (57) (25) (459) ------ ------ ------ 302 (3) (403) Short-term borrowings - net (169) 90 (11) Common shares purchased for cancellation (46) -- -- Common shares issued 9 16 16 Redemption of preference shares (43) -- (150) Dividends - Alcan shareholders (including preference) (146) (146) (152) - Minority interests (2) (3) -- ------ ------ ------ CASH USED FOR FINANCING ACTIVITIES (95) (46) (700) ------ ------ ------ INVESTMENT ACTIVITIES Property, plant and equipment (805) (641) (482) Investments (72) -- -- ------ ------ ------ (877) (641) (482) Net proceeds from disposal of businesses, investments and other assets 221 54 660 ------ ------ ------ CASH FROM (USED FOR) INVESTMENT ACTIVITIES (656) (587) 178 ------ ------ ------ Effect of exchange rate changes on cash and time deposits 2 (12) (1) ------ ------ ------ INCREASE (DECREASE) IN CASH AND TIME DEPOSITS (10) 74 458 Cash of companies consolidated (deconsolidated) - net 17 (12) 22 Cash and time deposits - beginning of year 608 546 66 ------ ------ ------ Cash and time deposits - end of year $ 615 $ 608 $ 546 ====== ====== ======
48 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in millions of US$, except where indicated) 1. NATURE OF OPERATIONS Alcan is engaged, together with subsidiaries, joint ventures 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, joint ventures and related companies, has bauxite holdings in six countries, produces alumina in six, smelts primary aluminum in five, operates aluminum fabricating plants in 13 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) 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 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. Income is recorded to the extent of dividends received. Intercompany balances and transactions, including profits in inventories, are eliminated. FOREIGN CURRENCY The financial statements of self-sustaining foreign operations (located principally in Europe and Asia) are translated into U.S. dollars at prevailing exchange rates. Differences arising from 49 49 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, Cost of sales and operating expenses or Property, plant and equipment, 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. 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 Amounts receivable or payable under 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. CAPITALIZATION OF INTEREST COSTS The Company capitalizes interest costs associated with the financing of major capital expenditures. 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 2 1/2% for buildings and range from 1% to 4% for power assets and 3% to 12 1/2% 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. 50 50 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. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The costs of postretirement benefits other than pensions are recognized on an accrual basis over the working lives of employees. INCOME TAXES Beginning in 1998, the Company uses the liability method for income taxes, under which deferred income tax liabilities are revalued for all changes in tax rates and exchange rates (see note 3). Prior to 1998, the Company used the deferral method. 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 (1998: 227.4 million; 1997: 227.0 million; 1996: 226.2 million). 3. Accounting Changes In 1998, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants (CICA) dealing with accounting for income taxes. The principal change under the new recommendations is the requirement to revalue deferred income taxes for changes in tax rates and exchange rates. The Company has adopted the new recommendations retroactively without restating prior years. The cumulative effect of adopting the new recommendations at January 1, 1998, is to decrease Deferred income taxes by $285, to increase retained earnings by $306 and to decrease Deferred translation adjustments by $21. The impact of the revaluation of deferred income taxes to reflect current exchange rates is to decrease the Company's 1998 income tax provision by $31. In 1998, the Company adopted, retroactively, the new recommendations of the CICA dealing with segment disclosures (see note 23). 51 51 4. EXTRAORDINARY ITEMS - KEMANO COMPLETION PROJECT An extraordinary gain of $26 ($17 after tax or 7 cents per common share) in the fourth quarter of 1997 arose from the sale of a portion of a contract to supply power to B.C. Hydro, net of additional write-downs of remaining Kemano Completion Project ("KCP") assets. In addition to the commitment by the government of British Columbia to supply replacement power at attractive rates for a possible smelter expansion, the settlement of the dispute regarding the cancellation of KCP allowed the Company to sell to a third party the right to supply a specified amount of power to B.C. Hydro under an ongoing contract. An extraordinary loss of $420 ($280 after tax or $1.24 per common share) was recorded in 1995 following the cancellation of the project. 5. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) 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. DEFERRED INCOME TAXES Beginning in 1998, the Company adopted the new accounting standards approved by the Canadian Institute of Chartered Accountants dealing with accounting for income taxes. These new standards are substantially identical to U.S. GAAP as contained in FASB Statement No. 109. Prior to 1998, under Canadian GAAP, deferred income taxes were measured at tax rates prevailing at the time the provisions for deferred taxes were made. Deferred income taxes for U.S. GAAP were revalued each period using currently enacted tax rates. Also, prior to 1998, under Canadian GAAP, deferred income taxes of operations using the temporal method were translated at historical exchange rates, while under U.S. GAAP, deferred income taxes of all operations were translated at current exchange rates. INVESTMENTS Under U.S. GAAP, certain portfolio investments which are considered to be "available-for-sale" securities are measured at market value, with the unrealized gains or losses included in Comprehensive income. Under Canadian GAAP, these investments are measured at cost. COMPREHENSIVE INCOME Beginning in 1998, U.S. GAAP requires the disclosure of Comprehensive income which, for the Company, is Net income under U.S. GAAP plus the movement in Deferred translation adjustments under U.S. GAAP (see note 16) plus the unrealized gain or loss for the period on "available-for-sale" securities. The concept of Comprehensive income does not exist under Canadian GAAP. 52 52 RECONCILIATION OF CANADIAN AND U.S. GAAP
1998 1997 1996 ---- ---- ---- As U.S. As U.S. As U.S. Reported GAAP Reported GAAP Reported GAAP -------- ------ -------- ------ -------- ------ Net income from continuing operations before extraordinary item $ 399 $ 417 $ 468 $ 504 $ 410 $ 420 Extraordinary gain -- -- 17 17 -- -- ------ ------ ------ ------ ------ ------ Net income* $ 399 $ 417 $ 485 $ 521 $ 410 $ 420 ------ ------ ------ ------ ------ ------ Net income attributable to common shareholders $ 389 $ 407 $ 475 $ 511 $ 394 $ 404 ------ ------ ------ ------ ------ ------ Extraordinary gain per common share $ -- $ -- $ 0.07 $ 0.07 $ -- $ -- ------ ------ ------ ------ ------ ------ Net income per common share (basic and diluted) $ 1.71 $ 1.79 $ 2.09 $ 2.25 $ 1.74 $ 1.79 ====== ====== ====== ====== ====== ====== Comprehensive income n/a $ 435 n/a $ 383 n/a $ 347 ------ ------ ------ ------ ------ ------ Investments - December 31 $ 58 $ 103 $ 251 $ 251 $ 331 $ 331 ------ ------ ------ ------ ------ ------ Deferred income taxes - December 31 $ 747 $ 747 $ 969 $ 684 $ 996 $ 755 ------ ------ ------ ------ ------ ------ Retained earnings - December 31 $4,078 $4,129 $3,556 $3,895 $3,217 $3,520 ------ ------ ------ ------ ------ ------ Deferred translation adjustments (DTA) - December 31 $ 30 $ (24) $ 64 $ 3 $ 209 $ 141 ====== ====== ====== ====== ====== ======
[FN] * In 1997, $37 ($2 in 1996) of the net difference between "As Reported" and "U.S. GAAP" relates to accounting for deferred income taxes. In 1997, $23 of this difference arose from changes in tax rates and regulations enacted during the year. 53 53 For 1997 and 1996, the principal items included in Deferred income taxes under U.S. GAAP were:
DECEMBER 31 ------------------- 1997 1996 ---- ---- LIABILITIES: Property, plant and equipment $767 $810 Undistributed earnings 29 60 Inventory valuation 52 43 Other 64 77 ---- ---- 912 990 ==== ==== ASSETS: Tax benefit carryovers 114 121 Accounting provisions not currently deductible for tax 164 180 Other 26 18 ---- ---- 304 319 VALUATION ALLOWANCE (AMOUNT NOT LIKELY TO BE RECOVERED) 76 84 ---- ---- 228 235 ---- ---- NET DEFERRED INCOME TAX LIABILITY $684 $755 ==== ====
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 accounting standards on foreign currency translation. Net income from continuing operations on a U.S. GAAP basis for the years 1995 and 1994 was $266 and $175, respectively, compared to $263 and $96, respectively, as reported. Net income from continuing operations per common share on a U.S. GAAP basis for the years 1995 and 1994 was $1.07 and $0.69, respectively, compared to $1.06 and $0.34, respectively, as reported. Beginning in 2000, the Company will be implementing, for U.S. GAAP only, FASB Statement No. 133, Accounting for Derivatives and Hedging Activities. The Company is currently assessing the impact of the new standard, which will affect how the Company measures and reports the various financial instruments that it uses in its risk management activities. 54 54 6. INCOME TAXES
1998 1997 1996 ---- ---- ---- INCOME BEFORE INCOME TAXES AND OTHER ITEMS Canada $175 $360 $235 Other countries 478 393 398 653 753 633 ---- ---- ---- CURRENT INCOME TAXES Canada 65 251 87 Other countries 116 5 110 ---- ---- ---- 181 256 197 ---- ---- ---- DEFERRED INCOME TAXES Canada (22) (28) (5) Other countries 51 20 20 ---- ---- ---- 29 (8) 15 ---- ---- ---- INCOME TAX PROVISION $210 $248 $212 ==== ==== ====
The composite of the applicable statutory corporate income tax rates in Canada is 40.4% (1997: 40.3%; 1996: 40.1%). The following is a reconciliation of income taxes calculated at the above composite statutory rates with the income tax provision:
1998 1997 1996 ---- ---- ---- Income taxes at the composite statutory rate $264 $303 $254 Differences attributable to: Exchange translation items 46 13 11 Exchange revaluation of deferred income taxes (31) n/a n/a Effect of tax rate changes on deferred income taxes (4) n/a n/a Unrecorded tax benefits on losses - net (3) (12) (33) Investment and other allowances (21) (32) (24) Large corporations tax 4 3 3 Withholding taxes 5 5 6 Reduced rate or tax exempt items (47) (3) 17 Foreign tax rate differences (16) (5) (18) Prior years' tax adjustments 3 (31) (11) Other - net 10 7 7 ---- ---- ---- INCOME TAX PROVISION $210 $248 $212 ==== ==== ====
55 55 At December 31, 1998, the principal items included in Deferred income taxes are: LIABILITIES: Property, plant and equipment $773 Undistributed earnings 20 Inventory valuation 49 Other 73 ---- 915 ---- ASSETS: Tax benefit carryovers 99 Accounting provisions not currently deductible for tax 167 Other 13 ---- 279 VALUATION ALLOWANCE (AMOUNT NOT LIKELY TO BE RECOVERED) 111 ---- 168 ---- NET DEFERRED INCOME TAX LIABILITY $747 ====
In 1997, $19 ($7 in 1996) of benefits related to income tax loss carryforwards were recorded in deferred income tax expense. Based on rates of exchange at December 31, 1998, tax benefits of approximately $50 relating to prior and current years' operating losses and $45 of benefits related to capital losses and tax credits carried forward will be recognized in income when it is more likely than not that such benefits will be realized. In 1997, income taxes on Canadian operations for the years 1988 to 1991 were reassessed by the Canadian tax authorities. Most of the additional taxes and interest relate to transfer pricing issues and are recoverable in other countries (see note 22). The process to obtain recoveries from other countries is under way. Existing provisions are adequate to cover any amounts not recoverable. 7. JOINT VENTURES The activities of the Company's major joint ventures are the procurement and processing of raw materials in Australia, Brazil, Guinea and Jamaica, as well as aluminum rolling operations in Germany and the United States. Alcan's proportionate interest in all joint ventures is included in the consolidated financial statements. 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. 56 56
1998 1997 1996 FINANCIAL POSITION AT DECEMBER 31 Inventories $ 174 $ 189 $ 159 Property, plant and equipment - net 959 943 1,001 Other assets 101 60 95 ------ ------ ------ Total assets $1,234 $1,192 $1,255 ------ ------ ------ Short-term debt $ 19 $ 38 $ 17 Debt not maturing within one year 123 100 106 Other liabilities 167 156 152 ------ ------ ------ Total liabilities $ 309 $ 294 $ 275 ------ ------ ------ CASH FLOW INFORMATION FOR THE YEAR ENDED DECEMBER 31 Cash from (used for) financing activities $ (1) $ 10 $ 12 Cash used for investment activities $ (85) $ (78) $ (76) ====== ====== ======
8. INVESTMENTS
1998 1997 1996 Companies accounted for under the equity method $ 13 $ 245 $ 324 Portfolio investments - at cost, less amounts written off 45 6 7 ------ ------ ------ $ 58 $ 251 $ 331 ====== ====== ======
As described in note 10, in the fourth quarter of 1998, the Company reduced its 45.6% interest in Nippon Light Metal Company, Ltd. (NLM) to 11.2%. With the reduction in Alcan's interest to below 20%, NLM is no longer accounted for on an equity basis but is treated as a portfolio investment. As described in note 10, in July 1998, the Company acquired a controlling interest in Indian Aluminium Company, Limited (Indal), the accounts of which are now consolidated with those of the Company. Indal was previously treated as an equity investment. For 1997 and 1996, the combined results of operations and financial position for NLM and Indal are included in the summary below. For 1998, the combined results of operations include information for NLM and Indal to the dates these entities ceased to be equity accounted investments. In 1998, the Company recorded a special after-tax charge of $27 ($30 in 1997), included in Equity loss, reflecting the Company's share of construction contract losses and restructuring provisions in NLM. 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 10. 57 57
1998 1997 1996 ---- ---- RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31 Revenues $3,626 $5,572 $6,483 Costs and expenses 3,719 5,622 6,457 ------ ------ ------ Income (loss) before income taxes (93) (50) 26 Income taxes 12 35 65 ------ ------ ------ Net loss $ (105) $ (85) $ (39) ------ ------ ------ Alcan's share of Net loss $ (48) $ (33) $ (10) ------ ------ ------ Dividends received by Alcan $ 5 $ 6 $ 11 ====== ====== ====== FINANCIAL POSITION AT DECEMBER 31 Current assets n/a $2,600 $3,013 Current liabilities n/a 2,519 2,735 ------ ------ ------ Working capital n/a 81 278 Property, plant and equipment - net n/a 1,737 1,916 Other assets - net n/a 335 261 n/a 2,153 2,455 Debt not maturing within one year n/a 1,376 1,422 ------ ------ ------ Net assets n/a $ 777 $1,033 ------ ------ ------ Alcan's equity in net assets n/a $ 245 $ 324 ====== ====== ======
9. PROPERTY, PLANT AND EQUIPMENT
1998 1997 1996 ---- --- ---- COST (EXCLUDING CONSTRUCTION WORK IN PROGRESS) Land and property rights $ 236 $ 219 $ 236 Buildings, machinery and equipment 11,522 10,914 10,886 ------- ------- ------- $11,758 $11,133 $11,122 ======= ======= =======
Accumulated depreciation relates primarily to Buildings, machinery and equipment. In early 1999, the Company announced the sale of the Aughinish alumina refinery. Negotiations of the sale began in late 1998 and, as a result of that process, the Company determined that the value of these assets was impaired as at December 31, 1998. A charge of $143 reflecting the impairment is included in Other expenses. Excluding the impairment charge, these assets contributed approximately $27 of income before taxes in 1998. On an ongoing basis, capital expenditures of the Company are estimated at $450 per year. In addition, the Company expects to spend approximately $650 in 1999 on the construction of a new smelter at Alma, Quebec, and the continuation of its rolling mill expansion in Brazil. 58 58 10. RESTRUCTURING OF HOLDINGS IN ASIA JAPAN In the fourth quarter of 1998, the Company reduced its 45.6% investment in Nippon Light Metal Company, Ltd. (NLM) to 11.2%. The net cash proceeds from the sale of shares were approximately $193 with a corresponding gain, included in Other income, of approximately $146 ($140 after tax), including a previously deferred gain of $87 after tax related to the sale in 1996 of Toyo Aluminium K.K. (Toyal) to NLM. In the third quarter of 1996, the Company sold its equity-accounted investment in Toyal to NLM, for cash proceeds of $207. Approximately $31 of the total after-tax gain of $128, including deferred translation adjustments, on this sale continues to be deferred and will be recognized if Alcan further reduces its remaining investment in NLM. In 1998, $87 of the gain was recognized ($7 in 1997 and $3 in 1996). INDIA In 1998, the Company acquired an additional 20% of Indian Aluminium Company, Limited (Indal) for $70 in cash. As a result, Alcan obtained a controlling interest of 54.6% in Indal. The accounts of Indal have been consolidated with effect from July 1998. Prior to this date, Alcan accounted for its investment in Indal under the equity method. Included in the Company's balance sheet at the date of acquisition were the following assets and liabilities of Indal:
Working capital $ 40 Property, plant and equipment 212 Other assets - net (5) ---- 247 Long-term debt 75 Minority interest 58 ---- Net assets $114 ====
59 59 SOUTHEAST ASIA 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. At December 31, 1997 and 1996, the Company's effective ownership of ANAH was 78.2%, including its interest held through NLM, then accounted for under the equity method. As a result of the Company's sale during 1998 of most of its interest in NLM, now accounted for under the cost method, the Company's effective ownership in ANAH is 60%. 11. DEFERRED CREDITS AND OTHER LIABILITIES Deferred credits and other liabilities comprise the following elements:
1998 1997 1996 ---- ---- ---- Deferred revenues $ 56 $ 56 $ 74 Deferred profit on sale of investments 2 14 16 Postretirement and post-employment benefits 395 390 405 Environmental liabilities 40 37 32 Rationalization costs 23 32 31 Claims 43 40 39 Other 45 54 76 ---- ---- --- $604 $623 $673 ==== ==== ====
60 60 12. DEBT NOT MATURING WITHIN ONE YEAR
1998 1997 1996 ------- ------- ------- ALCAN ALUMINIUM LIMITED Deutschmark bank loans, due 1999/2005 (DM364 million) (a) $ 218 $ 213 $ 251 5.875% Debentures, due 2000 150 150 150 5.375% Swiss franc bonds, due 2003 (b) 130 123 132 CARIFA loan, due 2006 (c) 60 60 60 6.25% Debentures, due 2008 200 -- -- 9.5% Debentures, due 2010 (d) 100 100 100 9.625% Sinking fund debentures, due 2000/2019 (d) 150 150 150 8.875% Debentures, due 2022 (e) 150 150 150 7.25% Debentures, due 2028 100 -- -- Other debt, due 2001 7 7 8 ALCAN ALUMINUM CORPORATION 7.25% Debentures, due 1999 (f) 100 100 100 Other debt, due 1999/2004 2 3 6 ALCAN DEUTSCHLAND GMBH AND SUBSIDIARY COMPANIES 6.78% Bank loans -- -- 2 5.65% Bank loans, due 2001 (DM15 million) 9 8 10 Bank loans, due 2000/2008 (DM107 million) (a) 64 56 65 INDIAN ALUMINIUM COMPANY, LIMITED Bank loans, due 1999/2006 (a) 51 -- -- 6.55% Bank loans, due 2000/2002 18 -- -- Other debt, due 1999/2006 28 -- -- QUEENSLAND ALUMINA LIMITED Bank loans, due 2000/2003 (a) 78 79 71 OTHER COMPANIES Bank loans, due 1999/2011 (a) 71 51 48 4% Eurodollar exchangeable debentures, due 2003 (g) 14 24 24 Other debt, due 2002/2036 3 3 11 ------- ------- ------- 1,703 1,277 1,338 Debt maturing within one year included in current liabilities (166) (36) (19) ------- ------- ------- $1,537 $1,241 $1,319 ======= ======= =======
61 61 (a) Interest rates fluctuate principally with the lender's prime commercial rate, the commercial bank bill rate, or are tied to LIBOR rates. (b) The Swiss franc bonds were issued as SFr178 million and were swapped for $105 at an effective interest rate of 8.98%. (c) The Caribbean Basin Projects Financing Authority (CARIFA) loan bears interest at a rate related to U.S. LIBOR. (d) 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%. (e) 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. (f) 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:
1998 1997 1996 ---- ---- ---- RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31 Revenues $3,766 $3,624 $3,389 Costs and expenses 3,482 3,438 3,242 ------ ------ ------ Income before income taxes 284 186 147 Income taxes 110 81 55 ------ ------ ------ Net income $ 174 $ 105 $ 92 ------ ------ ------ FINANCIAL POSITION AT DECEMBER 31 Current assets $ 883 $ 801 $ 868 Current liabilities 483 376 578 ------ ------ ------ Working capital 400 425 290 Property, plant and equipment - net 714 736 756 Other liabilities - net (67) (199) (186) ------ ------ ------ 1,047 962 860 Debt not maturing within one year 2 102 105 ------ ------ ------ Net assets $1,045 $ 860 $ 755 ====== ====== ======
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. 62 62 (g) Debenture holders are entitled to receive at their option 1,772 common shares held by the Company in NLM, a portfolio investment, in exchange for each ten thousand dollar principal amount of debentures. The Company can redeem the debentures in 1999 at 100% of the principal. The Company had 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 $166 in 1999, $239 in 2000, $96 in 2001, $93 in 2002 and $255 in 2003. The Company has a $1,000 global, multi-year and multi-currency facility with a syndicate of major international banks. At December 31, 1998, no funds had been borrowed under this facility and the full amount was available. 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 1998, 1997 and 1996, there were authorized and outstanding 5,700,000 series C and 3,000,000 series E, redeemable non-retractable preference shares with stated values of $106 and $54, respectively. The 1,700,000 series D redeemable non-retractable preference shares with stated value of $43, authorized and outstanding throughout 1996 and 1997, were redeemed in June 1998. Preference shares, series C and E are eligible for quarterly dividends based on an amount related to the average of the Canadian prime interest rates quoted by two major Canadian banks for stated periods. Preference shares, series C and E may be called for redemption at the option of the Company on 30 days' notice at CAN$25.00 per share. Any partial redemption of preference shares must be made on a pro rata basis or by lot. In 1996, 300 series G redeemable non-retractable shares with stated value of $150 were redeemed. 63 63 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 --------------------------- ------------------------ 1998 1997 1996 1998 1997 1996 ------- ------- ------- ------ ------ ------ OUTSTANDING - BEGINNING OF YEAR 227,344 226,620 225,913 $1,251 $1,235 $1,219 ISSUED FOR CASH: Executive share option plan 135 550 549 2 11 11 Dividend reinvestment and share purchase plans 254 174 158 7 5 5 PURCHASED FOR CANCELLATION (1,730)* -- -- (9) -- -- ------- ------- ------- ------ ------ ------ OUTSTANDING - END OF YEAR 226,003 227,344 226,620 $1,251 $1,251 $1,235 ======= ======= ======= ====== ====== ======
[FN] * 1,645 were cancelled in 1998 and 85 in 1999. 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$38.16 per share. The vesting period for options granted after September 1998 is linked to Alcan's share price performance, but does not exceed nine years. Options granted before September 1998 vest generally over a fixed 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) ------------------------------------- 1998 1997 1996 ----- ----- ----- OUTSTANDING - BEGINNING OF YEAR 4,193 3,715 3,473 Granted 1,122 1,100 853 Exercised (134) (550) (549) Cancelled (25) (72) (62) ----- ----- ----- OUTSTANDING - END OF YEAR 5,156 4,193 3,715 ===== ===== =====
During 1998, the Company also granted 774,700 options, which grants become effective, subject to certain restrictions, upon the exercise of options previously granted. At December 31, 1998, the Company had reserved for issue under the executive share option plan 19,266,536 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 $9, or $0.04 per share, ($10, or $0.04 per share, in 1997 and $8, or $0.04 per share, in 1996). 64 64 Under a normal course issuer bid, which terminates on September 28, 1999, the Company is authorized to repurchase up to 22,700,000 common shares, representing approximately 10% of the outstanding shares. In 1998, 1,730,000 common shares were purchased under this authorization. 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. The shareholders will be asked at the 1999 Annual Meeting to approve amendments to the plan described in the Management Proxy Circular for that meeting which, if approved, will extend the plan until May 1, 2008, unless terminated earlier, with reconfirmation at the Annual meeting of shareholders in 2002 and 2005. If the amendments are not approved, the plan will remain in effect until December 14, 1999, unless terminated earlier. 15. RETAINED EARNINGS Consolidated retained earnings at December 31, 1998, include $2,410 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. 65 65 16. CURRENCY GAINS AND LOSSES The following are the amounts recognized in the financial statements:
1998 1997 1996 ------ ------ ------ CURRENCY GAINS (LOSSES) EXCLUDING REALIZED DEFERRED TRANSLATION ADJUSTMENTS: Forward exchange contracts and currency options $(58) $ 22 $ 40 Other 4 1 (4) ------ ------ ------ $(54) $ 23 $ 36 ------ ------ ------ DEFERRED TRANSLATION ADJUSTMENTS - BEGINNING OF YEAR As previous reported $ 64 $ 209 $304 Accounting change (note 3) (21) -- -- ------ ------ ------ AS RESTATED 43 209 304 Effect of exchange rate changes 28 (143) (94) Gains realized* (41) (2) (1) ------ ------ ------ BALANCE - END OF YEAR $ 30 $ 64 $209 ====== ====== ====== * The gain realized in 1998 relates principally to the sale of a portion of the Company's investment in Nippon Light Metal Company, Ltd.
In 1998, $5 of exchange losses related to hedging of Canadian dollar construction costs of the new smelter at Alma, in Quebec, are included in Construction work in progress. 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, 1998, the contract amount of forward exchange contracts outstanding used to hedge future firm operating cost commitments was $426 ($1,296 in 1997 and $1,791 in 1996) while the contract amount of purchased options outstanding used to hedge future firm operating cost commitments was $1,499 ($1,512 in 1997 and $614 in 1996). At December 31, 1998, the contract amount of outstanding forward exchange contracts used to hedge future revenues was $47 ($268 in 1997 and $387 in 1996). At December 31, 1998, the contract amount of forward exchange contracts outstanding used to hedge future Canadian dollar commitments for the construction of a new smelter at Alma, Quebec, was $281 (nil in 1997 and 1996) while the contract amount of purchased options outstanding used to hedge the Canadian dollar commitments for the new smelter was $315 (nil in 1997 and 1996). 66 66 The market value of outstanding forward exchange contracts related to hedges of operating costs or revenues at December 31, 1998 was such that if these contracts had been closed out, the Company would have paid $18 (paid $24 in 1997 and received $17 in 1996). Based on prevailing market prices, if the currency option contracts related to operating cost commitments had been closed out on December 31, 1998, the Company would have paid $33 (paid $36 in 1997 and received $1 in 1996). The market value at December 31, 1998 of outstanding forward exchange contracts related to hedges of cost commitments for the new smelter at Alma, Quebec, was such that if these contracts had been closed out, the Company would have paid $8. Based on prevailing market prices, if the currency option contracts relating to smelter construction cost commitments had been closed out at December 31, 1998, the Company would have paid $2. 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, 1998, the contract amount of such forward contracts was $212 ($220 in 1997 and $231 in 1996) and the market value was such that if these contracts had been closed out, the Company would have received $4 ($16 in 1997 and $2 in 1996). Included in Deferred charges and other assets and Receivables was an amount of $71($2 in 1996) consisting of net losses on terminated forward exchange contracts and options, as well as the net cost of outstanding options, used to hedge future costs, including costs related to the construction of the new smelter at Alma. These deferred charges are included in the cost of the items being hedged at the same time as the underlying transactions being hedged are recognized. FINANCIAL INSTRUMENTS - DEBT NOT MATURING WITHIN ONE YEAR As explained in note 12, 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, 1998, the Company would have received a net amount of $24 ($15 in 1997 and $32 in 1996), of which an amount of $25 related to the swap of the principal ($18 in 1997 and $27 in 1996) has been recorded in Deferred charges and other assets. FINANCIAL INSTRUMENTS - INTEREST RATES The Company sometimes enters into interest rate swaps to manage funding costs as well as the volatility of interest rates. Amounts receivable or payable related to swaps are recorded in Interest concurrently with the interest expense on the underlying debt. 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. There were no significant interest rate swap agreements outstanding at December 31, 1998. If all interest rate swap agreements had been closed out on December 31, 1997, the Company would have paid $2 ($6 in 1996), 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. 67 67 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, 1998, the Company had outstanding forward purchase contracts covering 465,600 tonnes (418,800 tonnes at December 31, 1997 and 474,300 tonnes at December 31, 1996), maturing at various dates principally in 1999, 2000 and 2001 (1998, 1999 and 2000 at December 31, 1997 and 1997, 1998 and 1999 at December 31, 1996). In addition, the Company held call options outstanding for 346,000 tonnes (657,800 tonnes at December 31, 1997 and 591,300 tonnes at December 31, 1996) maturing at various dates in 1999 and 2000 (1998 and 1999 at December 31, 1997 and 1997 and 1998 at December 31, 1996). At December 31, 1998, the Company held put options, maturing in 1999, which establish a minimum price for the metal component of 20,000 tonnes of the Company's future sales (60,000 tonnes maturing in 1998 and 1999 at December 31, 1997). Included in Receivables or Deferred charges and other assets is $22 ($33 in 1997 and $25 in 1996) 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, 1998, if all commodity forward purchase contracts and options had been closed out, the Company would have paid $30 (paid $9 in 1997 and received $20 in 1996). 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, 1998, the fair value of the Company's long-term debt totalling $1,703 ($1,277 in 1997 and $1,338 in 1996) was $1,762 ($1,321 in 1997 and $1,363 in 1996), based on market prices for the Company's fixed rate securities and the book value of variable rate debt. At December 31, 1998, the quoted market value of the Company's portfolio investments having a book value of $45 was $90. Prior to 1998, portfolio investments held by the Company were not significant. 68 68 At December 31, 1998, the market value of the Company's preference shares having a book value of $160 was $140. (In 1997 and 1996, the market value was approximately equal to book value.) The market values of all other financial assets and liabilities are approximately equal to their carrying values. 18. COMMITMENTS AND CONTINGENCIES The Company has guaranteed the repayment of approximately $7 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 $373 in 1999, $212 in 2000, $35 in 2001, $35 in 2002, $25 in 2003, and $97 thereafter. Most of the commitments in 1999 and 2000 relate to the construction of the new smelter at Alma, Quebec. Total fixed charges from these entities, excluding $175 in relation to the smelter at Alma, were $23 in 1998, $9 in 1997 and $14 in 1996. Minimum rental obligations are estimated at $41 in 1999, $36 in 2000, $23 in 2001, $21 in 2002, $19 in 2003 and $51 thereafter. Total rental expenses amounted to $83 in 1998, $70 in 1997 and $80 in 1996. 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 income taxes in note 6, capital expenditures in note 9, debt repayments in note 12, financial instruments and commodity contracts in note 17 and year 2000 compliance in note 19. 19. YEAR 2000 COMPLIANCE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in possible errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. Generally, costs associated with the Year 2000 Issue are being expensed as incurred. 69 69 20. SUPPLEMENTARY INFORMATION
1998 1997 1996 ------ ------ ------ INCOME STATEMENT Interest on long-term debt $ 93 $ 91 $109 Capitalized interest $(15) $ (2) $ -- ------ ------ ------ BALANCE SHEET Payables Accrued employment costs $196 $170 $167 Short-term borrowings (principally from banks) $ 86 $238 $178 At December 31, 1998, the weighted average interest rate on short-term borrowings was 4.7% (5.3% in 1997 and 4.8% in 1996). STATEMENT OF CASH FLOWS Interest paid $ 96 $101 $133 Income taxes paid $298 $261 $214 ---- ---- ---- All time deposits qualify as cash equivalents.
21. POSTRETIREMENT BENEFITS 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, generally corresponding to the expected average remaining service life of the employees. 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. 70 70
PENSION BENEFITS OTHER BENEFITS ---------------------- ----------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- CHANGE IN THE ACTUARIAL PROJECTED BENEFIT OBLIGATION (PBO) FOR PENSION BENEFITS AND ACCUMULATED BENEFIT OBLIGATION (ABO) FOR OTHER BENEFITS PBO/ABO at January 1 $3,550 $3,506 $3,210 $ 172 $ 178 $ 191 Service cost 84 73 69 4 4 4 Interest cost 236 231 225 11 12 12 Members' contributions 20 20 19 -- -- -- Benefits paid (200) (189) (195) (9) (9) (11) Amendments 80 47 80 -- -- (16) Acquisitions/divestitures (1) (176) (25) -- -- -- Actuarial (gain) loss 45 63 54 (2) (13) (2) Currency (gains) losses 13 (25) 69 -- -- -- ------ ------ ------ ----- ----- ----- PBO/ABO at December 31 $3,827 $3,550 $3,506 $ 176 $ 172 $ 178 ====== ====== ====== ===== ===== ===== CHANGE IN MARKET VALUE OF PLAN ASSETS (ASSETS) Assets at January 1 $4,231 $3,986 $3,447 $ -- $ -- $ -- Actual return on assets 204 566 617 -- -- -- Members' contributions 20 20 19 -- -- -- Benefits paid (200) (189) (195) -- -- -- Company contributions 36 38 36 -- -- -- Acquisitions/divestitures -- (176) (13) -- -- -- Currency gains (losses) 7 (14) 75 -- -- -- ------ ------ ------ ----- ----- ----- Assets at December 31 $4,298 $4,231 $3,986 $ -- $ -- $ -- ====== ====== ====== ===== ===== ===== Assets in excess of PBO/ABO $ 471 $ 681 $ 480 $(176) $(172) $(178) Unamortized - actuarial (gains) losses (736) (943) (779) (24) (24) (13) - prior service cost 263 276 313 (5) (9) (13) - net initial (surplus) liability (27) (48) (71) 2 2 2 ------ ------ ------ ----- ----- ----- NET LIABILITY IN BALANCE SHEET $ (29) $ (34) $ (57) $(203) $(203) $(202) ====== ======= ====== ===== ===== =====
The ABO of pension plans is $3,414 ($3,156 in 1997 and $3,136 in 1996). For certain plans, the ABO exceeds the market value of the assets. For these plans, the ABO is $1,239 ($1,086 in 1997 and $212 in 1996) while the market value of the assets is $1,041 ($951 in 1997 and $65 in 1996). 71 71
PENSION BENEFITS OTHER BENEFITS -------------------- ------------------ 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 84 $ 73 $ 69 $ 4 $ 4 $ 4 Interest cost 236 231 225 11 12 12 Expected return on assets (293) (274) (248) - - - Amortization - actuarial (gains) losses (74) (67) (21) (2) (2) (1) - prior service cost 94 83 33 (4) (4) (3) - net initial (surplus) liability (21) (22) (23) - - - Curtailment/settlement (gains) losses - - (5) - - (1) ----- ----- ----- ----- ----- ----- NET PERIODIC BENEFIT COST $ 26 $ 24 $ 30 $ 9 $ 10 $ 11 ===== ===== ===== ===== ===== ===== WEIGHTED-AVERAGE ASSUMPTIONS AT DECEMBER 31 Discount rate 6.3% 6.8% 7.2% 6.4% 6.7% 7.0% Average compensation growth 4.3% 4.9% 4.9% 4.5% 4.9% 5.2% Expected return on assets 7.2% 7.3% 7.3% n/a n/a n/a ===== ===== ===== ===== ===== =====
The assumed health care cost trend rate used for measurement purposes was 8.5% for 1999, decreasing gradually to 4.0% in 2006 and remaining at that level thereafter. A one percentage point change in assumed health care cost trend rates would have the following effects:
OTHER BENEFITS ---------------------- 1% 1% INCREASE DECREASE -------- -------- SENSITIVITY ANALYSIS Effect on service and interest cost 1 (1) Effect on ABO 9 (8) ======== ========
72 72 22. INFORMATION BY GEOGRAPHIC AREAS
LOCATION 1998 1997 1996 -------- ------- ------- ------- SALES AND OPERATING Canada $ 1,980 $ 1,926 $ 2,169 REVENUES United States 504 541 499 - - SUBSIDIARIES South America 37 41 25 United Kingdom 294 369 256 Germany 143 203 184 Other Europe 301 318 318 Asia and Pacific 70 68 78 All other 358 350 349 ------ ------- ------- Sub-total 3,687 3,816 3,878 Consolidation eliminations (3,687) (3,816) (3,878) ------- ------- ------- Total $ -- $ -- $ -- ======= ======= ======= Sales to subsidiary companies are made at fair market prices recognizing volume, continuity of supply and other factors. SALES AND OPERATING Canada $ 1,004 $ 1,169 $ 1,210 REVENUES United States 3,229 3,063 2,871 - - THIRD PARTIES South America 369 395 579 United Kingdom 515 538 576 Germany 1,379 1,291 1,289 Other Europe 777 780 768 Asia and Pacific 491 515 290 All other 25 26 31 ------- ------- ------- Total $ 7,789 $ 7,777 $ 7,614 ======= ======= ======= NET INCOME* Canada $ 133 $ 245 $ 175 United States 144 136 70 South America 13 27 42 United Kingdom 2 22 51 Germany 7 -- (25) Other Europe (98)** 33 (5) Asia and Pacific 117*** (1) 13 All other 39 35 31 Consolidation eliminations 42 (29) 58 ------ ------ ------ Net income before extraordinary item 399 468 410 Extraordinary gain - Canada -- 17 -- ------ ------ ------ Total $ 399 $ 485 $ 410 ====== ====== ======
73 73 TOTAL ASSETS Canada $ 4,959 $ 4,077 $ 4,159 AT DECEMBER 31 United States 2,008 1,848 1,820 South America 880 729 739 United Kingdom 953 946 921 Germany 1,195 1,228 1,262 Other Europe 837 1,094 1,082 Asia and Pacific 830 741 886 All other 516 498 477 Consolidation eliminations (2,277) (1,787) (2,118) ------- ------- ------- Total $ 9,901 $ 9,374 $ 9,228 ------- ------- ------- CAPITAL EXPENDITURES Canada $ 326 $ 186 $ 143 AND INVESTMENTS United States 62 71 55 South America 188 118 43 United Kingdom 85 97 50 Germany 44 55 79 Other Europe 35 54 56 Asia and Pacific 84 21 7 All other 53 39 49 ------- ------ ------ Total $ 877 $ 641 $ 482 ------- ------ ------ AVERAGE NUMBER Canada 11 11 11 OF EMPLOYEES United States 4 4 4 (in thousands) South America 3 3 4 United Kingdom 3 3 4 Germany 5 5 4 Other Europe 3 3 4 Asia and Pacific 5 2 1 All other 2 2 2 ------ ------ ----- Total 36 33 34 ------ ------ -----
[FN] * If presented to reflect the effect of prior years' income tax reassessments described in note 6, net income in Canada in 1997 would be reduced by $109 and increased by $93 in the United States, $8 in the United Kingdom and $8 in Germany. ** Includes write-down of $120 after tax related to the Aughinish alumina refinery. *** Includes gain of $140 after tax related to the sale of a portion of the Company's investment in Nippon Light Metal Company, Ltd. 23. INFORMATION BY PRODUCT SECTORS The following presents selected information by major product sector, viewed on a stand-alone basis and as viewed by senior management. Transactions between product sectors are conducted on an arm's-length basis and reflect market 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 alumina 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 products businesses represents only the fabricating profit on rolled products and downstream businesses. 74 74
SALES AND OPERATING REVENUES OPERATING INCOME ------------------------------------------------------------- ------------------------- INTERSECTOR THIRD PARTIES ---------------------------- ---------------------------- 1998 1997 1996 1998 1997 1996 1998 1997 1996 ------ ------ ------ ------ ------ ------ ------ ------ ------ Alumina and chemicals $ 516 $ 520 $ 507 $ 509 $ 536 $ 529 $113 $118 $ 84 Primary metal 1,394 1,486 1,628 1,304 1,487 1,321 346 606 523 Fabricated products -- -- -- 5,963 5,737 5,744 310 280 124 Intersector and other items (1,910) (2,006) (2,135) 13 17 20 117 (28) 143 ------ ------ ------ ------ ------ ------ ---- ---- ---- $ -- $ -- $ -- $7,789 $7,777 $7,614 $886 $976 $874 ====== ====== ====== ====== ====== ====== RECONCILIATION TO NET INCOME BEFORE EXTRAORDINARY ITEM Equity loss (48) (33) (10) Corporate offices (137) (126) (117) Interest (92) (101) (125) Income taxes (210) (248) (212) ---- ---- ---- NET INCOME BEFORE EXTRAORDINARY ITEM $399 $468 $410 ==== ==== ====
Included in 1998 Intersector and other items are the gain of $146 from the sale of a portion of the Company's interest in NLM and the loss of $143 related to the impairment of the Aughinish alumina refinery assets to be sold in 1999. Included in 1998 operating income for Fabricated products is $16 related to rationalization costs in Europe and Asia.
TOTAL ASSETS AT DECEMBER 31 1998 1997 1996 ------ ------ ------ Alumina and chemicals $1,501 $1,409 $1,357 Primary metal 3,037 2,880 2,795 Fabricated products 4,706 4,318 4,198 Cash, equity companies and other items 657 767 878 ------ ------ ------ $9,901 $9,374 $9,228 ====== ====== ======
DEPRECIATION CAPITAL EXPENDITURES ---------------------------- ------------------------- 1998 1997 1996 1998 1997 1996 ------ ------ ------ ------ ------ ------ Alumina and chemicals $ 80 $ 78 $ 75 $ 137 $ 126 $ 142 Primary metal 147 138 136 338 220 127 Fabricated products 225 210 211 395 282 207 Intersector and other items 10 10 9 7 13 6 ------ ------ ------ ------ ------ ------ $ 462 $ 436 $ 431 $ 877 $ 641 $ 482 ====== ====== ====== ====== ====== ======
24. PRIOR YEAR AMOUNTS Certain prior year amounts have been reclassified to conform with the 1998 presentation. 75 75 QUARTERLY FINANCIAL DATA (in millions of US$, except where indicated)
(unaudited) FIRST SECOND THIRD FOURTH YEAR - ----------- ------- ------- ------- ------- ------- 1998 REVENUES $1,971 $2,005 $1,960 $2,084 $8,020 COST OF SALES AND OPERATING EXPENSES 1,497 1,549 1,514 1,516 6,076 DEPRECIATION 110 113 116 123 462 INCOME TAXES 78 76 44 12 210 OTHER ITEMS 169 181 179 344 873 ------- ------- ------- ------- ------- NET INCOME(1) $ 117 $ 86 $ 107 $ 89 $ 399 DIVIDENDS ON PREFERENCE SHARES 3 2 3 2 10 ------- ------- ------- ------- ------- NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 114 $ 84 $ 104 $ 87 $ 389 ------- ------- ------- ------- ------- NET INCOME PER COMMON SHARE (IN US$)(2) $ 0.50 $ 0.37 $ 0.46 $0.38 $ 1.71 NET INCOME UNDER U.S. GAAP(3) $ 117 $ 94 $ 103 $ 103 $ 417 ======= ======== ======= ======= ======= 1997 Revenues $1,898 $2,030 $1,965 $1,972 $7,865 Cost of sales and operating expenses 1,453 1,555 1,506 1,491 6,005 Depreciation 107 110 106 113 436 Income taxes 42 69 76 61 248 Other items 153 180 197 178 708 ------- ------- ------- ------- ------- Net income before extraordinary item 143 116 80 129 468 Extraordinary gain -- -- -- 17 17 ------- ------- ------- ------- ------- Net income(1) $ 143 $ 116 $ 80 $ 146 $ 485 Dividends on preference shares 3 2 2 3 10 ------- ------- ------- ------- ------- Net income attributable to common shareholders $ 140 $ 114 $ 78 $ 143 $ 475 Net income before extraordinary item per common share (in US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.56 $ 2.02 Extraordinary gain per common share (in US$) -- -- -- 0.07 0.07 ------- ------- ------- ------- ------- Net income per common share (in US$)(2) $ 0.62 $ 0.50 $ 0.34 $ 0.63 $ 2.09 Net income before extraordinary item under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 131 $ 504 Net income under U.S. GAAP(3) $ 142 $ 141 $ 90 $ 148 $ 521 ------- ------- ------- ------- -------
76 76
1996 Revenues $2,015 $1,972 $1,881 $1,821 $7,689 Cost of sales and operating expenses 1,532 1,506 1,464 1,417 5,919 Depreciation 110 108 108 105 431 Income taxes 65 69 53 25 212 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 ====== ====== ====== ====== ======
(1) The first quarter of 1998 included an after-tax charge of $11 related to Alcan's share of construction contract losses and restructuring costs at Nippon Light Metal Company, Ltd. (NLM) in Japan. The second quarter of 1998 included an after-tax charge of $16 related to Alcan's share of restructuring costs at NLM. The third quarter of 1998 included an after-tax gain of $20 for exchange revaluation of the Company's accumulated deferred tax liability and after-tax charges of $7 for rationalization costs in Europe. The fourth quarter of 1998 included an after-tax gain of $140 from the sale of a portion of the Company's investment in NLM, an after-tax loss of $120 from the write-down for impairment of the Aughinish alumina refinery assets to be sold in 1999, an after-tax gain of $8 principally from the sale of Handy Chemicals Ltd., and $9 from rationalization costs in Europe and Asia. The first quarter of 1997 included an after-tax gain of $10 from the sale of a business and $26 from a favourable tax adjustment related to prior years. The third quarter of 1997 included a special charge of $30 after tax related to Alcan's share of contract losses and restructuring provisions at 45.6%-owned NLM. 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 $8 from the sale of businesses. (2) Net income per common share calculations are based on the average number of common shares outstanding in each period. (3) See note 5 to the consolidated financial statements for explanation of differences between Canadian and U.S. GAAP. 77 77 ELEVEN-YEAR SUMMARY
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- CONSOLIDATED INCOME STATEMENT ITEMS (in millions of US$) REVENUES Sales and operating revenues 7,789 7,777 7,614 9,287 8,216 7,232 7,596 7,748 8,757 8,839 8,529 Other income 231 88 75 100 109 75 69 82 162 208 97 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total revenues 8,020 7,865 7,689 9,387 8,325 7,307 7,665 7,830 8,919 9,047 8,626 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- COSTS AND EXPENSES Cost of sales and operating expenses 6,076 6,005 5,919 7,247 6,740 6,002 6,300 6,455 6,996 6,682 6,072 Depreciation 462 436 431 447 431 443 449 429 393 333 316 Selling, administrative and general expenses 448 444 422 484 528 551 596 635 659 600 525 Research and development expenses 70 72 71 76 72 99 125 131 150 136 132 Interest 92 101 125 204 219 212 254 246 197 130 137 Other expenses 219 54 88 61 95 106 118 163 65 62 91 Income taxes 210 248 212 326 112 (13) (17) (104) 126 350 497 Equity income (loss) (48) (33) (10) (3) (29) (12) 53 89 211 97 97 Minority interests 4 (4) (1) 4 (3) 1 (5) -- (1) (16) (22) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Net income (Loss) before extraordinary item 399 468 410 543 96 (104) (112) (36) 543 835 931 Extraordinary gain (loss) -- 17 -- (280) -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Net income (Loss) 399 485 410 263 96 (104) (112) (36) 543 835 931 Preference dividends 10 10 16 24 21 18 23 20 22 21 30 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Net income (Loss) attributable to common shareholders 389 475 394 239 75 (122) (135) (56) 521 814 901 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== CONSOLIDATED BALANCE SHEET ITEMS (in millions of US$) Operating working capital 1,682 1,483 1,461 1,731 1,675 1,314 1,460 1,717 1,842 1,774 1,764 Property, plant and equipment - net 5,897 5,458 5,470 5,672 5,534 6,005 6,256 6,525 6,167 5,260 4,280 Total assets 9,901 9,374 9,228 9,736 10,003 9,812 10,154 10,843 10,681 9,518 8,627 Total debt 1,789 1,515 1,516 1,985 2,485 2,652 2,794 3,024 2,648 1,734 1,530 Deferred income taxes 747 969 996 979 914 888 955 1,126 1,092 1,044 1,006 Preference shares 160 203 203 353 353 353 353 212 212 212 211 Common shareholders' equity 5,359 4,871 4,661 4,482 4,308 4,096 4,266 4,730 4,942 4,610 4,109 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== PER COMMON SHARE (in US$) Net income (Loss) before extraordinary item 1.71 2.02 1.74 2.30 0.34 (0.54) (0.60) (0.25) 2.33 3.58 3.85 Net income (Loss) 1.71 2.09 1.74 1.06 0.34 (0.54) (0.60) (0.25) 2.33 3.58 3.85 Dividends paid 0.60 0.60 0.60 0.45 0.30 0.30 0.45 0.86 1.12 1.12 0.59 Common shareholders' equity 23.71 21.43 20.57 19.84 19.17 18.28 19.06 21.17 22.19 20.30 18.06 Market price - NYSE close 26.81 27.69 33.63 31.13 25.38 20.75 17.63 20.00 19.50 22.88 21.75 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
78 78 OPERATING DATA (in thousands of tonnes except for LME price)
CONSOLIDATED ALUMINUM SHIPMENTS Ingot products* 829 858 810 801 897 887 870 866 857 743 832 Fabricated products 1,823 1,694 1,539 1,733 1,763 1,560 1,389 1,333 1,488 1,518 1,446 Fabrication of customer-owned metal 289 276 258 225 189 91 206 145 81 75 80 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Total aluminum shipments 2,941 2,828 2,607 2,759 2,849 2,538 2,465 2,344 2,426 2,336 2,358 Consolidated primary aluminum production 1,481 1,429 1,407 1,278 1,435 1,631 1,612 1,695 1,651 1,643 1,619 Consolidated aluminum purchases 1,227 1,254 1,003 1,365 1,350 865 675 591 646 718 716 Consolidated aluminum inventories (end of year) 469 451 408 449 435 403 418 463 447 539 480 PRIMARY ALUMINUM CAPACITY ** Consolidated subsidiaries 1,706 1,558 1,561 1,561 1,561 1,711 1,711 1,676 1,685 1,685 1,680 Total consolidated subsidiaries and related companies 1,706 1,695 1,698 1,712 1,712 1,862 1,862 1,827 1,836 1,836 1,831 Average three-month LME price (US$ per tonne) 1,379 1,620 1,536 1,830 1,500 1,161 1,278 1,333 1,636 1,916 2,306 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== OTHER STATISTICS Cash from operating activities (in millions of US$) 739 719 981 1,044 65 444 465 659 760 970 1,370 Capital expenditures (in millions of US$) 877 641 482 441 356 370 474 880 1,367 1,466 676 Ratio of total borrowings to equity (%) 24:76 23:77 23:77 29:71 35:65 37:63 37:63 37:63 33:67 26:74 26:74 Average number of employees (in thousands) 36 33 34 39 42 46 49 54 57 57 56 Common shareholders - registered (in thousands at end of year) 20 21 22 23 26 28 32 34 38 40 41 Common shares outstanding (in millions at end of year) 226 227 227 226 225 224 224 223 223 227 228 Registered in Canada (%) 60 61 61 61 55 59 69 68 54 44 54 Registered in the United States (%) 39 39 39 38 44 40 30 31 44 54 43 Registered in other countries (%) 1 -- -- 1 1 1 1 1 2 2 3 Return on average common shareholders' equity (%) 7 10 9 5 2 (3) (3) (1) 11 19 24 Before extraordinary item (%) 10 11 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
* 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 split on May 9, 1989. See note 5 to the consolidated financial statements for U.S. GAAP information. 79 79 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. This statement represents the basic business principles that 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 was added in 1996 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 69. Committees of the Board (described briefly at right) 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. A special committee composed of members of the Personnel Committee administers the Alcan Executive Share Option Plan. 80 80 DIRECTORS AND OFFICERS (As at February 11, 1999) DIRECTORS JOHN R. EVANS, C.C.1, 3, 8 Chairman of the Board of Alcan Aluminium Limited, Montreal Age 69, director since 1986 SONJA I. BATA, O.C.5, 7 Vice Chairman, Bata Shoe Foundation, Toronto Age 72, director since 1979 W. R. C. BLUNDELL, O.C.2, 7 Director of various companies, Toronto Age 71, director since 1987 JACQUES BOUGIE, O.C.5 President and Chief Executive Officer of Alcan Aluminium Limited, Montreal Age 51, director since 1989 WARREN CHIPPINDALE, F.C.A., C.M.1, 4, 7 Director of various companies, Montreal Age 70, director since 1986 TRAVIS ENGEN1, 5, 7 Chairman, President and Chief Executive Officer of ITT Industries, Inc., New York Age 54, director since 1996 ALLAN E. GOTLIEB, C.C.3, 5, 7 Director of various companies, Toronto Age 70, director since 1989 J. E. NEWALL, O.C.3, 6, 7 Chairman and Director of NOVA Chemicals Corporation, Calgary Age 63, director since 1985 DR. PETER H. PEARSE, C.M.5, 7 Natural resources consultant, Vancouver Age 66, director since 1989 81 81 SIR GEORGE RUSSELL, C.B.E.1, 3, 7 Chairman of 3i Group plc, London Age 63, director since 1987 GUY SAINT-PIERRE, O.C.1, 7 Chairman of SNC-Lavalin Group Inc., Montreal Age 64, director since 1994 GERHARD SCHULMEYER1, 7 President and Chief Executive Officer of Siemens Corp., New York Age 60, director since 1996 PAUL M. TELLIER, C.C.7 President and Chief Executive Officer of Canadian National Railway Company, Montreal Age 59, director since 1998 OFFICERS JACQUES BOUGIE President and Chief Executive Officer ROBERT L. BALL Executive Vice President CLAUDE CHAMBERLAND Executive Vice President, Technology and Major Projects JEAN-PIERRE M. ERGAS Executive Vice President, Europe RICHARD B. EVANS Executive Vice President, Fabricated Products - North America EMERY P. LEBLANC Executive Vice President, Alumina and Primary Metal EVERALDO N. SANTOS Executive Vice President, South America 82 82 BRIAN W. STURGELL Executive Vice President, Asia /Pacific and Corporate Development SURESH THADHANI Executive Vice President and Chief Financial Officer CYNTHIA CARROLL Vice President, Bauxite, Alumina and Chemicals DANIEL GAGNIER Vice President, Corporate and Environmental Affairs GASTON OUELLET Vice President, Human Resources, Occupational Health and Safety P.K. PAL Vice President, Chief Legal Officer and Secretary GLENN R. LUCAS* Treasurer DENIS G. O'BRIEN Controller 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 [FN] * Effective April 1, 1999. [FN] 83 83 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 and Swiss stock exchanges. The transfer agents for the common shares are CIBC Mellon Trust Company in Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver, Chase Mellon Shareholder Services, L.L.C. in New York, and CIBC Mellon 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. PREFERENCE SHARES The preference shares are listed on the Montreal, Toronto and Vancouver stock exchanges. The transfer agent for the preference shares is CIBC Mellon 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 69. SECURITIES REPORTS FOR 1998 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, 1999. Copies of both may be obtained from Shareholder Services at the address on page 69. 84 84
DIVIDEND PRICES* AND AVERAGE DAILY TRADING VOLUMES -------- ----------------------------------------------------------------------------------- NEW YORK STOCK EXCHANGE (US$) TORONTO STOCK EXCHANGE (CAN$) ---------------------------------------------------- ---------------------------------- 1998 US$ HIGH LOW CLOSE AVG. DAILY HIGH LOW CLOSE AVG. DAILY QUARTER Volume Volume ======= ===== ======== ======== ======== ========== ===== ===== ====== ========== FIRST 0.150 34 1/2 24 1/2 31 1/4 371,616 48.50 35.10 44.25 563,447 SECOND 0.150 33 7/16 25 15/16 27 10/16 400,443 47.95 38.25 40.50 482,864 THIRD 0.150 28 3/16 18 11/16 23 7/16 322,500 41.60 28.30 36.15 486,748 FOURTH 0.150 28 15/16 21 3/4 27 1/16 456,005 44.85 33.60 41.50 585,815 ======= ===== ======== ======== ======== ========== ===== ===== ====== ========== YEAR 0.600 - ------- ----- 1997 QUARTER ======= ===== ======== ======== ======== ========== ===== ===== ====== ========== First 0.150 38 1/4 33 3/8 33 7/8 562,300 52.25 45.70 46.75 641,900 Second 0.150 37 7/8 30 1/2 34 11/16 430,900 52.10 42.65 47.10 587,800 Third 0.150 40 5/16 33 1/2 34 3/4 470,600 55.70 46.65 48.40 547,600 Fourth 0.150 35 13/16 26 1/16 27 5/8 499,133 49.25 37.10 39.40 679,694 ======= ===== ======== ======== ======== ========== ===== ===== ====== ========== Year 0.600 - ------- -----
[FN] * 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. FURTHER INFORMATION Contact for shareholder account inquiries: Linda Burton Manager, Shareholder Services Telephone: (514) 848-8050 or 1-888-252-5226 (toll free) shareholder.services@alcan.com Investor contact: Alan G. Brown Director, Investor and Media Relations Telephone: (514) 848-8368 investor.relations@alcan.com Media contact: Alain Bergeron Manager, Investor and Media Relations Telephone: (514) 848-8232 media.relations@alcan.com 85 85 THE ALCAN GROUP WORLDWIDE* (As at February 11, 1999) 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 www.alcan.com NORTH AMERICA BERMUDA Alcan (Bermuda) Limited Alcan Nikkei Asia Holdings Ltd. (60%)1 CANADA Alcan Aluminium Limited Alcan Cable Alcan Chemicals Alcan Foil Products Alcan International Limited Alcan Smelters and Chemicals Limited JAMAICA Alcan Jamaica Company UNITED STATES Alcan Aluminum Corporation Alcan Cable Alcan Chemicals Alcan Foil Products Alcan Global Automotive Products Alcan Ingot Alcan Light Gauge Products Alcan Sheet Products 86 86 SOUTH AMERICA BRAZIL Alcan Aluminio do Brasil Ltda. Consorcio Aluminio do Maranhao - Alumar (10%)2 Mineracao Rio do Norte S.A. (12.5%) Petrocoque S.A. - Industria & Comercio (25%) AFRICA GHANA Ghana Bauxite Company Limited (80%) GUINEA Compagnie des Bauxites de Guinee (16.8%) EUROPE FRANCE Alcan France (Technal) GERMANY Alcan Deutschland GmbH Aluminium Norf GmbH (50%) ITALY Alcan Alluminio S.p.A. NORWAY Vigeland Metal Refinery A/S (50%) SPAIN Alcan Iberica S.A. SWITZERLAND Alcan Aluminium AG Alcan Rorschach AG UNITED KINGDOM British Alcan Aluminium plc PACIFIC AUSTRALIA Alcan South Pacific Pty Ltd. Queensland Alumina Limited (21.4%) CHINA Alcan Asia Limited Alcan Asia Pacific Limited Alcan Nikkei China Limited (49%)1 Alcan Nikkei Korea Limited (49%)1 Nonfemet International (China-Canada-Japan) Aluminium Company Limited (27%)1 87 87 INDIA Indian Aluminium Company, Limited (54.6%) JAPAN Alcan Asia Limited (Tokyo Branch) KOREA Alcan Nikkei Korea Limited (Seoul Branch) MALAYSIA Alcan Nikkei Asia Company Ltd. (60%)1 Aluminium Company of Malaysia Berhad (35.5%)1 Alcom Nikkei Specialty Coatings Sdn Bhd (47.7%)1 THAILAND Alcan Nikkei Siam Limited (42%)1 Alcan Nikkei Thai Limited (46.6%)1 * This list names only the principal businesses of the Alcan Group and reflects the sale of alumina refining operations in Ireland and Guinea and of a chemicals operation in Canada as well as the reduction of the interest held in Nippon Light Metal Company, Ltd. (NLM) in Japan. A complete list is contained in the Company's 10-K Report, available from Alcan's headquarters in Montreal. 1 Alcan holds additional interest indirectly through its portfolio investment, NLM. 2 Interest in the Alumar alumina refinery is held through Alcan Aluminio do Brasil Ltda. VISIT ALCAN'S WEB SITE: WWW.ALCAN.COM Further information on Alcan and its activities is available on Alcan's World Wide Web site and contained in various Company publications. These publications, such as A Commitment to Continual Environmental Improvement as well as Alcan's Environmental and Health and Safety policies, are available by writing to the address shown at upper left. VERSION FRANCAISE Pour obtenir la version francaise de ce rapport, veuillez ecrire aux Services aux actionnaires dont l'adresse figure dans le coin superieur gauche. This report was printed using vegetable-based inks and is recyclable. 88 88 ALCAN . . . THE PARTNER OF CHOICE (Logo) Alcan Aluminium Limited www.alcan.com Printed in Canada 89 EX-21 5 SUBSIDIARIES AND RELATED COMPANIES 1 EXHIBIT NO. 21.: SUBSIDIARIES, RELATED COMPANIES, ETC. - VOTING SHARES 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 1999, 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 33.
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE 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 Asia Pacific Limited Canada 100 Alcan Empreendimentos Ltda. Brazil 100 Alcan Aluminio do Brasil Ltda. Brazil 100 Alcan Aluminio Pocos de Caldas S.A. Brazil 100 Consorcio de Aluminio do Maranhao ("Consorcio Alumar") (UNINCORPORATED) Brazil 10 Petrocoque S.A. - Industria e Comercio Brazil 25 Mineracao Rio do Norte S.A. Brazil 12.5 Alcan Europe Limited England 100 Alcan Finances (Bda) Ltd. Bermuda 100 Alcan Asia Limited Hong Kong 100 Alcan (Bermuda) Limited Bermuda 100 Alcan Shipping (Bermuda) Limited Bermuda 100 Alcan Nikkei Asia Holdings Ltd. Bermuda 60 (1) Alcan Nikkei Siam Limited Thailand 33 (2) Alcan Nikkei Thai Limited Thailand 75 (3) Alcom Nikkei Specialty Coatings Sdn. Bhd. Malaysia 50 (4) Aluminium Company of Malaysia Berhad Malaysia 59.2 Aluminium Development Company (Thailand) Limited Thailand 16 (5) Nikkei Holdings Pte. Limited Singapore 100 Nonfemet International (China-Canada-Japan) Aluminium Company Limited China 45 Alcan Nikkei China Limited China 49 (6) Champlain Insurance Company Ltd. Bermuda 100 Frialco S.A. Cayman Islands 20 Halco (Mining) Inc. Delaware 33 Compagnie des Bauxites de Guinee Delaware 51 Alcan Finances B.V. Netherlands 100 Alcan Finances (Ireland) Limited Canada 100 Alcan Aluminium AG Switzerland 100
2
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER 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 Evolutis Espinos-Roy France 95 (8) Technal AB Sweden 99 Technal Aluminium Systems SA Switzerland 100 Technal Iberica Spain 100 Technal Portuguesa Systemas de Aluminio Limitada Portugal 100 Evolutis Conforto e Ambiante Ltda Portugal 100 Technal Limited England 100 Technal South East Asia Co. Ltd. Thailand 49 Transports et Aluminium Industries S.A.R.L. France 100 Alcan International Limited Canada 100 Alcan Ireland Limited Ireland 100 Alcan Luxembourg S.A. Luxembourg 100 Alcan Alluminio S.p.A. Italy 100 Alcanital Services S.r.l. Italy 100 Alcan Deutschland GmbH Germany 98.6 (9) Alcan Austria GmbH Austria 100 Alcan Lamines France France 40 (10) Aluminium Norf GmbH Germany 50 Alcan Iberica, S.A. Spain 100 BAA Holdings S.A. Luxembourg 100 British Alcan Aluminium plc England 100 Alcan Automotive Structures (UK) Ltd. England 100 Alcan BAP Limited England 100 Alcan BAS Limited England 100 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 100 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 100 Alcan St Helens Limited England 100 Alcan Stockists South Limited England 100 Alcan Swinton Limited England 100 Alcan Systems and Conservatories Limited England 100 Alcan Systems Limited England 100 Alcan Windows Limited England 100 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
3
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER ALCAN LUXEMBOURG S.A. (CONTINUED) BAA HOLDINGS S.A. (CONTINUED) BRITISH ALCAN ALUMINIUM PLC (CONTINUED) 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 100 British Alcan Highland Estates Limited England 100 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 (11) 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 80 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 The Bowling Back Land Company England 50 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 (1) Alcan Nikkei Korea Limited China 49 (6) 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 (12) Aluminio de Venezuela, C.A. Venezuela 49 Aluminum Company of Canada, Limited Canada 100 Cable Alcan de Mexico, S.A. de C.V. Mexico 100 Indian Aluminium Company, Limited India 54.62 Jamalcan (UNINCORPORATED) Jamaica 93 Nippon Light Metal Company, Ltd. Japan 6.1 (13) N.V. Alcan Aluminium Products Benelux S.A. Belgium 100
4
SUBSIDIARIES, RELATED COMPANIES, ETC. ORGANIZED UNDER % OF VOTING THE LAWS OF SHARES HELD BY IMMEDIATE OWNER 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
NOTE ADDITIONAL OWNERSHIP THROUGH % OF VOTING SHARES HELD (1) Nippon Light Metal Company, Ltd. 40.0 (2) Nikkei Holdings Pte. Limited 37.0 (3) Nikkei Holdings Pte. Limited 2.6 (4) Aluminium Company of Malaysia Berhad 50.0 (5) Alcan Nikkei Thai Limited 84.0 (6) Nippon Light Metal Company, Ltd. 51.0 (7) Alcan Aluminium Limited 8.9 (8) Transports et Aluminium Industries S.A.R.L. 5.0 (9) Alcan Aluminium AG 1.4 (10) British Alcan Aluminium plc 30.0 Alcan Alluminio S.p.A. 30.0 (11) British Alcan Aluminium plc 10.0 (12) Nippon Light Metal Company, Ltd. 50.0 (13) Alcan Nikkei Asia Holdings Ltd. 8.5* * non-voting
EX-24 6 POWERS OF ATTORNEY 1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] ______________________________ Name: Warren Chippindale Title: Director 2 Exhibit 24.2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] __________________________ Name: Travis Engen Title: Director 3 Exhibit 24.3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] __________________________ Name: John R. Evans Title: Director 4 Exhibit 24.4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] ___________________________ Name: J.E. Newall Title: Director 5 Exhibit 24.5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] _____________________________ Name: Peter H. Pearse Title: Director 6 Exhibit 24.6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] ________________________________ Name: Sir George Russell Title: Director 7 Exhibit 24.7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] ____________________________ Name: Guy Saint-Pierre Title: Director 8 Exhibit 24.8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS WHEREAS ALCAN ALUMINIUM LIMITED, a Canadian company (the "Company"), proposes shortly to file with the Securities and Exchange Commission, under the provisions of the Securities Act of 1934 as amended (the "Act"), the Annual Report on Form 10-K pursuant to Section 13 or 15 (d) of the Act. WHEREAS the undersigned is an Officer and/or a Director of the Company as indicated below: NOW, THEREFORE, the undersigned hereby constitutes and appoints Robert des Trois Maisons, Serge Fecteau, P.K. Pal, and each of them, as attorneys for the undersigned and in the undersigned's name, place and stead, and in each of the undersigned's offices and capacities as an Officer and/or a Director of the Corporation, to execute and file such Annual Report on Form 10-K, hereby giving and granting to said attorneys full power and authority to do and perform all and every act and thing whatsoever requisite and necessary to be done in and about the premises as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of March 1999. [signed] _______________________________ Name: Gerhard Schulmeyer Title: Director EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-K OF ALCAN ALUMINIUM LIMITED FOR THE YEAR ENDED 31 DECEMBER 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 608 0 1,292 0 1,341 3,241 11,715 6,257 9,466 1,424 1,241 0 203 1,251 3,620 9,466 7,777 7,865 5,995 5,995 436 0 101 763 258 468 0 17 0 485 2.09 2.09
EX-99 8 MANAGEMENT PROXY CIRCULAR 1 Exhibit 99 (Alcan LOGO) Notice of Annual Meeting 22 April 1999 Management Proxy Circular (1999 LOGO) Please complete, sign and date your proxy and return it promptly in the enclosed postage-paid envelope. 2 CONTENTS Page NOTICE OF ANNUAL MEETING .................................. 1 MANAGEMENT PROXY CIRCULAR ................................. 2 Proxy Solicitation ...................................... 2 Voting Shares and Record Date ........................... 3 Voting by Shareholders .................................. 3 Voting by Proxyholders .................................. 3 Appointment of Proxyholders and Revocation of Proxies ............................................. 3 Confidential Proxy Voting Procedures ................. 4 Business at Annual Meeting .............................. 4 Financial Statements and Auditors' Report ............... 4 Election of Directors ................................... 5 Holdings of Shares and Deferred Share Units by Directors ............................................ 9 Holdings of Shares by Others ............................ 9 Corporate Governance Practices .......................... 9 Board Meetings and Board Committees ..................... 10 Corporate Governance Committee ....................... 11 Audit Committee ...................................... 11 Environment Committee ................................ 11 Personnel Committee .................................. 11 Options Committee .................................... 11 Executive Compensation .................................. 12 Report on Executive Compensation ..................... 12 Performance Graph .................................... 16 Summary Compensation Table ........................... 17 Executive Performance Award .......................... 18 Other Compensation ................................... 18 Alcan Executive Share Option Plan .................... 19 Retirement Benefits .................................. 21 Retiring Allowances .................................. 22 Board Fees ........................................... 22 Compensation of Non-Executive Directors ................. 23 Fees and Expenses .................................... 23 Share Investment Plan for Directors .................. 23 Retirement Arrangements .............................. 23 Indebtedness of Directors and Executive Officers ........ 23 Directors' and Officers' Liability Insurance ............ 25 Appointment of Auditors ................................. 25 Special Business: Amendment and Restatement of the Shareholder Rights Plan .............................. 26 Approval of Board of Directors .......................... 29 SCHEDULE A .............................................. 30 SCHEDULE B .............................................. 31
La version francaise du present document ainsi que la formule de procuration qui l'accompagne seront envoyees aux actionnaires sur demande. Veuillez communiquer avec Alcan Aluminium Limitee -- Services aux actionnaires, en appelant au 1-888-252-5226 (sans frais). 3 (LOGO) NOTICE OF ANNUAL MEETING The 97th Annual Meeting of the holders of the Common Shares of Alcan Aluminium Limited will be held on Thursday, 22 April 1999 at 10:00 a.m. in the Assembly Hall, International Civil Aviation Organization, 999 University Street, Atrium entrance, Montreal, Quebec, Canada, for the following purposes: 1. receiving the financial statements and the Auditors' Report for the year ended 31 December 1998, 2. electing Directors, 3. appointing Auditors and authorizing the Directors to fix their remuneration, and 4. as special business, approving amendments to, and a restatement of, the Shareholder Rights Plan as described in the attached Management Proxy Circular. Shareholders who cannot attend the Annual Meeting may submit their proxies in accordance with the procedures set out in the attached Management Proxy Circular. By order of the Board of Directors, (Signature) P.K. Pal Montreal, Canada Vice President, 3 March 1999 Chief Legal Officer and Secretary 1 4 (LOGO) 3 March 1999 MANAGEMENT PROXY CIRCULAR THIS MANAGEMENT PROXY CIRCULAR IS FURNISHED IN CONNECTION WITH THE SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS AND MANAGEMENT OF ALCAN ALUMINIUM LIMITED FOR USE AT THE ANNUAL MEETING TO BE HELD IN MONTREAL ON 22 APRIL 1999 (AND ANY ADJOURNMENT THEREOF) FOR THE PURPOSES SET OUT IN THE ATTACHED NOTICE OF ANNUAL MEETING. Unless stated otherwise, the following expressions used in this Management Proxy Circular have the meanings indicated: "Alcan" or "Company" means Alcan Aluminium Limited, "Board" or "Board of Directors" means the Board of Directors of Alcan, "Chief Executive Officer" means the Chief Executive Officer of Alcan, "Director" means a Director of Alcan, "Executive Officers" means the President and Chief Executive Officer, the Executive Vice Presidents, the Vice Presidents (including the Secretary), the Treasurer and the Controller of Alcan, "Meeting" means the Annual Meeting to be held on 22 April 1999 and any adjournment thereof, "Non-Executive Director" means a Director of Alcan who is not an employee of Alcan or its Subsidiaries or Related Companies, "Notice" means the attached Notice of Annual Meeting, "Related Company" means a company in which Alcan has significant influence over management but owns 50% or less of the voting stock, "Shareholder" means a holder of the Shares, "Share" means a Common Share in the capital of Alcan, "Subsidiary" means a company controlled by Alcan, and "$" means U.S. Dollars. PROXY SOLICITATION The solicitation of proxies will be made primarily by mail, but may also be made by electronic means, by telephone or in person. The cost of soliciting proxies will be borne by Alcan. CIBC Mellon Trust Company and Morrow & Co., Inc. have been retained by Alcan in Canada and the United States of America, respectively, to assist in the solicitation of proxies from Shareholders. For these services, CIBC Mellon Trust Company and Morrow & Co., Inc. are expected to receive, from Alcan, fees of approximately Can. $15,000 and $20,000, respectively, plus reimbursement of reasonable expenses. In addition, employees of Alcan may solicit proxies without compensation. CIBC Mellon Trust Company is responsible for the tabulation of proxies. 2 5 VOTING SHARES AND RECORD DATE The Shares are the only class of outstanding shares of Alcan which entitle holders to vote at the Meeting. Each Share entitles the holder to one vote at the Meeting. As at 3 March 1999, there were 220,873,108 Shares outstanding. Only Shareholders of record at the close of business on that date are entitled to receive the Notice. They will also be entitled to vote unless their Shares have been transferred and the transferee has produced a properly-endorsed certificate(s) representing the transferred Shares or has otherwise established ownership of the transferred Shares and has requested, at least 10 days before the Meeting, that such transferee's name be included on the list of Shareholders, in which case the transferee will be entitled to vote such Shares instead of the transferor. VOTING BY SHAREHOLDERS A vote at the Meeting may be given by the Shareholder attending in person. The participation by a Shareholder in such a vote will automatically revoke any proxy which has been previously given by the Shareholder in respect of business covered by that vote. VOTING BY PROXYHOLDERS APPOINTMENT OF PROXYHOLDERS AND REVOCATION OF PROXIES A vote at the Meeting may, instead, be given by proxy, and the proxyholder need not be a Shareholder. If the Shareholder is a body corporate or association, the form of proxy must be signed by a person duly authorized by that body corporate or association. The authority granted by a proxy may be revoked by the Shareholder with a letter of revocation or another proxy with a later date. All proxies or letters of revocation must be delivered NO LATER THAN THE CLOSE OF BUSINESS (5:00 P.M. E.D.T.) ON 21 APRIL 1999 TO: Alcan at Maison Alcan 1188 Sherbrooke Street West Montreal, Quebec, Canada H3A 3G2 Telecopier: (514) 848-8115, CIBC Mellon Trust Company at 200 Queen's Quay East Unit 6 Toronto, Ontario, Canada M5A 4K9 Telecopier: (416) 368-2502, Morrow & Co., Inc. at 445 Park Avenue New York, N.Y. 10022, U.S.A. Telecopier: (212) 754-8300,
or hand-delivered on 22 APRIL 1999 to the Chairman prior to the commencement of the Meeting. 3 6 CONFIDENTIAL PROXY VOTING PROCEDURES The accompanying form of proxy represents all Shares registered in the Shareholder's name, including any whole Shares which the Shareholder may own as a participant in Alcan's Dividend Reinvestment Plan and/or Share Purchase Plan. Three persons, who are not Directors or employees of Alcan or its Subsidiaries or Related Companies, are proposed in the accompanying form of proxy as proxyholders to attend the Meeting and vote the Shares represented by the proxy. Their names are printed on the form of proxy. If the form of proxy is signed and returned, these proxyholders will vote in accordance with the instructions the Shareholder marks on it. IF NO INSTRUCTIONS ARE MARKED, THEY WILL VOTE THE SHARES FOR THE ELECTION OF DIRECTORS (SEE PAGES 5 TO 8), FOR THE APPOINTMENT OF AUDITORS (SEE PAGE 25), AND FOR THE APPROVAL OF THE AMENDMENTS TO AND RESTATEMENT OF THE SHAREHOLDER RIGHTS PLAN (SEE PAGE 26). A Shareholder may appoint any other person as proxyholder either by writing that person's name in the blank space provided for that purpose on the form of proxy or by completing another appropriate form of proxy. In either of these cases, the Shareholder is advised in his or her own interest to specify a choice with respect to each of the matters to be presented for action at the Meeting. Proxies will not be submitted to Management except where they contain comments clearly intended for Management or in the event of a proxy contest or in order to meet legal requirements. BUSINESS AT ANNUAL MEETING Only the business described in the Notice may be presented for action at the Meeting. The form of proxy provides discretionary authority to vote only on matters concerning the conduct of the Meeting. FINANCIAL STATEMENTS AND AUDITORS' REPORT The consolidated financial statements of Alcan and the Auditors' Report for 1998 will be submitted to Shareholders at the Meeting, but no vote with respect thereto is required or proposed to be taken. 4 7 ELECTION OF DIRECTORS Mrs. S.I. Bata and Mr. W.R.C. Blundell, each having attained retirement age, will not seek election at the Meeting and will retire from the Board at the close of the Meeting. Twelve Directors are to be elected to serve until the close of the 2000 Annual Meeting or until they cease to hold office as such. The Board of Directors and Management recommend the election of the nominees named below, all of whom are existing Directors except Ms. E.R. Clitheroe.
Director since -------- (photo) JACQUES BOUGIE, O.C. 1989 Jacques Bougie, 51, has been President and Chief Executive Officer of Alcan since November 1993, having served earlier 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 also a director of Bell Canada. Mr. Bougie is a member of the Environment Committee. (photo) WARREN CHIPPINDALE, F.C.A., C.M. 1986 Warren Chippindale, 70, 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 The Spectrum United Funds. Mr. Chippindale is a member of the Corporate Governance Committee and the Audit Committee, and is Chairman of the Personnel Committee. (photo) ELEANOR R. CLITHEROE Nominated Eleanor Clitheroe, 45, is president and chief executive officer of in 1999 Ontario Hydro Services Company. Ms. Clitheroe had earlier served as managing director and chief financial officer in that organization. Prior to joining Ontario Hydro in 1993, Ms. Clitheroe served as deputy minister of finance for the Province of Ontario, before which she was vice president of Canadian Imperial Bank of Commerce.
5 8
Director since -------- (photo) TRAVIS ENGEN 1996 Travis Engen, 54, is chairman 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 Chemical Company and a member of the Business Roundtable and the Manufacturers Alliance Board of Trustees, all of which are located in the United States of America. Mr. Engen is a member of the Corporate Governance Committee, the Audit Committee and the Environment Committee. (photo) DR. JOHN R. EVANS, C.C. 1986 John Evans, 69, is Chairman of Alcan as well as chairman of Allelix Biopharmaceuticals Inc. and 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 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. and Pasteur Merieux Serums & Vaccines. Dr. Evans is Chairman of the Corporate Governance Committee and member of the Audit Committee and the Personnel Committee. (photo) ALLAN E. GOTLIEB,C.C. 1989 Allan Gotlieb, 71, 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, Livent Inc. and Peoples Jewellers, a senior consultant with the law firm of Stikeman, Elliott, a member of the advisory boards of Nestle Canada Inc., Hollinger International Inc., Investment Co. of America and senior advisor to Julius Baer Investment Advisory (Canada) Ltd., co-chairman of Saturday Night magazine, chairman of the Donner Canadian Foundation and Ontario Heritage Foundation. Mr. Gotlieb is a member of the Corporate Governance Committee, the Environment Committee and the Personnel Committee.
6 9
Director since -------- (photo) J.E. NEWALL, O.C. 1985 Ted Newall, 63, is chairman and a director of NOVA Chemicals 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., BCI Inc., Bell Canada Ltd., Canadian Pacific Ltd., Maple Leaf Foods Inc. and Royal Bank of Canada. He is also honorary chairman and member of the executive and policy committees of the Business Council on National Issues. Mr. Newall is a member of the Corporate Governance Committee and the Personnel Committee and is Chairman of the Environment Committee. (photo) DR. PETER H. PEARSE, C.M. 1989 Peter Pearse, 66, is a consultant on natural resources economics and policies and president of a private investment company. He is a Professor Emeritus at the University of British Columbia where he was a member of the faculty 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, the executive board of the Law of the Sea Institute and the board of directors of World Wildlife Fund Canada. Dr. Pearse has conducted two Royal Commissions on natural resources policies and has been an advisor on natural resources matters to Canadian and foreign governments and to the World Bank. Dr. Pearse is a member of the Corporate Governance Committee and the Environment Committee. (photo) SIR GEORGE RUSSELL, C.B.E. 1987 Sir George Russell, 63, is chairman of 3i Group plc, an industrial investment bank in the United Kingdom. Sir George had previously served with Alcan from 1972, becoming managing director of British Alcan Aluminium plc, a Subsidiary of Alcan, in 1981. He resigned from that company in 1986, but rejoined its board in 1997. He is also chairman of Camelot plc and director of Northern Rock Building Society and Taylor Woodrow, all of which are located in the United Kingdom. Sir George is a member of the Corporate Governance Committee, the Audit Committee and the Personnel Committee.
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Director since -------- (photo) GUY SAINT-PIERRE, O.C. 1994 Guy Saint-Pierre, 64, 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 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 a director of BCE Inc., General Motors of Canada and Royal Bank of Canada. Mr. Saint-Pierre is a member of the Corporate Governance Committee and the Audit Committee. GERHARD SCHULMEYER 1996 (photo) Gerhard Schulmeyer, 60, is president and chief executive officer of Siemens Corporation in the United States of America, having been 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 board of Thyssen- Bornemisza Holding N.V. and of the boards of Zurich Financial Services and A.D. Little, Inc. He is also a member of the board of trustees of the MIT Corporation. Mr. Schulmeyer is a member of the Corporate Governance Committee and the Audit Committee. (photo) PAUL M. TELLIER, C.C. 1998 Paul M. Tellier, 59, has been president and chief executive officer of the Canadian National Railway Company since October 1992. From 1985 to 1992, Mr. Tellier held the position of Canada's most senior civil servant as Clerk of the Privy Council Office and Secretary to the Cabinet of the Government of Canada. During his service in the Canadian civil service since 1967, Mr. Tellier held several senior positions including deputy minister of Indian Affairs and Northern Development, deputy minister of Energy, Mines and Resources, directorships of Petro Canada and Atomic Energy of Canada Limited and chairman of the International Energy Agency. Mr. Tellier is a director of Bombardier Inc., Bell Canada and McCain Foods, and is past chairman of the Conference Board of Canada. Mr. Tellier is a member of the Corporate Governance Committee.
8 11 HOLDINGS OF SHARES AND DEFERRED SHARE UNITS BY DIRECTORS All Directors named below are present Directors (with the exception of Ms. Clitheroe) and are nominees for election as Directors at the Meeting, there being no other nominees. The second column in the table below shows Shares which are beneficially owned (including Shares over which control or direction is exercised) as well as Shares subject to Options granted under the Alcan Executive Share Option Plan described on page 19. The third column shows Units held under the Deferred Share Unit Plans described on pages 13 and 23; these Units do not carry voting rights. - ---------------------------------------------------------------------------------------------------------------------------- Number of Name Number of Shares Deferred Share Units - ---------------------------------------------------------------------------------------------------------------------------- J. Bougie 785,514(1) 51,874(2) - ---------------------------------------------------------------------------------------------------------------------------- W. Chippindale 1,810 942(3) - ---------------------------------------------------------------------------------------------------------------------------- E.R. Clitheroe 430 -- - ---------------------------------------------------------------------------------------------------------------------------- T. Engen 5,500 806(3) - ---------------------------------------------------------------------------------------------------------------------------- J.R. Evans 3,429 2,458(3) - ---------------------------------------------------------------------------------------------------------------------------- A.E. Gotlieb 1,539 819(3) - ---------------------------------------------------------------------------------------------------------------------------- J.E. Newall 6,154 942(3) - ---------------------------------------------------------------------------------------------------------------------------- P.H. Pearse 2,338 717(3) - ---------------------------------------------------------------------------------------------------------------------------- G. Russell 4,629 819(3) - ---------------------------------------------------------------------------------------------------------------------------- G. Saint-Pierre 10,141 717(3) - ---------------------------------------------------------------------------------------------------------------------------- G. Schulmeyer 1,184 704(3) - ---------------------------------------------------------------------------------------------------------------------------- P.M. Tellier 1,084 228(3) - ----------------------------------------------------------------------------------------------------------------------------
(1) Made up as follows: 37,614 Shares and Options to purchase 747,900 Shares. (2) Held as EDSUs described on page 13; Mr. Bougie may be entitled to additional deferred share units as mentioned in paragraph 3 on page 14. (3) Held as DDSUs described on page 23. A trust in which Sir George Russell's children have an interest owns 10,701 Shares. Sir George disclaims beneficial ownership in the Shares owned by his children. Mr. Engen owns his Shares jointly with his wife. HOLDINGS OF SHARES BY OTHERS As of 31 December 1998, Sanford C. Bernstein & Co., Inc. beneficially owned 25,085,051 Shares, with sole dispositive power over this entire amount, sole voting power over 13,948,336 of these and shared voting power over 2,676,976 of these, according to a Schedule 13G filing; this shareholding amounted to 11% of the outstanding Shares. CORPORATE GOVERNANCE PRACTICES The following description of corporate governance practices in Alcan is made in response to regulations of The Montreal Exchange and The Toronto Stock Exchange. The Guidelines referred to below are the Guidelines set out in the aforesaid regulations. The mandate of the Board is to "manage the business and affairs" of the Company through the Company's Management and to discharge its duties and obligations in accordance with the provisions of (a) the Canada Business Corporations Act, (b) the Company's constituting documents and by-laws, and (c) other applicable legislation and Company policies. The Company's system of corporate governance covers the items listed in Guideline 1. 9 12 The Board is satisfied that the number of Directors should range from between 11 to 15. Of the present Board of 13 Directors, J. Bougie is the President and Chief Executive Officer of the Company and Sir George Russell is a former employee of Alcan (having retired in 1986) and is also a director of British Alcan Aluminium plc (a wholly-owned Subsidiary of Alcan). The composition of the Board, accordingly, meets the test in Guideline 2. As Alcan does not have a controlling Shareholder, none of the Directors represents the investment of minority Shareholders. The Board has a Chairman (J.R. Evans) who is not a member of Management; this structure allows the Board to function independently of Management. This is in accordance with Guideline 12. The Board has appointed five committees, whose mandates and activities are described on page 11. These are in accordance with Guidelines 4, 5, 10 and 13. Each Committee is made up of a majority of unrelated Directors and, therefore, meets the requirements in Guideline 9. In addition to the statutory duties under the Canada Business Corporations Act, the Company's corporate governance practices require that the following matters be subject to Board approval: (1) capital expenditure budgets and significant investments and divestments (over $50 million), (2) at the discretion of the Chief Executive Officer, any business which may have the potential for important impact on the Company, (3) the number of Directors within the minimum (9) and maximum (20) limits provided in the Company's Articles of Incorporation, (4) the terms of appointment of Non-Executive Directors, and (5) the appointment and remuneration of Officers of the Company. The Corporate Governance Committee is responsible for recommending candidates to the Board for appointment as Directors. Nominees are selected as potential representatives of Shareholders as a whole and not as representatives of any particular Shareholder or group of Shareholders. Care is taken to ensure that the Board of Directors is constituted with a majority of individuals who qualify as unrelated Directors. An unrelated Director is a Director who is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director's ability to act with a view to the best interests of the Company, other than interests and relationships arising from shareholding. The Corporate Governance Committee is also responsible for assessing the performance of the Board. The Committee ensures the adequacy of the time commitment of individuals to Alcan matters. In order to receive Shareholder feedback and respond to Shareholder concerns, Alcan maintains an experienced investor relations staff whose primary responsibility is to provide information and analysis to the investing community in accordance with Alcan's policy on public disclosures. This policy has been established in compliance with applicable legal disclosure requirements in Canada and in the U.S.A. and is reviewed periodically. The investor relations staff meets periodically with investors and analysts and is accessible to Shareholders by telephone during business hours. These services facilitate the receiving of Shareholder comments. The Management of Alcan is responsible for conducting the business and operations of the Company in accordance with a business strategy approved by the Board. Management's authority to act in certain matters which may have the potential for important impact on the Company, including decisions by the Chief Executive Officer, is subject to prior Board approval as described above. However, before being submitted to the Board, certain matters (e.g., dividends, securities issues, proxy circulars, annual reports and significant investment/divestment proposals) are prepared and reviewed by Management with external professional advice, as necessary. BOARD MEETINGS AND BOARD COMMITTEES The Board held 10 meetings during 1998, one of which was held by telephone conference. The Board has appointed the Committees described below but has not appointed an executive committee of the Board. 10 13 CORPORATE GOVERNANCE COMMITTEE This Committee is composed of Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. S.I. Bata, W.R.C. Blundell, W. Chippindale, T. Engen, J.R. Evans (Committee Chairman), A.E. Gotlieb, J.E. Newall, P.H. Pearse, Sir George Russell, G. Saint-Pierre, G. Schulmeyer and P.M. Tellier serve on this Committee. It met six times in 1998. As mentioned above (page 10), the Committee has the broad responsibility of reviewing corporate governance within Alcan (including Board practices and performance) and of making recommendations with respect to such matters to the Board. The Committee also maintains an overview of the composition of the Board and reviews candidates for nomination as Directors as well as membership of all Board Committees. It also considers recommendations from the Personnel Committee regarding compensation of Non-Executive Directors as well as the appointments of the Chairman of the Board and the Chief Executive Officer of Alcan. AUDIT COMMITTEE This Committee consists of not less than three Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. W.R.C. Blundell (Committee Chairman), W. Chippindale, T. Engen, J.R. Evans, Sir George Russell, G. Saint-Pierre and G. Schulmeyer serve on this Committee. It met three times in 1998. The objective of the Committee is to assist the Board in fulfilling its functions relating to corporate accounting and reporting practices as well as financial and accounting controls, to provide effective oversight of the financial reporting process, and to review financial statements as well as proposals for issues of securities. This Committee is established in accordance with the provisions of the Canada Business Corporations Act. ENVIRONMENT COMMITTEE This Committee is composed of the Chief Executive Officer and not less than three Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. S.I. Bata, J. Bougie, T. Engen, A.E. Gotlieb, J.E. Newall (Committee Chairman) and P.H. Pearse serve on this Committee. It met three times in 1998. The Committee has the broad responsibility of reviewing the policy, management practices and performance of Alcan in environmental matters and of making recommendations to the Board with respect to such matters. PERSONNEL COMMITTEE This Committee is composed of the Chairman and not less than three Directors who are not officers or employees of Alcan or its Subsidiaries or Related Companies. W. Chippindale (Committee Chairman), J.R. Evans, A.E. Gotlieb, J.E. Newall and Sir George Russell serve on this Committee. It met four times in 1998. As mentioned on page 7, Sir George Russell is a former officer of a Subsidiary. The Committee has the broad responsibility of reviewing any and all personnel policy and employee relations matters and of making recommendations with respect to such matters to the Board or the Chief Executive Officer, as appropriate. It also reviews and approves Alcan's executive compensation policy. The Committee also makes recommendations to the Corporate Governance Committee on compensation of Non-Executive Directors as well as on the appointments of the Chairman of the Board and the Chief Executive Officer of Alcan. OPTIONS COMMITTEE A Committee whose members are the same as the members of the Personnel Committee administers the Alcan Executive Share Option Plan described on page 19. 11 14 EXECUTIVE COMPENSATION REPORT ON EXECUTIVE COMPENSATION General Alcan's executive compensation policies cover cash compensation and benefits, including pensions, and are designed to enable Alcan to attract and retain highly qualified people to carry out the objectives of the organization. The Personnel Committee (the "Committee"), all of whose members are Non-Executive Directors, has the duty and responsibility to review and approve these policies periodically and to make recommendations with respect to such matters either to the Board or to the Chief Executive Officer, as may be appropriate. The policies provide a compensation package that is internally equitable, externally competitive and reflects individual efforts and achievements. The cash compensation structure and benefits programs, including short- and long-term incentive plans, are designed to be competitive with the median of selected comparator groups of companies. These companies, identified as a "Compensation Peer Group", are comparable in size, are involved in cyclical industries as is Alcan, and have a global presence. In the case of the Canada-based Executive Officers, the Compensation Peer Group includes both Canada-based (12) and U.S.-based (15) enterprises. When establishing the level of compensation, weight is given to U.S. compensation practices. For certain Canada-based Executive Officers, an equal weighting is given to both U.S. and Canadian practices while, for the others, more weight is given to Canadian compensation practices. In the case of the Chief Executive Officer, the total annual compensation is set at the level of U.S.-based peers. These different weightings reflect the increasing global importance of the senior management level positions in the organization. At all other levels in the Company world-wide, the policies governing the compensation of executives are generally related solely to their relevant national markets; the competitiveness of senior employees' compensation in countries other than Canada is derived from consultant surveys of the Compensation Peer Group in their respective countries. Alcan retains external consultants to assist its Human Resources Department and the Committee in collecting the required comparative data and providing advice concerning all aspects of compensation of its senior employees. From time to time, the Committee has retained the services of its own consultant to assist it in its deliberations, and may do so again in the future. Annual Compensation Annual compensation of the Executive Officers comprises base salaries, incentive plans and benefits programs. Base salaries for Executive Officers are reviewed annually. Any proposed changes are reviewed and approved by the Committee before implementation and are based on an evaluation of each Executive Officer's current performance. 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 ("EPA") Plan, 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. 1. The award for overall profitability of Alcan is called the Value Creation Award ("VCA"). The VCA is related to Economic Value Added ("EVA(R)"). The VCA for the Executive Officers has a guideline payment range of 12% to 35% of salary grade mid-point against which actual performance is measured. The minimum VCA payment can be nil and the maximum, in a year of exceptionally strong improvement in EVA, could be up to three times the guideline amount. The Committee establishes a threshold corporate EVA performance target which must be met before any VCA payment will be made. All Executive Officers received an award from this component of the EPA for the year 1998. ("EVA" is a registered trademark of Stern Stewart & Co.) 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 12 15 Officer and are submitted to the Committee for approval at the start of each year. The COA is independent of the VCA objective. For Executive Officers, the COA has a guideline payment range of 12% to 30% of salary grade mid-point. The minimum COA payment is nil and the maximum could be up to twice the guideline amount. All Executive Officers received an award from this component of the EPA for the year 1998. 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 VCA and COA objectives. For Executive Officers, the BUA has a guideline payment range of 15% to 20% of salary grade mid-point. The minimum BUA payment is nil and the maximum could be up to twice the guideline amount. The criteria for rewards under this aspect of the EPA are set annually by managements at various levels and their respective superiors. There are 17 major business units within Alcan world-wide. All Executive Officers received awards from this component of the EPA for the year 1998. An exception to the practice described in the preceding paragraphs is made in the case of termination of employment (retirement, resignation or death). In that year, the employee receives guideline VCA, COA and BUA amounts, prorated for the number of months actually employed. Under the Executive Deferred Share Unit Plan, Canada-based Executive Officers may elect, prior to the beginning of any particular year, to receive Executive Deferred Share Units ("EDSUs") with a value equal to 50% or 100% of their EPA in respect of that year, instead of a cash payment. The number of EDSUs is determined by dividing the amount so elected by the average price of a Share on the Montreal, Toronto and New York stock exchanges at the end of the year preceding the year in question. Additional EDSUs are credited to each holder thereof corresponding to dividends declared on Shares. The EDSUs are redeemable only upon termination of employment (retirement, resignation or death). The amount to be paid by Alcan upon redemption (which must be on or before 15 December of the calendar year next following the termination) will be calculated by multiplying the accumulated balance of EDSUs by the average price of a Share on the said exchanges at the time of redemption. Effective 1 June 1998, a Non-Qualified Deferred Compensation Plan was introduced at Alcan's U.S. Subsidiary, under which Executive Officers based in the USA may elect, prior to the beginning of any particular year, to defer up to 75% of their base salary and up to 100% of their EPA award in respect of that year, instead of cash payments. The deferral period elected by a participant in the plan must not be less than three years from the date of deferral nor extend more than five years beyond the date of normal retirement. The deferral amount is allocated to one or more of nine investment vehicles chosen by the participant. Final distribution of the accumulated balance is made within 90 days after either the end of the last year of the elected period or the end of the year of the participant's death, resignation or retirement. Long-Term Compensation The Alcan Executive Share Option Plan (described on page 19), which is administered by the Options Committee, composed of Non-Executive Directors, is a long-term incentive plan closely aligned with the interests of Shareholders and forms part of the Executive Officers' total compensation. The purpose of the Option Plan is to attract and retain employees and to encourage them to contribute to growth in the price of Alcan Shares. The number of Options granted is related to salary grade mid-point but not to the amount of Options or SARs (described on page 19). When determining the competitiveness of senior employees' total compensation, the compensation value of Option grants is taken into account. For Executive Officers, the number of Options granted annually generally produces annual compensation values which, when expressed as a multiple of annual base salary, are much lower than those provided by U.S.-based companies within the Compensation Peer Group but higher than those of Canada-based companies within the Compensation Peer Group. For the 1998 annual grant, the Options Committee introduced a market-value-based vesting provision (waiting period) replacing the previous time-based vesting ("C Options" described on page 19). In addition, an investment incentive feature was added in 1998 to provide further incentive for increased Share ownership to certain senior executives ("D Options" described on page 20); this feature 13 16 encourages early exercise of the Options and retention of the resulting Shares. The Options Committee also granted, to 14 senior executives other than the Chief Executive Officer, D Options based upon the 1996 and 1997 Option grants, up to a maximum of 10,000 D Options for each executive. Compensation of the Chief Executive Officer The Chief Executive Officer's annual compensation is administered by the Committee according to the policies described above. The companies forming the Compensation Peer Group for the Chief Executive Officer are specifically selected because they and Alcan have chief executive officers with responsibilities of similar magnitude. Alcan's Chief Executive Officer participates in the EPA and the relationship between his compensation and Alcan's performance is based on the same criteria as those discussed generally for other participants in the EPA. Given the uniqueness of Alcan as one of the largest global Canadian corporations with two-thirds of its assets and employees located outside Canada, the Committee has decided to set the total annual compensation of its Chief Executive Officer, beginning in 1997, at the level of his U.S.-based peers (15 similar enterprises). In making this change, the Committee has also increased the proportion of his compensation which is variable and "at risk" and, more importantly, has placed greater emphasis on long-term performance linked directly to total Shareholder return. With this change, the Committee has decided to administer the Chief Executive Officer's total compensation on a longer term perspective rather than through annual adjustments. To this end, the Chief Executive Officer's compensation is now covered by an agreement with a three-year term (1997-1999). Under this modified approach, the fixed portion of his total compensation (the base salary and the value of pension benefits) will represent some 33% thereof while the "at risk" portion, comprising the short-term, medium-term and long-term incentive plans, will represent 67% thereof. The "at risk" portion is linked directly to improved long-term Shareholders' value through a combination of grants under the Option Plan and the Executive Deferred Share Unit Plan. The three-year agreement, referred to above, with the Chief Executive Officer provides for compensation as set out below: 1. A base salary of Can. $1,000,000 per annum, commencing 1 March 1997. 2. An annual short-term incentive grant using the formula under the EPA and based on a guideline of 85% of salary mid-point but to be received in the form of EDSUs. For the year 1998, the Chief Executive Officer received 29,732 EDSUs (the figure being determined by dividing the value he would have received under the EPA by the average price of a Share at the end of 1997, $27.16). 3. As a medium-term incentive, the Chief Executive Officer will be entitled to receive a further award (by way of deferred share units issued under an arrangement that generally parallels the Executive Deferred Share Unit Plan) if, over the three-year period (1997-1999), Alcan achieves specific financial targets based on the objective of a sustainable improvement of $300 million in net income over 1996, subject to adjustment if certain underlying assumptions change. The achievement of this objective over a three-year cycle will give rise to an award of 19,400 deferred share units; lower and higher awards will be made if the income improvement falls short or surpasses that objective. The maximum would be 58,200 deferred share units for an income improvement of $600 million over 1996. The grant, if any, of deferred share units under this medium-term incentive will be made in the year 2000. 4. As a long-term incentive in respect of the three-year period (1997-1999) under the agreement, the Chief Executive Officer was granted 312,800 Options on 28 May 1997 at an exercise price of Can. $48.91 per Share, exercisable during the period from 1 January 2000 up to 28 May 2007 (10 years from the date of grant). Upon the introduction of the additional investment incentive in 1998, the Options Committee granted 10,000 D Options related to the 1996 grant and 208,000 D Options related to the 14 17 1997 grant. D Options under both grants have the same waiting periods and terminate on the same termination date as the associated 1996 and 1997 Options. 5. Pensions under the Canadian Plans (see page 21) for eligible Alcan employees are calculated on the basis of salary plus the EPA guideline amount but, in view of the increases in the Chief Executive Officer's direct compensation described above, the pensionable portion of his EPA was reduced from 85% of salary to 40% thereof. This change results in a reduction of about 25% in the pension which would otherwise have accrued to him under the Canadian Plans. However, under certain conditions of termination of employment, his pension will be subject to a minimum guaranteed amount once again based on salary and pensionable EPA at 75% of salary. 6. The Board may adjust the compensation arrangement set out above in order to correct for a sudden change in the relative values of the Canadian and U.S. Dollars. On 10 February 1999, such an adjustment was made with respect to the Chief Executive Officer's remuneration for 1997 and 1998 in the amounts of $20,600 and $68,900, respectively. Approval of this Report on Executive Compensation The Committee, whose members are set out below, has approved the issue of this Report and its inclusion in this Management Proxy Circular. W. Chippindale, Chairman of the Committee J.R. Evans A.E. Gotlieb J.E. Newall G. Russell
15 18 PERFORMANCE GRAPH The following graph compares the cumulative total Shareholder return on Can. $100 invested in Shares with the cumulative total return of the Toronto Stock Exchange 300 Stock Index, assuming reinvestment of all dividends. Additional comparisons, which the Personnel Committee believes to be appropriate, are provided with respect to two U.S. Dollar-based indices, the Standard & Poor's 500 Index and the Standard & Poor's Aluminum Index. COMPARISON OF FIVE YEAR CUMULATIVE RETURN (graph) 16 19 SUMMARY COMPENSATION TABLE Compensation paid to the Chief Executive Officer and the four other most highly compensated Executive Officers for each of the three most recently completed financial years is set out in the table below. These individuals are hereinafter collectively referred to as the "Named Executive Officers". SUMMARY COMPENSATION TABLE - ----------------------------------------------------------------------------------------------------------------------------------- Long-term Annual Compensation Compensation --------------------------------------------- Bonus (Executive Shares Under Performance Other Annual Options All Other Salary Award) Compensation Granted Compensation (1) (2) (3) (2) Name and Principal Position Year ($) ($) ($) (#) ($) - ----------------------------------------------------------------------------------------------------------------------------------- J. Bougie 1998 739,906 (4) 807,363 (5) 52,914 -- 20,475 (6) President and 1997 728,543 (4) 727,142 (7) 31,786 312,800 (8) 20,900 (6) Chief Executive Officer 1996 647,415 424,274 45,773 65,000 (9) 19,225 - ----------------------------------------------------------------------------------------------------------------------------------- J.-P. Ergas 1998 524,042 312,863 20,521 20,100 (10) 22,667 Executive Vice President 1997 508,750 296,125 2,000 20,000 (9) 21,301 1996 453,061 162,319 83,516 20,000 (9) 40,202 - ----------------------------------------------------------------------------------------------------------------------------------- E.N. Santos 1998 513,023 335,360 36,358 16,800 (10) 44,081 Executive Vice President 1997 501,270 282,305 33,757 16,700 (9) 43,093 1996 357,761 168,829 125,942 20,000 (9) 12,064 - ----------------------------------------------------------------------------------------------------------------------------------- R.L. Ball 1998 370,000 284,500 218,107 35,100 (10) 49,148 Executive Vice President 1997 340,000 246,780 64,516 18,200 (9) 46,213 1996 312,500 142,762 54,381 18,200 (9) 29,218 - ----------------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 1998 336,667 308,786 813,612 32,100 (10) 15,670 Executive Vice President 1997 284,500 246,780 345,210 20,000 (9) 18,099 1996 202,333 92,039 19,073 6,800 (11) 13,161 - -----------------------------------------------------------------------------------------------------------------------------------
(1) See page 12 for description of the Executive Performance Award Plan. (2) See Other Compensation on page 18. (3) See page 19 for description of the Alcan Executive Share Option Plan. (4) Including adjustments described in paragraph 6 on page 15. (5) Received in the form of 29,732 EDSUs under the Executive Deferred Share Unit Plan (see page 13 for description) based on the Share price ($27.16) at the end of 1997; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 13 for description). (6) See also paragraph 3 on page 14. (7) Received in the form of 21,767 EDSUs, based on the Share price (Can. $46.40) at the end of 1996; these qualify for additional EDSUs corresponding to dividends declared subsequently (see page 13 for description). (8) Granted as B Options. In 1998, 208,000 associated D Options were granted in addition. (9) Granted as B Options. In 1998, 10,000 associated D Options were granted in addition. (10) Granted as C Options together with the same number of associated D Options. (11) Granted as B Options. In 1998, 6,800 associated D Options were granted in addition. 17 20 Compensation payments to each Named Executive Officer were determined in the currency of his normal place of work (except for J.-P. Ergas and R.L. Ball who received part of their compensation in U.S. Dollars). Unless otherwise indicated, all compensation payments reported in this Management Proxy Circular are stated in U.S. Dollars 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 1998 0.6710 Canadian Dollars 1997 0.7199 Canadian Dollars 1996 0.7329 - ------------------------------------------------------------------------------------------------------------------------------ J.-P. Ergas U.S. Dollars 1998 1.0000 British Pounds 1998 1.6625 U.S. Dollars 1997 1.0000 British Pounds 1997 1.6404 U.S. Dollars 1996 1.0000 British Pounds 1996 1.5672 - ------------------------------------------------------------------------------------------------------------------------------ E.N. Santos Brazilian Reals 1998 0.8594 Brazilian Reals 1997 0.9250 Canadian Dollars 1996 0.7329 Brazilian Reals 1996 0.9924 - ------------------------------------------------------------------------------------------------------------------------------ R.L. Ball U.S. Dollars 1998 1.0000 British Pounds 1998 1.6625 U.S. Dollars 1997 1.0000 U.S. Dollars 1996 1.0000 - ------------------------------------------------------------------------------------------------------------------------------ B.W. Sturgell U.S. Dollars 1998 1.0000 U.S. Dollars 1997 1.0000 U.S. Dollars 1996 1.0000 - ------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE PERFORMANCE AWARD The Executive Performance Award Plan and the related Executive Deferred Share Unit Plan are described on pages 12 and 13. OTHER COMPENSATION Compensation benefits made available to senior employees under various plans included those under (a) the Executive Performance Award Plan mentioned above, (b) the Alcan Executive Share Option Plan described on page 19, (c) retirement benefit plans described on pages 21 and 22, (d) life insurance plans, (e) savings plans, (f) plans for the use and parking of automobiles, for professional financial advice through independent organizations, for 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 17, the amounts indicated for the year 1998 under the column titled Other Annual Compensation include benefits paid to the Named Executive Officers under these plans: automobile usage (J. Bougie, $19,150 and E.N. Santos, $22,476), deemed interest (J. Bougie, $21,831 and E.N. Santos, $12,559), expatriate benefits (B.W. Sturgell, $450,035), financial advice (J.-P. Ergas, $15,274), foreign taxes (R.L. Ball, $83,067) and housing assistance (B.W. Sturgell, $317,948). 18 21 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 (see REPORT ON EXECUTIVE COMPENSATION -- Long-term Compensation on page 13). The Option Plan is administered by the Options Committee referred to on page 11. 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 exercise price per Share under A Options was initially set in 1981 at not less than 90% of the market value on the effective date of each grant of an A Option, but all A Options granted after 1985 were set 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 not less than 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 above-mentioned committee may determine, to assist in financing the purchase of Shares through the exercise of A Options, but not in the case of the other Options hereinafter described (see INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS on page 23). The interest rate is currently nil on all outstanding Option Loans. The Option Loans have terms of up to 9 3/4 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 terminates 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 provided for Options hereinafter referred to as "B Options". The exercise 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 (not less than three months after the effective date) in respect of 25%, 50%, 75% or 100% of the grant after a Waiting Period of 12, 24, 36 and 48 months, respectively, following the effective date. The Options expire 10 years after the effective 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. The B Options do not have SARs connected therewith. C Options Since 23 September 1998, the Option Plan has provided for Options hereinafter referred to as "C Options". The exercise price per Share under C Options is set at not less than 100% of the market value of the Share on the effective date of the grant of each C Option. The effective date is fixed at the time of the grant. Each C Option is exercisable (not less than three months after the effective date) in respect of one-third of the grant when the market value of the Share has increased by 20% over the exercise price, two-thirds of the grant when the market value of the Share has so increased by 40% and the entire amount of the grant when the market value of the Share has so increased by 60%. The said market values must exceed those thresholds for at least 21 consecutive trading days. The said thresholds are waived 12 months prior to the expiry date which is 10 years after the effective date. In the event of death or retirement, any remainder of this 10-year period in excess of five years is reduced to five years, and the said thresholds are waived. The C Options do not have SARs connected therewith. 19 22 D Options In respect of B and C Options granted to certain senior executives, Alcan has granted further Options, hereinafter referred to as "D Options", which grant shall become effective upon the exercise of associated B or C Options and upon the executive placing at least one-half of the Shares resulting from the exercise of the B or C Option, as the case may be, in trust with an agency named by Alcan for a minimum period of five years. The exercise price per Share of each D Option is set at not less than 100% of the market value on the exercise date of the associated B or C Option. D Options are exercisable in the same manner as the associated B or C Option. The option period for the D Option will terminate on the same date as the associated B or C Option. In the event of death or retirement, any remainder of this Option period in excess of five years is reduced to five years. The vesting provisions of the D Option are identical to those of the associated B or C Option. The D Options do not have SARs connected therewith. As mentioned on page 14, Alcan has also granted D Options to certain executives associated with each of the 1996 and 1997 option grants, up to a maximum of 10,000 D Options for each grant. Limits on Grants of B, C and D Options As stated above, no further A Options may be issued. Alcan may issue in any year B, C or D Options in respect of a Yearly Allotment, as defined in the Option Plan, in aggregate not exceeding 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 cumulative maximum number of Shares which can be issued under the Option Plan after 31 December 1995 is 20,500,000. Grants and Exercises during 1998 The following table provides information pertaining to Options granted to the Named Executive Officers during 1998: OPTION GRANTS DURING 1998 - ------------------------------------------------------------------------------------------------------------------------------ Shares Under Exercise Price Options Percent of Total and Market Value Granted Options Granted on Date of Grant Name (#)(1) to Employees in 1998 (Can. $/Share) Expiration Date - ------------------------------------------------------------------------------------------------------------------------------ J. Bougie 208,000 (2) 10.9 -- 28 May 2007 10,000 (3) 0.5 -- 25 September 2006 - ------------------------------------------------------------------------------------------------------------------------------ J.-P. Ergas 20,100 (4) 1.1 34.70 4 October 2008 10,000 (2) 0.5 -- 24 September 2007 10,000 (3) 0.5 -- 25 September 2006 - ------------------------------------------------------------------------------------------------------------------------------ E.N. Santos 16,800 (4) 0.9 34.70 4 October 2008 10,000 (2) 0.5 -- 24 September 2007 10,000 (3) 0.5 -- 4 December 2006 - ------------------------------------------------------------------------------------------------------------------------------ R.L. Ball 35,100 (4) 1.9 34.70 4 October 2008 10,000 (2) 0.5 -- 24 September 2007 10,000 (3) 0.5 -- 25 September 2006 - ------------------------------------------------------------------------------------------------------------------------------ B.W. Sturgell 32,100 (4) 1.7 34.70 4 October 2008 10,000 (2) 0.5 -- 24 September 2007 6,800 (3) 0.4 -- 25 September 2006 - ------------------------------------------------------------------------------------------------------------------------------
(1) Date of grant: 5 October 1998. (2) D Option grant associated with the 1997 option grant. (3) D Option grant associated with the 1996 option grant. (4) C Option grant together with the same number of associated D Options (see ALCAN EXECUTIVE SHARE OPTION PLAN -- D Options above). 20 23 The following table provides certain required information pertaining to Options exercised by the Named Executive Officers during 1998 as well as year-end values: AGGREGATED OPTION EXERCISES DURING 1998 AND YEAR-END OPTION VALUES - -------------------------------------------------------------------------------------------------------------------------------- Shares Underlying Value of Shares Aggregate Unexercised Unexercised Acquired Value Options at in-the-Money Options at on Exercise Realized 31 December 1998 (1) 31 December 1998 (1) Name (#) (Can. $) (#) (Can. $) - -------------------------------------------------------------------------------------------------------------------------------- J. Bougie 0 0 E: 170,975 E: 975,189 U: 576,925 U: 5,654 - -------------------------------------------------------------------------------------------------------------------------------- J.-P. Ergas 0 0 E: 42,000 E: 73,305 U: 94,200 U: 157,598 - -------------------------------------------------------------------------------------------------------------------------------- E.N. Santos 0 0 E: 39,075 E: 192,297 U: 76,125 U: 111,300 - -------------------------------------------------------------------------------------------------------------------------------- R.L. Ball 0 0 E: 57,850 E: 366,957 U: 116,950 U: 234,198 - -------------------------------------------------------------------------------------------------------------------------------- B.W. Sturgell 3,000 72,920 E: 15,000 E: 30,141 U: 100,450 U: 213,098 - --------------------------------------------------------------------------------------------------------------------------------
(1) E: Exercisable U: Unexercisable Stock Appreciation Rights During 1998, the Named Executive Officers did not receive or exercise any SARs, nor did they have any remaining unexercised SARs at the year end. RETIREMENT BENEFITS Canadian Plans The Alcan Pension Plan (Canada) and the Alcan Supplemental Retirement Benefit Plan (Canada) are together herein referred to as the "Canadian Plans". Pensions up to a statutory limit are payable under the former and, in excess thereof, under the latter. 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 up to a maximum (for J. Bougie, see page 15). 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. CANADIAN PLANS - ----------------------------------------------------------------------------------------------------------------------------- Average Annual Years of Pensionable Service ------------------------------------------------------------------------------------- Earnings ($) 10 15 20 25 30 35 - ----------------------------------------------------------------------------------------------------------------------------- 900,000 -- 2,000,000 17% 25% 34% 42% 51% 59% - -----------------------------------------------------------------------------------------------------------------------------
The Alcan Supplemental Retirement Benefits Plan also provides for an additional pension to J. Bougie which increases the percentages in the table above by 4%. 21 24 Non-Canadian Plans During 1998, R.L. Ball and B.W. Sturgell participated in an Alcan-sponsored pension plan in the U.S.A. ("U.S. Plan") which provides 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. The following table shows estimated annual retirement benefits, expressed as a percentage of annual average earnings during the three consecutive calendar years when they were the greatest, payable upon normal retirement at age 65 to persons in the indicated earnings and pensionable service classifications. U.S. PLAN - ----------------------------------------------------------------------------------------------------------------------------- Average Annual Years of Pensionable Service ------------------------------------------------------------------------------------- Earnings ($) 10 15 20 25 30 35 - ----------------------------------------------------------------------------------------------------------------------------- 500,000 -- 900,000 17% 25% 34% 42% 51% 59% - ----------------------------------------------------------------------------------------------------------------------------- 1,000,000 -- 2,000,000 17% 26% 34% 43% 51% 60% - -----------------------------------------------------------------------------------------------------------------------------
J.-P. Ergas participated in an Alcan-sponsored pension plan in the United Kingdom and also in a supplemental retirement benefit agreement which provides for a pension based on the terms of the U.S. Plan but in excess of statutory limitations in both countries. E.N. Santos participated in an Alcan-sponsored pension plan in Brazil, which is comparable to the U.S. Plan. Deductions for Social Security In the Canadian Plans, the retirement benefits described above 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 or a 50% lifetime pension to the surviving spouse. Pensionable Earnings and Years of Pensionable Service The 1998 pensionable earnings and estimated years of pensionable service on normal retirement at age 65 (subject to a maximum of 35 years where applicable) for the Named Executive Officers were as follows: J. Bougie, $939,408 and 33 years; J.-P. Ergas, $781,542 and 10 years; E.N. Santos, $772,992 and 35 years; R.L. Ball, $601,300 and 35 years; B.W. Sturgell, $567,967 and 25 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. BOARD 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. 22 25 COMPENSATION OF NON-EXECUTIVE DIRECTORS FEES AND EXPENSES During 1998, 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 Options 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 $155,000 during 1998 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 1998, travel fees were paid as follows: P.H. Pearse, $8,000; Sir George Russell, $6,000; and G. Schulmeyer, $3,000. SHARE INVESTMENT PLAN FOR DIRECTORS Non-Executive Directors may invest all or part of their fees in Shares through the Share Investment Plan for Directors. RETIREMENT ARRANGEMENTS Under the Non-Executive Directors' Deferred Share Unit Plan, each Non-Executive Director is credited with a number of Directors' Deferred Share Units ("DDSUs"), as determined by the Board. At present, this number has been set at the equivalent of one DDSU for every $100 of Directors' fees (as described above, but excluding the travel fees) received by the Director. Until redemption, additional DDSUs are credited to each Director corresponding to dividends declared on the Shares. The DDSUs are redeemable only upon termination (retirement, resignation or death). The amount to be paid by Alcan upon redemption (which must be on or before 15 December of the calendar year next following the termination) will be calculated by multiplying the accumulated balance of DDSUs by the average price of a Share on the Montreal, Toronto and New York stock exchanges at the time of redemption. INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS Non-Executive Directors Non-Executive Directors and former Non-Executive Directors are not indebted to Alcan. Option Loans to Executive Officers The required details with regard to Option Loans given to Executive Officers are shown in the following table. The aggregate indebtedness of all Executive Officers and employees and former Executive Officers and employees of Alcan and its Subsidiaries (including the Named Executive Officers) to Alcan in respect of Option Loans at 8 February 1999 was $3,810,156. The terms of Option Loans are described on page 19. 23 26 TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS UNDER OPTION PLAN - ------------------------------------------------------------------------------------------------------------------------------ Name and Principal Position Financially Amount Assisted Largest Outstanding Share Amount as at Purchases Outstanding 8 February During 1998 Involvement During 1998 1999 (1) Security for of Alcan ($) ($) (#) Indebtedness - ------------------------------------------------------------------------------------------------------------------------------ R.L. Ball Executive Vice President Lender 70,254 0 0 (2) - ------------------------------------------------------------------------------------------------------------------------------ G.P. Batt (3) Treasurer Lender 62,471 62,471 4,000 (2) - ------------------------------------------------------------------------------------------------------------------------------ J. Bougie (4) President and Chief Executive Officer Lender 459,342 434,652 0 (2) - ------------------------------------------------------------------------------------------------------------------------------ C. Chamberland Executive Vice President Lender 28,826 23,123 0 (2) - ------------------------------------------------------------------------------------------------------------------------------ E.P. LeBlanc Executive Vice President Lender 52,543 51,260 2,000 (2) - ------------------------------------------------------------------------------------------------------------------------------ G. Ouellet Vice President Lender 57,035 54,184 0 (2) - ------------------------------------------------------------------------------------------------------------------------------ E.N. Santos Executive Vice President Lender 265,046 251,096 0 (2) - ------------------------------------------------------------------------------------------------------------------------------ B.W. Sturgell Executive Vice President Lender 45,682 43,366 3,000 (2) - ------------------------------------------------------------------------------------------------------------------------------ S. Thadhani Executive Vice President Lender 116,923 111,077 0 (2) - ------------------------------------------------------------------------------------------------------------------------------
(1) In respect of A Options only. (2) Security for the indebtedness is provided by the deposit of the certificates representing the relevant Shares with CIBC Mellon 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. (3) G.P. Batt transferred to a Subsidiary during 1998. (4) J. Bougie is a nominee proposed for election as Director. Other Loans to Executive Officers The required details with regard to loans other than Option Loans given to Executive Officers are shown in the following table. The aggregate indebtedness of all Executive Officers and employees and former Executive Officers and employees of Alcan and its Subsidiaries (including the Named Executive Officers) to Alcan in respect of loans other than Option Loans at 8 February 1999 was $2,292,464. TABLE OF INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS OTHER THAN UNDER OPTION PLAN - ---------------------------------------------------------------------------------------------------------------------- Largest Amount Amount Outstanding Involvement Outstanding as at of Alcan During 1998 8 February 1999 Name and Principal Position ($) ($) - ---------------------------------------------------------------------------------------------------------------------- C. Carroll Vice President Lender 209,658 209,658 - ----------------------------------------------------------------------------------------------------------------------
24 27 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE Alcan carries insurance covering liability, including defence costs, of directors and officers of Alcan and its Subsidiaries, incurred as a result of their acting as such, except in the case of failure to act honestly and in good faith. The policy provides coverage against certain risks in situations where Alcan may be prohibited by law from indemnifying the directors or officers. The policy also reimburses Alcan for certain indemnity payments made by Alcan to such director or officer, subject to a $10 million deductible in respect of each insured loss. The premium paid by Alcan for coverage in 1998 was $345,000 and the limit of insurance is $100 million per occurrence and in the aggregate per year. APPOINTMENT OF AUDITORS At the Meeting, Shareholders will be called upon to appoint Auditors to serve until the next Annual Meeting of Alcan and to authorize the Directors to fix the remuneration of the Auditors so appointed. The Board of Directors and Management, on the advice of the Audit Committee, recommend that PricewaterhouseCoopers LLP (formerly Price Waterhouse), Montreal, Canada, be appointed as Auditors. Price Waterhouse have been the Auditors of Alcan since 1936. A representative of PricewaterhouseCoopers LLP will be present at the Meeting and will have the opportunity to make a statement should he desire to do so. He will also be available to answer questions. 25 28 SPECIAL BUSINESS: AMENDMENT AND RESTATEMENT OF THE SHAREHOLDER RIGHTS PLAN The Shareholders will be asked at the Meeting to adopt a resolution to amend and restate the existing Shareholder Rights Plan ("Rights Plan") which is set out in full in the Shareholder Rights Agreement ("Plan Agreement") between Alcan and CIBC Mellon Trust Company (successor to The Royal Trust Company) as trustee ("Rights Agent") dated 14 December 1989, as subsequently amended. The resolution is set out in Schedule A hereto, and the complete text of the Plan Agreement (including the amendments now proposed) is set out in Schedule B hereto. The purpose of the resolution is to enable Alcan to continue to have in place the protection afforded by a rights plan beyond the expiry of the existing Rights Plan (14 December 1999). The resolution extends that termination date and makes the other amendments suitable to the form of plans being adopted by Canadian companies currently. Passage of the resolution mentioned above will require approval by a majority of the votes cast on the matter at the Meeting. According to the terms of the Plan Agreement, any Shareholder who, at the time of the vote, is an Acquiring Person (as defined in the Plan Agreement) or any person who has made or announced an intention to make a Take-Over Bid (as defined in the Plan Agreement) will not be eligible to participate in the vote. At the present time, Alcan has no knowledge of any take-over bid, or any intended take-over bid, from any person. If the Rights Plan is amended as proposed in the resolution in Schedule A, it will continue in effect until 1 May 2008, unless terminated earlier in accordance with its terms. If the said resolution is not adopted, the existing Rights Plan will remain in effect until 14 December 1999, unless terminated earlier. The Rights Plan does not in any way alter the financial condition of Alcan or its current business plans. The Board of Directors has determined that having a rights plan continues to be in the best interests of Alcan and its Shareholders. Background to the Rights Plan The primary objective of the Rights Plan is to provide the Board with sufficient time to explore and develop alternatives for maximizing Shareholder value if a take-over bid is made for Alcan and to provide every Shareholder with an equal opportunity to participate in such a bid. The Rights Plan encourages a potential acquiror to proceed either by way of a Permitted Bid (as defined in the Plan Agreement), which requires the take-over bid to satisfy certain minimum standards designed to promote fairness, or with the concurrence of the Board. The Board of Directors believes that the current legislation in Canada, which permits a take-over bid to expire in as little as 21 calendar days after it is made, does not provide the Board with adequate time to evaluate and respond to a take-over bid in the best interests of the Shareholders. The key objective of the Board in a take-over bid context will be to maximize value for Shareholders. The Rights Plan creates a sufficient opportunity for the Board, in the face of a take-over bid, to make a proper recommendation to the Shareholders -- whether to accept the bid, or to negotiate with the bidder for a higher value or to explore and develop alternatives for maximizing Shareholder value, such as, locating other potential bidders or to develop a corporate restructuring alternative. As for the Shareholders themselves, a 21-day bid period may not provide sufficient time to consider a take-over bid and the recommendations of the Board (including alternatives to the bid) and, thus, to make a fully informed decision. The Rights Plan helps address these issues. A large percentage of Alcan Shares are currently held in the United States of America. The Rights Plan is intended to ensure equal treatment of Shareholders and prevent an acquiror from exploiting differences in Canadian and United States securities laws in a way that could be detrimental to some Shareholders. While the Rights Plan is intended to regulate certain aspects of take-over bids for Alcan, it is not intended to deter a bona fide attempt to acquire control of Alcan if the offer is made fairly. The Rights Plan does not diminish or otherwise affect the duty of the Board to give due and proper consideration to any offer that is made and to act honestly, in good faith and in the best interests of the Shareholders. 26 29 The Rights Plan may be terminated by the Board with Shareholder approval through a redemption process prior to the accumulation of 20% or more of the Shares by any person or group of persons. The Rights Plan will not interfere with any amalgamation or other business reorganization approved by the Board. Nor does the Rights Plan inhibit any Shareholder from utilizing the proxy mechanism of the Canada Business Corporations Act to promote a change in the management or direction of Alcan, including the right of holders of not less than 5% of the outstanding Shares to requisition a meeting of Shareholders for the purpose of transacting proper corporate business. In contrast to many rights plans adopted in the United States, the Rights Plan has a Permitted Bid feature which allows a take-over bid to proceed in the face of the Rights Plan even if the Board does not support the bid, provided that the bid meets certain minimum specified standards of fairness and disclosure. Specifically, the Permitted Bid procedure allows persons to make a take-over bid for all or part of the outstanding Shares, provided it is made to all Shareholders, and is held open for a specified period longer than the statutory period required by the Canada Business Corporations Act, which is only 21 calendar days. The Permitted Bid procedure provides Shareholders and the Board with this additional time to assess a bid properly and to permit alternative bids to emerge. If more than 50% of the Shares held by parties other than the bidder, its affiliates and associates are tendered and not withdrawn at the end of the specified period, the bid may proceed and must be held open for an additional 10 business days to allow Shareholders who have not tendered their Shares additional time to do so after having had an opportunity to determine that the bid will otherwise be successful. This two-stage requirement, which separates evaluation of the bid from the tender process, helps remove any element of coercion that might otherwise be present in a one-stage bid process. Amendments Now Proposed The Rights Plan was adopted on 14 December 1989 and has been amended subsequently, the last amendment being made on 27 April 1995. The following are the highlights of the amendments which will be proposed to be made to the Rights Plan at the Meeting: - - the Rights Plan will terminate on 1 May 2008, - - the Rights Plan must be reconfirmed by the Shareholders at the annual meetings of the Shareholders in each of the years 2002 and 2005, - - the definition of "Beneficial Owner" will be modified to exclude a person holding voting rights over Shares, - - certain residual discretion of the Board will be removed, and - - a Permitted Bid must remain open for 60 calendar days instead of 75 calendar days. Prior to the Meeting, Alcan may propose further amendments to the Plan Agreement which the Board may in good faith deem necessary or desirable. Alcan will issue a press release relating to any significant amendment so proposed and will advise the Shareholders of any such amendment at the Meeting. Summary of the Rights Plan (including the amendments now proposed) References in italics to Sections below are to Sections of the Plan Agreement, the text of which is set out in Schedule B hereto. Pursuant to the Plan Agreement, one right ("Right") to purchase additional securities, subject to the terms and conditions of the Plan Agreement, has been issued for each Share outstanding and Rights will likewise be issued in respect of Shares issued in the future until the Separation Time (as defined below) or until the termination of the Rights Plan. The Rights are not exercisable until the Separation Time. (Section 2.01) Until the Separation Time (or earlier termination or expiration of the Rights), the Rights are evidenced by the certificates for the Shares to which the Rights attach. The Rights are transferred with, and only with, the associated Shares. Furthermore, until such time, Share certificates issued will contain a notation incorporating the Plan Agreement by reference. (Section 2.01) The Rights will separate and trade independently of the Shares after the Separation Time. (Section 2.01) 27 30 Promptly following the Separation Time, separate certificates evidencing the Rights ("Rights Certificates") will be given to holders of record of Shares as of the close of business at the Separation Time and such separate Rights Certificates alone will evidence the Rights. (Section 2.01) The Separation Time is the close of business on the tenth business day after either the first date that a person has acquired beneficial ownership of 20% or more of the Shares, or the date of commencement or announcement of a Take-Over Bid. (Section 1.01) The Exercise Price and the number of Rights outstanding are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Shares, (ii) upon the grant to Shareholders of certain rights or warrants to subscribe for the Shares or convertible securities at less than the current market price of the Shares, or (iii) upon distribution to Shareholders of evidences of indebtedness or assets (excluding Regular Periodic Cash Dividends as defined in the Plan Agreement) or of rights or warrants (other than those referred to above). (Section 2.03) A Flip-In Event occurs when a Person becomes an Acquiring Person. (Section 1.01) Upon the occurrence of a Flip-In Event, each Right (except for Rights beneficially owned by an Acquiring Person or a person acting in concert with an Acquiring Person or certain transferees of an Acquiring Person, which Rights shall be void) shall constitute the right to receive, upon the exercise thereof at the then current Exercise Price of the Right, Shares having an aggregate Market Price on the date of occurrence of such Flip-In Event equal to twice the Exercise Price. For example, if at the time of the Flip-In Event, the Exercise Price is $200 and the Shares have a Market Price of $50, the holder of each Right will be entitled to receive $400 in market value of the Shares (8 Shares) for $200, i.e. at a 50% discount. (Section 3.01) The Board of Directors may, upon notice delivered to the Rights Agent, determine to waive the application of the provisions of the Flip-In Event section of the Plan Agreement to a particular Flip-In Event or any particular acquisition or other transaction or event that would, but for the waiver, constitute or result in a Flip-In Event, provided that such waiver shall automatically constitute a waiver of the application of such provisions to all contemporaneous Flip-In Events. (Section 5.01) At every third annual meeting following the Meeting, the Board of Directors shall submit a resolution to the Shareholders for approval ratifying the continued existence of the Rights Plan. If a majority of the votes cast on such a resolution is against the continued existence of the Rights Plan, then the Plan Agreement, the Rights Plan and any outstanding Rights shall be of no further force or effect. (Section 5.16) Any Person who makes a take-over bid in compliance with the provisions of a Permitted Bid will not become an Acquiring Person (Section 1.01). The requirements of a Permitted Bid (Section 6.01) include the following: - - the bid, which may be for all or part of the Shares of a particular class, must be made to all holders thereof, - - the bid must remain outstanding for a minimum period of 60 calendar days after which period the Shares may be taken up and paid for only if more than 50% of the Shares held by Independent Shareholders (as defined in the Plan Agreement) have been tendered and not withdrawn, and - - if more than 50% of the Shares held by Independent Shareholders have been tendered and not withdrawn at the end of the above-mentioned 60-day period, the bid must remain open for an additional 10 business days. A competing Permitted Bid may proceed contemporaneously provided it expires no earlier than the initial Permitted Bid and is outstanding for a minimum period of 21 calendar days. (Section 6.02) The Company may from time to time supplement or amend the Plan Agreement with the approval of the Rights Agent but without the consent of the holders of the Rights or the holders of the Shares in order to correct a clerical or typographical error or in order to maintain the validity of the Plan Agreement as a result of a change in applicable legislation or regulation, provided that such latter change is subsequently approved by the holders of the Shares or the holders of the Rights, as applicable. (Section 5.04) 28 31 Until a Right is exercised, the holder thereof, as such, will have no rights as a Shareholder including, without limitation, the right to vote or to receive dividends. (Section 5.07) Tax Consequences For Canadian federal income tax purposes, Alcan has not had any income as a result of the issuance of the Rights. Under the Income Tax Act (Canada) (the "Act"), the issuance of the Rights may be a taxable benefit which must be included in the income of the recipient. However, no amount must be included in the income of the recipient if the Rights do not have a monetary value at the date of issue. Alcan views the Rights as currently having negligible monetary value. A holder of Rights may have income or be subject to withholding tax under the Act if the Rights become exercisable, are exercised or are otherwise disposed of. This statement does not address the Canadian income tax consequences of other events, e.g., separation of the Rights from Shares, a Flip-In Event, lapse of Alcan's right to redeem the Rights and redemption of the Rights. For United States federal income tax purposes, the adoption and approval of the resolution amending and restating the Rights Plan should not be a taxable transaction to the Shareholders. The United States federal income tax consequences of other events in connection with the Rights Plan, e.g., separation of the Rights from the Shares, a Flip-In Event, lapse of Alcan's right to redeem the Rights, redemption of the Rights and exercise of the Rights, are uncertain. The tax consequences, including the likelihood that an event will be a taxable transaction (which, in certain cases, is probable) or, if taxable, whether it is a distribution or a sale or exchange of a Right, can vary depending on the facts and circumstances at the time of the event. Shareholders should consult their own tax advisors regarding the consequences of approval of the resolution and of receiving, holding, exercising, exchanging or otherwise disposing of the Rights. APPROVAL OF BOARD OF DIRECTORS The Board of Directors has approved the contents of this Management Proxy Circular and its issue to Shareholders. (Signature) P.K. Pal Vice President, Chief Legal Officer and Secretary 29 32 SCHEDULE A AMENDMENT AND RESTATEMENT OF THE SHAREHOLDER RIGHTS PLAN THAT, the Shareholder Rights Plan as amended and restated in its entirety in Schedule B of the Management Proxy Circular dated 3 March 1999, which reproduces the entire Shareholder Rights Agreement between the Company and CIBC Mellon Trust Company (successor to The Royal Trust Company), be and is hereby approved. ------------------------------------ 30 33 SCHEDULE B SHAREHOLDER RIGHTS AGREEMENT
PAGE ---- ARTICLE 1 -- INTERPRETATION 1.01 Definitions............................................ 32 1.02 Headings............................................... 39 1.03 Extended Meanings...................................... 40 1.04 Currency............................................... 40 1.05 Schedule............................................... 40 1.06 Language Clause........................................ 40 1.07 Acting Jointly or in Concert........................... 40 1.08 As Now Enacted......................................... 40 ARTICLE 2 -- THE RIGHTS 2.01 Initial Exercise Price, Exercise of Rights and Detachment of Rights...................................... 40 2.02 Legend on Common Share Certificates.................... 42 2.03 Adjustments............................................ 43 2.04 Date on Which Exercise is Effective.................... 46 2.05 Execution, Authentication, Delivery and Dating of Rights Certificates....................................... 46 2.06 Registration of Rights................................. 46 2.07 Mutilated, Destroyed, Lost and Stolen Rights Certificates.............................................. 47 2.08 Persons Deemed Owners.................................. 47 2.09 Delivery and Cancellation of Certificates.............. 48 2.10 Agreement of Rights Holders............................ 48 ARTICLE 3 -- EFFECT OF CERTAIN TRANSACTIONS 3.01 Flip-In Event.......................................... 48 ARTICLE 4 -- THE RIGHTS AGENT 4.01 General................................................ 49 4.02 Merger or Consolidation or Change of Name of the Rights Agent..................................................... 50 4.03 Entitlements of the Rights Agent....................... 50 4.04 Change of the Rights Agent............................. 52 ARTICLE 5 -- MISCELLANEOUS 5.01 Redemption, Waiver and Termination..................... 52 5.02 Expiration............................................. 53 5.03 Issuance of New Rights Certificates.................... 53 5.04 Supplements and Amendments............................. 53 5.05 Fractional Rights and Fractional Shares................ 54 5.06 Rights of Action....................................... 55 5.07 Holder of Rights Not Deemed to be a Shareholder........ 55 5.08 Notices................................................ 55 5.09 Costs of Enforcement................................... 56 5.10 Benefit of the Agreement............................... 56 5.11 Governing Law.......................................... 56 5.12 Counterparts........................................... 56 5.13 Severability........................................... 56 5.14 Determinations and Actions by the Board................ 57 5.15 Effective Date......................................... 57 5.16 Re-confirmation after Three Years...................... 57 5.17 Regulatory Approvals................................... 57 5.18 Declaration as to Non-Canadian Holders................. 57 ARTICLE 6 -- PERMITTED BIDS 6.01 Permitted Bids......................................... 58 6.02 Competing Permitted Bids............................... 58 Schedule 1.................................................. 60
31 34 SHAREHOLDER RIGHTS AGREEMENT THIS AGREEMENT made as of 14 December 1989, amended on 8 February 1990 and 5 March 1990, approved by the Shareholders on 26 April 1990, further amended and restated on 2 March 1995 and 24 April 1995, reconfirmed by the Shareholders on 27 April 1995 and amended and restated on 22 April 1999 B E T W E E N: ALCAN ALUMINIUM LIMITED, a corporation incorporated under the laws of Canada (hereinafter referred to as the "Corporation"), OF THE FIRST PART, A N D: CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada (hereinafter referred to as the "Rights Agent"), OF THE SECOND PART WITNESSES that: WHEREAS the Board has determined that it is advisable for the Corporation to adopt and maintain a shareholder rights plan inter alia in order to (i) provide a framework in which Take-Over Bids for the Corporation can be made for the Voting Shares of the Corporation including providing the Board with sufficient time to explore and develop alternatives, (ii) facilitate the maximization of shareholder values if a substantial portion of the Voting Shares is to be acquired by any Person, and (iii) protect the Corporation and its shareholders from abusive acquisition tactics or acquisitions which may not be in the best interests of the Corporation; AND WHEREAS it is not the intention of the Board to adopt the Rights Plan as a means of preventing or deterring any Person from seeking to acquire the Voting Shares, provided they do so fairly, or of foreclosing the ability of the Board to take any action that in its discretion it considers reasonable in the circumstances of any such transaction; AND WHEREAS, in order to implement the Rights Plan, the Board authorized and declared a distribution of one Right effective 8:15 p.m. (Eastern Standard Time) 14 December 1989 ("Record Time") in respect of each Common Share outstanding as at the Record Time and has authorized the issuance of one Right in respect of each Common Share issued after such date and prior to the earlier of the Separation Time and the Expiration Time; AND WHEREAS each Right entitles the holder thereof, after the Separation Time but prior to the Expiration Time, to purchase securities of the Corporation pursuant to the terms and subject to the conditions set forth herein; AND WHEREAS the Corporation desires to appoint the Rights Agent to act on behalf of the Corporation in connection with the issuance, transfer, exchange and replacement of Rights Certificates, the exercise of the Rights and the other matters relating to the Corporation referred to herein and to act as the trustee for the holders of the Rights in connection with the promise of the Corporation herein to issue Rights Certificates to the Rights Agent for distribution to the holders of Common Shares after the Separation Time, and the Rights Agent is willing to so act; NOW THEREFORE in consideration of the premises and the agreements herein contained the parties hereto agree as follows: ARTICLE 1 -- INTERPRETATION 1.01 DEFINITIONS For purposes of this Agreement, the following terms have the meanings indicated: 32 35 (a) "Agreement" means this agreement and all amendments made hereto by written agreement between the Corporation and the Rights Agent. (b) "Acquiring Person" means any Person (other than the Corporation or any Subsidiary of the Corporation) who is a Beneficial Owner of 20% or more of the outstanding Voting Shares. Notwithstanding the foregoing, no Person shall become an "Acquiring Person" (i) (A) as a result of the purchase, redemption or other acquisition of Voting Shares by the Corporation which, by reducing the number of Voting Shares then outstanding, increases the proportionate number of shares Beneficially Owned by such Person to 20% or more of the Voting Shares then outstanding; (B) as a result of share acquisitions made pursuant to a Permitted Bid or Competing Permitted Bid; (C) as a result of share acquisitions made pursuant to a Permitted Acquisition; (D) as a result of an Exempt Acquisition; or (E) as a result of a Convertible Security Acquisition; provided, however, that if a Person becomes the Beneficial Owner of 20% or more of the Voting Shares then outstanding as a result of a purchase, redemption or other acquisition of Voting Shares by the Corporation as provided for in clause (A) above, or as a result of a Permitted Bid or Competing Permitted Bid as provided for in clause (B) above, or as a result of a Permitted Acquisition as provided for in clause (C) above, or as a result of the waiver of the application of Section 3.01 pursuant to Section 5.01(2) as provided for in clause (D) above, or as a result of a Convertible Security Acquisition as provided for in clause (E) above, or as a result of any combination of acquisitions referred to in clauses (A) to (E) above, and after such acquisition or acquisitions such Person becomes the Beneficial Owner of more than an additional 1% of the Voting Shares then outstanding other than pursuant to clauses (A), (B), (C), (D) or (E) above or any combination thereof, such Person shall thereupon immediately be deemed to be an "Acquiring Person"; (ii) as a result of such person (a "Grandfathered Person") being the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation determined as at the Record Time provided, however, that this exception shall not be, and shall cease to be, applicable to such Grandfathered Person in the event that such Grandfathered Person shall, after the Record Time, become the Beneficial Owner of any additional Voting Shares of the Corporation that increase its Beneficial Ownership of Voting Shares by more than 1% of the number of Voting Shares outstanding as at the Record Time, other than as a result of a Permitted Bid, a Competing Permitted Bid, a Permitted Acquisition or any Take-Over Bid in respect of which a waiver is, or is deemed to have been, granted under Section 5.01(2); (iii) for a period of ten calendar days after the Disqualification Date (as defined below), where such Person becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of such Person becoming disqualified from relying on Section 1.01(e)(v) solely because such Person or the Beneficial Owner of such Voting Shares is making or has announced an intention to make a Take-Over Bid, either alone or by acting jointly or in concert with any other Person. For the purposes of this definition, "Disqualification Date" means the first date of public announcement that any Person is making or has announced an intention to make a Take-Over Bid; (iv) being an underwriter or member of a banking or selling group that becomes the Beneficial Owner of 20% or more of the Voting Shares in connection with a distribution of securities of the Corporation. (c) "Affiliate" when used to indicate a relationship with a specified Person, shall mean a Person that controls, or is controlled by, or is under common control with, such specified Person. 33 36 (d) "Associate" means, when used to indicate a relationship with a specified Person, a spouse of that Person or any Person with whom that Person is living in a conjugal relationship outside marriage or a child of that Person or a relative of that Person who has the same residence as that Person. (e) A Person shall be deemed to be the "Beneficial Owner" of and to have "Beneficial Ownership" of and to "Beneficially Own" any securities which: (i) such Person or any of such Person's Affiliates or Associates owns at law or in equity; (ii) such Person or any of such Person's Affiliates or Associates has the right to become the owner of at law or in equity (whether such right is exercisable immediately or within a period of 60 calendar days thereafter and whether or not on condition or on the happening of any contingency), (A) upon the exercise of any Convertible Securities or (B) pursuant to any agreement, arrangement, pledge or understanding, whether or not in writing, (other than (x) customary agreements with and between underwriters and/or banking group members and/or selling group members with respect to a public offering or private placement of securities and (y) pledges of securities in the ordinary course of business) or upon the exercise of any conversion right, exchange right, share purchase right (other than the Rights), warrant or option; or (iii) without limiting the generality of the foregoing, are beneficially owned within the meaning of paragraphs (i) and (ii) of this definition by any other Person with which such Person is acting jointly or in concert; provided, however, that a Person shall not be deemed to be the "Beneficial Owner" of or to have "Beneficial Ownership" of or to "Beneficially Own" any security: (iv) where such security has been, or has agreed to be, deposited or tendered pursuant to a Lock-up Agreement, or is otherwise deposited or tendered, to any Take-Over Bid made by such Person or by any of such Person's Affiliates or Associates or made by any Person acting jointly or in concert with such Person until such deposited or tendered security has been taken up and paid for, whichever shall first occur; (v) where such Person, any of such Person's Affiliates or Associates or any other Person acting jointly or in concert with such Person holds such security provided that: (A) the ordinary business of any such Person (the "Investment Manager") includes the management of investment funds for others (which others, for greater certainty, may include or be limited to one or more employee benefit plans or pension plans) and such security is held by the Investment Manager in the ordinary course of such business in the performance of such Investment Manager's duties for the account of any other Person (a "Client"); (B) such Person (the "Trust Company") is licensed to carry on the business of a trust company under applicable laws and, as such, acts as trustee or administrator or in a similar capacity in relation to the estates of deceased or incompetent Persons (each an "Estate Account") or in relation to other accounts (each an "Other Account") and holds such security in the ordinary course of such duties for the estate of any such deceased or incompetent Person or for such other accounts; (C) such Person is established by statute for purposes that include, and the ordinary business or activity of such Person (the "Statutory Body") includes, the management of investment funds for employee benefit plans, pension plans, insurance plans or various public bodies; (D) such Person (the "Administrator") is the administrator or trustee of one or more pension funds or plans (a "Plan"), or is a Plan, registered under the laws of Canada or any Province thereof or the laws of the United States of America or any State thereof; provided, in any of the above cases, that the Investment Manager, the Trust Company, the Statutory Body, the Administrator or the Plan, as the case may be, is not then making a Take-Over Bid or has not then announced an intention to make a Take-over Bid alone or 34 37 acting jointly or in concert with any other Person, other than an Offer to Acquire Voting Shares or other securities (x) pursuant to a distribution by the Corporation (y) by means of a Permitted Bid or (z) by means of ordinary market transactions (including prearranged trades entered into in the ordinary course of business of such Person) executed through the facilities of a stock exchange or organized over-the-counter market; (vi) where such Person is: (A) a Client of the same Investment Manager as another Person on whose account the Investment Manager holds such security, (B) an Estate Account or an Other Account of the same Trust Company as another Person on whose account the Trust Company holds such security, or (C) a Plan with the same Administrator as another Plan on whose account the Administrator holds such security; (vii) where such Person is: (A) a Client of an Investment Manager and such security is owned at law or in equity by the Investment Manger, (B) an Estate Account or an Other Account of a Trust Company and such security is owned at law or in equity by the Trust Company, or (C) a Plan and such security is owned at law or in equity by the Administrator of the Plan; or (viii) where such Person is a registered holder of such security as a result of carrying on the business of, or acting as a nominee of, a securities depositary. For the purposes of this Agreement, in determining the percentage of the outstanding Voting Shares with respect to which a Person is the Beneficial Owner, all Voting Shares of which such Person is or is deemed to be the Beneficial Owner shall be deemed to be outstanding. (f) "Board" means the board of directors of the Corporation. (g) "Business Day" means any day, other than a Saturday or Sunday, on which banks are generally open for business in the City of Montreal. (h) "Canadian-U.S. Exchange Rate" means, on any date, the inverse of the U.S.-Canadian Exchange Rate in effect on such date. (i) "Canadian Dollar Equivalent" of any amount which is expressed in United States dollars means, on any date, the Canadian dollar equivalent of such amount determined by multiplying such amount by the U.S.-Canadian Exchange Rate in effect on such date. (j) "close of business" means, with respect to any date, the time on such date at which the offices of the Rights Agent in the City of Montreal are, after having been open to the public for business, closed to the public. (k) "Common Shares", when used with reference to the Corporation, means the common shares in the capital of the Corporation and, when used with reference to any Person other than the Corporation, means the class of shares in the capital of such other Person with the greatest voting power per share. (l) "Competing Permitted Bid" has the meaning set out in Section 6.02. (m) "controlled": a corporation is "controlled" by another Person if: (i) securities entitled to vote in the election of directors carrying more than 50% of the votes for the election of directors are held, directly or indirectly, by or on behalf of the other person; and (ii) the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of such corporation; and "controls", "controlling" and "under common control with" shall be interpreted accordingly. 35 38 (n) "Convertible Securities" means at any time: (i) any right (contractual or otherwise and regardless of whether such right constitutes a security) to acquire Voting Shares from the Corporation; and (ii) any securities issued by the Corporation from time to time (other than a Right) carrying any exercise, conversion or exchange right; which is then exercisable or exercisable within a period of 60 calendar days from that time, pursuant to which the holder thereof may acquire Voting Shares or other securities which are convertible into, exercisable or exchangeable for Voting Shares (in each case, whether such right is then exercisable or exercisable within a period of 60 calendar days from that time and whether or not on condition or the happening of any contingency). (o) "Convertible Security Acquisition" means the acquisition of Voting Shares upon the exercise of a Convertible Security received by a Person pursuant to a Permitted Acquisition. (p) "Dividend Reinvestment Acquisition" shall mean an acquisition of Voting Shares of any class pursuant to a Dividend Reinvestment Plan. (q) "Dividend Reinvestment Plan" means a regular dividend reinvestment or other plan of the Corporation made available by the Corporation to holders of its securities where such plan permits the holder to direct that some or all of: (i) dividends paid in respect of shares of any class of the Corporation; (ii) proceeds of redemption of shares of the Corporation; (iii) interest paid on evidences of indebtedness of the Corporation; or (iv) optional cash payments; be applied to the purchase from the Corporation of Voting Shares. (r) "Election to Exercise" has the meaning set out in Section 2.01(4). (s) "Exempt Acquisition" means a share acquisition in respect of which the Board has waived the application of Section 3.01 pursuant to the provisions of Sections 5.01(2). (t) "Exercise Price" means, as of any date, the price at which a holder may purchase the securities issuable upon the exercise of one Right which, until the adjustment thereof in accordance with the provisions hereof, shall equal $200. (u) "Expansion Factor" has the meaning set out in Section 2.03(2)(e). (v) "Expiration Time" means the earlier of: (i) the Termination Time, or (ii) subject to Sections 5.15 and 5.16, the close of business on May 1, 2008 . (w) "Flip-In Event" means a transaction or event in which any Person becomes an Acquiring Person. (x) "holder" has the meaning set out in Section 2.08. (y) "Independent Shareholders" means holders of Voting Shares, but shall not include any Acquiring Person or any Offeror (including an Offeror who is making a Permitted Bid or Competing Permitted Bid) other than any Person who by virtue of Section 1.01 (e) (v) is not deemed to Beneficially Own the Voting Shares held by such Person, any Affiliate or Associate of any such Acquiring Person or Offeror or any Person acting jointly or in concert with such Acquiring Person or Offeror, or Persons with rights or powers under any employee stock ownership plans, benefit plans, deferred profit sharing and any other similar plan or trust for the benefit of employees of the Corporation or a Subsidiary of the Corporation, unless the beneficiaries of such plan or trust direct the manner in which such Voting Shares are to be voted or direct whether the Voting Shares are to be tendered to a Take-Over Bid. (z) "Lock-up Agreement" means an agreement between an Offeror, any of its Affiliates or Associates or any other Person acting jointly or in concert with the Offeror and a Person (the "Locked-up 36 39 Person") who is not an Affiliate or Associate of the Offeror or a Person acting jointly or in concert with the Offeror whereby the Locked-up Person agrees to deposit or tender the Voting Shares held by the Locked-up Person to the Offeror's Take-Over Bid or to any Take-Over Bid made by any of the Offeror's Affiliates or Associates or made by any other Person acting jointly or in concert with the Offeror, where the agreement permits the Locked-up Person to withdraw the Voting Shares from the agreement in order to tender or deposit the Voting Shares to another Take-Over Bid that contains an offering price for each Voting Share that is at least 5% higher than the offering price contained in or proposed to be contained in the Take-Over Bid that the Locked-up Person has agreed to deposit or tender Voting Shares pursuant to the Lock-up Agreement. (aa) "Market Price" per share of any securities on any date of determination shall mean the average of the daily Closing Prices Per Share of such securities (determined as described below) on each of the 20 consecutive Trading Days through and including the Trading Day immediately preceding such date; provided, however, that if an event of a type analogous to any of the events described in Section 2.03 hereof shall have caused the closing prices used to determine the Market Price on any Trading Day not to be fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day, each such closing price so used shall be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.03 hereof in order to make it fully comparable with the closing price on such date of determination or, if the date of determination is not a Trading Day, on the immediately preceding Trading Day. The "Closing Price Per Share" of any securities on any date shall be: (i) the closing board lot sale price or, if such price is not available, the average of the closing bid and asked prices, for each share as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on The Toronto Stock Exchange, or if not so listed or admitted to trading, The Montreal Exchange; (ii) if the securities are not listed or admitted to trading on The Toronto Stock Exchange or The Montreal Exchange, the last sale price, regular way, or, in the case no such sale takes place on such date, the average of the closing bid and asked prices, regular way, for each share of such securities as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange; (iii) if for any reason none of such prices is available on such day or the securities are not listed or admitted to trading on any of The Toronto Stock Exchange, The Montreal Exchange or the New York Stock Exchange, the average of the high bid and low asked prices for each share of such securities in the over-the-counter market if such high bid and low asked prices are regularly published in a newspaper or business or financial publication of regular or paid circulation; or (iv) if on any such date the securities are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the securities; provided, however, that if on any such date the securities are not traded in the over-the-counter market, the closing price per share of such securities on such date shall mean the fair value per share of securities on such date as determined by a nationally or internationally recognized Canadian investment dealer (or investment banker) with respect to the fair value per share of such securities. The Market Price shall be expressed in United States dollars and if initially determined in respect of any day forming part of the 20 consecutive Trading Day period in question in Canadian dollars, such amount shall be translated into United States dollars at the U.S. Dollar Equivalent thereof on the relevant Trading Day. (bb) "Offer to Acquire" includes: (i) an offer to purchase, or a solicitation of an offer to sell, Voting Shares, and (ii) an acceptance of an offer to sell Voting Shares, whether or not such offer to sell has been solicited, 37 40 or any combination thereof, and the Person accepting an offer to sell shall be deemed to be making an Offer to Acquire to the Person that made the offer to sell. (cc) "Offeror" means any Person who has announced an intention to make or who is making, but has not completed, a Take-Over Bid (including a Permitted Bid or a Competing Bid) but only so long as the Take-Over Bid so made or announced has not been withdrawn or terminated or has not expired. (dd) "Offeror's Securities" means Voting Shares Beneficially Owned on the date of an Offer to Acquire by an Offeror. (ee) "Permitted Acquisition" means an acquisition by a Person of Voting Shares pursuant to: (i) a Dividend Reinvestment Acquisition; (ii) a stock dividend, stock split or other event in respect of securities of the Corporation of one or more particular classes or series pursuant to which such Person becomes the Beneficial Owner of Voting Shares on the same pro rata basis as all other holders of securities of the particular class, classes or series; (iii) the acquisition or the exercise by the Person of only those rights to purchase Voting Shares distributed to that Person in the course of a distribution to all holders of securities of the Corporation of one or more particular classes or series pursuant to a rights offering or rights offering prospectus; or (iv) a distribution by the Corporation of Voting Shares or Convertible Securities (and the conversion or exchange of such), made pursuant to a prospectus or by way of a private placement, provided that the Person does not thereby acquire a greater percentage of such Voting Shares, or securities convertible into or exchangeable for Voting Shares, so offered than the Person's percentage of Voting Shares Beneficially Owned immediately prior to such acquisition. (ff) "Permitted Bid" has the meaning set out in Section 6.01. (gg) "Person" includes any individual, partnership, association, body corporate, unincorporated syndicate, unincorporated organization, trust, trustee, executor, administrator or other legal representative or entity and any successor thereto. (hh) "Record Time" has the meaning ascribed to that term in the third recital hereto. (ii) "Regular Periodic Cash Dividend" means cash dividends declared payable on the Common Shares of the Corporation and paid at regular intervals in any fiscal year of the Corporation to the extent that such cash dividends do not in any fiscal year exceed, in the aggregate, the greatest of: (i) 200% of the aggregate amount of cash dividends declared payable by the Corporation on its Common Shares in its immediately preceding fiscal year, (ii) 300% of the average of the aggregate amounts of cash dividends declared payable by the Corporation on its Common Shares in its three immediately preceding fiscal years, and (iii) 100% of the aggregate consolidated net income of the Corporation, before extraordinary items, for its immediately preceding fiscal year. (jj) "Right" means the right of each holder of Common Shares to purchase additional securities upon and subject to the terms and conditions hereof. (kk) "Rights Agent" means CIBC Mellon Trust Company or any successor thereto appointed pursuant to Section 4.04. (ll) "Rights Certificate" has the meaning set out in Section 2.01(3)(c). (mm) "Rights Plan" means the shareholder rights plan established hereby. (nn) "Rights Register" has the meaning set out in Section 2.06(1). (oo) "Rights Registrar" has the meaning set out in Section 2.06(1). (pp) "Separation Time" means the close of business on the tenth Business Day after the earliest of: 38 41 (i) the Stock Acquisition Date; (ii) the date of the commencement of, or the first public announcement of the intent of any Person (other than a Person making a Permitted Bid or Competing Permitted Bid or the Corporation or any Subsidiary of the Corporation) to commence a Take-Over Bid (other than a Permitted Bid or a Competing Permitted Bid, as the case may be); and (iii) the date on which a Permitted Bid or Competing Bid ceases to qualify as such or on such later day as the Board shall determine acting in good faith; provided that, if any such Take-Over Bid expires, is cancelled, terminated or otherwise withdrawn prior to the Separation Time, such Take-Over Bid shall be deemed, for the purposes of this definition, never to have been made. (qq) "Stock Acquisition Date" means the first date of public announcement by the Corporation or an Acquiring Person that an Acquiring Person has become such. (rr) "Subsidiary": a corporation shall be a Subsidiary of another corporation if: (i) it is controlled by: (A) that other, or (B) that other and one or more corporations each of which is controlled by that other, or (C) two or more corporations each of which is controlled by that other, or (ii) it is a Subsidiary of a corporation that is that other's Subsidiary. (ss) "Take-Over Bid" means an Offer to Acquire Voting Shares where the Voting Shares subject to the Offer to Acquire, together with the Offeror's Securities, constitute in the aggregate 20% or more of the outstanding Voting Shares at the date of the Offer to Acquire. (tt) "Termination Time" means the time at which the right to exercise the Rights shall terminate pursuant to Section 5.01 hereof. (uu) "Trading Day", when used with respect to any securities, shall mean a day on which the principal securities exchange in Canada or the United States of America on which such securities are listed or admitted to trading is open for the transaction of business or, if the securities are not listed or admitted to trading on any securities exchange in Canada or the United States of America, a Business Day. (vv) "U.S.-Canadian Exchange Rate" means, on any date: (i) if on such date the Bank of Canada sets a noon spot rate of exchange for the conversion of United States dollars into Canadian dollars, such rate, or (ii) in any other case, the rate for the conversion of United States dollars into Canadian dollars as determined by the Board acting in good faith. (ww) "U.S. Dollar Equivalent" of any amount which is expressed in Canadian dollars means, on any date, the United States dollar equivalent of such amount determined by multiplying such amount by the Canadian-U.S. Exchange Rate in effect on such date. (xx) "Voting Shares" means the Common Shares of the Corporation and any other shares in the capital of the Corporation entitled to vote generally in the election of directors. 1.02 HEADINGS The division of this Agreement into Articles and Sections and the insertion of headings and a table of contents are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement supplemental hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Agreement. 39 42 1.03 EXTENDED MEANINGS In this Agreement words importing the singular number only shall include the plural and vice versa and words importing the masculine shall include the feminine gender and vice versa. 1.04 CURRENCY All references to currency herein are to lawful money of the United States of America unless otherwise specified. 1.05 SCHEDULE The form of the Rights Certificate is annexed hereto as Schedule 1 and incorporated by reference and deemed to be a part hereof. 1.06 LANGUAGE CLAUSE Les parties aux presentes ont exige que la presente convention ainsi que tous les documents et avis qui s'y rattachent et/ou qui en decouleront soient rediges en langue anglaise. The parties hereto have required that this Agreement and all documents and notices related thereto or resulting therefrom be drawn up in English. 1.07 ACTING JOINTLY OR IN CONCERT For purposes of this Agreement, a Person is acting jointly or in concert with every Person who is a party to any agreement, commitment or understanding, whether formal or informal, with the first Person or any Associate or Affiliate thereof for the purpose of acquiring or offering to acquire Voting Shares (other than customary agreements with and between underwriters and/or banking group members and/or selling group members with respect to a public offering or private placement of securities or pledges of securities in the ordinary course of business). 1.08 AS NOW ENACTED For the purposes of this Agreement, references to statutes, as now enacted, shall mean as in force and effect on April 22, 1999. ARTICLE 2 -- THE RIGHTS 2.01 INITIAL EXERCISE PRICE, EXERCISE OF RIGHTS AND DETACHMENT OF RIGHTS (1) Subject to the provisions hereof including, without limiting the generality of the foregoing, Section 2.03, each Common Share now or, until the earlier of the Separation Time and the Expiration Time, hereafter issued shall have one Right associated therewith. Subject to the provisions hereof and subject to adjustment as herein set forth, each Right shall entitle the holder thereof, after the Separation Time, to purchase one Common Share for the Exercise Price or its Canadian Dollar Equivalent. Notwithstanding any other provision of this Agreement, any Rights held by the Corporation or by any of its Subsidiaries or Beneficially Owned by an Acquiring Person shall be void. (2) Until the Separation Time: (a) no Right shall be exercisable and no Right may be exercised, (b) each Right shall be evidenced by the certificate for the associated Common Share, and (c) each Right shall be transferable only together with, and shall be transferred by a transfer of, such associated Common Share. (3) After the Separation Time but prior to the Expiration Time the Rights: (a) may be exercised in accordance with the provisions hereof, and (b) shall be transferable independently of the Common Shares. Promptly following the Separation Time the Corporation will prepare and the Rights Agent shall give to each holder of Common Shares of record as of the Separation Time (other than an 40 43 Acquiring Person and, in respect of any Rights Beneficially Owned by such Acquiring Person which are not held of record by such Acquiring Person, the holder of record of such Rights (a "Nominee")), (c) a certificate (a "Rights Certificate") substantially in the form annexed hereto as Schedule 1 appropriately completed, representing the number of Rights held by such holder as at the Separation Time and having such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or quotation system on which the Rights may from time to time be listed or traded, or to conform to usage, and (d) a disclosure statement describing the Rights. (4) Rights may be exercised on any Business Day after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent the Rights Certificate evidencing such Rights with an election to exercise such Rights (an "Election to Exercise") substantially in the form attached to the Rights Certificate duly completed and accompanied by payment by certified cheque or money order payable to the order of the Corporation of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum sufficient to cover any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being exercised. (5) Upon receipt of a Rights Certificate together with a duly completed Election to Exercise and the payments provided for in Section 2.01(4), the Rights Agent (unless otherwise instructed by the Corporation in the event that the Corporation is of the opinion that the Rights cannot be exercised in accordance with this Agreement) shall thereupon promptly: (a) requisition from the Corporation or its transfer agent for Common Shares, certificates for the number of Common Shares to be purchased; (b) after receipt of such Common Share certificates, remit the payments provided for in Section 2.01(4) to the Corporation and deliver the share certificates to or to the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder; (c) when appropriate, requisition from the Corporation the amount of cash to be paid in lieu of issuing fractional Common Shares; and (d) tender to the Corporation all payments received on exercise of the Rights. (6) If the holder of any Rights exercises less than all the Rights evidenced by such holder's Rights Certificate, a new Rights Certificate evidencing the remaining unexercised Rights shall be issued by the Rights Agent to such holder or to such holder's duly authorized assigns. (7) The Corporation shall: (a) promptly deliver the share certificates requisitioned by the Rights Agent pursuant to Section 2.01(5)(a) to the Rights Agent; (b) take all such action as may be necessary and reasonably within its power to ensure that all Common Shares delivered upon the exercise of the Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Exercise Price), be duly and validly authorized, executed, issued and delivered as fully paid and non-assessable shares; (c) take all such action as may be necessary and reasonably within its power to comply with the applicable requirements of securities laws in Canada and the United States of America in connection with the issuance and delivery of the Rights Certificates and the issuance of Common Shares upon the exercise of the Rights; 41 44 (d) use reasonable efforts to cause all Common Shares issued upon the exercise of the Rights to be listed upon issuance on The Montreal Exchange, The Toronto Stock Exchange, the New York Stock Exchange and such other exchanges, if any, that the Corporation determines are appropriate; (e) cause to be reserved and kept available out of the authorized and unissued Common Shares, the number of Common Shares that, as provided in this Agreement, will from time to time be sufficient to permit the exercise in full of all outstanding Rights; (f) pay when due and payable any and all federal, provincial and state transfer taxes of Canada and the United States of America (except, for greater certainty, any income taxes of the holder or exercising holder or any liability of the Corporation to withhold tax) and charges which may be payable in respect of the original issuance or delivery of the Rights Certificates, provided that the Corporation shall not be required to pay any transfer tax or charge which may be payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or the issuance or delivery of certificates for Common Shares in a name other than that of the holder of the Rights being transferred or exercised; and (g) after the Separation Time, except as permitted by Section 5.01, not take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights. 2.02 LEGEND ON COMMON SHARE CERTIFICATES (1) Certificates issued for Common Shares after the Record Time but prior to the earlier of the Separation Time and the Expiration Time shall have printed on or affixed to them the following legend in, if appropriate, both the English and French languages: "Until the Separation Time (as defined in the Shareholder Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Rights Agreement made as of December 14, 1989, (the "Rights Agreement") between Alcan Aluminium Limited (the "Corporation") and The Royal Trust Company, as Rights Agent, the terms of which are incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be amended, redeemed, may expire, may become void if, in certain cases, they are "Beneficially Owned" by an "Acquiring Person" (as such terms are defined in the Rights Agreement) or a transferee thereof, or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge within five days after the receipt of a written request therefor." (2) Notwithstanding Section 2.02(1) any certificate for Common Shares issued after April 24, 1995 shall contain the following legend in, if appropriate, both the English and French languages: "Until the Separation Time (as defined in the Shareholder Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Rights Agreement made as of December 14, 1989, as amended and restated from time to time (the "Rights Agreement") between Alcan Aluminium Limited (the "Corporation") and The R-M Trust Company (successor to The Royal Trust Company), as Rights Agent (the "Rights Agent"), the terms of which are incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be amended, redeemed, may expire, may become void if, in certain circumstances, they are "Beneficially Owned" by an "Acquiring Person" 42 45 (as such terms are defined in the Rights Agreement) or a transferee thereof, or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge within five days after the receipt of a written request therefor." (3) Notwithstanding Section 2.02(1) any certificate for Common Shares issued after April 22, 1999 shall contain the following legend in, if appropriate, both the English and French languages: "Until the Separation Time (as defined in the Shareholder Rights Agreement referred to below), this certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Shareholder Rights Agreement made as of December 14, 1989, as amended and restated from time to time (the "Rights Agreement") between Alcan Aluminium Limited (the "Corporation") and CIBC Mellon Trust Company (successor to The Royal Trust Company), as Rights Agent (the "Rights Agent"), the terms of which are incorporated herein by reference and a copy of which is on file at the principal executive offices of the Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights may be amended, redeemed, may expire, may become void if, in certain circumstances, they are "Beneficially Owned" by an "Acquiring Person" (as such terms are defined in the Rights Agreement) or a transferee thereof, or may be evidenced by separate certificates and may no longer be evidenced by this certificate. The Corporation will mail or arrange for the mailing of a copy of the Rights Agreement to the holder of this certificate without charge within five days after the receipt of a written request therefor." (4) With respect to any share certificate for Common Shares which contains the legend referred to in Sections 2.02(1) or (2), from and after April 22, 1999, such legend shall be deemed to be a reference to the Shareholder Rights Agreement made as of December 14, 1989, as amended and restated from time to time thereafter. (5) Certificates representing Common Shares that are issued and outstanding at any time shall evidence one Right for each Common Share evidenced thereby notwithstanding the absence of a legend in accordance with Sections 2.02(1), (2) or (3). 2.03 ADJUSTMENTS (1) The Exercise Price, the number and kind of securities subject to purchase upon exercise of each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 2.03. (2) If the Corporation shall at any time after the Record Time but prior to the Expiration Time: (a) declare or pay a dividend on the Common Shares payable in Common Shares or Convertible Securities other than pursuant to any optional stock dividend programme, (b) subdivide or change the then outstanding Common Shares into a greater number of Common Shares, (c) combine or change the then outstanding Common Shares into a smaller number of Common Shares, or (d) issue any Common Shares or Convertible Securities in respect of, in lieu of or in exchange for existing Common Shares in a reclassification, amalgamation, arrangement or consolidation, the Exercise Price and the number of Rights outstanding or, if the payment or effective date thereof shall occur after the Separation Time, the securities purchasable upon exercise of the Rights shall be adjusted in the following manner. If the Exercise Price and the number of Rights outstanding are to be adjusted: (e) the Exercise Price in effect after such adjustment shall be equal to the Exercise Price in effect immediately prior to such adjustment divided by the number of Common Shares that a holder 43 46 of one Common Share immediately prior to such dividend, subdivision, change, combination or issuance would hold thereafter as a result thereof (such denominator being the "Expansion Factor"), and (f) each Right held prior to such adjustment shall become that number of Rights equal to the Expansion Factor and, if such adjustment is to be made prior to the Separation Time, the adjusted number of Rights shall be deemed to be distributed among the Common Shares with respect to which the original Rights were associated (if they remain outstanding) and the shares issued in respect of such dividend, subdivision, change, combination or issuance, so that each such Common Share shall have exactly one Right associated with it. If the securities purchasable upon the exercise of the Rights are to be adjusted, the securities purchasable upon the exercise of each Right after such adjustment shall be the securities that a holder of the securities purchasable upon the exercise of one Right immediately prior to such dividend, subdivision, change, combination or issuance would hold thereafter as a result thereof. If, after the Record Time but prior to the Expiration Time, the Corporation issues any securities in a transaction of a type described in the first sentence of this Section 2.03(2) which are exchangeable for or convertible into or give a right to acquire Common Shares, such securities shall be treated herein as nearly equivalent to Common Shares as may be practicable and appropriate under the circumstances and the Corporation and the Rights Agent shall amend this Agreement in order to effect such treatment; provided that no such amendment may materially adversely affect the interests of the holders of the Rights generally. In the event the Corporation shall at any time after the Record Time and prior to the Separation Time issue any Common Share otherwise than in a transaction referred to in this Section 2.03(2), each Common Share so issued shall automatically have one new Right associated with it which Right shall be evidenced by the certificate representing such Common Share. (3) If the Corporation at any time after the Record Time but prior to the Expiration Time fixes a record date for the making of a distribution to all holders of Common Shares of rights or warrants entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares (or securities convertible into or exchangeable for or carrying a right to purchase or subscribe for Common Shares) at a price per Common Share (or, if a security convertible into or exchangeable for or carrying a right to purchase or subscribe for Common Shares, having a conversion, exchange or exercise price (including the price required to be paid to purchase such convertible or exchangeable security or right per share)) less than 95% of the Market Price per Common Share on such record date, the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date plus the number of Common Shares which the aggregate offering price of the total number of Common Shares so to be offered (and/or the aggregate initial conversion, exchange or exercise price of the convertible or exchangeable securities or rights so to be offered (including the price required to be paid to purchase such convertible or exchangeable securities or rights)) would purchase at such Market Price and the denominator of which shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares to be offered for subscription or purchase (or into which the convertible or exchangeable securities or rights so to be offered are initially convertible, exchangeable or exercisable). In case such subscription price may be paid in a consideration all or part of which is in a form other than cash, the value of such consideration shall be as determined in good faith by the Board. To the extent that such rights or warrants are not exercised prior to the expiration thereof, the Exercise Price shall be readjusted to the Exercise Price that would then be in effect based on the number of Common Shares (or securities convertible into or exchangeable for Common Shares) actually issued upon the exercise of such rights. For the purposes of this Agreement, the granting of the right to purchase Common Shares (whether from treasury or otherwise) pursuant to any (i) Dividend Reinvestment Plan and/or (ii) Common Share purchase plan providing for the investment of periodic optional payments 44 47 and/or (iii) employee or executive or director benefit or similar plans (so long as such right to purchase is in no case evidenced by the delivery of rights or warrants) shall not be deemed to constitute an issue of rights or warrants by the Corporation; provided, however, that, in the case of any Dividend Reinvestment Plan or Common Share purchase plan, the right to purchase Common Shares is at a price per share not less than 90% of the then Market Price of the Common Shares. (4) If the Corporation at any time after the Record Time but prior to the Expiration Time fixes a record date for the making of a distribution to all holders of Common Shares of evidences of indebtedness or assets (other than a Regular Periodic Cash Dividend or a dividend paid in Common Shares) or rights or warrants (excluding those referred to in Section 2.03(3)), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Market Price per Common Share on such record date less the fair market value per Common Share (as determined in good faith by the Board) of the evidences of indebtedness, assets, rights or warrants to be so distributed and the denominator of which shall be the Market Price per Common Share on such record date. Such adjustments shall be made successively whenever such a record date is fixed, and in the event that such a distribution is not so made, the Exercise Price shall be adjusted to be the Exercise Price that would have been in effect if such record date had not been fixed. (5) Each adjustment made pursuant to this Section 2.03 shall be made as of: (a) the payment or effective date for the applicable dividend, subdivision, change, combination or issuance, in the case of an adjustment made pursuant to Section 2.03(2), or (b) the record date for the applicable dividend or distribution, in the case of an adjustment made pursuant to Sections 2.03(3) or (4). (6) Subject to a prior consent of the holders of Voting Shares or Rights obtained as set forth in Sections 5.04(3) or (4) as applicable, if the Corporation at any time after the Record Time but prior to the Expiration Time issues any shares in the capital of the Corporation (other than Common Shares), any rights or warrants to subscribe for or purchase any such shares, or any securities convertible into or exchangeable for any such shares and the Board, acting in good faith, determines that the adjustments contemplated by Sections 2.03(2), (3) or (4) are not applicable and the interests of the holders of the Rights will, as a result thereof, be adversely affected or, if applicable, such adjustments will not appropriately protect the interests of the holders of the Rights, the Board may determine what adjustments to the Exercise Price, number of Rights and/or securities purchasable upon exercise of the Rights would be appropriate to protect the interests of the holders of the Rights and, notwithstanding Sections 2.03(2), (3) or (4), such adjustments, rather than, if applicable, the adjustments contemplated by Sections 2.03(2), (3) or (4), shall be made and the Corporation and the Rights Agent shall amend this Agreement as appropriate to provide for such adjustments. (7) Notwithstanding anything herein to the contrary, no adjustment to the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price, provided that any adjustment which is not made as a result of the provisions of this Section 2.03(7) shall be carried forward and taken into account in any subsequent adjustment. Each adjustment to the Exercise Price made pursuant to this Section 2.03 shall be rounded upward or downward to the nearest cent. Whenever an adjustment to the Exercise Price is made pursuant to this Section 2.03, the Corporation shall promptly: (a) prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) file a copy of such certificate with the Rights Agent and each transfer agent for the Common Shares, and (c) mail a brief summary thereof to each holder of a Right. 45 48 (8) Irrespective of any adjustment or change in the securities purchasable upon exercise of the Rights, the Rights Certificates theretofore and thereafter issued shall continue to express the securities so purchasable which were expressed in the initial Rights Certificates issued hereunder. (9) Notwithstanding anything contained in this Section 2.03 to the contrary, the Corporation shall be entitled to make such reductions in the Exercise Price, in addition to those adjustments expressly required by this Section 2.03, as and to the extent that in their good faith judgment the Board shall determine to be advisable, in order that any: (a) stock dividend; (b) consolidation or subdivision of Common Shares; (c) issuance (wholly or in part for cash) of Common Shares or securities that by their terms are convertible into or exchangeable for Common Shares; or (d) issuance of rights, options or warrants referred to in this Section 2.03, hereafter made by the Corporation to holders of its Common Shares, shall not be taxable to such shareholders. 2.04 DATE ON WHICH EXERCISE IS EFFECTIVE Each person in whose name any certificate for Common Shares is issued upon the exercise of the Rights shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and the payment of the Exercise Price for such Rights (and any applicable transfer tax and other governmental charge payable by the exercising holder hereunder) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Share transfer books of the Corporation are closed, such person shall be deemed to have become the record holder of such shares on, and such certificates shall be dated, the next succeeding Business Day on which the Common Share transfer books of the Corporation are open. 2.05 EXECUTION, AUTHENTICATION, DELIVERY AND DATING OF RIGHTS CERTIFICATES (1) The Rights Certificates shall be executed (either manually or by facsimile signature) on behalf of the Corporation by any two officers of the Corporation under its corporate seal or a facsimile thereof. Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporation shall bind the Corporation, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the countersignature and delivery of such Rights Certificates as herein provided for. (2) Promptly after the Corporation learns of the Separation Time, the Corporation shall notify the Rights Agent of such Separation Time and, subject to compliance with Section 2.01(7), shall deliver Rights Certificates executed by the Corporation to the Rights Agent for countersignature, and the Rights Agent shall countersign (manually or by facsimile signature in a manner satisfactory to the Corporation) and give such Rights Certificates to the holders of the Rights pursuant to Section 2.01(3) hereof. No Rights Certificates shall be valid for any purpose unless countersigned by the Rights Agent as aforesaid. (3) Each Rights Certificate shall be dated the date of countersignature thereof. 2.06 REGISTRATION OF RIGHTS (1) The Corporation shall cause a register (the "Rights Register") to be kept after the Separation Time in which, subject to such reasonable regulations as it may prescribe, the Corporation shall provide for the registration of the Rights. The Rights Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the Rights Register for the Corporation and registering the Rights and the transfers and exchanges of the Rights as herein provided. If the Rights Agent ceases to be the Rights Registrar, the Rights Agent shall have the right to examine the Rights Register at all reasonable times. 46 49 (2) After the Separation Time and prior to the Expiration Time, upon surrender of any Rights Certificate and subject to the provisions of Sections 2.06(4) and (5), the Corporation shall execute, and the Rights Agent shall countersign and deliver in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as did the Rights Certificates so surrendered. (3) All Rights issued upon any registration of transfer or exchange of Rights Certificates shall be valid obligations of the Corporation and shall be entitled to the same benefits under this Agreement as the Rights surrendered upon such registration of transfer or exchange. (4) Every Rights Certificate surrendered for transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in a form satisfactory to the Corporation or the Rights Agent, as the case may be, duly executed by the holder thereof or such holder's attorney duly authorized in writing. (5) As a condition to the issuance of any new Rights Certificate under this Section 2.06, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. 2.07 MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES (1) If any mutilated Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, the Corporation shall execute and the Rights Agent shall countersign and deliver in the name of the holder in exchange therefor a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so surrendered. (2) If prior to the Expiration Time there is delivered to the Corporation and the Rights Agent: (a) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate, and (b) such security or indemnity as may be required by them to save each of them and any of their agents harmless, then, in the absence of notice to the Corporation or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Corporation shall execute and the Rights Agent shall countersign and deliver in the name of the holder, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights Certificate so destroyed, lost or stolen. (3) As a condition to the issuance of any new Rights Certificate under this Section 2.07, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expense (including the fees and expenses of the Rights Agent) connected therewith. (4) Every new Rights Certificate issued pursuant to this Section 2.07 in lieu of any destroyed, lost or stolen Rights Certificate shall evidence an original additional contractual obligation of the Corporation, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionally with any and all other Rights duly issued hereunder. 2.08 PERSONS DEEMED OWNERS Prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for registration of transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the person in whose name such Rights Certificate (or, prior to the Separation Time, such Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby for all purposes whatsoever. As used in this Agreement, unless the context otherwise requires, the term "holder" of Rights shall mean the registered holder of such Rights (or, prior to the Separation Time, the associated Common Shares). 47 50 2.09 DELIVERY AND CANCELLATION OF CERTIFICATES All Rights Certificates surrendered upon exercise or for registration of transfer or exchange shall, if surrendered to any person other than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly cancelled by the Rights Agent. The Corporation may at any time deliver to the Rights Agent for cancellation any Rights Certificates previously countersigned and delivered hereunder which the Corporation may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall be promptly cancelled by the Rights Agent. No Rights Certificate shall be countersigned in lieu of or in exchange for any Rights Certificates cancelled as provided in this Section 2.09, except as expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights Certificates and promptly thereafter deliver a certificate of destruction to the Corporation. 2.10 AGREEMENT OF RIGHTS HOLDERS Every holder of Rights, by accepting the same, consents and agrees with the Corporation and the Rights Agent and with every other holder of Rights that: (a) such holder shall be bound by and subject to the provisions of this Agreement, as amended from time to time in accordance with the terms hereof in respect of all Rights held; (b) prior to the Separation Time, each Right will be transferable only together with, and will be transferred by a transfer of, the associated Common Shares and after the Separation Time, the Rights shall be transferable only on the Rights Register as provided herein; (c) prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) for transfer, the Corporation, the Rights Agent and any agent of the Corporation or the Rights Agent may deem and treat the person in whose name the Rights Certificate (or, prior to the Separation Time, the associated Common Share certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on such Rights Certificate or the associated Common Share certificate made by anyone other than the Corporation or the Rights Agent) for all purposes whatsoever, and neither the Corporation nor the Rights Agent shall be affected by any notice to the contrary; (d) without the approval of any holder of Rights and upon the sole authority of the Board acting in good faith this Agreement may be supplemented or amended from time to time pursuant and subject to Section 2.03 or Section 5.04; (e) if such holder at any time becomes an Acquiring Person or otherwise becomes subject to the provisions of Section 3.01(2), the Rights held by such holder shall immediately become void pursuant to the provisions of Section 3.01(2); (f) such holder of Rights has waived his right to receive any fractional Right or any fractional Share or other security upon exercise of a Right (except as specifically provided herein); and (g) notwithstanding anything in this Agreement to the contrary, neither the Corporation nor the Rights Agent shall have any liability to any holder of a Right or any other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation. ARTICLE 3 -- EFFECT OF CERTAIN TRANSACTIONS 3.01 FLIP-IN EVENT (1) Subject to Section 3.01(2) and Section 5.01, if a Flip-In Event occurs prior to the Expiration Time, the Corporation shall take such action as is necessary to ensure and provide that, except as provided below, each Right shall thereafter constitute the right to purchase from the Corporation, 48 51 upon the exercise thereof in accordance with the terms hereof, that number of Common Shares of the Corporation having an aggregate Market Price on the date of consummation or occurrence of such Flip-In Event equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.03 in the event that after such date of consummation or occurrence an event of a type analogous to any of the events described in Section 2.03 shall have occurred with respect to such Common Shares). (2) Notwithstanding the foregoing, upon the occurrence of any Flip-In Event, any Rights that are or were Beneficially Owned on or after the Stock Acquisition Date by: (i) an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person), or (ii) a transferee, direct or indirect, from an Acquiring Person (or any Affiliate or Associate of an Acquiring Person or any Person acting jointly or in concert with an Acquiring Person or any Affiliate or Associate of an Acquiring Person) in a transfer, whether or not for consideration, that the Board, acting in good faith has determined is part of a plan, arrangement or scheme of an Acquiring Person (or any Affiliate or Associate of an Acquiring Person) that has the purpose or effect of avoiding clause (i) of this Section 3.01(2), shall become void and any holder of such Rights (including transferees) shall thereafter have no right to exercise such Rights under any provision of this Agreement or otherwise. From and after the Separation Time, the Corporation shall do all such acts and things as shall be necessary and within its power to ensure compliance with the provisions of this Section 3.01, including without limitation, all such acts and things as may be required to satisfy the requirements of the Canada Business Corporations Act, the Securities Act (Ontario) and the securities laws or comparable legislation of each of the provinces of Canada, the United States of America and each of the states thereof in respect of the issue of Common Shares upon the exercise of Rights in accordance with this Agreement. (3) Any Rights Certificate issued pursuant to Section 2.01 that represents Rights Beneficially Owned by a Person described in either clauses (i) or (ii) of Section 3.01(2) or transferred to any nominee of any such Person and any Rights Certificates issued upon transfer, exchange, replacement or adjustment of any other Rights Certificates referred to in this sentence shall contain or will be deemed to contain the following additional legend: "The Rights represented by this Rights Certificate represent Rights Beneficially Owned by an Acquiring Person (as such terms are defined in the Rights Agreement). This Rights Certificate and the Rights represented hereby shall become void in the circumstances specified in Section 3.01(2) of the Shareholder Rights Agreement."; provided that the Rights Agent shall not be under any responsibility to ascertain the existence of facts that would require the imposition of such legend but shall be required to impose such legend only if instructed to do so by the Corporation or if a holder fails to certify upon transfer or exchange in the space provided on the Rights Certificate that the Rights represented thereby are not, and, to the best of such holder's knowledge, never have been, Beneficially Owned by an Acquiring Person after such person became an Acquiring Person. ARTICLE 4 -- THE RIGHTS AGENT 4.01 GENERAL (1) The Corporation hereby appoints the Rights Agent to act as agent for the Corporation and the holders of Rights in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointments. The Corporation may upon such terms as it considers appropriate from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. If the 49 52 Corporation appoints one or more Co-Rights Agents, the respective duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may determine. The Corporation agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand by the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Corporation also agrees to indemnify the Rights Agent for, its officers, directors, employees and agents for, and to hold it harmless against, any loss, liability or expense, if incurred without negligence, bad faith or wilful misconduct on the part of the Rights Agent for anything done or omitted to be done by the Rights Agent in connection with the exercise and performance of its duties hereunder, including the costs and expenses of defending against any claim of liability, which right to indemnification shall survive the termination of this Agreement or the removal or resignation of the Rights Agent. (2) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted to be taken by it in connection with the exercise and performance of its duties hereunder in reliance upon any certificate for Common Shares, Rights Certificate, certificate for other securities of the Corporation, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. 4.02 MERGER OR CONSOLIDATION OR CHANGE OF NAME OF THE RIGHTS AGENT (1) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or amalgamated or with which it may be consolidated, or any corporation resulting from any merger, amalgamation or consolidation to which the Rights Agent or any successor Rights Agent is a party, or any corporation succeeding to the shareholder or stockholder services business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 4.04. In case at the time such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates have not been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided for in the Rights Certificates and in this Agreement. (2) In case at any time the name of the Rights Agent is changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided for in the Rights Certificates and in this Agreement. 4.03 ENTITLEMENTS OF THE RIGHTS AGENT The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by which the Corporation and every holder of Rights, by accepting the same, shall be bound: (a) the Rights Agent may retain and consult with legal counsel (who may be legal counsel for the Corporation), or such other experts or advisors as the Rights Agent deems necessary to carry out its duties under this Agreement, and the opinion of such counsel or other expert or advisor shall be full and complete authorization and protection to the Rights Agent with respect to any action taken or omitted by it in good faith and in accordance with such opinion; 50 53 (b) whenever in the performance of its duties under this Agreement the Rights Agent deems it necessary or desirable that any fact or matter be proved or established by the Corporation prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by persons believed by the Rights Agent to be Chairman of the Board, President, Chief Executive Officer, any Vice President, Chief Financial Officer, the Secretary, or any Assistant Secretary of the Corporation and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate; (c) the Rights Agent shall be liable hereunder for its own negligence, bad faith or wilful misconduct; (d) the Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the certificates for Common Shares or the Rights Certificates (except its countersignature thereof) or be required to verify the same, and all such statements and recitals are and shall be deemed to have been made by the Corporation only; (e) the Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due authorization, execution and delivery hereof by the Rights Agent) or in respect of the validity or execution of any Common Share certificate or Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Corporation of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 3.01(2)) or any adjustment required under the provisions of Section 2.03 or for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights after receipt of the certificate contemplated by Section 2.03 describing any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization of any Common Shares to be issued pursuant to this Agreement or any Rights or as to whether any Common Shares will, when issued, be duly and validly authorized, executed, issued and delivered as fully paid and non-assessable; (f) the Corporation shall perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement; (g) the Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its agency duties hereunder from any person believed by the Rights Agent to be the Chief Executive Officer or the Chief Legal Officer or the Chief Financial Officer of the Corporation, and to apply to such persons for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered by it in good faith in accordance with instructions of any such person; (h) the Rights Agent and any shareholder, director, officer or employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or other securities of the Corporation or become pecuniarily interested in any transaction in which the Corporation may be interested, or contract with or lend money to the Corporation or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Corporation or for any other legal entity; and (i) the Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or 51 54 misconduct of any such attorneys or agents or for any loss to the Corporation resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. 4.04 CHANGE OF THE RIGHTS AGENT The Rights Agent may resign and be discharged from its duties under this Agreement upon 60 calendar days' notice (or such lesser notice as is acceptable to the Corporation) to the Corporation, to each transfer agent of Common Shares by registered or certified mail and to the holders of Rights. The Corporation may remove the Rights Agent upon 60 calendar days' notice to the Rights Agent, to each transfer agent of the Common Shares by registered or certified mail and to the holders of Rights. If the Rights Agent resigns or is removed or otherwise becomes incapable of acting, the Corporation shall appoint a successor to the Rights Agent. If the Corporation fails to make such appointment within a period of 30 calendar days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of any Rights (which holder shall, with such notice, submit such holder's Rights Certificate for inspection by the Corporation), then the holder of any Rights may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Corporation or by such a court, shall be a corporation incorporated under the laws of Canada or a province thereof authorized to carry on the business of a trust company in the Province of Ontario. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Corporation shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares, and give a notice thereof to the holders of the Rights. Failure to give any notice provided for in this Section 4.04 or any defect therein shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. ARTICLE 5 -- MISCELLANEOUS 5.01 REDEMPTION, WAIVER AND TERMINATION (1) Subject to the prior consent of the holders of Voting Shares or Rights obtained as set forth in Sections 5.04(3) or (4), as applicable, the Board acting in good faith may, at its option, at any time prior to the provisions of Sections 3.01 becoming applicable as a result of the occurrence of a Flip-In Event, elect to redeem all but not less than all of the then outstanding Rights at a redemption price of $0.01 per Right appropriately adjusted in a manner analogous to the applicable adjustment provided for in Section 2.03 in the event that an event of the type analogous to any of the events described in Section 2.03 shall have occurred (such redemption price being herein referred to as the "Redemption Price"). (2) The Board may, until a Flip-In Event shall occur, upon written notice delivered to the Rights Agent, determine to waive the application of Section 3.01 to such particular Flip-In Event but only if such Flip-In Event would occur as a result of a Take-Over Bid made by way of a Take-Over Bid circular to all holders of Voting Shares of record; provided that if the Board waives the application of Section 3.01 to a particular Flip-In Event, the Board shall be deemed to have waived the application of Section 3.01 to any other Flip-In Event, that would occur as a result of a Take-Over Bid which is made by means of a Take-Over Bid circular to all holders of Voting Shares of record prior to the expiry of any Take-Over Bid in respect of which a waiver is, or is deemed to have been, granted under this Section 5.01(2). (3) Notwithstanding Section 5.01(2), the Board may also, with respect to any Flip-In Event, waive the application of Section 3.01 to that Flip-In Event, provided that both of the following conditions are satisfied: 52 55 (i) the Board has determined that the Acquiring Person became an Acquiring Person by inadvertence and without any intent that he would become an Acquiring Person; and (ii) such Acquiring Person has reduced his Beneficial Ownership of Voting Shares such that at the time of waiver pursuant to this Section 5.01(3) he is no longer an Acquiring Person. (4) If the Board elects or is deemed to have elected to redeem the Rights, the right to exercise the Rights will thereupon, without further action and without notice, terminate and each Right will after redemption be null and void and the only right thereafter of the holders of Rights will be to receive the Redemption Price and no further Rights shall thereafter be issued. (5) Within 10 calendar days after the Board electing or having been deemed to have elected to redeem the Rights, the Corporation shall give notice of redemption to the holders of the then outstanding Rights by mailing such notice to each such holder at its last address as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the Corporation for the Common Shares. Any notice which is mailed in the manner herein provided will be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. The failure to give or any defect in such notice shall not affect the validity of such redemption. (6) Where a Take-Over Bid that is not a Permitted Bid or Competing Permitted Bid is withdrawn or otherwise terminated after the Separation Time has occurred and prior to the occurrence of a Flip-In Event, the Board may elect to redeem all the outstanding Rights at the Redemption Price. (7) Upon the Rights being redeemed pursuant to Section 5.01(6), all the provisions of this Agreement shall continue to apply as if the Separation Time had not occurred and Rights Certificates representing the number of Rights held by each holder of record of Common Shares, as of the Separation Time had not been mailed to each such holder and for all purposes of this Agreement the Separation Time shall be deemed not to have occurred. (8) In the event that prior to the occurrence of a Flip-In Event a Person acquires, pursuant to a Permitted Bid, a Competing Permitted Bid or an Exempt Acquisition, outstanding Voting Shares, then the Board shall immediately upon the consummation of such acquisition without further formality be deemed to have elected to redeem the Rights at the Redemption Price. 5.02 EXPIRATION No Person shall have any rights pursuant to this Agreement or in respect of any Right after the Expiration Time, except the Rights Agent as specified in Section 4.01(1). 5.03 ISSUANCE OF NEW RIGHTS CERTIFICATES Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Corporation may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by the Board to reflect any adjustment or change in the number or kind or class of shares purchasable upon exercise of Rights made in accordance with the provisions of this Agreement. 5.04 SUPPLEMENTS AND AMENDMENTS (1) The Corporation may from time to time amend this Agreement with the approval of the Rights Agent but without the consent of any holder of Rights or the holders of Voting Shares in order to correct a clerical or typographical error or to maintain the validity and effectiveness of this Agreement as a result of any change in any applicable laws, rules or regulatory requirements. (2) The Corporation may, prior to the date of the shareholders' meeting referred to in Section 5.15, supplement or amend this Agreement without the approval of any of the holders of Rights or Voting Shares (whether or not such action would materially adversely affect the interest of the holders of Rights generally) where the Board acting in good faith deems such action necessary or desirable. Notwithstanding anything in this Section 5.04 to the contrary, no such supplement or amendment shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent to such supplement or amendment. 53 56 (3) Subject to Section 5.04(1), the Corporation may, with the prior consent of the holders of Voting Shares obtained as set forth below, at any time prior to the Separation Time, amend, vary or rescind any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally). Such consent shall be deemed to have been given if the action requiring such approval is authorized by the affirmative vote of a majority of the votes cast by Independent Shareholders present or represented at and entitled to be voted at a meeting of the holders of Voting Shares duly called and held in compliance with applicable laws and the articles and by-laws of the Corporation. (4) The Corporation may, with the prior consent of the holders of Rights, at any time on or after the Separation Time and before the Expiration Time, amend, vary or delete any of the provisions of this Agreement and the Rights (whether or not such action would materially adversely affect the interests of the holders of Rights generally), provided that no such amendment, variation or deletion shall be made to the provisions of Article 4 except with the written concurrence of the Rights Agent thereto. Such consent shall be deemed to have been given if such amendment, variation or deletion is authorized in the manner specified in Section 5.04(5). (5) Any approval of the holders of Rights shall be deemed to have been given if the action requiring such approval is authorized by the affirmative votes of the holders of Rights present or represented at and entitled to be voted at a meeting of the holders of Rights and representing a majority of the votes cast in respect thereof. For the purposes hereof, each outstanding Right (other than Rights which are void pursuant to the provisions hereof) shall be entitled to one vote, and the procedures for the calling, holding and conduct of the meeting shall be those, as nearly as may be, which are provided in the Corporation's by-laws and the Canada Business Corporations Act with respect to meetings of shareholders of the Corporation. (6) Any amendment to this Agreement pursuant to Subsection 5.04(1) which is required to maintain the validity of this Agreement as a result of any change in any applicable laws, rules or regulatory requirements shall: (i) if made before the Separation Time, any such amendment shall be submitted to the shareholders of the Corporation at the next meeting of shareholders and the shareholders may, by the majority referred to in Section 5.04(3) confirm or reject such amendment; (ii) if made after the Separation Time, any such amendment shall be submitted to the holders of Rights at a meeting to be called for on a date not later than immediately following the next meeting of shareholders of the Corporation and the holders of Rights may, by resolution passed by the majority referred to in Section 5.04(5) confirm or reject such amendment. Any such amendment shall be effective from the date of the resolution of the Board adopting such amendment, until it is confirmed or rejected or until it ceases to be effective (as described in the next sentence) and, where such amendment is confirmed, it continues in effect in the form so confirmed. If such amendment is rejected by the shareholders or the holders of Rights or is not submitted to the shareholders or holders of Rights as required, then such amendment shall cease to be effective from and after the termination of the meeting at which it was rejected or to which it should have been but was not submitted or from and after the date of the meeting of holders of Rights that should have been but was not held, and no subsequent resolution of the Board to amend this Agreement to substantially the same effect shall be effective until confirmed by the shareholders or holders of Rights as the case may be. 5.05 FRACTIONAL RIGHTS AND FRACTIONAL SHARES (1) The Corporation shall not be required to issue fractions of Rights or to distribute Rights Certificates which evidence fractional Rights. After the Separation Time, in lieu of issuing fractional Rights, the Corporation shall pay to the holders of record of the Rights Certificates (provided the Rights represented by such Rights Certificates are not void pursuant to the provisions of Section 3.01(2), at the time such fractional Rights would otherwise be issuable), an amount in cash equal to the fraction of the Market Price of one whole Right that the fraction of a Right that would otherwise be issuable is of one whole Right. 54 57 (2) The Corporation shall not be required to issue fractions of Common Shares upon exercise of Rights or to distribute certificates which evidence fractional Common Shares. In lieu of issuing fractional Common Shares, the Corporation shall pay to the registered holders of Rights Certificates, at the time such Rights are exercised as herein provided, an amount in cash equal to the fraction of the Market Price of one Common Share that the fraction of a Common Share that would otherwise be issuable upon the exercise of such Right is of one whole Common Share at the date of such exercise. 5.06 RIGHTS OF ACTION Subject to the terms of this Agreement, all rights of action in respect of this Agreement, other than rights of action vested solely in the Corporation or the Rights Agent, are vested in the respective holders of Rights; and any holder of Rights, without the consent of the Rights Agent or of any other holder of Rights, may, on such holder's own behalf and for such holder's own benefit and the benefit of other holders of Rights, enforce, and may institute and maintain any suit, action or proceeding against the Corporation to enforce or otherwise act in respect of, such holder's right to exercise such holder's Rights in the manner provided in such holder's Rights Certificate and in this Agreement. Without limiting the generality of the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations of, and injunctive relief against actual or threatened violations of the obligations of, any Person subject to this Agreement. 5.07 HOLDER OF RIGHTS NOT DEEMED TO BE A SHAREHOLDER No holder of Rights, as such, shall be entitled to vote, to receive dividends, to receive the remaining property of the Corporation on dissolution or to be deemed for any purpose the holder of Common Shares or any other securities which may at any time be issuable on the exercise of such Rights, nor shall anything contained herein or in any Rights Certificate be construed to confer upon any holder of Rights, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, to give or withhold consent to any corporate action, to receive notice of meetings or other actions affecting shareholders (except as provided in Section 5.08) or to receive dividends or subscription rights or otherwise, until such Rights shall have been exercised in accordance with the provisions hereof. 5.08 NOTICES Any document or other communication to be given in connection with this Agreement to the Corporation shall be given in writing and shall be given by (i) personal delivery, (ii) telegraph, facsimile or other form of recorded electronic communication (charges prepaid and confirmed in writing) or (iii) by first-class postage prepaid mail (except during any general interruption of postal services due to strike, lockout or other cause) addressed to the Corporation as follows: Alcan Aluminium Limited Maison Alcan 1188 Sherbrooke Street West Montreal, Quebec Canada H3A 3G2 Attention: Secretary Any document or other communication to be given in connection with this Agreement to the Rights Agent shall be given in writing and shall be given by (i) personal delivery, (ii) telegraph, facsimile or other form of recorded electronic communication (charges prepaid and confirmed in writing) or (iii) by first-class postage prepaid mail (except during any general interruption of postal services due to strike, lockout or other cause) addressed to the Rights Agent as follows: 55 58 CIBC Mellon Trust Company 2001 University Street 16th Floor Montreal, Quebec Canada H3A 2A6 Attention: President Any document or other communication to be given in connection with this Agreement to any holder of Rights shall be given in writing and shall be given by (i) personal delivery, (ii) telegraph, facsimile or other form of recorded electronic communication (charges prepaid and confirmed in writing) or (iii) by first-class postage prepaid mail (except during any general interruption of postal services due to strike, lockout or other cause) addressed to such holder at the address of such holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Time, on the registry books of the Corporation for the Common Shares (the Corporation hereby agreeing to furnish copies of such records to the Rights Agent). The Corporation and the Rights Agent may by notice to the other designate with respect to itself any other address or individual. Any document or other communication given by personal delivery shall be conclusively deemed to have been given on the day of actual delivery thereof and, if given by first class postage prepaid mail, on the fifth Business Day following the deposit thereof in the mail (it being acknowledged, for greater certainty, that any such communication mailed to a holder of a Right as herein provided shall be deemed to have been given whether or not the holder receives such communication). 5.09 COSTS OF ENFORCEMENT If the Corporation or any other Person, the securities of which are purchasable upon exercise of the Rights, fails to fulfil any of its obligations pursuant to this Agreement, then the Corporation or such Person shall reimburse any holder of Rights for the costs and expenses (including reasonable legal fees) incurred by such holder in any action to enforce his rights pursuant to any Rights or this Agreement. 5.10 BENEFIT OF THE AGREEMENT This Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Corporation and the Rights Agent and upon the heirs, executors, administrators, successors and assigns of the holders of Rights. This Agreement shall be for the sole and exclusive benefit of the Corporation, the Rights Agent and the holders of Rights and nothing in this Agreement shall be construed to give any Person other than the Corporation, the Rights Agent and the holders of Rights any legal or equitable right, remedy or claim under this Agreement. 5.11 GOVERNING LAW This Agreement and each Right issued hereunder shall be deemed to be a contract made under the laws of the Province of Ontario and for all purposes shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 5.12 COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be considered an original and both of which taken together shall constitute a single agreement. 5.13 SEVERABILITY If any term or provision hereof or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof or the application of such provision to circumstances other than those to which it is held invalid or unenforceable. 56 59 5.14 DETERMINATIONS AND ACTIONS BY THE BOARD (1) All actions, calculations, interpretations and determinations (including all omissions with respect to the foregoing) which are done or made by the Board, in good faith, shall not subject the Board to any liability to the holders of Rights. (2) Nothing contained in this Agreement shall be deemed to be in derogation of the obligation of the Board to exercise its fiduciary duties. Without limiting the generality of the foregoing, nothing contained herein shall be construed to suggest or imply that the Board shall not be entitled to recommend that the holders of the Voting Shares reject any Permitted Bid or any Competing Permitted Bid or any Take-Over Bid, or to take any other action (including, without limiting the generality of the foregoing, the commencement, prosecution, defence or settlement of any litigation and the submission of additional or alternative Permitted Bids or Competing Permitted Bids or Take-Over Bids) with respect to any Permitted Bid or any Competing Permitted Bid or any Take-Over Bid or otherwise that the Board believes is necessary or appropriate in the exercise of its fiduciary duties. 5.15 EFFECTIVE DATE This Agreement is effective from the date hereof, provided that if the amendments and restatements set forth herein are not confirmed by a resolution passed by a majority of greater than 50% of the votes cast by holders of Voting Shares who vote in respect of such amendments and restatements at the 1999 Annual Meeting of the Corporation then this Agreement, the Rights Plan and any outstanding Rights shall continue in effect as set forth in the Shareholder Rights Agreement made as of December 14, 1989 as amended and restated on April 24, 1995. There shall be excluded from the calculation of shares eligible to vote at such meeting shares held by an Acquiring Person or by any Person who has made or announced an intention to make a tender or exchange offer or Take-Over Bid which, if consummated, would result in such Person holding in the aggregate 20% or more of the outstanding Voting Shares at the date of such bid. 5.16 RE-CONFIRMATION AFTER THREE YEARS At every third Annual Meeting of Shareholders of the Corporation following the 1999 Annual Meeting, provided that a Flip-In Event has not occurred prior to such time, the Board shall submit a resolution to the holders of Voting Shares of the Corporation for their consideration and, if thought advisable, approval ratifying the continued existence of the Rights. If a majority of greater than 50% of the votes cast by holders of Voting Shares who vote in respect of such reconfirmation and approval is voted against the continued existence of the Rights, then this Agreement, the Rights Plan and any outstanding Rights shall be of no further force and effect. There shall be excluded from the calculation of shares eligible to vote at such meeting shares held by an Acquiring Person or by any Person who has made or announced an intention to make a tender or exchange offer or Take-Over Bid which, if consummated, would result in such Person holding in the aggregate 20% or more of the outstanding Voting Shares at the date of such bid. 5.17 REGULATORY APPROVALS Any obligation of the Corporation or action or event contemplated by this Agreement, or any amendment or supplement to this Agreement, shall be subject to the receipt of any requisite approval or consent from any governmental or regulatory authority. Without limiting the generality of the foregoing, any issuance or delivery of debt or equity securities (other than non-convertible debt securities) of the Corporation upon the exercise of Rights and any amendment or supplement to this Agreement shall be subject to the prior consent of The Toronto Stock Exchange. 5.18 DECLARATION AS TO NON-CANADIAN HOLDERS If in the opinion of the Board (who may rely upon the advice of counsel) any action or event contemplated by this Agreement would require compliance by the Corporation with the securities laws or comparable legislation of a jurisdiction outside Canada, the Board acting in good faith shall take such actions as it may deem appropriate to ensure such compliance. In no event shall the Corporation or the 57 60 Rights Agent be required to issue or deliver Rights or securities issuable on exercise of Rights to persons who are citizens, residents or nationals of any jurisdiction other than Canada or the United States of America, in which such issue or delivery would be unlawful without registration of the relevant Persons or securities for such purposes. ARTICLE 6 -- PERMITTED BIDS 6.01 PERMITTED BIDS The expression "Permitted Bid" referred to in Section 1.01(ff) means a Take-Over Bid made by an Offeror that is made by means of a Take-Over Bid circular sent to holders of Voting Shares and which complies with the following additional provisions: (i) the Take-Over Bid is made to all holders of Voting Shares as registered on the books of the Corporation, other than the Offeror; (ii) the Take-Over Bid contains, and the take-up and payment for securities tendered or deposited is subject to, the following irrevocable and unqualified provision that no Voting Shares will be taken up or paid for pursuant to the Take-Over Bid (A) prior to the close of business on the date which is not less than 60 calendar days following the date of the Take-Over Bid and (B) only if at such date more than 50% of the Voting Shares held by Independent Shareholders shall have been tendered or deposited pursuant to the Take-Over Bid and not withdrawn; (iii) unless the Take-Over Bid is withdrawn, the Take-Over Bid contains an irrevocable and unqualified provision that Voting Shares may be deposited pursuant to such Take-Over Bid at any time during the period of time described in Section 6.01(ii) and that any Voting Shares deposited pursuant to the Take-Over Bid may be withdrawn until taken up and paid for; and (iv) the Take-Over Bid also contains an irrevocable and unqualified condition that in the event that the deposit condition set forth in Section 6.01(ii)(B) is satisfied, the Offeror will make a public announcement of that fact and the Take-Over Bid will remain open for deposits and tenders of Voting Shares for not less than 10 Business Days from the date of such public announcement. 6.02 COMPETING PERMITTED BIDS The expression "Competing Permitted Bid" referred to in Section 1.01(l) means a Take-Over Bid that: (i) is made for Voting Shares after a Permitted Bid or Competing Permitted Bid for Voting Shares has been made but prior to the expiry of such Permitted Bid or Competing Permitted Bid; (ii) satisfies all of the conditions of the definition of Permitted Bid other than the requirements set out in Section 6.01(ii) (A); and (iii) contains, and the take-up and payment for securities tendered or deposited is subject to, an irrevocable and unqualified condition that no Voting Shares will be taken up and paid for pursuant to the Take-Over Bid prior to the close of business on a date which is not earlier than the later of (A) the 60th calendar day following the date on which the earliest Permitted Bid which preceded the Competing Permitted Bid was made and (B) 21 calendar days after the date of the Take-Over Bid constituting the Competing Permitted Bid. 58 61 IN WITNESS WHEREOF the parties have executed this Agreement on the date and year above written. ALCAN ALUMINIUM LIMITED CORPORATE PER: SEAL PER: OF ALCAN ALUMINIUM LIMITED CIBC MELLON TRUST COMPANY CORPORATE PER: SEAL PER: OF THE CIBC MELLON TRUST COMPANY
59 62 SCHEDULE 1 FORM OF RIGHTS CERTIFICATE Certificate No. _______ _______ Rights THE RIGHTS ARE SUBJECT TO REDEMPTION AT THE OPTION OF THE CORPORATION, ON THE TERMS SET FORTH IN THE SHAREHOLDER RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION 3.01(2) OF THE SHAREHOLDER RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE SHAREHOLDER RIGHTS AGREEMENT) OR TRANSFEREES OF AN ACQUIRING PERSON MAY BECOME VOID. RIGHTS CERTIFICATE This certifies that _____________________ , or registered assigns, is the registered holder of the number of Rights set forth above, each of which entitles the registered holder thereof, subject to the terms, provisions and conditions of the Shareholder Rights Agreement made as of December 14, 1989, as amended and restated from time to time (the "Rights Agreement") between Alcan Aluminium Limited, a corporation incorporated under the laws of Canada (the "Corporation") and CIBC Mellon Trust Company (successor to The Royal Trust Company), a trust company incorporated under the laws of Canada, as Rights Agent (the "Rights Agent") (which term shall include any successor Rights Agent under the Rights Agreement) to purchase from the Corporation at any time after the Separation Time (as such term is defined in the Rights Agreement) and prior to the close of business on May 1, 2008 one fully paid Common Share in the capital of the Corporation (a "Common Share") at the Exercise Price referred to below, upon presentation and surrender of this Rights Certificate with the Form of Election to Exercise duly executed and submitted to the Rights Agent or Co-Rights Agent at its principal office in any one of the Cities of Montreal, Toronto, Winnipeg, Regina, Calgary, Vancouver or London, England. The Exercise Price shall initially be $200 (U.S.) per Right and shall be subject to adjustment in certain events as provided in the Rights Agreement. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Rights Agent, the Corporation and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the registered office of the Corporation and are available upon written request. This Rights Certificate, with or without other Rights Certificates, upon surrender at any of the offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing an aggregate number of Rights equal to the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be, and under certain circumstances are required to be, redeemed by the Corporation at a redemption price of $0.01 per Right. No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Common Shares or of any other securities which may at any time be issuable upon the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Corporation or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. 60 63 This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Corporation and its corporate seal. Date: ATTEST: ALCAN ALUMINIUM LIMITED By: Secretary Countersigned: CIBC MELLON TRUST COMPANY By: Authorized Signature 61 64 FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________________ , Attorney, to transfer the within Rights Certificate on the books of the within-named Corporation, with full power of substitution. Dated: Signature Signature Guaranteed: (Signature must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever)
Signature must be guaranteed by a member firm of a recognized stock exchange in Canada, a registered national securities exchange in the United States of America, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in Canada or the United States of America. (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the best of the knowledge of the undersigned, never have been, Beneficially Owned by an Acquiring Person (as defined in the Rights Agreement) after such person became an Acquiring Person. Signature
62 65 FORM OF ELECTION TO EXERCISE (To be attached to each Rights Certificate) TO: The undersigned hereby irrevocably elects to exercise ___________________ whole Rights represented by the attached Rights Certificate to purchase the Common Shares issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: Name: Street: City, Province & Postal Code: Social Insurance, Social Security or Other Taxpayer Identification Number: If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be registered in the name of and delivered to: Name: Street: City, Province & Postal Code: Social Insurance, Social Security or Other Taxpayer Identification Number: Dated: Signature Signature Guaranteed: (Signature must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever)
Signature must be guaranteed by a member firm of a recognized stock exchange in Canada, a registered national securities exchange in the United States of America, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in Canada or the United States of America. (To be completed if true) The undersigned hereby represents, for the benefit of all holders of Rights and Common Shares, that the Rights evidenced by this Rights Certificate are not, and, to the best of the knowledge of the undersigned, never have been, Beneficially Owned by an Acquiring Person (as defined in the Rights Agreement) after such person became an Acquiring Person. Signature
63 66 NOTICE In the event the certification set forth above in the Forms of Assignment and Election is not completed, the Corporation will deem the Beneficial Owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Shareholder Rights Agreement) and, in the case of an Assignment, will affix a legend to that effect on any Rights Certificate issued in exchange for this Rights Certificate. ------------------------------------ 64 67 (LOGO) M - Official mark of Environment Canada. M - Marque officielle d'Environnement Canada.
(LOGO) PRINTED IN CANADA 68 ALCAN ALUMINIUM LIMITED PROXY SOLICITED BY THE BOARD OF DIRECTORS AND MANAGEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS ON 22 APRIL 1999 The undersigned hereby appoints Jean Trudel, Joel Goldberg or Neil Wiener or instead of them _________________________________________ (see Notes below) as proxyholder(s), with full power of substitution, to attend and to vote all the Common Shares ("Shares") of Alcan Aluminium Limited held of record by the undersigned on 3 March 1999 at the Annual Meeting of the holders of the Shares to be held on 22 April 1999 and at any adjournment thereof. Notes: (1) If you appoint the persons whose names are printed above to act as your proxyholders, the Shares represented by this Proxywill be voted or not voted, on any ballot that may be called, in accordance with the instructions, if any, you indicate in the spaces provided below. FAILING INSTRUCTIONS ON ANY MATTER, THE SHARES WILL BE VOTED FOR EACH OF THE MATTERS LISTED BELOW TO BE ACTED UPON AT THE MEETING. (2) YOU HAVE THE RIGHT TO APPOINT PERSON(S), OTHER THAN THOSE WHOSE NAMES ARE PRINTED ABOVE, AS YOUR PROXYHOLDER(S), TO ATTEND AND ACT ON YOUR BEHALF AT THE MEETING. YOU MAY USE THE SPACE PROVIDED ABOVE (OR ANOTHER APPROPRIATE FORM OF PROXY) FOR THAT PURPOSE. YOU ARE ADVISED IN YOUR OWN INTEREST TO SPECIFY A CHOICE FOR VOTING IN RESPECT OF EACH OF THE MATTERS TO BE ACTED UPON AT THE MEETING. (3) Please sign this Proxy and return it promptly whether or not you plan to attend the Meeting. Your right to attend and vote in person will not be affected. (4) If this Proxy is not dated, it will be deemed to bear the date on which it was mailed by Alcan Aluminium Limited. 1. ELECTION OF [ ] VOTE FOR all nominees listed below DIRECTORS: (except as indicated to the contrary below) [ ] WITHHOLD VOTE from all nominees listed below
J. Bougie J.R. Evans G. Russell W. Chippindale A.E. Gotlieb G. Saint-Pierre E.R. Clitheroe J.E. Newall G. Schulmeyer T. Engen P.H. Pearse P.M. Tellier
To withhold authority to vote for any individual nominee, please write that nominee's name on the line below: 2. APPOINTMENT OF PRICEWATERHOUSECOOPERS AS AUDITORS: [ ] VOTE FOR [ ] WITHHOLD VOTE 3. APPROVAL OF AMENDMENTS TO AND RESTATEMENT OF SHAREHOLDER RIGHTS PLAN [ ] VOTE FOR [ ] VOTE AGAINST Proxyholders are authorized to vote, at their discretion, on matters concerning the conduct of the Meeting. Signature(s) ___________________________________ Date ___________________________________________ (logo of Recycled Paper) Printed in Canada 69 ALCAN ALUMINIUM LIMITED Shareholder Number_______________ ANNUAL MEETING IDENTIFICATION TICKET If you attend the Annual Meeting in person, please present this personalized ticket at the entrance; it will facilitate verification of your status as a Shareholder. The Annual Meeting will be held at 10:00 a.m. on 22 April 1999, in the Assembly Hall, International Civil Aviation Organization, Atrium entrance, 999 University Street, Montreal, Quebec, Canada. - ------------------------------------------------------------------------------ DETACH HERE Shareholder Number_______________ CHANGE OF ADDRESS If the address shown has changed, please PRINT the correct addressbelow and return this part with the Proxy. Address _______________________________________________________________________ _______________________________________________________________________________ Postal code _________________ Telephone ( __________ )_________________________ Area. Date ________________________ Signature _______________________________________ QUARTERLY REPORTS Alcan provides complete information to the press the day its quarterly results are announced. Because of this, some of our Shareholders may not wish to receive copies of Alcan's quarterly reports. By mailing these reports only to those Shareholders who want them, we can achieve savings in both paper usage and expense. IF YOU WISH TO RECEIVE ALCAN'S QUARTERLY REPORTS, PLEASE CHECK HERE AND RETURN THIS PART WITH THE PROXY. PLEASE NOTE THAT YOU MUST RENEW THIS REQUEST ANNUALLY. [ ] If this part is not returned, we will assume you do not wish to receive the quarterly reports. You will, however, continue to receive Alcan's Annual Report and associated proxy material. You may change your instructions in this regard at any time by calling Alcan Shareholder Services at 1-888-252-5226 (toll-free). -----END PRIVACY-ENHANCED MESSAGE-----