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NOVELIS INC.

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NOVELIS INC.

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

NOTICE IS HEREBY GIVEN that the 2006 annual meeting of shareholders of Novelis Inc. (the “Meeting”) will be held at The Westin Buckhead Atlanta, 3391 Peachtree Road, Atlanta, GA 30326, on October 26, 2006, at 10:00 a.m., (EDT) for:

 

1. receiving the consolidated and combined financial statements for the year ended December 31, 2005, together with the independent registered public accounting firm’s report thereon;

 

2. electing directors;

 

3. appointing the independent registered public accounting firm and authorizing directors to fix the independent registered public accounting firm’s remuneration;

 

4. approving the Novelis Inc. 2006 Incentive Plan; and

 

5. transacting such other business as may properly be brought before the Meeting or any adjournment or postponement thereof.

 

The directors have fixed September 19, 2006, as the record date for the determination of the holders of common shares of Novelis Inc. entitled to receive notice of the Meeting. Only the holders of record of our common shares at the close of business on September 19, 2006 are entitled to notice of and to vote at the Meeting and any adjournment or postponement of the Meeting. We anticipate that the information circular and the accompanying proxy card will first be mailed to holders of our common shares on or about September 22, 2006.

 

Your attention is directed to the information circular provided with this notice.

 

Your vote is important. Whether or not you plan to attend the Meeting in person, please submit your proxy as soon as possible. You can vote by telephone, on the Internet or by mail with the enclosed proxy card. Voting by any of these three methods will ensure that you are represented at the Meeting even if you are not there in person. Please review the instructions on the proxy card regarding each of these voting options. Shareholders who have previously voted, but attend the Meeting, may change their vote at the Meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

 

Nichole Robinson

Corporate Secretary

 

September 22, 2006

Atlanta, Georgia

NOVELIS INC.

 

INFORMATION CIRCULAR

 

WHAT’S INSIDE

 

3399 Peachtree Road NE
Suite 1500
Atlanta, Georgia 30326

 

This information circular (this “Circular”) is provided in connection with the solicitation of proxies by the board of directors and management of Novelis Inc. (“Novelis”) for use at the first annual meeting of shareholders of Novelis or at any adjournment or postponement thereof (the “Meeting”). In this Circular “you” and “your” refer to the shareholders of Novelis, and “Novelis,” the “Company,” “we,” “us” or “our” refer to Novelis. The Meeting will be held at The Westin Buckhead Atlanta, 3391 Peachtree Road, Atlanta, GA 30326, on October 26, 2006, at 10:00 a.m. (EDT) for the purposes set forth in the foregoing Notice of Annual Meeting of Shareholders. We anticipate that this Circular and the accompanying proxy card will first be mailed to holders of our common shares (the “Shares”) on or about September 22, 2006. Except where otherwise indicated, the information contained herein is provided as of August 31, 2006, and all dollar amounts are in U.S. dollars.

 

 

 

(See Notice of Annual Meeting of Shareholders)

 

Our consolidated and combined financial statements for the year ended December 31, 2005 and the Auditor’s Report for 2005 will be submitted to you at the Meeting, but no vote with respect thereto is required or proposed to be taken. The consolidated and combined financial statements are included in our Annual Report on Form 10-K for the year ended December 31, 2005 that is being mailed to you with the Notice of Annual Meeting of Shareholders and this Circular.

 

Thirteen directors are to be elected to serve until the close of the next annual meeting of the Company or until their successors shall be elected. Mr. J.E. Newall, O.C., who has served on our board of directors since January 2005, retired from the board of directors in July 2006 and will not be standing for re-election. Brian W. Sturgell also served on our board of directors from January 2005 through August 29, 2006. Edward A. Blechschmidt, Jacques Bougie, O.C., Charles G. Cavell, Clarence J. Chandran, C. Roberto Cordaro, Helmut Eschwey, David J. FitzPatrick, Suzanne Labarge, William T. Monahan, Rudolf Rupprecht, Kevin M. Twomey, John D. Watson and Edward V. Yang have, upon the recommendation of the Nominating and Corporate Governance Committee, been nominated to stand for election at the Meeting. Our board of directors recommends the election of all these nominees.

 

Unless authority is withheld, the persons designated in the accompanying proxy card intend to vote FOR the election of these nominees. The persons nominated are, in the opinion of our board of directors, well qualified to act as directors of the Company for the ensuing year. Our board of directors does not contemplate that any of these nominees will be unable to serve as a director, but should that occur for any reason before the Meeting, the persons designated in the accompanying proxy card reserve the right to vote for another nominee at their discretion unless the shareholder who has given such proxy has directed that their Shares be withheld from voting on the election of directors.

 

To better align the interests of our board of directors with those of our shareholders, with the exception of our Chairman and Interim Chief Executive Officer, William T. Monahan, all of the nominees for election to the board of directors are independent. In determining whether a director is “independent”, the board of directors applies the standards developed by the Canadian Securities Administrators and the New York Stock Exchange and the additional standards adopted by the board of directors. These standards are set out in the Guidelines on the Independence of the Board of Directors of Novelis Inc. (“Guidelines on Independence”) attached to this Circular as Schedule C and are also available on our website at www.novelis.com.

The following table sets out certain biographical information, including a brief description of principal occupation and business experience during at least the past five years, directorships of public companies (other than Novelis) presently held, and certain other information regarding the nominees for election as directors. This information has been furnished to us by the respective nominees.

 

 

 

A record of attendance by directors at meetings of the board of directors and its committees, as well as the number of board and board committee meetings held during the year ended December 31, 2005, are set out in Schedule A to this Circular.

 

Except with respect to the cease trade orders imposed upon Novelis, its directors and certain of its officers by Canadian securities regulators in connection with the Company’s delayed filings of its Form 10-Q for the quarter ended September 30, 2005, its Annual Report on Form 10-K for the year ended December 31, 2005 and its quarterly reports on Form 10-Q for the first two quarters of 2006 (which orders affected each of the nominees for election to the board of directors other than Messrs. Twomey, Blechschmidt and Watson), to the knowledge of the Company and based upon information provided to it by the nominees for election to the board of directors, no such nominee is or has been, in the last 10 years, a director or executive officer of any company that, while such person was acting in that capacity: (a) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; (b) was subject to an event that resulted, after that person ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation, for a period of more than 30 consecutive days; or (c) within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

 

In 2005, fees for audit, audit-related, tax and all other services provided to the Company by PricewaterhouseCoopers LLP were as follows:

 

 

Audit Fees

 

PricewaterhouseCoopers LLP has served as our independent registered public accounting firm since our spin-off from Alcan on January 6, 2005. In 2005, fees for audit services provided to the Company by PricewaterhouseCoopers LLP totalled $6,757,191.

 

PricewaterhouseCoopers LLP did not perform any other services for the Company during 2005.

 

Pre-Approval of Audit and Permissible Non-Audit Services

 

Effective May 9, 2005, the Audit Committee established a policy requiring its pre-approval of all audit and permissible non-audit services provided by our independent registered public accounting firm. The policy gives detailed guidance to management as to the specific services that are eligible for general pre-approval and provides specific cost limits for certain services on an annual basis. Pursuant to the policy and the Audit Committee charter, the Audit Committee has granted to its chair the authority to address any requests for pre-approval of individual services. None of the services provided by our independent registered public accounting firm for 2005 that were approved by the Audit Committee made use of the de minimus exception to pre-approval set forth in applicable rules of the SEC.

Board of Directors’ Recommendation

 

In accordance with the Canada Business Corporations Act, our shareholders appoint the Company’s independent registered public accounting firm. In carrying out its responsibilities, the Audit Committee has recommended to our board of directors and it, in turn, recommends to the shareholders that PricewaterhouseCoopers LLP be appointed at the Meeting as independent registered public accounting firm for the fiscal year ending December 31, 2006. Unless contrary instructions are indicated on the proxy card, the persons designated in the accompanying proxy card intend to vote FOR the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2006 and to authorize the board of directors to fix the independent registered public accounting firm’s remuneration.

 

A representative of PricewaterhouseCoopers LLP will be present at the Meeting and will be available to make a statement if they desire to do so and to respond to appropriate questions.

 

The Incentive Plan was approved by our board of directors, subject to the approval of the shareholders of the Company. The Incentive Plan will replace, on a prospective basis, the Novelis Conversion Plan of 2005 (the “Conversion Plan”) and the Novelis Inc. Stock Price Appreciation Unit Plan (the “SPAU Plan”) and no future awards will be granted under such plans if the Incentive Plan is approved by the Company’s shareholders. This summary is qualified in its entirety by reference to the full text of the Incentive Plan, a copy of which is attached as Schedule F to this Circular.

 

As of August 31, 2006, the closing price of our Shares on the New York Stock Exchange was $20.85, per share, and on the Toronto Stock Exchange was C$23.08 per share.

 

Purpose

 

The purpose of the Incentive Plan is to promote the interests of the Company and its shareholders by aligning, motivating, attracting and retaining key employees and non-employee directors of the Company and its subsidiaries through the issuance of equity-based awards and short-term incentive compensation.

 

Types of Awards

 

The Incentive Plan authorizes the award of stock options, stock appreciation rights (“SARs”), restricted shares, restricted share units, performance shares and other stock-based incentives. The Incentive Plan also authorizes payment of short-term incentives, payable in cash or Shares, following satisfaction of pre-established performance objectives.

 

Administration of the Incentive Plan

 

The Incentive Plan will be administered by the Human Resources Committee of the board of directors (the “Human Resources Committee”), except that the full board of directors will be responsible for the administration of awards to the Company’s non-employee directors.

 

Shares Subject to the Incentive Plan

 

The number of Shares of the Company authorized to be issued under the Incentive Plan is 7,000,000 Shares. Any Shares that are subject to an award other than stock options or SARs will be counted against this limit as 1.75 Shares for every one Share subject to the award. If any Shares related to an award are forfeited, terminated, expire unexercised, tendered in connection with an exercise of an award, withheld from issuance to pay applicable tax withholding, settled in cash in lieu of Shares, or settled in any similar manner so that a portion of the Shares are not issued to the participant, then such Shares will be automatically available for future awards and will not count against the maximum share limit above.

Eligibility for Awards

 

The Human Resources Committee has the discretion to determine the employees and non-employee directors eligible to receive awards under the Incentive Plan and the type, size and conditions of such awards. As of August 31, 2006, approximately 3,000 of our employees are eligible to participate in short-term awards, and approximately 150 employees and 12 non-employee directors are eligible to participate in long-term awards under the Incentive Plan. The awards that will be granted to eligible employees under the Incentive Plan will be at the discretion of the Human Resources Committee and, therefore, are not determinable at this time. The full board of directors will determine the type, size and conditions of any awards to the Company’s non-employee directors. No employee participant may receive during any one calendar year awards representing more than 750,000 Shares or $20,000,000. The maximum number of Shares that may be granted to a non-employee director during any one calendar year shall not exceed 7,500 Shares. The maximum aggregate number of incentive stock options (discussed below) that may be granted under the Incentive Plan for all years is 3,000,000 Shares.

 

Stock Options

 

The Incentive Plan authorizes the grant of stock options. Stock options may be either nonqualified stock options or incentive stock options (“ISOs”). ISOs are options granted to employees that are designed to meet the requirements of Section 422 of the United States Internal Revenue Code of 1986, as amended (the “Code”). Any option that does not satisfy Section 422 of the Code will be treated as a nonqualified stock option. The exercise price per share under any stock option may not be less than 100% of the fair market value per share on the date of grant, and no option may be re-priced, including the cancellation of an existing option and substituting a new option with a lower exercise price, without the approval of the Company’s shareholders. Options will become vested and exercisable in accordance with the terms set forth in the participant’s award agreement, provided that in no event may an option be exercisable later than the seventh anniversary of its date of grant.

 

Stock Appreciation Rights

 

The Incentive Plan authorizes the grant of SARs. SARs represent the right to receive an amount equal to the appreciation in the Company’s Shares over a specified period of time. SARs may be settled in cash, Shares or a combination of both as set forth in the participant’s award agreement. The exercise price per share under any SAR may not be less than 100% of the fair market value per share on the date of grant, and no SAR may be re-priced, including the cancellation of an existing SAR and substituting a new SAR with a lower exercise price, without the approval of the Company’s shareholders. SARs will become vested and exercisable in accordance with the terms set forth in the participant’s award agreement, provided that in no event may a SAR be exercisable later than the seventh anniversary of its date of grant.

 

Restricted Shares and Restricted Share Units

 

The Incentive Plan authorizes the grant of restricted shares and restricted share units that are tied to the expiration of a specified period of time, the achievement of performance goals, and/or the occurrence of one or more other events. Restricted share units are similar to restricted shares except that no Shares are actually awarded to the participant at the time of award. Accordingly, the holder of restricted share units does not have dividend, voting or other ownership rights during the period that such restricted share units are outstanding although a restricted share unit award may include dividend equivalent rights payable on a current, deferred or contingent basis. Restricted share units may be paid in cash, Shares or a combination of both at the time of vesting as set forth in the participant’s award agreement.

 

Performance Awards

 

The Incentive Plan authorizes the grant of performance shares and units. Performance awards represent a conditional right to receive cash, Shares, or a combination of cash and Shares, upon the achievement of specified performance goals during one or more performance periods. Performance objectives may be described in terms of Company-wide objectives or objectives that are related to the performance of an

individual participant or Company subsidiary, division, department or function within the Company in which the participant is employed. Performance objectives may be measured on an absolute or relative basis. Relative performance may be measured by a group of peer companies or by a financial market index.

 

Short-Term Incentives

 

Short-term incentives may be paid in cash or Shares. Short-term incentive compensation generally will only be paid upon satisfaction of pre-established performance objectives, provided that adjustments and exceptions may be made under special circumstances.

 

Other Awards

 

The Human Resources Committee has the discretion to grant any other type of award that is based on or related to Shares or factors that may influence the value of such Shares, or to grant Shares as a bonus or payment in lieu of other obligations of the Company to a participant.

 

Compliance with Section 162(m) of the United States Internal Revenue Code

 

Section 162(m) of the Code contains special rules regarding the federal income tax deductibility of compensation paid to the Company’s Chief Executive Officer and to each of the other four most highly compensated executive officers. The general rule is that annual compensation paid to any of these covered employees will be deductible for any tax year only to the extent that such compensation does not exceed $1 million. The Company may preserve the deductibility of certain compensation in excess of $1 million, however, if the Company complies with conditions imposed by Section 162(m) of the Code, including the establishment of specified performance goals which must be achieved prior to payment.

 

The performance measures upon which awards intended to comply with Section 162(m) of the Code may include the following: return on equity, regional income, diluted earnings per share, net earnings, total earnings, earnings growth, return on capital, working capital turnover, return on assets, earnings before interest and taxes, sales, sales growth, gross margin return on investment, increase in the fair market value of the Shares, share price (including but not limited to, growth measures and total shareholder return), operating profit, cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investment (which equals net cash flow divided by total capital), inventory turns, financial return ratios, total return to shareholders, market share, earnings measures/ratios, economic value added, balance sheet measurements such as receivable turnover, internal rate of return, increase in net present value or expense targets, productivity and satisfaction of health, safety and environment compliance targets.

 

Taxation

 

The following discussion is intended to provide an overview of the U.S. federal income tax laws that are generally applicable to awards granted under the Incentive Plan as of the date of this Circular. Persons or entities in differing circumstances may have different tax consequences, and the tax laws may change in the future. This discussion is not to be construed as tax advice.

 

Stock Options:  The granting of a nonqualified option to an individual is not ordinarily a taxable event. Upon exercise of the option, the optionee will recognize ordinary taxable income equal to the excess of the then fair market value of the Shares over the exercise price paid for such Shares. The Company will be entitled to a tax deduction equal to the ordinary income recognized by the optionee. Upon disposition of the acquired Shares, the difference between the sale price and the optionee’s basis in the Shares will be treated as a capital gain or loss and generally will be characterized as long-term capital gain or loss if the Shares have been held for more than one year at the time of disposition.

 

In the case of an ISO, neither the granting of the option nor its exercise is ordinarily a taxable event to the optionee. Instead, the optionee recognizes taxable income upon the disposition of the acquired Shares. The tax treatment to the optionee and the Company will depend primarily upon whether the optionee has met certain holding period requirements at the time he or she disposes of the Shares. If an optionee exercises an

ISO and does not dispose of the Shares received within two years after the date such option was granted or within one year after the transfer of the Shares to him or her, any gain realized upon the disposition will be characterized as long-term capital gain. If the optionee disposes of the ISO Shares either within two years after the date the option is granted or within one year after the exercise of the option and transfer of Shares to him or her, such disposition will be treated as a disqualifying disposition and an amount equal to the lesser of (i) the fair market value of the Shares on the date of exercise minus the exercise price, or (ii) the amount realized on the disposition minus the exercise price, will be taxed as ordinary income to the optionee. The excess, if any, of the amount realized upon disposition over the fair market value at the time of the exercise of the option will be treated as capital gain. Except in the case of disqualifying dispositions, there will be no federal income tax deductions allowed to the Company upon the grant, exercise, or termination of an ISO.

 

SARs:  The recipient of a SAR will not recognize any taxable income at the time the SAR is granted. Instead, the appreciation inherent in the SAR will be taxable as ordinary income at the time the SAR is exercised. If the participant receives the SAR appreciation in Shares rather than cash, the participant will recognize ordinary income equal to the excess of the fair market value of the Shares on the day it is received over any amounts paid by the participant for the Shares. There will be no federal income tax deduction allowed to the Company upon the grant or expiration of a SAR. However, upon the exercise of the SAR, the Company will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the participant is required to recognize as a result of the exercise.

 

Share Awards:  The recipient of a share award will recognize ordinary income at the time the property is received equal to the excess, if any, of the fair market value of the Shares received over the amount paid by the participant in exchange for the Shares. If, however, the Shares are subject to a substantial risk of forfeiture at the time of grant (e.g., if the participant is required to work for a period of time before the Shares becomes freely transferable), the participant generally will not recognize income until the restrictions on such Shares lapse, at which time the recipient will recognize ordinary income equal to the excess, if any, of the fair market value of the Shares on the date they become vested over any amount paid by the recipient in exchange for the Shares. Upon the disposition of any Shares received as a share award under the Incentive Plan, the difference between the sale price and the recipient’s basis in the Shares will be treated as a capital gain or loss and generally will be characterized as long-term capital gain or loss if the Shares have been held for more than one year at the time of their disposition.

 

The Company will be entitled to a deduction for federal income tax purposes equal to the amount of ordinary income that the recipient is required to recognize, provided that the deduction is not otherwise disallowed under the Code.

 

Awards Settled in Cash:  The recipient of any award settled in cash will recognize ordinary income at the time the payment is received. The Company will be entitled to a corresponding deduction for federal income tax purposes in an amount equal to the ordinary income recognized by such recipient.

 

Change in Control

 

Unless otherwise specified by the Human Resources Committee, a pro rata portion of a participant’s performance-based awards and short-term incentive (both at 100% target level) will be payable to such participant within ten days following a change in control of the Company. In addition, a participant’s outstanding options and SARs will become immediately vested and exercisable and all outstanding restricted shares and restricted share units will become fully vested and non-forfeitable.

 

Restrictions on Transferability of Awards

 

No award granted under the Incentive Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution, except as otherwise permitted under the Incentive Plan and the terms of the award agreement.

 

New Plan Benefits

 

The awards that will be granted to eligible participants under the Incentive Plan will be at the discretion of the Human Resources Committee and, therefore, are not determinable at this time.

Amendment and Termination of the Incentive Plan

 

Subject to shareholder approval as required by applicable laws, regulations and rules to which the Company is subject, the Company’s board of directors may amend or terminate the Incentive Plan at any time and for any reason, provided that no amendment may, subject to certain exceptions set forth in the Incentive Plan, increase the number of Shares available for award or adversely affect any outstanding awards.

 

Board of Directors’ Recommendation

 

The board of directors recommends that the Incentive Plan be approved by the shareholders of the Company. Unless contrary instructions are indicated on the proxy card, the persons designated in the accompanying proxy card intend to vote FOR approval of the Incentive Plan.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

The following table provides information as of December 31, 2005 regarding the Shares issuable upon the exercise of options under the Conversion Plan, as well as the number of Shares remaining available for issuance under the Conversion Plan. If the Incentive Plan is approved by our shareholders at the Meeting, then no new options will be granted under the Conversion Plan on or after the proposed effective date of the Incentive Plan. The table also shows the number of deferred share units granted pursuant to the Novelis Inc. Deferred Share Unit Plan for Non-Executive Directors.

 

Equity Compensation Plan Information

 

 

 

 

We are committed to the highest levels of corporate governance practices, which we believe are essential to our success and to the enhancement of shareholder value. Our Shares are listed on the Toronto Stock Exchange and New York Stock Exchange and we make required filings with the Canadian and U.S. securities regulators. We make these filings available on our website at www.novelis.com as soon as reasonably practicable after they are electronically filed. We are subject to a variety of corporate governance and disclosure requirements. Our corporate governance practices meet the Toronto Stock Exchange Corporate Governance Guidelines (the “TSX Guidelines”), the New York Stock Exchange rules and other applicable regulatory requirements to ensure transparency and effective governance of the Company. Schedule B attached to this Circular describes our current corporate governance practices under the TSX Guidelines.

 

Our board of directors regularly reviews corporate governance practices in light of developing requirements in this field. As new provisions come into effect, our board of directors will reassess our corporate governance practices and implement changes as and when appropriate. The following is an overview of our corporate governance practices.

 

Novelis Board of Directors

 

Our board of directors has the responsibility for stewardship of Novelis, including the responsibility to ensure that we are managed in the interest of our shareholders as a whole, while taking into account the interests of other stakeholders. Our board of directors supervises the management of our business and affairs and discharges its duties and obligations in accordance with the provisions of: (1) the Canada Business Corporations Act (“CBCA”); (2) our articles of incorporation and bylaws; (3) the charters of our board of directors and its committees; and (4) other applicable legislation and Company policies.

 

Our corporate governance practices require that, in addition to its statutory duties, the following matters be subject to our board of directors’ approval: (1) capital expenditure budgets and significant investments and divestments; (2) our strategic and value-maximizing plans; (3) the number of directors within the limits provided in our articles of incorporation; and (4) any matter which may have the potential for substantial impact on our business. Our board of directors reviews the composition and size of our board of directors once a year. All new directors will receive a board of directors manual containing a record of historical public information about Novelis, as well as the charters of our board of directors and its committees, and other relevant corporate and business information. Senior management makes regular presentations to our board of directors on the main areas of our business. Directors are invited to tour our various facilities.

 

Corporate Governance Guidelines

 

Our board of directors has adopted a charter that establishes various corporate governance guidelines relating to, among other things, the composition and organization of the board of directors, the duties and responsibilities of the board of directors and the resources and authority of the board of directors (the “Board of Directors Charter”). Under the Board of Directors Charter, which is available on our website at www.novelis.com and is available in print from our Corporate Secretary upon request, every meeting of the board of directors is to be followed by an executive session at which no executive directors or other members of management are present. These executive sessions are designed to ensure free and open discussion and communication among the non-management directors. The chairman of the board of directors leads these meetings. Mr. Monahan currently serves as chairman. Shareholders and other interested parties may communicate with the board of directors, a committee or an individual director by writing to Novelis Inc., 3399 Peachtree Rd. NE, Suite 1500, Atlanta, GA 30326, Attention: Corporate Secretary — Board

Communication. All such communications will be compiled by the Corporate Secretary and submitted to the appropriate director or board committee. The Corporate Secretary will reply or take other actions in accordance with instructions from the applicable board contact.

 

Independence of Our Board of Directors

 

To assist in determining the independence of its members, our board of directors has established Guidelines on the Independence of the Directors of Novelis Inc. (“Guidelines on Independence”). The definition of an Independent Director under the Guidelines on Independence, which is available on our website at www.novelis.com and is available in print from our Corporate Secretary upon request, encompasses both the definition of an “unrelated” director within the meaning of the TSX Guidelines and of an “independent” director within the meaning of the rules of the New York Stock Exchange. Such a director: (1) must not have any relationship with us or any of our employees which is likely to be perceived to interfere with the exercise of his or her judgment in a manner that is independent from management; and (2) must not have an interest or relationship which could reasonably be perceived to materially interfere with his or her ability to act in the best interests of Novelis (an Independent Director). Under the Guidelines on Independence, the following relationships generally will be considered not to be material relationships that would impair a director’s independence: (1) if a director is an officer, partner or significant shareholder in an entity that does business with us and the annual sales or purchases, for goods or services, to or from us are less than two percent of the consolidated gross annual revenues of that entity; (2) if a director is a limited partner, a non-managing member or occupies a similar position in an entity that does business with us, or has a shareholding in such entity which is not significant, and who, in each case, has no active role in sales to or in providing services to us and derives no direct material personal benefit from the same; and (3) if a director serves as an officer, director or trustee of a charitable organization and our charitable contributions to the organization are less than two percent of that organization’s total consolidated gross annual revenues. For purposes of the Guidelines on Independence, a “significant shareholding” means direct or indirect beneficial ownership of five percent or more of the outstanding equity or voting rights of the relevant entity. Our board of directors has determined that all members of the board of directors, with the exception of our Chairman and Interim Chief Executive Officer, William T. Monahan, are Independent Directors.

 

The Guidelines on Independence establish standards for members of our Audit, Human Resources and Nominating and Corporate Governance Committees. These standards comply with the audit committee member independence qualifications under the U.S. Sarbanes-Oxley Act of 2002 (“SOX”). To satisfy the SOX audit committee qualifications, a director must not, directly or indirectly, accept any consulting, advisory or other compensatory fee from us (except in his or her capacity as director) and may not be an affiliated person of Novelis or any subsidiary other than in his or her capacity as a member of our board of directors or any committee of our board of directors.

 

Committees of Our Board of Directors

 

Our board of directors has established four standing committees: the Audit Committee, the Nominating and Corporate Governance Committee, the Human Resources Committee and the Customer Relations Committee. Each committee is governed by its own charter which is available on our website at www.novelis.com and is available in print from our Corporate Secretary upon request. All four standing committees are required to be composed entirely of Independent Directors.

 

According to their authority as set out in their charters, our board and each of its committees may engage outside advisors at the expense of Novelis.

 

Audit Committee and Financial Experts

 

Our board of directors has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), the requirements of the CBCA and the New York Stock Exchange and Toronto Stock Exchange rules. Our board of directors has determined that Edward A. Blechschmidt, David J. FitzPatrick, Suzanne Labarge and Kevin M. Twomey are Audit Committee financial experts as defined by the rules of the SEC and that each member

of our Audit Committee is an Independent Director within the meaning of the applicable New York Stock Exchange and Toronto Stock Exchange listing standards. Our Audit Committee Charter is attached as Schedule E to this Circular, is available on our website at www.novelis.com and is available in print upon request from our Corporate Secretary.

 

Our Audit Committee’s main objective is to assist our board of directors in fulfilling its oversight responsibilities for the integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent registered public accounting firm and the performance of both our internal audit function and our independent registered public accounting firm. Under the Audit Committee charter, the Audit Committee is responsible for, among other matters:

 

 

Our Audit Committee will also assist us in ensuring that our process for monitoring compliance with, and dealing with violations of, our Code of Conduct, which is described below, is established and updated. In particular, our Audit Committee has established procedures in relation to complaints or concerns that we may receive involving accounting, internal accounting controls or audit matters, including the anonymous handling thereof. Such procedures are available at www.novelis.com under our Code of Conduct.

 

Nominating and Corporate Governance Committee

 

Our Nominating and Corporate Governance Committee has the broad responsibility of regularly reviewing our corporate governance practices in general. Our Nominating and Corporate Governance Committee is composed entirely of Independent Directors.

 

In addition to its responsibilities for the design, implementation, review, and evaluation of our corporate governance policies and practices, our Nominating and Corporate Governance Committee oversees the composition and size of our board of directors. The committee reviews candidates for nomination as directors and recommends candidates for election to our board of directors. The committee also considers nominees submitted by shareholders to our Corporate Secretary. You may submit director nominations in writing to Novelis Inc., 3399 Peachtree Road, NE Suite 1500, Atlanta, Georgia, 30326, Attention: Corporate Secretary.

 

In identifying and evaluating candidates for nomination to our board of directors, our Nominating and Corporate Governance Committee considers several factors, including judgment, independence, skill, diversity, experience with businesses and other organizations of comparable size, and the requirement that, as a federal Canadian corporation, at least 25% of our directors must be resident Canadians. The qualifications and backgrounds of prospective candidates are reviewed in the context of the current composition of the board of directors to ensure it maintains the proper balance of knowledge, experience and diversity to effectively manage our business for the long-term interests of our shareholders. Our Nominating and Corporate Governance Committee is allowed to employ search firms for identifying and evaluating director nominees.

 

Our Nominating and Corporate Governance Committee assesses and ensures on an annual basis the effectiveness of our board of directors as a whole, of each committee of our board of directors and the

contribution of individual directors. Each director will complete a survey of board effectiveness on an annual basis which we anticipate will cover the subjects under the categories of board composition, responsibility, meetings and committees. As part of this survey, each of our directors will be asked to complete a self-evaluation and an evaluation of the board of directors as a whole and its committees. Our Nominating and Corporate Governance Committee also assesses our board’s relationship with management.

 

Human Resources Committee

 

Our Human Resources Committee has the broad responsibility to review human resources policy and employee relations matters and makes recommendations with respect to such matters to our board of directors or our chief executive officer, as appropriate. Our Human Resources Committee is composed entirely of Independent Directors. Its specific roles and responsibilities are set out in its charter. Our Human Resources Committee will periodically review the effectiveness of our overall management organization structure and succession planning for senior management, review recommendations for the appointment of executive officers, and consider and make recommendations to our board of directors based on trends and developments in the area of human resource management.

 

Our Human Resources Committee will establish our general compensation philosophy and oversee the development and implementation of compensation policies and programs. It also will review and approve the level of and/or changes in the compensation of individual executive officers, except that in the case of the chief executive officer and chief operating officer, it will make recommendations regarding compensation and objectives to the board of directors, in each case taking into consideration individual performance and competitive compensation practices.

 

Our Human Resources Committee has the responsibility of reviewing our policies, management practices and performance in environment, health and safety matters and making recommendations to our board of directors on such matters in light of current and changing requirements. Our Human Resources Committee will also review, assess and provide advice to our board of directors on policy, legal, regulatory and consumer trends and developments related to the environment, as they impact us, our employees, businesses, processes and products.

 

Customer Relations Committee

 

In an advisory capacity, our Customer Relations Committee reviews information furnished by management, provides advice and counsel, and serves as a conduit for communications with our board of directors for the purposes of deepening our board’s understanding of: (1) key end-use markets served by us; (2) our existing and prospective customers in such markets; (3) the nature of our relationships with such customers (and efforts to further develop such relationships); (4) the needs of, and trends facing, our customers and key end-use markets; (5) the fact base regarding flat rolled products markets and competitive environments that, in the foreseeable future, may be served by us; and (6) our efforts to identify and implement best practices in the areas of marketing and sales.

 

Code of Ethics and Code of Conduct

 

Novelis has adopted a Code of Ethics for Senior Financial Officers (“Code of Ethics”) that applies to our senior financial officers including our chief executive officer, chief financial officer and controller. We have also adopted a Code of Conduct that governs all our employees as well as our directors. As an annex to the Code of Conduct and supplemental thereto, we have adopted additional standards specifically tailored to our business operations around the globe. Copies of the Code of Ethics and Code of Conduct are available on our website at www.novelis.com. We will promptly disclose any future amendments to these codes on our website as well as any waivers from these codes for executive officers and directors. Copies of these codes are also available in print upon request by our shareholders from our Corporate Secretary.

 

We have also established “whistleblower” procedures so that an employee can anonymously report concerns that he or she may have regarding compliance with corporate policies, the Code of Conduct, the Code of Ethics, applicable laws or auditing, internal accounting controls and accounting matters. These procedures are part of the Code of Conduct.

 

The following report does not constitute soliciting material and should not be deemed filed or incorporated by reference by any general statement incorporating by reference this Circular into any other filing under Canadian securities laws, under the United States Securities Act of 1933, as amended, or under the Exchange Act except to the extent that we specifically incorporate this information by reference.

 

In accordance with its charter attached as Schedule E of this Circular, our Audit Committee has oversight responsibility for Novelis’ financial reporting process and internal control functions. Management has the primary responsibility for the financial reporting process and the system of internal controls. PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, has the responsibility to express an opinion on the consolidated and combined financial statements based on their audit in accordance with generally accepted auditing standards.

 

At each regular meeting, the Audit Committee meets separately with senior management, our Chief Internal Auditor and our independent registered public accounting firm to discuss any matters that the Audit Committee or any of these parties believe should be discussed privately.

 

The Audit Committee has reviewed and discussed with the Company’s management and PricewaterhouseCoopers LLP the consolidated and combined financial statements of the Company for the year ended December 31, 2005. The Audit Committee has also discussed with PricewaterhouseCoopers LLP the matters required to be discussed pursuant to Statement on Auditing Standards No. 61, as amended.

 

The Audit Committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with PricewaterhouseCoopers LLP its independence from the Company.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the board of directors that the consolidated and combined financial statements be included in the Company’s Annual Report on Form 10-K for year ended December 31, 2005 for filing with the SEC.

 

Approval of this Report

 

The Audit Committee, whose members are set forth below, has approved the issue of this report and its inclusion in this Circular.

 

 

The following report does not constitute soliciting material and should not be deemed filed or incorporated by reference by any general statement incorporating by reference this Circular into any other filing under Canadian securities laws, under the United States Securities Act of 1933, as amended, or under the Exchange Act except to the extent that we specifically incorporate this information by reference.

 

Our Human Resources Committee is responsible for administering the compensation program for our executive officers. Our executive compensation program is based upon a pay-for-performance philosophy. Under our program, an executive’s compensation is based on three components, namely, base salary, short-term (annual) incentives and long-term incentives. Our Human Resources Committee is assisted by independent consultants.

The total direct compensation policy is aligned with prevalent U.S. competitive median compensation practices. U.S. compensation data is obtained from two primary sources: (1) comparison to executive compensation within a peer group of companies; and (2) published survey information that includes large multinational companies representative of the general market.

 

Both the short-term and long-term incentive plans are aligned with the Company’s governing objective to maximize shareholder value over time. The details of Novelis’s compensation programs are outlined below.

 

Total direct compensation levels reflect both the responsibility of each position (internal equity) and competitive market levels (external competitiveness). The total direct compensation policy is targeted at the median of the competitive market level as indicated by peer group comparison and by survey information.

 

Base Salary

 

The target base salary is the median of a salary range for an executive officer and reflects the competitive level of similar positions in a compensation peer group and as reported in the survey information. Actual base salaries for executive officers reflect the individual’s performance and contribution to the Company. Base salaries of executive officers are therefore reviewed annually and any proposed changes are approved by our Human Resources Committee before implementation. The board of directors must approve base salaries for the most senior of the executive officers including those listed in the Summary Compensation Table. We have established a compensation peer group, and we utilize published survey information from established human resources consulting firms.

 

Short-Term (Annual) Incentives

 

We provide annual incentive benefits, which are administered by our Human Resources Committee. Short-term incentive awards are determined by three components, each based on a different aspect of our performance. For each position, a target award is set (expressed as “percent of base salary midpoint”) reflecting both the responsibilities of the position and the competitive compensation levels. For 2005, the short-term incentive awards were determined by performance measured against the following three components:

 

1. 50% of the incentive opportunity of an executive is based on our overall cash flow generation as measured against working capital turns improvement;

 

2. 40% of the incentive opportunity is based on our profitability as measured against economic value added targets; and

 

3. 10% of the incentive opportunity is based on the achievement of environment, health and safety objectives as measured against pre-established continuous improvement targets.

 

The overall award paid is the sum of the weighted results of each component, modified for individual performance and contribution to the Company. Currently, short-term incentive awards are paid in cash. For 2006, the three measurement criteria described above remain unchanged except that 40% of the incentive opportunity is measured against regional income targets instead of economic value added targets. If the 2006 Incentive Plan is approved by our shareholders at the 2006 annual meeting of shareholders, short-term incentive awards may be paid in cash, Shares or a combination of both. The award paid may range from zero when the results achieved are less than the minimum target thresholds set by our Human Resources Committee, up to 200% of the target award when the results achieved are at or exceed the maximum target level which was set by our Human Resources Committee. For 2005, executive officers earned short-term incentive awards that were generally above the target amounts reflecting performance on the three performance components that was above the pre-established targets.

Long-Term Incentives

 

The purpose of our long-term incentives is to attract and retain employees and to encourage them to contribute to our growth and long-term success. Long-term incentives are tied to the successful share price performance of the Company thereby aligning the interests of our executives with those of our shareholders.

 

Stock Options

 

On January 5, 2005, our board of directors adopted the Novelis Conversion Plan of 2005 (the “Conversion Plan”) to allow for all Alcan stock options held by employees of Alcan who became our employees following our spin-off from Alcan to be replaced with options to purchase our Shares. While new options may be granted under the Conversion Plan, there were no new options granted in 2005 under the plan. As of December 31, 2005 our employees held stock options covering 2,704,790 of our Shares at a weighted average exercise price per share of $21.60. No future awards will be granted under the Conversion Plan if the 2006 Incentive Plan is approved by our shareholders at the 2006 annual meeting of shareholders. All converted options that were vested on the spin-off date continued to be vested. Unvested options vest in four equal annual installments beginning on January 6, 2006, the first anniversary of the spin-off date. In the case of a change in control of Novelis, all options will become immediately exercisable.

 

Stock Price Appreciation Units

 

Our board of directors approved the Stock Price Appreciation Unit Plan, effective as of January 5, 2005. Prior to the spin-off date, a small number of Alcan employees held Alcan stock price appreciation units (“SPAUs”) entitling them to receive cash in an amount equal to the excess of the market value of an Alcan common share on the SPAU exercise date over the market value of an Alcan common share on the SPAU grant date. As of the spin-off date, we replaced all of the Alcan SPAUs held by employees of Alcan who became our employees, including our executive officers, with Novelis SPAUs. There were no new SPAUs granted in 2005 under the plan. No future awards will be granted under the Stock Price Appreciation Unit Plan if the 2006 Incentive Plan is approved by our shareholders at the 2006 annual meeting of shareholders. As of December 31, 2005, our employees held 418,777 SPAUs at a weighted average price of $22.04. All converted SPAUs that were vested on the spin-off date continued to be vested. Unvested SPAUs vest in four equal annual installments beginning on January 6, 2006, the first anniversary of the spin-off date. In the case of a change in control of Novelis, all SPAUs will become immediately exercisable.

 

Novelis Founders Performance Awards

 

On March 24, 2005, our board of directors adopted the Novelis Founders Performance Award Plan (the “Founders Plan”) to allow for an additional compensation opportunity tied to Novelis share price improvement targets for certain of our executives approved by the Human Resources Committee, including those listed in the Summary Compensation Table. Participants earn performance share units (“PSUs”) if Novelis share price improvement targets are achieved within prescribed time periods. The Founders Plan identifies three relevant performance periods. The first performance period runs from March 24, 2005 to March 23, 2008, the second performance period runs from March 24, 2006 to March  23, 2008 and the third performance period runs from March 24, 2007 to March 23, 2008. The share price improvement targets for these three tranches are $23.57, $25.31 and $27.28, respectively. Participants are eligible to receive an aggregate of 399,050 PSUs under the Founders Plan, but only if the share price improvement targets are achieved. An equal amount of PSUs may be earned during each performance period if the applicable share price improvement target is achieved during such period. As described below in footnote 1 under the caption “Long-Term Incentive Plan Table — Founders Plan,” in March 2006 Mr. Sturgell and our board of directors agreed to alter the allocation of Mr. Sturgell’s PSUs for each of the three tranches.

 

If earned, a particular tranche will be paid in cash on a particular “payment date,” which is defined as the later of six months from the date the specific share price improvement target is achieved or twelve months after the start of the applicable performance period. The value of a PSU equals the average of the daily closing price of our common stock as reported on the New York Stock Exchange for the last five trading days prior to

the payment date. For example, the share price improvement target for the performance period running from March 24, 2005 to March 23, 2008 has already been achieved and 180,350 PSUs were earned on June 20, 2005. Subsequent to June 30, 2005, 48,500 PSUs were forfeited, leaving 131,850 PSUs still active. The value of each of these PSU’s was calculated in the manner described above using a valuation date of March 24, 2006 (which is the date that is twelve months after the start of the applicable performance period). In April 2006, these PSUs were settled in cash in the amount of $2,655,459.

 

On March 14, 2006, the board of directors amended the Founders Plan in order to clarify when PSUs will be earned under the second and third tranches of the Founders Plan for periods beginning in 2006 and 2007, respectively. The amended Founders Plan now provides that the second and third tranches of PSUs will be earned if, during the period of each tranche, the share price reaches (or exceeds) the target price and is maintained or exceeded for 15 consecutive trading days during an open trading period for directors and executive officers. An open trading period is any period, other than a trading blackout period, in which directors and executives are free to purchase or sell Shares. Previously, the Founders Plan did not specify that the 15-day vesting period must occur during an open trading period.

 

Incentive Plan

 

The Incentive Plan was approved by our board of directors, subject to the approval of the shareholders of the Company. The Incentive Plan will replace, on a prospective basis, the Conversion Plan and the SPAU Plan and no future awards will be granted under such plans if the Incentive Plan is approved by the Company’s shareholders. Short-term (annual) incentive compensation will also be paid pursuant to the Incentive Plan. This summary is qualified in its entirety by reference to the full text of the Incentive Plan, a copy of which is attached as Schedule F to this Circular.

 

The purpose of the Incentive Plan is to promote the interests of the Company and its shareholders by motivating, attracting and retaining key employees and non-employee directors of the Company and its subsidiaries through the issuance of equity-based awards and short-term incentive compensation.

 

The Incentive Plan authorizes the award of stock options, SARs, restricted shares, restricted share units, performance shares and other stock-based incentives. The Incentive Plan also authorizes payment of short-term incentives, payable in cash or Shares, following satisfaction of pre-established performance objectives.

 

The Incentive Plan will be administered by the Human Resources Committee, except that the full board of directors will be responsible for the administration of awards to the Company’s non-employee directors.

 

The CEO’s annual compensation is administered by the board of directors, based on recommendations from the Human Resources Committee according to the policies described above. Mr. Sturgell became CEO on January 6, 2005 and entered into an employment agreement with the Company. The board of directors set Mr. Sturgell’s compensation on a competitive level with other U.S. chief executive officers of global companies of similar size, and also provided Mr. Sturgell with a comparable level of compensation to that received from his previous employer.

 

On August 29, 2006, the Board of Directors terminated Mr. Sturgell as CEO and appointed Chairman William T. Monahan to also serve as Interim CEO until a successor for Mr. Sturgell is identified. At this time, Mr. Sturgell and the Company are still negotiating the terms of his separation agreement that are not otherwise addressed by the provisions of his existing agreements with the Company. Once the agreement is finalized and executed, the details of the separation agreement will be filed with the SEC via Item 1.01 of Form 8-K.

 

Decisions pertaining to the CEO’s compensation are based on our board’s evaluation of the CEO’s performance against pre-determined financial and strategic objectives. These objectives are set and approved annually at the beginning of the year. Mr. Sturgell’s goals and objectives for 2005 included performance against pre-established targets for cash flow, economic value added, environment, health and safety. Goals and objectives also included increasing financial awareness of the investment community, succession planning and customer relations. The Human Resources Committee recommended to the board of directors that the CEO’s

total direct compensation (base salary, target short-term incentives and target long-term incentives) be set at the median of the U.S. market. The overall performance against the goals and objectives is reflected in establishing the actual compensation of the CEO.

 

In 2005, Mr. Sturgell’s base salary (representing approximately 17% of his target total direct compensation) was $985,000. It was not increased for 2006. Mr. Sturgell also received short-term incentive award for 2005 equal to $820,147. This amount is approximately 50% less than the amount he would have received ($1,681,130) based on the original short-term incentive targets established by the Company and the Company’s 2005 financial performance. The board of directors reduced Mr. Sturgell’s 2005 short-term incentive pay because of the delay in the Company’s financial reporting and overall share price performance.

 

Mr. Sturgell received no options in 2005. Mr. Sturgell received a grant in the aggregate of 140,550 PSUs on March 24, 2005, subject to the achievement of share price improvement targets, under the Founders Plan. On March 14, 2006, Mr. Sturgell agreed with the board of directors that, in light of our 2005 and 2006 financial reporting delay and restatement, Mr. Sturgell would forfeit 46,850 PSUs attributable to the first tranche of the award. The board of directors also approved an increase in the size of the award opportunity for Mr. Sturgell for the second and third tranches under the Founders Plan in an amount equal to 23,425 PSUs for each tranche, increasing the total award size to 70,275 PSUs for each PSU tranche. The PSUs for the second and third tranches would not have vested and become payable unless the share price improvement targets specified in the Plan ($25.31 and $27.28 respectively) were achieved. As a result of Mr. Sturgell’s termination as CEO on August 29, 2006, all of his PSUs attributable to the second and third tranches were forfeited.

 

Mr. Sturgell’s employment agreement provides for competitive retirement benefits. In addition, Mr. Sturgell and the Company entered into a change in control agreement dated December 5, 2005, which provides for payment and other benefits upon the termination of employment for any reason other than cause, as defined in the agreement. Pursuant to the change in control agreement, Mr. Sturgell will be entitled to an amount equal to 36 months of his base salary and target short-term incentive award (payable in 36 equal monthly instalments), plus the amount payable under provisions of the TSR Plan. Mr. Sturgell will also be entitled to continuation of certain employee benefits and additional service credits of three years under the Company’s pension plans.

 

The Human Resources Committee believes that the compensation program serves its intended objectives. Section 162(m) of the United States Internal Revenue Code of 1986, as amended, provides a number of exceptions to the $1 million deduction limitation on compensation paid to executives, and it is the intent of the Human Resources Committee to qualify for these exceptions to the extent feasible and in the best interests of the Company, including the exceptions with respect to performance-based compensation.

 

While it is the Human Resources Committee’s intention to maximize the deductibility of compensation payable to the Company’s Named Executive Officers, deductibility will be only one among a number of factors used by the Human Resources Committee in ascertaining appropriate levels or methods of compensation. The Company intends to maintain the flexibility to compensate Named Executive Officers based upon an overall determination of what it believes to be in the best interests of the Company and its shareholders.

 

The Human Resources Committee, whose members are set forth below, has approved the issue of this report and its inclusion in this Circular.

 

 

 

In fiscal 2005, only Independent Directors served on our Human Resources Committee. Clarence J. Chandran was the chair of our Human Resources Committee. The other committee members during all or part of the year were Charles G. Cavell, C. Roberto Cordaro, Helmut Eschwey, Suzanne Labarge, William T. Monahan and J.E. Newall. No member of our Human Resources Committee had any relationship with us requiring disclosure under Item 404 of SEC Regulation S-K. No executive officer of Novelis served on any board of directors or compensation committee of any other company for which any of our directors served as an executive officer at any time during fiscal 2005.

 

The shares price performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference by any general statement incorporating by reference this Circular into any other filing under Canadian securities laws, under the United States Securities Act of 1933, as amended, or under the Exchange Act except to the extent that we specifically incorporate this information by reference.

 

The following graph and tables provide the cumulative total shareholder return on $100 invested in Shares from January 6, 2005 through December 31, 2005 as compared to the cumulative total return of the Standard & Poor’s/Toronto Stock Exchange Composite Index and the Standard & Poor’s Industrial Composite Index over the same period of time, assuming reinvestment of all dividends.

 

CUMULATIVE TOTAL RETURN
Based upon an initial investment of Can. $100
on January 6, 2005 with dividends reinvested

 

Comparison of Cumulative Total Return

 

 

Canadian Dollar Data:  amounts in the following table are expressed in Canadian dollars and reflect the data in the above graph.

 

 

U.S. Dollar Data:  for purposes of comparison, amounts in the following table show cumulative total shareholder returns in U.S. dollars with differences from the Canadian dollar data attributable to the relative differences in the values of the two currencies over the period presented.

 

 

Shareholder returns over the period shown in the graph and tables should not be considered indicative of future shareholder returns.

 

Based on filings with the SEC, the following shareholders are known by us to own more than 5% of our Shares as of September 8, 2006:

 

 

 

 

The following table sets forth, as of August 10, 2006, beneficial ownership of Shares by each director and each executive officer named in the Summary Compensation Table on page 31, and all directors, nominees and executive officers as a group.

 

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares and options, warrants and convertible securities that are currently exercisable or convertible within 60 days of August 10, 2006, into our Shares are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

The address for the following individuals is: c/o Novelis Inc., 3399 Peachtree Road NE; Suite 1500; Atlanta, GA 30326.

 

 

 

 

The rules of the SEC require that we disclose late filings of reports of share ownership by Novelis directors and executive officers. Because we were a “foreign private issuer” for U.S. securities law purposes throughout the 2005 fiscal year, our directors and officers were exempt from the filing requirements of Section 16(a) of the Exchange Act. Accordingly, we have nothing to report in respect of Section 16(a) compliance in 2005. We determined that under the rules and regulations promulgated by the SEC, as of February 27, 2006, a majority of our outstanding Shares are now directly or indirectly held by U.S. residents and, accordingly, we ceased to qualify as a foreign private issuer. We will henceforth assume the status of a domestic issuer for purposes of the Exchange Act. Therefore, our directors and officers are now required to file reports under Section 16(a) of the Exchange Act.

 

Summary Compensation Table

 

The following table sets out the compensation for our chief executive officer and the four other most highly compensated executive officers (collectively, the “Named Executive Officers”) for the years ended December 31, 2005, December 31, 2004 and December 31, 2003.

 

 

 

 

 

 

 

Fiscal Year-End Option/ SPAU Table

 

The following table summarizes, for each of the Named Executive Officers, the total number of Shares underlying unexercised options held on December 31, 2005 and the aggregate value of unexercised in-the-money options on December 31, 2005, which is the difference between the exercise price of the options and the market value of the Shares on December 31, 2005, which was $20.89 per share. The aggregate values indicated with respect to unexercised in-the-money options at fiscal year-end have not been, and may never be, realized. These options have not been, and may never be exercised and actual gains, if any, on exercise will depend on the value of the Shares on the date of exercise. There can be no assurance that these values will be realized.

 

 

 

Long-Term Incentive Plan Table — Founders Plan

 

On March 24, 2005, our board of directors adopted the Founders Plan to allow for an additional compensation opportunity tied to Novelis share price improvement targets for certain of our executives approved by the Human Resources Committee. Participants earn PSUs if Novelis share price improvement targets are achieved within three performance periods: March 24, 2005 to March 23, 2008; March 24, 2006 to March 23, 2008; and March 24, 2007 to March 23, 2008. The table below sets forth PSU tranches representing the number of PSUs that participants are eligible to receive for the three performance periods under the Founders Plan if share improvement targets are achieved. The share price improvement targets for these three tranches are $23.57, $25.31 and $27.28, respectively.

 

 

 

Retirement Benefits

 

Novelis Pension Plan for Officers

 

Our Human Resources Committee determines participants in the Pension Plan for Officers (“PPO”). This plan is a supplemental executive retirement plan that provides an additional pension benefit based on combined service up to 20 years as an officer of Novelis or of Alcan and eligible earnings which consist of the excess of the average annual salary and target short-term incentive award during the 60 consecutive months when they were the greatest over eligible earnings in the U.S. Plan or the U.K. Plan, as applicable. Both the U.S. Plan and U.K. Plan are described below. Each provides for a maximum pension benefit on eligible earnings that is established with reference to the position of the officer prior to being designated a PPO participant. The following table shows the percentage of eligible earnings in the PPO, payable upon normal retirement after age 60, according to combined years of service as an officer of Novelis or of Alcan.

 

 

The normal form of payment of pensions is a lifetime annuity. Pensions are not subject to any deduction for social security or other offset amounts.

 

Prior to their termination, Brian W. Sturgell and Christopher Bark-Jones were the only participants in the PPO. Mr. Sturgell has 9 years and 10 months of combined service and Mr. Bark-Jones has 14 years and 10 months of combined service under the PPO. Eligible earnings under the PPO for 2005 for Mr. Sturgell were $983,556 and were $282,414 for Mr. Bark-Jones.

 

U.S. Plan

 

During 2005, those of our employees previously participating in the Alcancorp Pension Plan and the Alcan Supplemental Executive Retirement Plan (collectively referred to as the “U.S. Plan”) received up to one year of additional service under each plan to the extent that such employees continued to be employed by us during the year. We paid to Alcan the normal cost (in the case of the Alcancorp Pension Plan) and the current service cost (in the case of the Alcan Supplemental Executive Retirement Plan) with respect to those employees. The U.S. Plan provides for pensions calculated based upon combined service with us or Alcan of up to 35 years. Eligible earnings consist of the average annual salary and the short-term incentive award up to its target during the 3 consecutive calendar years when they were the greatest, subject to a cap for those participating in the PPO.

 

Effective January 1, 2006, Novelis adopted the Novelis Pension Plan which provides benefits identical to the benefits provided under the Alcancorp Pension Plan. Executive officers who were participants in the Alcancorp Pension Plan will participate in the Novelis Plan. Executive officers who were not participants in the Alcancorp Pension Plan will not participate in the Novelis Plan. Executive officers who were hired on January 1, 2005 or later will participate in the Novelis Savings and Retirement Plan.

 

The following table shows estimated retirement benefits, expressed as a percentage of eligible earnings, payable upon normal retirement at age 65 according to years of combined service.

 

 

The normal form of payment of pensions is a lifetime annuity with either a guaranteed minimum of 60 monthly payments or a 50% lifetime pension to the surviving spouse.

 

At age 65, the estimated credited years of combined service for Martha Finn Brooks, Kevin Greenawalt and Pierre Arseneault would be approximately 22 years, 39 years and 40 years, respectively. Mr. Sturgell has 17 years and 5 months of combined service under the U.S. Plan. Eligible earnings under the plan for 2005 for

Mr. Sturgell, Ms. Brooks, Mr. Greenawalt and Mr. Arseneault were $938,340, $1,029,800, $443,000 and $460,380, respectively.

 

Individual Pension Undertakings

 

In addition to participation in the U.S. Plan described above, Martha Finn Brooks will receive from us a supplemental pension equal to the excess, if any, of the pension she would have received from her employer prior to joining Alcan had she been covered by her prior employer’s pension plan until her separation or retirement from Novelis, over the sum of her pension from the U.S. Plan and the pension rights actually accrued with her previous employer.

 

U.K. Plan.

 

The U.K. Plan, which was transferred to us from Alcan in connection with the spin-off, provides for pensions calculated on service of up to 40 years and eligible earnings, which consist of the average annual salary and the short-term incentive award up to its target during the last 12 months before retirement, subject to a cap for those participating in the PPO.

 

The following table shows estimated retirement benefits, expressed as a percentage of eligible earnings, payable upon normal retirement at age 65 according to combined years of service.

 

 

The normal form of payment of pensions is a lifetime annuity with a guaranteed minimum of 60 monthly payments and a 60% lifetime pension to the surviving spouse.

 

Prior to his termination, Christopher Bark-Jones was the only executive officer entitled to participate in the U.K. Plan. Mr. Bark-Jones has approximately 29 credited years of combined service under the U.K. Plan and his eligible earnings in 2005 were $480,386.

 

Value of the Retirement Benefits

 

A measure of the value of the U.S. Plan, U.K. Plan and of the Pension Plan for Officers that can be deemed to be part of the total 2005 compensation of the five aforementioned Named Executive Officers is the service cost of the plans. The service cost is the estimated present value of benefits attributable by the pension benefit formula to services rendered by the plan members during a given period. The valuation of benefits is based on actuarial assumptions in relation to future events that will vary by plan to take into account the general characteristics of its membership.

 

Another measure of the value of pension plans or pension benefits is the projected benefit obligation (“PBO”). The PBO is the actuarial present value of the part of the total pension payable at retirement that is attributable to service rendered up to the date of valuation.

 

The following table indicates the total projected annual pension of each Named Executive Officer from the plans described above, based on years of credited combined service up to the normal retirement age of 65 and eligible earnings to the end of 2005. The table also indicates 2005 service cost and the PBO as of December 31, 2005 in relation to each Named Executive Officer.

 

The service cost and the PBO amounts are only estimates using prevailing interest rates of the discounted value of contractual entitlements. The value of these estimated entitlements may change over time because they are based on long-term assumptions, such as the expected distribution of retirement ages, future compensation increases and life expectancy, that may not represent actual developments. Furthermore, the methods used to determine these amounts will not be the same as those used by other companies and therefore will not be directly comparable. The actuarial assumptions applied are the same as those used to determine the service cost and the benefit obligation as described in Note 15 to our combined and consolidated financial

statements for the year ended December 31, 2005. There is no contractual undertaking by the Company to pay benefits of equivalent amounts.

 

 

In connection with our spin-off from Alcan, we entered into employment agreements with Brian W. Sturgell, our former Chief Executive Officer, Martha Finn Brooks, our Chief Operating Officer, Chris Bark-Jones, our former President of our European operations, Kevin Greenawalt, President of our North American operations and Pierre Arseneault, our former Vice President of Strategic Planning and Information Technology, and other executive officers, setting out the terms and conditions of their employment. In 2005, under their respective employment agreements, Brian W. Sturgell was entitled to a base salary of $985,000, Martha Finn Brooks was entitled to a base salary of $655,000, Chris Bark-Jones was entitled to a base salary of $440,611, Kevin Greenawalt was entitled to a base salary of $310,000 and Pierre Arseneault was entitled to a base salary of $300,000. Each of these officers was also eligible for participation in programs providing short-term incentives, long-term incentives and other types of compensation that reflect the competitive level of similar positions in the compensation peer groups or as included in published survey information.

 

Certain of our executive officers have also entered into change in control agreements that provide for severance payments by us upon the termination of the executive officer’s employment without cause or by the executive officer for good reason. Except in the case of Brian W. Sturgell, upon the occurrence of such an event, the executive would be entitled to an amount equal to 24 months of his or her base salary and target short-term incentive award. These change in control agreements will expire on the earliest to occur of the second anniversary of the spin-off (January 6, 2007), the date of the executive’s death or retirement, or the date following the termination of the executive’s employment for any other reason.

 

Mr. Sturgell is entitled to an amount equal to 36 months of his base salary and target short-term incentive award (payable in 36 equal monthly instalments), plus the amount payable under provisions of the TSR Plan upon termination of his employment without cause. In addition, Mr. Sturgell’s change in control agreement provides that severance payments under such agreement will be excluded from the calculation of earnings for purposes of calculating pension benefits; however, the duration of such payments will be included for purposes of calculating years of service under the Company’s pension plans.

 

On July 1, 2002, Alcancorp entered into a Deferred Share Agreement with Martha Finn Brooks pursuant to which Alcancorp agreed to grant to Ms. Brooks 33,500 shares of Alcan common shares on August 1, 2005, the date of her third anniversary of employment, as compensation for the loss by Ms. Brooks of accrued benefits and unvested restricted shares at her former employer. In connection with our spin-off from Alcan, on January 6, 2005, we assumed Alcancorp’s obligations under the Deferred Share Agreement and the 33,500 shares of Alcan common stock to be granted were converted into 66,477 Shares. On July 27, 2005, the Deferred Share Agreement was amended to provide that we will, in lieu of granting Ms. Brooks 66,477 Shares, pay Ms. Brooks cash in an amount equal to the value of such Shares based on the closing price of such Shares on the New York Stock Exchange on August 1, 2005, subject to applicable withholding taxes. Ms. Brooks received a payment in the gross amount of $1,864,691.

 

Each of our non-executive directors is entitled to receive compensation equal to $150,000 per year, payable in quarterly installments, except that the directors who are members of our Audit Committee are entitled to $155,000. The chair of our board of directors is to receive compensation equal to $250,000 per year, and the chair of our Audit Committee is entitled to receive $175,000 per year. We have adopted a Deferred Share Unit Plan for Non-Executive Directors, pursuant to which 50% of our directors’ compensation is required to be paid in the form of DDSUs, and 50% in the form of either cash, additional DDSUs, or a combination of the two at the election of each non-executive director, unless otherwise determined by our Human Resources Committee. An employee of Novelis who is a director is not entitled to receive fees for serving on our board of directors.

 

Because at least half of our non-executive directors’ compensation will be paid in DDSUs, our non-executive directors are not required to own a specific amount of our Shares. DDSUs are the economic equivalent of our Shares. A director cannot redeem the accumulated DDSUs until he or she ceases to be a member of our board of directors.

 

Our board of directors believes that compensation in the form of DDSUs together with the requirement that our non-executive directors retain all DDSUs until they cease to be a director helps to align the interests of our non-executive directors with those of our shareholders.

 

The number of DDSUs to be credited to the account of a non-executive director each quarter will be determined by dividing the quarterly amount payable in DDSUs, by the average closing prices of a common share on the Toronto and New York stock exchanges on the last five trading days of each quarter. Additional DDSUs will be credited to each non-executive director corresponding to dividends declared on our Shares. The DDSUs are redeemable only upon termination of the directorship and may be redeemed in cash, our Shares or a combination thereof, at the election of the director. The amount to be paid by us upon redemption will be calculated by multiplying the accumulated balance of DDSUs by the average closing prices of a common share on the Toronto and New York stock exchanges on the last five trading days prior to the redemption date. For services rendered by directors in 2005, 57,051 DDSUs were granted.

 

Our non-executive directors are entitled to reimbursement for transportation, lodging and other expenses incurred in attending meetings of our board of directors and meetings of committees of our board of directors. Our non-executive directors who are not Canadian residents are entitled to reimbursement for tax advice related to compensation.

 

The following table sets out the individual election of each non-executive director in relation to their compensation.

 

 

Alcancorp established a real estate loan program to assist relocating employees in the United States. Under the program, an employee was permitted to obtain an interest-free loan from Alcancorp, the proceeds of which were to be used only to purchase a new principal residence. The loan is secured by a mortgage on the new principal residence. On July 1, 2003, Jo-Ann Longworth, our former Vice President and Controller, received a loan from Alcancorp in the amount of $75,000 under this program. As of January 20, 2005, the loan was transferred to a third-party bank. The largest amount outstanding under the loan in 2005 was $73,125. There was no interest paid to us for the loan prior to it being transferred to the third party bank.

 

Novelis carries insurance covering liability, including defense costs, of directors and officers of Novelis 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 Novelis may be prohibited by law from indemnifying the directors or officers. The policy also reimburses Novelis for certain indemnity payments made by Novelis to such directors or officers, subject to a $2.5 million deductible in respect of each insured loss.

 

The premium paid by Novelis for coverage in 2005 was $1.62 million and the limit of insurance is $125 million per occurrence and in the aggregate per year.

 

NOVELIS WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005, INCLUDING THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES. REQUESTS SHOULD BE SENT TO: NOVELIS INC., 3399 PEACHTREE ROAD NE, SUITE 1500, ATLANTA, GA 30326, ATTENTION: CORPORATE SECRETARY.

 

Additional information relating to Novelis may be found on our website at www.novelis.com, on SEDAR at www.sedar.com or on EDGAR at www.sec.gov.

 

The board of directors has approved the contents of this Circular and the sending to shareholders.

 

 

 

Nichole Robinson

Corporate Secretary

SCHEDULE A

 

RECORD OF ATTENDANCE

(For the 12-month period ended December 31, 2005)

 

 

 

 

 

During 2005, all directors attended at least 75% of the meetings of the board of directors and the committees on which they served.

SCHEDULE C

 

GUIDELINES ON THE INDEPENDENCE OF THE DIRECTORS OF

NOVELIS INC. (THE “CORPORATION”)

 

As stated in the Corporation’s Board of Directors’ Charter, a majority of the Board shall be composed of Directors who have been determined to have no material relationship with the Corporation and who, in the reasonable opinion of the Board, must be unrelated and independent.

 

The following Guidelines have been established by the Board to assist it in determining Director independence for this purpose:

 

1. A Director of the Corporation shall be considered to be an “Independent Director” if he or she (i) 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 without bias and with a view to the best interests of the Corporation, and (ii) has no relationship with the Corporation or any of its employees that is likely to, or is likely to be perceived to, interfere with the exercise of his or her judgement in a manner that is independent from management.

 

Without affecting the general application of the foregoing:

 

(a) A Director will not be an Independent Director if, within the preceding three years:

 

(i) the Director was employed by the Corporation;

 

(ii) an immediate family member of the Director was employed by the Corporation as an officer;

 

(iii) the Director was employed by or affiliated with the Corporation’s internal or external auditor;

 

(iv) an immediate family member of the Director was employed by the Corporation’s internal or external auditor as a partner, principal, manager or general employee;

 

(v) a senior Officer of the Corporation was on the board of directors of a company which employed the Director, or which employed an immediate family member of the Director as an officer;

 

(vi) the Director has received, or has an immediately family member who has received, during any twelve-month period within such previous three years, more than $100,000 in direct compensation from the Corporation, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); provided, that compensation received by the Director for former service as an interim Chairman or CEO or other executive officer need not be considered in determining independence and compensation received by an immediately family member for service as an employee (other than executive officer) of the Corporation need not be considered; or

 

(vii) the Director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Corporation for property or services in an amount which, in any of such previous three years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues

 

(b) The following relationships will be considered not to be material relationships that would impair a Director’s independence:

 

(i) if a Director is an officer, partner or significant shareholder in an entity that does business with the Corporation and the annual sales or purchases, for goods or services, to or from the Corporation are less than two percent of the consolidated gross annual revenues of that entity;

(ii) if a Director is a limited partner, a non-managing member or occupies a similar position in an entity that does business with the Corporation, or has a shareholding in such entity which is not significant, and who, in each case, has no active role in sales to or in providing services to the Corporation and derives no direct material personal benefit from same; and

 

(iii) if a Director serves as an officer, director or trustee of a charitable organization, and the Corporation’s charitable contributions to the organization are less than two percent of that organization’s total consolidated gross annual revenues.

 

2. All Members of the Audit and Human Resources Committees of the Board and of the Nominating and Corporate Governance Committee must be Independent Directors, who must also meet additional criteria whereby he or she must not, directly or indirectly, accept any consulting, advisory or other compensatory fee from the Corporation, other than fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Corporation, and provided that such compensation is not contingent in any way on continued service. “Indirect” acceptance includes acceptance of such a fee by a spouse, minor child or stepchild or a child or stepchild sharing a home with the Director or by an entity in which such member is a partner, member, an officer such as a managing director occupying a comparable position or senior officer, or occupies a similar position (except limited partners, non-managing members and those occupying similar positions who, in each case, have no active role in providing services to the entity and derive no direct material personal benefit from compensation paid in respect of same) and which provides accounting, consulting, legal, investment banking or financial advisory services to the Corporation.

 

In addition, the Director must not be an affiliated person of the Corporation within the U.S. Securities and Exchange Commission’s rules relating to audit committee listing standards.

 

3. In the case where the Corporation enters into a business relationship with a corporation or entity with which a Director is affiliated as a director, officer, partner or significant shareholder, the following guidelines will apply:

 

(a) the relationship must not cause the Director to lose his status as an Independent Director; and

 

(b) the relationship must not cause the Director to fail to meet the additional criteria set out in paragraph 2 of these Guidelines if the Director is a Member of the Audit or Human Resources Committees or the Nominating and Corporate Governance Committee; and

 

(c) either:

 

(i) the relationship was already in existence and fully disclosed to the Corporation prior to the Director joining the Board; or

 

(ii) the relationship was initiated at the request of the Corporation because of the particular competence or products of the entity in question and not by the Director; and

 

(d) any proposed new relationship must be brought to the attention of the Chairman in advance and, where such relationship is not one covered by paragraph 1 of these Guidelines, be subject to the determination of the Corporate Governance Committee as to its materiality and the consequent effect on the independence of the Director; and

 

(e) the relationship will be disclosed in the Corporation’s public disclosure documents in accordance with applicable regulations and the Corporation’s policy.

4. While service by the Corporation’s Directors together on the boards of other companies does not, as such, affect their independence, no more than two Directors may serve together on the board of another publicly-traded company.

 

For the purposes of these Guidelines; (i), a “significant shareholding” means direct or indirect beneficial ownership of five percent or more of the outstanding equity or voting rights of the relevant entity; and (ii) “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home; and (iii) unless the context otherwise requires, the “Corporation” includes Novelis Inc. or any of its subsidiaries or any other member of the Novelis consolidated group.

 

Any questions relating to these Guidelines or to the interpretation of specific circumstances may be addressed to the Chairman who will consult the Corporation’s Chief Legal Officer or Corporate Secretary. The matter may, as appropriate, be brought to the attention of the Corporate Governance Committee for a decision.

SCHEDULE D

 

BOARD OF DIRECTORS CHARTER AND CORPORATE GOVERNANCE GUIDELINES

 

 

The Board of Directors of Novelis Inc. (the “Company”) is elected by the Company’s Shareholders to supervise the management of the business and affairs of the Company. The prime stewardship responsibility of Novelis Inc.’s Board is to to ensure the viability of the Company and to ensure that it is managed in the interest of the Shareholders as a whole while taking into account the interests of other stakeholders.

 

The Board sets policy for the Company and advises the Chief Executive Officer and senior executives who manage the Company’s business and affairs.

 

 

 

The Nominating and Corporate Governance Committee of the Board oversees the desired size of the Board, the need for recruitment and the expected experience of the new candidates. The Nominating and Corporate Governance Committee reviews and recommends to the Board the candidates for nomination as Directors. The Board approves the final choice of candidates for nomination and election by the Shareholders.

 

 

Board members must have an appropriate mix of skills, knowledge and experience in business and an understanding of the regions in which the Company operates. Directors selected should be able to commit the requisite time for all the Board’s business.

 

 

A majority of the Board shall be composed of Directors who the Board has determined to have no material relationship with the Company and who, in the reasonable opinion of the Board, are unrelated and independent under the laws, regulations and listing requirements to which the Company is subject. The Board has approved Guidelines on the Independence of Directors of Novelis Inc. which contain specific criteria for determining Director independence.

 

 

The Board shall appoint its Chairman and Vice-Chairman (if one is to be appointed) from among the Company’s Directors. In the event that the Chairman is a Director who is an executive of the Company, the Board shall also appoint a Lead Director from among the non-executive Directors to chair the Board at all meetings where Management is absent and to assume other appropriate functions.

 

The Chairman’s responsibilities include the following:

 

(a) presiding at meetings of Shareholders and the Board;

 

(b) providing leadership to enhance Board effectiveness and focus;

 

(c) acting as liaison between the Board and Management;

 

(d) assisting in representing the Company to external groups; and

 

(e) ensuring good corporate governance.

 

 

There is no mandatory retirement age for Directors.

 

The Directors are elected by the Shareholders at every Annual Meeting. The term of office of each Director shall expire at the close of the Annual Meeting of Shareholders following that at which he or she was elected or until his or her successor shall be elected.

 

 

 

The Chairman of the Board, in consultation with the appropriate members of Management, develops the agenda for Board Meetings.

 

 

Information and materials that are important to the Board’s understanding of the agenda items and related topics are distributed in advance of the meeting. The Company will deliver information on the business, operations and finances of the Company to the Board on a monthly basis and on an as-required basis.

 

 

A minimum of five regularly-scheduled Board meetings shall be held each year. Additional meetings may be held when required. The Chairman of the Board, in consultation with the Directors and Management, will set the frequency and length of Board meetings. Board members may participate in meetings by means of conference calls or similar communications equipment by means of which all persons participating in the meeting can communicate with each other.

 

 

Management shall participate in meetings and make presentations to allow Directors to gain additional understanding and insight into the Company’s businesses.

 

 

Every meeting of the Board shall be followed by an in-camera session at which management Directors and other members of Management are not present, to ensure free and open discussion and communication among the non-executive Directors.

 

 

In addition to its statutory responsibilities, the Board has the following duties and responsibilities:

 

(a) ensuring that Novelis Inc. is operated so as to preserve its financial integrity and in accordance with policies approved by the Board;

 

(b) appointing its Chief Executive Officer, developing his or her position description and ensuring succession preparedness with the recommendations of the Human Resources Committee and the Nominating and Corporate Governance Committee, which recommendations will address the policies and principles for selecting a successor to the Chief Executive Officer, both in an emergency situation and in the ordinary course of business;

 

(c) adopting a strategic planning process and thereafter reviewing and approving the overall business strategy for the Company, all of which are originally developed by Management;

 

(d) identifying the principal risks of the Company’s businesses and ensuring the implementation of appropriate systems to manage these risks;

 

(e) ensuring that appropriate structures and procedures are in place so that the Board and its committees can function independently of Management;

(f) providing a source of advice and counsel to Management on critical and sensitive matters;

 

(g) reviewing and approving key policy statements developed by Management on various issues such as ethics, compliance, communications, environment and public disclosures;

 

(h) ensuring that its expectations of Management are understood, that the appropriate matters come before the Board and that the Board is kept informed of Shareholder feedback;

 

(i) ensuring that members of senior Management are of the calibre required for their roles, are adequately trained and monitored and that planning for their succession is ongoing;

 

(j) conducting, through the Nominating and Corporate Governance Committee, an annual review of Board practices and Board, Chairman and Committee performance (including Directors’ individual contributions);

 

(k) reviewing the recommendations of the Human Resources Committee that have been approved and recommended by the Nominating and Corporate Governance Committee with respect to the adequacy and form of the compensation of non-executive Directors and ensuring their compensation adequately reflects the responsibilities and risks involved in being an effective Director;

 

(l) evaluating, through the Human Resources Committee, the performance and reviewing the compensation of the Chief Executive Officer and ensuring that such compensation is competitive and measured according to benchmarks which reward contribution to shareholder value;

 

(m) selecting, upon the recommendation of the Nominating and Corporate Governance Committee, nominees for election as Directors;

 

(n) selecting the Chairman of the Board;

 

(o) evaluating with the Nominating and Corporate Governance Committee whether the Board as a whole, the Committees of the Board and the Directors are capable of carrying out and do carry out their roles effectively;

 

(p) ensuring that new Directors are provided with an adequate orientation on their roles and responsibilities and the Company’s operations;

 

(q) encouraging all Directors to attend at least one continuing education program for directors endorsed by Institutional Shareholder Services (ISS) or other internationally recognized corporate governance organization;

 

(r) overseeing the quality and integrity of the Company’s accounting and financial reporting systems, disclosure controls and procedures and internal controls;

 

(s) approving projects requiring an investment or disposition that is material and acquisitions where environmental or other liabilities exist and which could result in significant exposure to the Company are also subject to Board approval, irrespective of amounts;

 

(t) reviewing alternate strategies in response to any possible takeover bid in order to maximize value for shareholders;

 

(u) discussing and developing the Company’s approach to corporate governance in general, with the involvement of the Nominating and Corporate Governance Committee.

 

 

Board members are expected to possess the following characteristics and traits:

 

(a) demonstrate high ethical standards and integrity in their personal and professional dealings;

 

(b) act honestly and in good faith with a view to the best interest of the Company;

(c) devote sufficient time to the affairs of the Company and exercise care, diligence and skill in fulfilling their responsibilities both as Board members and as a Committee members;

 

(d) provide independent judgment on a broad range of issues;

 

(e) understand and challenge the key business plans of the Company;

 

(f) be willing to work in a team and be open to opinions of others;

 

(g) raise appropriate and difficult questions and issues to facilitate active and effective participation in the deliberation of the Board and of each Committee on which he or she serves;

 

(h) make all reasonable efforts to attend all Board and Committee meetings;

 

(i) review the materials provided by Management in advance of the Board and Committee meetings;

 

(j) inform the Chairman and Vice-Chairman (if applicable) of the Board before accepting membership on any other board of directors or audit committee and also inform of any change in the Director’s interests that could affect his or her relationship to the Company.

 

 

 

The Board delegates certain of its functions to Committees, each of which has a written charter. There are four standing Committees of the Board: the Human Resources, the Audit, the Nominating and Corporate Governance and the Customer Relations Committees. Other Committees or sub-committees may be established from time to time by Board resolution. The roles and responsibilities of each Committee are described in the respective Committee charters. “Task Force” Committees may be established on an ad hoc basis to deal with specific subjects.

 

 

Members of the Audit Committee, Human Resources Committee and the Nominating and Corporate Governance Committee shall each have no material relationship with the Company and each Member shall be otherwise unrelated and independent under the laws, regulations and listing requirements to which the Company is subject and in accordance with the Guidelines on the Independence of Directors of Novelis Inc.  The Nominating and Corporate Governance Committee reviews and recommends the memberships of the various Committees to the Board.

 

 

The Chairman of each Committee, in consultation with the appropriate members of Management, develops the agenda for Committee meetings.

 

 

At the next Board meeting following each meeting of a Committee, the Committee Chairmen will report to the Board on the Committees’ activities. Minutes of Committee meetings are provided to all Directors.

 

 

The responsibility for the assignment and rotation of Committee Members rests with the Chairman of the Board, who acts in consultation with and at the recommendation of the Nominating and Corporate Governance Committee. Rotation is not required but changes are made occasionally to accommodate the Board’s needs and individual interest and skills.

 

The Chairman of a Committee, in consultation with Committee Members and Management, will set the frequency and length of meetings of such Committee.

 

 

 

The Board will ensure that formal assessments of the Board, its Committees and the individual Directors are carried out at least annually in order to determine whether they are functioning effectively and to enhance their performance.

 

 

On a regular basis and at least every three years, the Human Resources Committee will review Director compensation (including components and amounts) and propose any recommendations with respect to Directors’ compensation to the Nominating and Corporate Governance Committee for its review based on market practices and the particular demands made on Directors. The Nominating and Corporate Governance Committee will then make recommendations on Director compensation to the Board. Any change to the compensation of Directors must be formally approved by the full Board.

 

 

In order to ensure alignment of the interests of Directors with those of the Shareholders, at least one-half of Directors’ fees are paid to non-executive Directors in Deferred Share Units, being the economic equivalent of the Common Shares of the Company.

 

 

Directors will maintain the absolute confidentiality of the deliberations and decisions of the Board of Directors and information received at meetings, except as may be specified by the Chairman or if the information is publicly disclosed by the Company.

 

 

If a third party approaches a Director on a matter of interest to the Company, the Director should bring the matter to the attention of the Chairman who shall determine whether this matter should be reviewed with Management or should more appropriately be dealt with by the Board in an in camera session.

 

 

Shareholders and other constituencies may communicate with our Board, a committee of our Board, or an individual director by writing to our Corporate Secretary — Board Communication at our head office. All communications will be compiled by the Secretary and submitted to the appropriate Board member. The Secretary will reply or take other actions in accordance with instructions from the applicable Board contact.

 

 

The Company has a comprehensive code of business conduct and ethics that governs all employees of Novelis Inc. as well as the Directors.

 

 

Directors are expected to visit from time to time the Company’s plant and business locations in different parts of the world to meet local personnel and gain insight into the Company’s business and operations.

 

The Company Secretary will prepare a Directors’ Manual containing information on Company policies and Director responsibilities and liabilities, which shall be updated as necessary. Detailed current information on the Company and its business, operations and finances are sent on a monthly basis to the Directors. Particularly important items and information requiring urgent attention is conveyed immediately. In addition, new Directors are expected to spend time with members of senior Management, including those involved in Novelis Inc.’s business operations, so that they can become familiar with the Company, its issues, business and operations. Care is taken to ensure that new Directors understand the roles and responsibilities of the Board and its Committees, as well as the commitment level that Novelis Inc. expects of its Directors.

 

 

The Board shall have the resources and authority appropriate to discharge its duties and responsibilities, including the authority to retain counsel or other experts, as it deems appropriate, without seeking approval of Management. All directors are invited to contact the Chief Executive Officer at any time to discuss any aspect of the Company’s business. Directors also have complete access to other members of management.

SCHEDULE E

 

AUDIT COMMITTEE CHARTER

 

 

The primary purpose of the Audit Committee (the “Committee”) of the Board of Directors of Novelis Inc. (the “Company”) is to assist the Board of Directors (the “Board”) in fulfilling the Board’s oversight responsibilities for (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the qualifications and independence of the independent auditors (the “Auditors”) and (iv) the performance of the Company’s internal audit function and the Auditors. The Committee is also responsible for preparation of the Committee’s report that the Securities and Exchange Commission (“SEC”) rules require be included in the Company’s annual proxy statement (the “Audit Committee Report”). The Committee shall also carry out the other functions set out in this Charter. In so doing, the Committee shall insist on maintaining free and open communication between the Committee, the Auditors, the internal auditors and Management of the Company. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and to retain independent counsel, advisors, accountants or other experts, as it deems appropriate, without seeking approval of the Board or Management.

 

 

The Committee shall consist of at least three Directors, each of whom the Board of Directors has determined to be independent in respect of the Company as contemplated by the laws, regulations and listing requirements to which the Company is subject and in accordance with the Guidelines on the Independence of the Directors of Novelis Inc. Each Member shall be “financially literate,” as such qualification is interpreted by the Board of Directors in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Committee. At least one Member shall be qualified as an “audit committee financial expert” as defined by applicable regulations.

 

Members shall be appointed by the Board based on nominations recommended by the Company’s Corporate Governance Committee or a sub-committee thereof, and shall serve for such term as the Board may determine.

 

The Committee shall designate one Member of the Committee to act as its Chair. The Secretary or an Assistant Secretary of the Company shall act as secretary to the Committee.

 

If a Committee Member simultaneously serves on the audit committee of more than three public companies (including the Company), the Board of Directors must determine that such simultaneous service would not impair the ability of such Member to effectively serve on the Committee. The Company shall disclose any such determination in its annual proxy statement.

 

 

The Committee shall meet regularly at least four times a year, or more frequently if circumstances so dictate. In addition, the Members of the Committee shall meet quarterly to review the Company’s annual and quarterly releases of financial results and Management’s Discussion and Analysis of Financial Condition and Results of Operation prior to public disclosure.

 

At each regular meeting, the Committee shall meet separately with senior Management, the Chief Internal Auditor and the Auditors to discuss any matters that the Committee or any of these parties believe should be discussed privately. The Committee may request any officer or employee of the Company or the Auditors to attend a meeting of the Committee or to meet with any Members of the Committee. In addition, the members of senior Management, the Chief Internal Auditor and the Auditors shall have access to the Committee to bring forward matters requiring urgent attention.

The Chair of the Committee shall, in consultation with the other Members of the Committee, the Auditors and the appropriate officers of the Company, be responsible for calling meetings of the Committee, establishing agenda therefor and supervising the conduct thereof. The Committee may also take any action permitted hereunder by unanimous written consent.

 

The Committee shall meet in executive session, as necessary.

 

Subject to the laws governing the Committee, any Member may, if all Members consent, participate at any meeting of the Committee, by means of telephonic, electronic or other communication facility that permits all participants to communicate with each other during the meeting.

 

 

The primary responsibility of the Committee is to oversee the Company’s accounting and financial reporting processes and audits of the Company’s financial statements on behalf of the Board and report the results of the Committee’s activities to the Board. The Management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements and for the effectiveness of internal control over financial reporting. Management and the internal audit department are responsible for maintaining appropriate accounting and financial reporting principles and policies as well as internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. The Auditors are responsible for planning and carrying out audits of the Company’s annual financial statements in accordance with generally accepted auditing standards, reviewing the Company’s quarterly financial statements prior to the filing of each quarterly report, annually auditing management’s assessment of the effectiveness of internal control over financial reporting and other auditing procedures.

 

The Committee shall have a clear understanding with Management and the Auditors that the Auditors are accountable to the Committee, as the representative of the Company’s shareholders. The Committee shall recommend the appointment of the Auditors to the Board for ultimate approval by the shareholders. The Auditors’ audit engagement letter shall be signed by the Chair of the Committee on behalf of the Company, having been previously approved by the Committee.

 

 

To carry out its responsibilities, the Committee shall have the following duties and powers in respect of which it shall be entitled to full support and cooperation from Management: