**Exhibit 99.1**

 

**March 1, 2006**

 

****

 

NOVA Chemicals Corporation

 

**ANNUAL INFORMATION FORM**

 

----

 

****

 

**TABLE OF CONTENTS**

 
| ** **                                                                | **Page**   |
|---------------------------------------------------------------------------|------------|
| ** **                                                                | ** ** |
| TRADEMARKS                                                                | 2          |
| FORWARD-LOOKING  INFORMATION                                              | 3          |
| THE CORPORATION                                                           | 4          |
| HISTORICAL DEVELOPMENT                                                    | 4          |
| ANTICIPATED DEVELOPMENTS IN 2006                                          | 7          |
| SUBSIDIARIES OF NOVA CHEMICALS                                            | 7          |
| BUSINESS                                                                  | 8          |
| General                                                                   | 8          |
| Properties and Production Facilities                                      | 9          |
| Product Flow Chart                                                        | 10         |
| Facility Profile (Olefins/Polyolefins)                                    | 11         |
| Facility Profile (Styrenics)                                              | 12         |
| Olefins/Polyolefins                                                       | 13         |
| Styrenics                                                                 | 16         |
| DISTRIBUTION OF PRODUCTS                                                  | 19         |
| COMPETITION                                                               | 20         |
| CYCLICALITY                                                               | 20         |
| PATENTS, LICENSES AND TRADEMARKS                                          | 20         |
| TECHNOLOGY AND LICENSING                                                  | 21         |
| Polyethylene Technologies and Products                                    | 21         |
| Catalysts                                                                 | 21         |
| Styrenic Polymers Technologies and Products                               | 22         |
| RESEARCH AND DEVELOPMENT                                                  | 22         |
| Olefins/Polyolefins                                                       | 23         |
| Styrenics                                                                 | 23         |
| ENVIRONMENTAL REGULATION AND THE RESPONSIBLE CARE® PROGRAM           | 23         |
| EMPLOYEE AND LABOUR RELATIONS                                             | 25         |
| FOREIGN OPERATIONS                                                        | 25         |
| LEGAL PROCEEDINGS                                                         | 26         |
| RISK FACTORS                                                              | 26         |
| DIVIDENDS                                                                 | 31         |
| DESCRIPTION OF CAPITAL  STRUCTURE                                         | 31         |
| CREDIT RATINGS                                                            | 32         |
| MARKET FOR SECURITIES                                                     | 33         |
| COMMON SHARES                                                             | 33         |
| Transfer Agents and Registrars                                            | 33         |
| DEBT SECURITIES                                                           | 33         |
| DIRECTORS AND OFFICERS                                                    | 33         |
| DIRECTORS                                                                 | 34         |
| EXECUTIVE OFFICERS                                                        | 35         |
| REPORT OF THE AUDIT,  FINANCE AND RISK COMMITTEE                     | 36         |
| Fees Billed by Ernst & Young LLP                            | 37         |
| Additional Information Relating to the Audit, Finance and Risk  Committee | 37         |
| INTERESTS OF EXPERTS                                                      | 38         |
| ADDITIONAL INFORMATION                                                    | 38         |

 

----

 

**TRADEMARKS**

 
|  | Chemicals® is a registered trademark of  NOVA Brands Ltd., authorized use/utilisation autorisée. |
|--|------------------------------------------------------------------------------------------------------------|

 

Advanced SCLAIRTECHTM,NOVACATTM and SCLAIRTECHTM are trademarks of NOVA Chemicals Corporation.

 

ARCEL®, DYLARK®,DYLITE®, NAS® and ZYNTAR® are registeredtrademarks of NOVA Chemicals Inc. and IMageTM is a trademark of NOVAChemicals Inc.

 

EPS Silver® is aregistered trademark of NOVA Chemicals (International) S.A. in theEuropean Community and a trademark of NOVA Chemicals Inc. in NorthAmerica.

 

SCLAIR® is aregistered trademark of NOVA Chemicals Corporation in Canada and ofNOVA Chemicals (International) S.A. elsewhere; authorizeduse/utilisation autorisée.

 

STYROSUN® is aregistered trademark of NOVA Chemicals Inc. in the United States andMexico and of NOVA Chemicals (International) S.A. elsewhere.

 

SURPASS® is aregistered trademark of NOVA Chemicals Corporation in Canada and ofNOVA Chemicals (International) S.A. elsewhere.

 

ZYLAR® is aregistered trademark of NOVA Chemicals (Canada) Ltd./NOVAChimie (Canada) Ltée; authorized use/utilisation autorisée.

 

Responsible Care®is a registered trademark of the Canadian Chemical Producers’ Association inCanada and is a registered service mark of the American Chemistry Council inthe United States.

 

----

 

**INFORMATION CONTAINED IN THIS ANNUAL INFORMATION FORM ISGIVEN AS AT DECEMBER 31, 2005, EXCEPT AS SPECIFICALLY NOTED OTHERWISE.**

 

**ALL AMOUNTS IN THIS ANNUAL INFORMATION FORM AREEXPRESSED IN UNITED STATES DOLLARS, EXCEPT AS SPECIFICALLY NOTEDOTHERWISE.**

 

**FORWARD-LOOKING INFORMATION**

 

ThisAnnual Information Form contains forward-looking statements with respectto NOVA Chemicals. By their nature, forward-looking statements requireNOVA Chemicals to make assumptions and are subject to inherent risks anduncertainties. There is significant risk that predictions, forecasts,conclusions and projections will not prove to be accurate, that NOVA Chemicals’assumptions may not be correct and that actual results may differmaterially from such predictions, forecasts, conclusions or projections.Forward-looking statements for the time periods beyond 2006 involve longer-termassumptions and estimates than forward-looking statements for 2006 and areconsequently subject to greater uncertainty. NOVA Chemicals cautions readers ofthis Annual Information Form not to place undue reliance on its forward-lookingstatements as a number of factors could cause actual results, conditions,actions or events to differ materially from the targets, expectations,estimates or intentions expressed in the forward-looking statements.

 

Thewords “believe,” “expect,” “plan,” “intend,” “estimate,” or “anticipate” andsimilar expressions, as well as future or conditional verbs such as “will,” “should,”“would,” and “could” often identify forward-looking statements. Specificforward-looking statements contained in this Annual Information Form include,among others, statements regarding: changes in the demand forNOVA Chemicals’ products; changes in pricing policies byNOVA Chemicals or its competitors; its competitive advantages and abilityto compete successfully; the timing for completion of capacity expansions andmodernization projects; its reserves for environmental liabilities and itsenvironmental capital expenditures; its level of debt; and general economicconditions.

 

Withrespect to forward-looking statements contained in this Annual InformationForm, NOVA Chemicals has made assumptions regarding, among other things:future oil, natural gas and benzene prices; its ability to obtain rawmaterials; its ability to market products successfully to its anticipatedcustomers; the impact of increasing competition; and its ability to obtainfinancing on acceptable terms. Some of NOVA Chemicals’ assumptions are basedupon internal estimates and analyses of current market conditions and trends,management plans and strategies, economic conditions and other factors and arenecessarily subject to risks and uncertainties inherent in projecting futureconditions and results.

 

Someof the risks that could affect NOVA Chemicals’ future results and couldcause results to differ materially from those expressed in NOVA Chemicals’forward-looking statements include: commodity chemicals price levels (whichdepend, among other things, on supply and demand for these products, capacityutilization and substitution rates between these products and competingproducts); feedstock availability and prices; operating costs; terms andavailability of financing; technology developments; currency exchange ratefluctuations; starting up and operating facilities using new technology;realizing synergy and cost savings targets; NOVA Chemicals’ ability to implementits business strategy; meeting time and budget targets for significant capitalinvestments; avoiding unplanned facility shutdowns; safety, health andenvironmental risks associated with the operation of chemical plants andmarketing of chemical products, including transportation of these products;public perception of chemicals and chemical end-use products; the impact ofcompetition; changes in customer demand, including customer acceptance ofNOVA Chemicals’ Performance Products; changes in, or the introduction ofnew laws and regulations relating to NOVA Chemicals’ business, includingenvironmental, competition and employment laws; costs to comply with the KyotoProtocol; loss of the services of any of NOVA Chemicals’ executiveofficers; uncertainties associated with the North American, South American,European and Asian economies; terrorist attacks; severe weather and other risksdetailed from time to time in the publicly filed disclosure documents andsecurities commission reports of NOVA Chemicals and its subsidiaries oraffiliated companies. The information contained in this Annual InformationForm, including the information provided under the heading “Risk Factors,”identifies additional factors that could affect NOVA Chemicals’ operatingresults and performance.

 

----

 

NOVA Chemicals’forward-looking statements are expressly qualified in their entirety by thiscautionary statement. In addition, the forward-looking statements are made onlyas of the date of this Annual Information Form, and except as required byapplicable law, NOVA Chemicals undertakes no obligation to update publiclythese forward-looking statements to reflect new information, subsequent eventsor otherwise.

 

----

 

**THE CORPORATION**

 

NOVA Chemicals’principal business is the production and marketing of plastics and chemicals.NOVA Chemicals operates two plastics and chemicals businesses:olefins/polyolefins and styrenics. The olefins/polyolefins business producesethylene, polyethylene and a variety of chemical and energy products (commonlyknown as co-products). The styrenics business produces styrene monomer,polystyrene and expandable polystyrene (“EPS”). NOVA Chemicals alsoproduces and markets higher-value polyethylene and styrenic polymers, which itrefers to as “Performance Products”. NOVA Chemicals’ products are used ina wide range of applications, including rigid and flexible packaging,containers, plastic bags, plastic pipe, electronic appliances, televisionconsoles, building and construction materials, automotive components, housewaresand other industrial and consumer goods. NOVA Chemicals’ products aremanufactured at 14 sites in North America. On October 1, 2005,NOVA Chemicals merged its European styrenic polymers business into a 50:50 joint venture with Innovene, the commoditychemicals business of BP p.l.c. (“BP”). The joint venture, namedNOVA Innovene, operates seven facilities in Europe. On December 16,2005, United Kingdom-based INEOS announced that it had acquired Innovene.

 

NOVA Chemicalsis a global company organized under the federal laws of Canada, with itsregistered office and Canadian operating center located at 1000 - 7thAvenue S.W., Calgary, Alberta, Canada T2P 5L5, and an executiveoffice and United States operating center located at 1550 CoraopolisHeights Road, Moon Township, Pennsylvania, United States 15108.NOVA Chemicals maintains a website at www.novachemicals.com. Theinformation on NOVA Chemicals’ website is not a part of this AnnualInformation Form.

 

Whereused in this Annual Information Form, “NOVA Chemicals” or “the Corporation”means NOVA Chemicals Corporation alone or together with its subsidiariesand affiliates, depending on the context in which such terms are used.

 

**HISTORICALDEVELOPMENT**

 

**NOVAChemicals Corporation**

 

NOVAChemicals’ predecessor, NOVA Corporation of Alberta, was incorporated in1954 by Special Act of the Legislative Assembly of the Province of Alberta. On May 10,1994, NOVA Corporation of Alberta filed articles of arrangement under theBusiness Corporations Act of Alberta (the “Act”) to complete a reorganizationpursuant to which it became a wholly owned subsidiary of NOVA Corporation(“NOVA”), changed its name to NOVA GasTransmission Ltd. and its common shareholders became the common shareholders ofNOVA. At the same time, NOVA also became the parent corporation ofNOVA Chemicals Ltd. and NOVA Gas International Ltd.

 

OnJuly 2, 1998, NOVA and TransCanada PipeLines Limited (“TransCanada”)completed a merger of equals by way of a plan of arrangement (the “Arrangement”)under the Act. Under the terms of the Arrangement, shareholders of NOVAexchanged each NOVA common share for 0.52 of a TransCanada common share. As part ofthe Arrangement, TransCanada distributed to its common shareholders, includingall of the former common shareholders of NOVA, all of the common shares of NOVAon the basis of 0.2 of a NOVA common share for each TransCanada common share.At the time of the distribution of NOVA common shares, the only material assetof NOVA was all of the common shares of NOVA Chemicals Ltd.

 

Asa result of the Arrangement, NOVA continued to conduct the commodity plasticsand chemicals businesses through NOVA Chemicals Ltd., and TransCanada began toconduct the energy services businesses formerly carried on by NOVA, throughNOVA’s former subsidiaries, NOVA Gas Transmission Ltd. and NOVA GasInternational Ltd. The disclosure in this Annual Information Form relatesonly to the plastics and chemicals businesses currently conducted byNOVA Chemicals and formerly conducted by NOVA.

 

OnDecember 31, 1998, NOVA Chemicals Ltd. changed its name toNOVA Chemicals Corporation. Effective January 1, 1999,NOVA Chemicals Corporation amalgamated with NOVA under the Act and theresulting corporation adopted the name NOVA Chemicals Corporation.

 

----

 

OnApril 14, 2004, NOVA Chemicals Corporation was continued under theCanada Business Corporations Act.

 

**Developmentof the Plastics and Chemicals Businesses**

 

•**                 **NOVA Chemicals commenced operation of itsfirst ethylene plant (“E1”) in Joffre, Alberta in 1979.

 

•                  A second ethylene plant (“E2”) commencedoperations in Joffre, Alberta in 1984, in tandem with a linear low-densitypolyethylene facility (“PE1”).

 

•                  In February 1987, NOVA Chemicalsacquired its low-density and high-density polyethylene facility near Mooretown,Ontario from Union Carbide Canada Ltd. and Union Carbide Corporation (“UCC”).

 

•                  In September 1988, NOVA Chemicalsacquired Polysar Energy & Chemical Corporation, a company withsignificant petrochemical operations. Through this purchase, NOVA Chemicalsacquired its Corunna, Ontario olefins facility, its original styrenics businessand a rubber business that was subsequently sold to Bayer AG in October 1990.

 

•                  In January 1994, NOVA Chemicalscompleted a series of transactions whereby it exchanged its methanolassets for common shares of Methanex Corporation (“Methanex”) and purchasedadditional Methanex common shares.

 

•                  In June 1994, NOVA Chemicalsacquired its linear low-density and high-density polyethylene facility at theSt. Clair River plant site in Corunna, Ontario, as well as the proprietarySCLAIRTECHTM technology and a global SCLAIRTECH technology licensing business,from DuPont Canada Inc. (“DuPont”).

 

•                  In September 1996, NOVA Chemicalsacquired the styrenics business of ARCO Chemical Company (“ARCO”).

 

•                  In December 1996, NOVA Chemicalsannounced that it had developed Advanced SCLAIRTECHTM polyethylene technology.

 

•                  In December 1998, NOVA Chemicalsacquired the majority of Huntsman Corporation’s (“Huntsman”) U.S. and Europeanstyrenics businesses, excluding Huntsman’s North American EPS assets.

 

•                  In January 2000, NOVA Chemicalsacquired the European polystyrene and EPS assets, Chilean EPS production andmolding assets and associated worldwide sales and marketing operations of TheShell Petroleum Company Limited (“Shell”).

 

•                  In October 2000, NOVA Chemicals andUnion Carbide Canada Inc. (now Dow Chemical Canada Inc. (“Dow”))commenced commercial operations of a jointly owned, third ethylene plant (“E3”)in Joffre, Alberta.

 

•                  In February 2001, NOVA Chemicalsand BP Chemicals Limited (“BP Chemicals”) announced that they hadagreed to jointly develop and commercialize NOVA Chemicals’ advancedZiegler-Natta (“Z-N”) catalysts for license to gas-phasepolyethylene producers. In addition, in July 2002,NOVA Chemicals and BP Chemicals entered into an agreement under whichNOVA Chemicals granted BP Chemicals the rights to use and sub-licensecertain of its proprietary single-site catalysts. The companies also agreed tofurther joint development of metallocene and single-site catalyst technology.

 

•                  In July 2001, NOVA Chemicals’second polyethylene plant (“PE2”) at Joffre, Alberta began commercialproduction using Advanced SCLAIRTECH technology.

 

•                  In January 2002, NOVA Chemicalssold its 20% interest in the Cochin pipeline system to subsidiariesof BP Chemicals, Conoco Canada Resources Limited and Kinder MorganEnergy Partners, LP.

 

----

 

**DevelopmentsSince January 1, 2003**

 

•**                 **In June 2003, NOVA Chemicalscompleted the sale of its approximately 37% equityinterest in Methanex. The Corporation has no remaining equity interest inMethanex.

 

•                  In June 2003, NOVA Chemicals soldits 50% share of the Fort Saskatchewan Ethylene Storage Facilityin Alberta.

 

•                  In May 2004, NOVA Chemicals shutdown its linear low-density polyethylene line (“A-line”) at its St. ClairRiver polyethylene plant site in Corunna, Ontario. The A-line had a nameplateproduction capacity of 275 million pounds (“mmlbs”) per year, or about 8%of NOVA Chemicals’ current polyethylene production capacity.

 

•                  In August 2004, NOVA Chemicals soldits ethylene delivery system in Alberta to Taylor NGL Limited Partnership (“Taylor”).In addition, Taylor agreed to build a feedstock pipeline to the Joffre, Albertasite. In early 2005, construction of the Joffre feedstock pipeline and apipeline connection to natural gas liquids production and storage facilities inFort Saskatchewan, Alberta were completed and propane deliveries to the Joffrearea ethylene plants commenced in April 2005. NOVA Chemicals operatesand is the sole shipper on the Joffre feedstock pipeline. A second pipelineconnection to natural gas liquids production and storage facilities in FortSaskatchewan is expected to be completed in early 2006.

 

•                  In October 2004, NOVA Chemicalsannounced that it had been selected by Pemex Petroquímica as a partner in afeasibility study for a potential world-scale ethylene and polyethylene complexin Mexico. During 2005, it was determined that this project, as originallyplanned, will not proceed due to raw material pricing issues. However, analternative version of the project has been proposed and NOVA Chemicals isin the process of evaluating and responding to it.

 

•                  In December 2004, NOVA Chemicalssold its interest in the Alberta Ethane Gathering System (“AEGS”) to FortChicago Energy Partners LP (“Fort Chicago”). NOVA Chemicals continuesto transport ethane on the system and to physically operate and maintain thesystem.

 

•                  In January 2005, NOVA Chemicalsannounced a series of modernization upgrades to its Corunna, Ontarioethylene flexi-cracker to enhance energy efficiency, reduce emissions,strengthen operating reliability, and expand ethylene and propylene capacity.The majority of the upgrades took place in 2005 and the remainderare scheduled for completion by the end of 2006.

 

•                  In February 2005, in response toincreased demand, NOVA Chemicals announced plans for a series ofexpansions of ARCEL® moldable foam resin manufacturing capacity fromapproximately 30 mmlbs per year in 2005 to 100 mmlbs per year by theend of 2006. As part of this initiative, in September 2005,NOVA Chemicals announced that it entered into a long-term agreement withLoyal Chemical Industrial Corporation to manufacture ARCEL moldable foam resinnear Shanghai, China.

 

•                  In September 2005, NOVA Chemicalscompleted an expansion and modernization project at its Bayport, Texas styrenemonomer plant, which included a 450 mmlbs peryear capacity expansion.

 

•                  In October 2005, Novidesa, S.A. de C.V.(“Novidesa”), a 50:50 joint venture in Mexicoformed by NOVA Chemicals and GRUPO IDESA, commenced operations.Novidesa markets high-value EPS for applications such as construction andpackaging in the Mexican markets and distributes NOVA Chemicals’ solidpolystyrene (“SPS”) in Mexico. Novidesa does not manufacture EPS or otherstyrenic polymers. GRUPO IDESA manufactures EPS for Novidesa under an exclusivetolling agreement.

 

•                  In October 2005, NOVA Innovene, a50:50 joint venture formed by the merger of the European styrenic polymersbusiness of NOVA Chemicals and Innovene, BP’s commodity chemicalsbusiness, commenced operations. On December 16, 2005, United Kingdom-basedINEOS announced that it had acquired Innovene. NOVA Chemicals does notexpect this acquisition to have any immediate effect on NOVA Innovene.NOVA Innovene operates seven manufacturing sites in France, Germany, TheNetherlands, Sweden and the United Kingdom.

 

----

 

•                  In October 2005, NOVA Innoveneannounced its plans to permanently cease EPS production at its Berre, Franceplant in 2006 and permanently shut down a previously idled EPS plant inCarrington, United Kingdom. The two plants represent nearly 30% ofNOVA Innovene’s total EPS capacity and more than 10% of Western Europeanindustry capacity.

 

•                  In December 2005, NOVA Chemicalsdecided to cease production of EPS at its Quilicura, Chile facility effectiveimmediately. NOVA Chemicals will continue to operate its two EPS moldingfacilities in Quilicura and El Tepual, Chile.

 

**ANTICIPATEDDEVELOPMENTS IN 2006**

 

•**                 **In January 2006, NOVA Chemicalsannounced that it plans to close its Chesapeake, Virginia, site in 2006. Theplant has SPS production capacity of 300 mmlbs per year and compoundingcapability of 170 mmlbs per year. NOVA Chemicals also announced that itplans to close its Chesapeake Technology Center and consolidate itsUnited States styrenics technology organization at its Beaver Valley sitein Monaca, Pennsylvania.

 

•                  NOVA Chemicals will continue to focus oncost reduction actions, particularly in its styrenics business.

 

•                  NOVA Chemicals will continue toemphasize production of Performance Products. For example, in response toincreased demand, NOVA Chemicals has plans to increase its ARCEL resinmanufacturing capacity from approximately 30 mmlbs per year in 2005 toapproximately 100 mmlbs per year by the end of 2006.

 

•                  NOVA Chemicals will continue to evaluateinvestments in companies or participation in downstream development venturesproviding high-value for its end-use consumer and industrial applications. Forexample, NOVA Chemicals is exploring development ventures with cup andcontainer manufacturers to produce unique thin wall cups with outstandinggraphics and hot and cold insulation using NOVA Chemicals’ IMageTMtechnology. In addition to sales of resins, NOVA Chemicals plans tocapture margin through royalties and licensing of the IMage technology to thesemanufacturers.

 

•                  By the end of 2006, NOVA Chemicals expects tocomplete the modernization upgrades at its Corunna, Ontario ethylene flexi-crackerthat were commenced in 2005. The upgrades are expected to improve the operatingefficiency of the flexi-cracker by 15%, reduce emissions, strengthen operatingreliability, and expand ethylene and propylene capacity by 250 mmlbs peryear and 150 mmlbs per year, respectively, depending onfeedstock mix.

 

•                  NOVA Chemicals’ tolling agreement withLyondell Chemical Company (“Lyondell”) (as successor to ARCO) forapproximately 400 mmlbs per year of styrene monomer will expire in December 2006.

 

**SUBSIDIARIESOF NOVA CHEMICALS**

 

Thefollowing list includes all material subsidiaries of NOVA Chemicals andindicates their respective jurisdictions of incorporation, continuance ororganization and the percentage of voting securities of each beneficially ownedor over which control or direction is exercised by NOVA Chemicals:

 
| **Name**                                                     | ** ** | **Jurisdiction of  Incorporation** | ** ** | **Percentage of  Voting Securities held  Directly or Indirectly** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
|                                                         |       |                                    |       |                                                                                       |       |
| NOVA  Chemicals (Canada) Ltd./NOVA Chimie (Canada) Ltée |       | Canada                                  |       | 100                                                                                        | %          |
| NOVA  Chemicals Inc.(1)                                      |       | Delaware,  U.S.A.                       |       | 100                                                                                        | %          |
| NOVA  Chemicals (International) S.A.                         |       | Switzerland                             |       | 100                                                                                        | %          |
| Novacor  Chemicals Investments B.V.                          |       | The  Netherlands                        |       | 100                                                                                        | %          |
| NOVA Chemicals  Quimica Holdings, S.L.                  |       | Spain                                   |       | 100                                                                                        | %          |
| NOVA  Investments (U.S.) Inc.                                |       | Delaware,  U.S.A.                       |       | 100                                                                                        | %          |
| NOVA  Petrochemicals Ltd.                                    |       | Alberta,  Canada                        |       | 100                                                                                        | %          |

 
| Note:  |
|--------|
|   |   |   |
| (1)    |   | Information with respect to  the preferred shares issued in connection with the December 31, 1998  Huntsman acquisition is described in Note 8 in the Consolidated  Financial Statements included in NOVA Chemicals’ 2005 Annual Report. |

 

----

 

Thefollowing chart summarizes NOVA Chemicals’ simplified corporate structureshowing principal operating entities and jurisdictions of incorporation,continuance or organization (dotted lines signify an indirect holding):

 

 

**BUSINESS**

 

**General**

 

NOVAChemicals operates two plastics and chemicals businesses: olefins/polyolefinsand styrenics. The olefins/polyolefins business produces ethylene, polyethyleneand co-products. The styrenics business produces styrene monomer, which is alsoreferred to in this Annual Information Form as styrene, and styrenicpolymers. NOVA Chemicals operates major olefins/polyolefins productionfacilities near Joffre, Alberta and Corunna, Ontario. It has major styrenemonomer plants located at Bayport, Texas and Sarnia, Ontario and has styrenicpolymer manufacturing facilities at various sites in the United States andCanada.

 

Ethyleneand styrene are basic petrochemicals used to manufacture a wide variety ofpolymers and other chemical products. In North America, NOVA Chemicals producespolyethylene and styrenic polymers, primarily from its internal ethylene andstyrene production. NOVA Chemicals also has an equity interest and long-termtolling arrangements to acquire styrene from Lyondell on the U.S. Gulf Coast,and styrene purchase arrangements with Shell and other parties in Europe.Ethylene and styrene production in excess of NOVA Chemicals’ internalconsumption requirements is sold to third parties. In addition, NOVA Chemicalsis engaged in various swap transactions with other producers of ethylene andstyrene where it has limited or no ethylene or styrene monomer productioncapability.

 

NOVA Chemicalsproduces high-density polyethylene (“HDPE”), low-density polyethylene (“LDPE”)and linear low-density polyethylene (“LLDPE”). The styrenic polymers that NOVA Chemicalsproduces include SPS and EPS. In addition, NOVA Chemicals develops andmarkets Performance Products. These Performance Products include SCLAIR®and SURPASS® polyethylene resins made with Advanced SCLAIRTECHtechnology and ARCEL, DYLARK® and ZYLAR® styrenicpolymers resins. Polyethylene and styrenic polymers are used in a wide range ofapplications including rigid and flexible packaging, containers, plastic bags,plastic pipe, electronic appliances, television consoles, building andconstruction materials, automotive components, housewares and other industrialand consumer goods.

 

**Propertiesand Production Facilities**

 

NOVAChemicals’ products are manufactured at 14 sites in North America. Allproduction facilities are owned by NOVA Chemicals (except the Channelview,Texas facility, in which NOVA Chemicals only has an equity position, andthe E3 production facility at Joffre, Alberta, in respect of whichNOVA Chemicals and Dow each own 50%). With the exception of its Belpre,Ohio facility and the Channelview facility, NOVA Chemicals owns the landon which its production facilities are located. In addition toNOVA Chemicals’ manufacturing sites, NOVA Innovene produces styrenicpolymers at seven sites in Europe.

 

Inaddition to its production facilities, NOVA Chemicals leases or ownsapproximately 592,000 square feet of office space in numerous locations,mostly in North America. Its registered office and Canadian operating center islocated in Calgary, Alberta. Its United Statesoperating center and an executive office is located in Moon Township,Pennsylvania.

 

----

 

Thefollowing three pages show NOVA Chemicals’ plastics and chemicals productflow and production facilities as of December 31, 2005.

 

**Product Flow Chart**

 

 
| Notes: |
|--------|
|   |   | (1) |   | NOVA Chemicals owns an  equity interest in this Lyondell propylene oxide/styrene monomer facility.  NOVA Chemicals provides its share of ethylene and benzene to this facility  and receives only styrene from the facility pursuant to a long-term tolling  arrangement. |
|   |   | (2) |   | Global styrene supply pool  consists of long-term purchase agreements and product swaps with other  producers of styrene. |
|   |   | (3) |   | PE1 and PE2 purchase  approximately 42% of E1, E2 and NOVA Chemicals’ share of E3 ethylene  production capacity. |
|   |   | (4) |   | E3 is a joint venture  between NOVA Chemicals and Dow. Nameplate capacity is 2.8 billion pounds  per year. NOVA Chemicals’ share of the production capacity is 50% and is used  internally or sold to merchant customers. |
|   |   | (5) |   | A portion of Joffre  co-products is provided to Corunna for feedstock. |
|   |   | (6) |   | In January 2006, NOVA  Chemicals announced that it plans to close its Chesapeake, Virginia site in  2006. |
|   |   | (7) |   | In October 2005,  NOVA Chemicals entered into a contract to supply NOVA Innovene with  50% of its requirements for styrene monomer. |

 

----

 

**Facility Profile (Olefins/Polyolefins)**

 
| ** **                                                  | ** **                                   | ** **     | ** **                                                               | ** **         | ** **                        | **2005  Rated Capacity(1)** | ** **   |
|-------------------------------------------------------------|----------------------------------------------|----------------|--------------------------------------------------------------------------|--------------------|-----------------------------------|-----------------------------|--------------|
| **Site**                                                    | ** **                                   | **Feedstocks** | ** **                                                               | **Main  Products** | ** **                        | **(mmlbs/year)**            | ** **   | **(kilotonnes/  year)** | ** ** |
|                                                        |                                         |           |                                                                     |               |                              |                        |         |   |   |
| **Olefins/polyolefins**                                     |                                         |           |                                                                     |               |                              |                        |         |   |   |
| **1.**                                                      | Joffre, Alberta                              |           | Ethane/Propane                                                           |               | Ethylene (E1)                     |                        | 1,600        |   | 726 |   |
|                                                        |                                         |           | Ethane/Propane                                                           |               | Ethylene (E2)                     |                        | 1,800        |   | 817 |   |
|                                                        |                                         |           | Ethane                                                                   |               | Ethylene (E3)(2)                  |                        | 1,400        |   | 635 |   |
|                                                        |                                         |           |                                                                     |               | Co-products(3)                    |                        | 830          | (4) | 377 |   |
|                                                        |                                         |           | Ethylene                                                                 |               | LLDPE (PE1)                  |                        | 1,310        |   | 594 |   |
|                                                        |                                         |           |                                                                     |               | LLDPE &  HDPE (PE2) |                        | 850          |   | 386 |   |
| **Olefins/polyolefins**                                     |                                         |           |                                                                     |               |                              |                        |         |   |   |
| **2.**                                                      | Corunna, Ontario                             |           | Crude oil, condensates,  ethane, butane, propane, naphtha, gas oils |               | Ethylene  Co-products(6)     |                        | 1,600  4,550 | (5)  (4)(5) | 7262,064 |   |
| **3.**                                                      | St. Clair River,  Corunna, Ontario |           | Ethylene                                                                 |               | HDPE                              |                        | 395          |   | 179 |   |
| **4.**                                                      | Mooretown, Ontario                           |           | Ethylene                                                                 |               | HDPELDPE                          |                        | 505325       |   | 229147 |   |
| **TOTAL  ETHYLENE PRODUCTION CAPACITY (Design Production)** |                                         | **6,400**      | ** **                                                               | **2,904**          |                              |
| **TOTAL  POLYETHYLENE PRODUCTION CAPACITY**                 |                                         | **3,385**      | ** **                                                               | **1,535**          |                              |

 
| Notes: |
|--------|
|   | (1) |   | Capacity at December 31,  2005. |
|   | (2) |   | The annual design  production capacity of E3 totals 2.8 billion pounds and is divided  between Dow and NOVA Chemicals. NOVA Chemicals’ share of the  production capacity is 50%. |
|   | (3) |   | Co-products include crude C4  hydrocarbons, pyrolysis gasoline, hydrogen, propylene, carbon dioxide,  dicyclopentadiene and other hydrocarbons. |
|   | (4) |   | Production capacity is  variable and depends on the feedstock used. |
|   | (5) |   | As part of a series of  modernization upgrades, to be completed in the period from the third quarter  of 2005 through the end of 2006, ethylene design capacity is expected to increase  to approximately 1.85 billion pounds per year and propylene design  capacity is expected to increase to approximately 900 mmlbs per year,  resulting in approximately 4,700 mmlbs/year of co-product capacity. In  both cases, capacity will be dependent on feedstock mix. |
|   | (6) |   | Co-products include  propylene, crude C4 hydrocarbons, C5 dienes,  dicyclopentadiene, aromatics, C9 resin oils, hydrogen  and fuels. |

 

----

 

**Facility Profile (Styrenics)**

 
| ** **                                          | ** **                     | ** **     | ** **        | ** **         | ** **                       | **2005  Rated Capacity(1)** | ** ** |
|-----------------------------------------------------|--------------------------------|----------------|-------------------|--------------------|----------------------------------|-----------------------------|------------|
| **Site**                                            | ** **                     | **Feedstocks** | ** **        | **Main  Products** | ** **                       | **(mmlbs/year)**            | ** ** | **(kilotonnes/  year)** | ** ** |
|                                                |                           |           |              |               |                             |                        |       |   |   |
| **Styrene  Monomer**                                |                           |           |              |               |                             |                        |       |   |   |
| **1.**                                              | Bayport, Texas                 |           | Benzene, ethylene |               | Styrene                          |                        | 1,700      | (2) | 771 |   |
| **2.**                                              | Sarnia, Ontario                |           | Benzene, ethylene |               | Styrene                          |                        | 950        |   | 431 |   |
| **3.**                                              | Channelview, Texas(3)          |           | Benzene, ethylene |               | Styrene                          |                        | 400        |   | 181 |   |
| **TOTAL  STYRENE PRODUCTION CAPACITY**              |                           | **3,050**      | ** **        | **1,383**          |                             |
| **Styrenic  Polymers**                              |                           |           |              |               |                             |
| **1.**                                              | Monaca, Pennsylvania           |           | Styrene           |               | ARCEL, EPS, DYLARK  and SPS |                        | 435        |   | 197 |   |
| **2.**                                              | Belpre, Ohio                   |           | Styrene           |               | NAS, SPS and ZYLAR               |                        | 340        |   | 155 |   |
| **3.**                                              | Chesapeake, Virginia(4)        |           | Styrene           |               | SPS, ZYLAR and ZYNTAR            |                        | 300        |   | 136 |   |
| **4.**                                              | Decatur, Alabama               |           | Styrene           |               | SPS                              |                        | 425        |   | 193 |   |
| **5.**                                              | Montréal, Québec     |           | Styrene           |               | SPS                              |                        | 120        |   | 54 |   |
| **6.**                                              | Painesville, Ohio              |           | Styrene           |               | EPS                              |                        | 85         |   | 39 |   |
| **7.**                                              | Springfield, Massachusetts     |           | Styrene           |               | SPS                              |                        | 330        |   | 150 |   |
| **TOTAL  STYRENIC POLYMERS PRODUCTION CAPACITY(5)** |                           | **2,035**      | ** **        | **924**            |                             |
| **NOVA  INNOVENE Styrenic Polymers(6)**             |                           |           |              |               |                             |
| **1.**                                              | Berre, France(7)               |           | Styrene           |               | EPS                              |                        | 143        |   | 65 |   |
| **2.**                                              | Breda, The Netherlands         |           | Styrene           |               | EPS, SPS and STYROSUN            |                        | 397        |   | 180 |   |
| **3.**                                              | Carrington, United  Kingdom(7) |           | Styrene           |               | SPS                              |                        | 397        |   | 180 |   |
| **4.**                                              | Marl, Germany                  |           | Styrene           |               | EPS and SPS                      |                        | 584        |   | 265 |   |
| **5.**                                              | Ribécourt, France         |           | Styrene           |               | EPS and EPS Silver               |                        | 198        |   | 90 |   |
| **6.**                                              | Trelleborg, Sweden             |           | Styrene           |               | SPS                              |                        | 187        |   | 85 |   |
| **7.**                                              | Wingles, France(8)             |           | Styrene           |               | EPS and SPS                      |                        | 595        |   | 270 |   |
| **TOTAL  NOVA INNOVENE STYRENIC POLYMERS**          |                           | **2,502**      | *****             | **1,135**          |                             |

 
| Notes: |
|--------|
|   | (1) |   | Capacity at December 31,  2005. |
|   | (2) |   | During 2005,  NOVA Chemicals completed an expansion and modernization project at this  facility that resulted in approximately 450 mmlbs per year of additional  production capacity. Approximately 220 mmlbs per year of this capacity  is committed to BASF Corporation as part of a capacity reservation  arrangement made to partly finance the modernization project. |
|   | (3) |   | This represents an equity  position in the Lyondell Channelview, Texas facility and the long-term  tolling arrangement associated with that interest. It does not include a  long-term tolling arrangement for an additional 400 mmlbs. |
|   | (4) |   | In January 2006,  NOVA Chemicals announced that it plans to close its Chesapeake, Virginia  site. |
|   | (5) |   | During 2005,  NOVA Chemicals produced EPS at its facility located in Quilicura, Chile.  The rated capacity for this facility was 7 mmlbs/year  or 3 kilotonnes/year. NOVA Chemicals decided to cease production of  EPS at this facility in December 2005. NOVA Chemicals still  operates two EPS molding plants in Quilicura and El Tepual, Chile. |
|   | (6) |   | NOVA Chemicals’ owns 50% of  NOVA Innovene. |
|   | (7) |   | On October 11, 2005,  NOVA Innovene announced plans to permanently cease EPS production at its  Berre, France plant and permanently shut down a previously idled EPS plant in  Carrington, United Kingdom. |
|   | (8) |   | Under the joint venture  agreement with Innovene, the Wingles, France facility will not be transferred  to NOVA Innovene until at least 2007. In the meantime, NOVA Innovene will  supply all of the styrene monomer required for the operation of the Wingles  facility and will be the sole distributor of all styrenic polymers produced  at the Wingles facility. |
|   | * |   | Difference between total  and individual plant values attributable to rounding. |

 

----

 

**Olefins/Polyolefins**

 

Theolefins/polyolefins business produces ethylene and polyethylene. As part ofNOVA Chemicals’ ethylene production process, and in the preparation offeedstocks for this process, NOVA Chemicals also produces a number of co-products.

 

TheJoffre, Alberta site is integrated with the AEGS, which connects large-scaleethane extraction plants to NOVA Chemicals’ ethylene crackers. Therecently completed Joffre feedstock pipeline is also integrated with the Joffresite and connects natural gas liquids production and storage facilities inFort Saskatchewan, Alberta to the Joffre site. Ethylene is fed directly toonsite polyethylene production.

 

TheCorunna, Ontario ethylene facility is connected to multiple pipeline systemsthat, in conjunction with the facility’s flexi-cracker capabilities, enableNOVA Chemicals to optimize its feedstock slate. The Corunna facilityprovides ethylene by pipeline to NOVA Chemicals’ polyethylene productionfacilities in Mooretown, Ontario and Corunna, Ontario and to its styrenemonomer plant in Sarnia, Ontario. In addition, NOVA Chemicals utilizesrail and marine transport to transport feedstocks.

 

Olefins/polyolefinsrevenue was $3.6 billion in 2005, which represented approximately 61% ofNOVA Chemicals’ total 2005 revenue (before intersegment eliminations).Olefins/polyolefins revenue for 2004 was $3.2 billion, which representedapproximately 58% of NOVA Chemicals’ total 2004 revenue (beforeintersegment eliminations).

 

***Ethylene***

 

NOVA Chemicalshas an annual production capacity of approximately 6.4 billion pounds ofethylene (excluding Dow’s share of E3). Ethylene is a commodity chemical thatNOVA Chemicals produces through thermal cracking of various feedstocks, aprocess which uses high temperatures to break down the carbon chains. Thefeedstocks used to produce ethylene are natural gas liquids and crude oilderived feedstocks including ethane, propane, butane, naphthaor gas oil. The two most common feedstocks used by NOVA Chemicals areethane and, to a lesser extent, naphtha. Ethylene is used in the manufacture ofpolyethylene, styrene, styrenic polymers and polyvinyl chloride, as well aschemical intermediates such as ethylene oxide, ethylene glycol, ethylene dichloride and vinyl acetate.

 

NOVA Chemicalsproduces ethylene at two locations, Joffre, Alberta and Corunna, Ontario.

 

*Joffre, Alberta Facility*

 

NOVA Chemicalshas three ethylene production facilities at Joffre, Alberta: E1, E2 and E3 (E3is 50% owned by Dow). Since July 2004, NOVA Chemicals has shared theethylene produced at E3 with Dow at a 50:50 ratio. These three plantshave an annual production capacity of approximately 1.6, 1.8 and2.8 billion pounds of ethylene (including Dow’s share of E3 production),respectively, for a total combined capacity of 6.2 billion pounds. Thecombined co-product production capacity of E1, E2 and E3 is approximately830 mmlbs per year.

 

Approximately42% of the ethylene produced at these facilities is used internally to supportNOVA Chemicals’ Joffre polyethylene production and the rest is sold tothird parties. Third party sales are facilitated through a variety of medium tolong-term contracts. These contracts typically contain pricing mechanisms thatinclude a cost recovery component and a market based component. NOVA Chemicalshas also entered into a tolling arrangement that permits a third party to use aportion of its ethylene production capacity at E1 until the end of 2008.

 

Allof the ethylene plants at the Joffre, Alberta site use ethane as their primaryfeedstock. Ethane is typically supplied under contracts with the owners ofnatural gas liquids extraction and fractionation plants located in Alberta.Most of these supply agreements have 10 to 20 years remaining on theinitial term with the possibility of renewal by the parties. The priceNOVA Chemicals pays under these agreements consists oftwo components: (1) a fee to cover an agreed upon portion of thecosts of plant operation and return on invested capital (this component may befixed or vary with production), and 

 

----

 

(2) the cost to replacethe energy content of the ethane extracted from the gas stream (this componentvaries with the price of natural gas; NOVA Chemicals may pay theowner for replacement natural gas or purchase or swap natural gas to physicallyreplace the energy content of the ethane). NOVA Chemicals supplements itsethane supplies through spot purchases.

 

NOVA Chemicalshas enhanced its feedstock availability through the development of new thirdparty sources of ethane. One third party source of ethane is from the Joffre,Alberta ethane extraction facility adjacent to the Joffre site, which isdesigned to extract natural gas liquids from the natural gas used as fuel forboth NOVA Chemicals’ Joffre site and Dow’s Prentiss, Alberta site. Asecond source of ethane is from modifications made to existing extractionplants. These modifications enable the extraction of additional volumes ofethane from the same volume of natural gas, which increases the recoveryefficiency.

 

Inaddition to ethane, NOVA Chemicals has the flexibility to use propane andother natural gas liquids for a portion of the Joffre feedstock requirements.This enables the Joffre, Alberta site to optimize feedstock cost and supply.Propane and other natural gas liquids are transported to Joffre by the recentlycompleted Joffre feedstock pipeline owned by Taylor.

 

NOVA Chemicalscontinuously looks for opportunities to expand feedstock flexibility and supplyto enhance operational flexibility and support longer-term growthopportunities.

 

Virtuallyall of the ethane requirements for the Joffre, Alberta site are transported viathe AEGS. Under a long-term transportation agreement, NOVA Chemicals hasthe right to ship ethane on the AEGS. NOVA Chemicals has also signed anoperating agreement with Fort Chicago. Under this agreement,NOVA Chemicals is responsible for the physical operation of the AEGS,while Fort Chicago has responsibility for all commercial aspects of theAEGS operations.

 

Aspart of the ethylene production process at Joffre, Alberta,NOVA Chemicals produces about 830 mmlbs of co-products. Co-productsinclude hydrogen, propylene, crude C4 hydrocarbons, pyrolysisgasoline and carbon dioxide. Co-products, other than hydrogen and carbondioxide, are shipped by railcar from Joffre to markets in Alberta, Ontario andthe U.S. Gulf Coast.

 

NOVA Chemicalsmanages part of its ethylene supply balance by transferring ethylene fromJoffre, Alberta to Corunna, Ontario via the Cochin pipeline, an openaccess multi-product common carrier liquids pipeline.

 

*Corunna, Ontario Facility*

 

TheCorunna, Ontario olefins facility, located near Sarnia, Ontario, has an annualproduction capacity of approximately 1.6 billion pounds of ethylene. As part ofa series of modernization upgrades to the Corunna ethylene flexi-cracker,ethylene design capacity is expected to increase to approximately1.85 billion pounds per year and propylene design capacity is expected toincrease to approximately 900 mmlbs per year. In both cases, capacity willbe dependent on feedstock mix. NOVA Chemicals expects to complete themodernization upgrades by the end of 2006. The Corunna olefins facility has theflexibility to process a wide range of hydrocarbon feedstocks including crudeoil, condensates, ethane, propane, butane, naphtha andgas oils to produce primary petrochemicals for use by NOVA Chemicals’downstream operations and for sale to third parties. The feedstock chosendepends on market conditions and is determined by using a model that calculatesthe most profitable mix of co-products that can be produced from the mostoptimal feedstock slate. Virtually all ethylene production from the Corunnaolefins facility is used internally by NOVA Chemicals to producepolyethylene and styrene.

 

Theblend of feedstocks processed in the Corunna, Ontario olefins facilitydetermines the range of co-products obtained, with heavier feedstocks such asnaphtha producing more co-products. Co-products include benzene (used byNOVA Chemicals in the production of styrene), propylene, crude C4 hydrocarbons,C5 dienes, dicyclopentadiene, aromatics, C9 resinoils, hydrogen and fuels. The facility has a current production capacityof approximately 4.6 billion pounds of co-products per year.

 

Feedstocksfor the Corunna, Ontario olefins facility are obtained from a wide variety ofsources. A substantial proportion of crude oil, the main feedstock, is sourcedfrom western Canadian and United States domestic producers and deliveredvia the Enbridge Inc. (“Enbridge”) pipeline system. Condensate, a lighter feedstockthan crude oil, yields a higher proportion of olefins feedstocks versus fueloil co-products. Crude oil and condensate feedstocks are also sourced from 

 

----

 

outside Canada with delivery via pipeline fromPortland, Maine connecting to Enbridge’s line No. 9 in Montréal, Québec,providing Corunna with purchasing flexibility and less reliance on westernCanadian crude and condensates. Ethane, propane, butane and naphtha are sourcedfrom western Canadian and local producers as well as United States sources,principally by pipeline.

 

***Co-Products***

 

ThroughNOVA Chemicals’ production of ethylene, a significant amount ofco-products are produced that are sold to a variety of customers for use in abroad range of applications. Chemical co-products that are produced includebenzene, propylene, crude C4 hydrocarbons, C5 dienes,carbon dioxide, dicyclopentadiene, aromatics, C9 resin oils andhydrogen. Energy co-products that are produced include diesel fuel, gasolinecomponents, home heating oils and industrial fuels. NOVA Chemicals hasagreements with Alberta-based customers for the sale of carbon dioxide. Thesale of carbon dioxide under these agreements helps NOVA Chemicals’ reduceits carbon dioxide emissions. Total capacity volumes of co-products areapproximately 5.4 billion pounds per year and vary depending onfeedstock.

 

***Polyethylene***

 

NOVA Chemicalshas an annual production capacity of approximately 3.4 billion pounds ofpolyethylene. Polyethylene is produced through the polymerization of ethylene.NOVA Chemicals produces polyethylene from ethylene supplied from itsJoffre, Alberta and Corunna, Ontario facilities at three locations in Canada:Joffre, Alberta; Corunna, Ontario; and Mooretown, Ontario.

 

NOVA Chemicals’first polyethylene plant, PE1, located at Joffre, Alberta has an annualproduction capacity of approximately 1.3 billion pounds and produces LLDPEfrom ethylene supplied from E1, E2 and E3. The plant utilizes gas-phaseprocess technology originally licensed from UCC.

 

NOVA Chemicals’two polyethylene plants located near Mooretown, Ontario have an annualproduction capacity of approximately 830 mmlbs and produce both LDPE andHDPE. Ethylene feedstock is supplied from the Corunna, Ontario olefinsfacility and from Joffre, Alberta via the Cochin pipeline. One of these plantsuses the gas-phase process technology originally licensed from UCC to produceHDPE and the other plant uses high pressure process technology, also originallylicensed from UCC, to produce LDPE. The licenses from UCC are fully paidup. Accordingly, NOVA Chemicals pays no royalties for the use of thistechnology and independently sustains and develops this technology as used inNOVA Chemicals’ facilities.

 

InJune 1994, NOVA Chemicals purchased DuPont’s Canadian polyethylenebusiness. Assets of the business included a polyethylene plant located at theSt. Clair River site in Corunna, Ontario, the proprietary SCLAIRTECHtechnology and a global SCLAIRTECH technology licensing business. Ethylenefeedstock is supplied from the Corunna olefins facility and from Joffre,Alberta via the Cochin pipeline. In May 2004, NOVA Chemicals shutdown the A-line at this facility, which eliminated LLDPE capacity of275 mmlbs per year. The remaining line, B-line, currently has an annualHDPE production capacity of approximately 395 mmlbs.

 

NOVA Chemicalsfurther developed SCLAIRTECH technology and in December 1996 announcedthat it had developed Advanced SCLAIRTECH technology. Advanced SCLAIRTECHsolution-phase technology yields products that NOVA Chemicals believesprovide several advantages over standard polyethylene resins. These PerformanceProducts offer value-added benefits such as clarity and toughness forNOVA Chemicals’ customers end-use applications.In July 2001, a second polyethylene plant, PE2, at Joffre, Alberta begancommercial production using Advanced SCLAIRTECH technology. The plant has adesign capacity of 850 mmlbs per year. Advanced SCLAIRTECH technologyat Joffre, Alberta includes two proprietary catalyst systems. The Z-N catalystintroduced in 2001 is used to make NOVA Chemicals’ SCLAIR line ofpolyethylene products. These are octene-based polyethylene grades for filmapplications. In 2003, NOVA Chemicals commercialized a single-sitecatalyst using Advanced SCLAIRTECH technology and introduced a series ofnew polyethylene products under the brand SURPASS. SURPASS products have beencommercialized for film, rotational molding and thin wall injection moldingapplications. By the end of 2005, sales of Performance Product grades of SCLAIRand SURPASS represented approximately 52% of NOVA Chemicals’ AdvancedSCLAIRTECH technology plant production capacity with the balance ofpolyethylene production being sold into commodity applications.

 

----

 

***Other Olefin Related BusinessInterests***

 

*Joffre, Alberta Linear Alpha Olefins Plant*

 

Inthe third quarter of 2001, a predecessor of Innovene Canada Partnershipcommissioned a linear alpha olefins plant on NOVA Chemicals’ Joffre,Alberta site. NOVA Chemicals supplies ethylene to the linear alpha olefinsplant and receives linear alpha olefins for use by NOVA Chemicals’polyethylene facilities at a competitive cost, contributing to the costefficiencies of the large-scale Joffre site. On December 16, 2005,United Kingdom-based INEOS announced that it had acquired Innovene, whichincludes Innovene Canada Partnership. NOVA Chemicals does not expect thisacquisition to have any effect on the operation of the linear alpha olefinsplant at the Joffre site.

 

*Joffre, Alberta Cogeneration Plant*

 

InJune 2000, ATCO Power Canada Ltd. (“ATCO”), EPCOR Power DevelopmentCorporation (“EPCOR”) and NOVA Chemicals opened a natural gas-firedcogeneration power plant with a nominal installed peak capacity of450 megawatts at NOVA Chemicals’ production site at Joffre, Alberta.The power plant supplies the electrical and steam needs for the entire Joffrepetrochemical site, with excess power sold to Alberta’s provincial power grid.The three companies jointly own the cogeneration facility, with ATCO serving asthe facility operator. The respective equity interests of the parties are 40%for each of ATCO and EPCOR and 20% for NOVA Chemicals.

 

**Styrenics**

 

Thestyrenics business produces styrene monomer and styrenic polymers. The Sarnia,Ontario styrene facility is supplied ethylene and a portion of its benzenerequirements by pipeline from the Corunna, Ontario ethylene flexi-cracker.NOVA Chemicals engages in transatlantic styrene swap and purchasearrangements with other styrene producers to meet its Europeanstyrene obligations to supply NOVA Innovene.

 

Styrenicsrevenue was $2.3 billion in 2005, which represented approximately 39% ofNOVA Chemicals’ total 2005 revenue (before intersegment eliminations).Styrenics revenue for 2004 was $2.3 billion, which representedapproximately 42% of NOVA Chemicals’ total 2004 revenue (beforeintersegment eliminations).

 

***Styrene Monomer***

 

Styreneis produced from benzene and ethylene. NOVA Chemicals produces styrenemonomer by the process of alkylation of ethylene with benzene to produceethylbenzene and then dehydrogenation of ethylbenzene. With two wholly ownedstyrene monomer plants, and an equity position in Lyondell’s propyleneoxide/styrene monomer facility at Channelview, Texas, which produces styrenemonomer as a co-product of propylene oxide, NOVA Chemicals has thecapacity to produce and toll 3.1 billion pounds of styrene annually.Approximately 73% of this styrene is used internally, and the remainder is soldto third parties in the merchant market. In October 2005,NOVA Chemicals entered into a contract to supply NOVA Innovene with 50% ofits requirements for styrene monomer. While NOVA Chemicals does notproduce styrene monomer in Europe, NOVA Chemicals obtains a portion of itsEuropean styrene monomer feedstock required to supply NOVA Innovene at acost comparable with the local costs of production through swap agreements withmajor European styrene producers who have a requirement for styrene monomerfeedstock in North America but do not have sufficient styrene monomerproduction capabilities in North America. NOVA Chemicals obtains theremainder of its European styrene monomer feedstock required to supply NOVAInnovene through a purchase agreement with Shell for approximately525 mmlbs per year. This agreement expires in December 2007.

 

NOVA Chemicalshas a total rated production capacity of 3.1 billion pounds of styrenemonomer per year at sites in Sarnia, Ontario; Bayport, Texas (each wholly ownedby NOVA Chemicals); and Channelview, Texas (equity position in one of thetwo facilities located at Lyondell’s Channelview site). The Sarnia facility hasa rated capacity of 950 mmlbs per year of styrene production. Bayport hasa rated capacity of 1,700 mmlbs per year and Channelview provides400 mmlbs of annual capacity. In addition, as part of the acquisitionof ARCO’s styrenics business in 1996, NOVA Chemicals entered into atolling agreement with Lyondell (as successor to ARCO) for approximately400 million additional pounds per year of 

 

----

 

styrene monomer from the Channelview facilities.This tolling agreement expires in December 2006. NOVA Chemicals’current annual styrene monomer production capacity, together with supplycontracts, exceeds its annual internal requirements by approximatelyone billion pounds. This excess is sold to third parties primarily undershort-term supply agreements in the merchant market. Until the expiration ofthe purchase agreement with Shell and the tolling agreement with Lyondell,NOVA Chemicals will continue to have more styrene monomer than it requiresfor its own styrenic polymer products.

 

NOVA Chemicalssupplies a portion of its internal requirements for ethylene and benzene andenters into other arrangements with third parties for the remainder. All of theethylene and approximately half of the benzene requirements for the Sarnia,Ontario styrene facility are supplied from NOVA Chemicals’ Corunna,Ontario olefins facility. The balance of the benzene feedstock is obtained fromnearby petroleum refineries. Except for some ethylene obtained through swaps,the balance of ethylene and all benzene for the Bayport, Texas and Channelview,Texas facilities are obtained from external sources.

 

***Styrenic Polymers***

 

Styrenicpolymers, or polystyrene, are manufactured by the polymerization of styrenemonomer and in some cases, comonomers. NOVA Chemicals produces SPS (whichcomes in various forms including crystal and high-impact), EPS (foamable resinbeads) and styrenic polymer Performance Products.

 

*North American Solid Polystyrene*

 

NOVA Chemicals’SPS business has a total of six manufacturing facilities in North America:Belpre, Ohio; Chesapeake, Virginia; Decatur, Alabama; Montréal, Québec; Monaca,Pennsylvania; and Springfield, Massachusetts. NOVA Chemicals’ total SPSproduction capacity for North America is 1.5 billion pounds per year,consisting of crystal and impact polystyrene.

 

Crystalpolystyrene end-use applications include CD jewel boxes, food packaging, one-time-usefoodservice ware (cups/plates/bowls/utensils), medical applications, fast-food/conveniencepackaging and insulation. Impact polystyrene resins are used in applicationssuch as office/desk supplies, small appliances, industrial spools, bathroom accessories,electronics housings, food packaging and one-time-use foodservice ware.

 

*North American Expandable Polystyrene*

 

NOVA Chemicalsproduces EPS at its Beaver Valley site at Monaca, Pennsylvania and at itsPainesville, Ohio facility. Total rated production capacity of 370 mmlbsper year ranks NOVA Chemicals as the largest EPS producer in NorthAmerica. EPS resins are used in applications such as disposable foam cups,noodle bowls, takeout and ice cream containers, insulation board, cushions andfoam packaging. NOVA Chemicals’ EPS cup and container grade is sold underthe trademark DYLITE®.

 

*North American Styrenic Polymer Performance Products*

 

NOVA Chemicalsproduces styrenic polymer Performance Products at its Monaca, Pennsylvania,Belpre, Ohio and Chesapeake, Virginia facilities. In addition to being theresearch and technology center for Performance Products, compounding assets atthe Chesapeake site allows NOVA Chemicals to produce clear, custom colourand flame retardant resins. NOVA Chemicals also uses two third partycompounders to manufacture styrenic polymer Performance Products. NOVAChemicals announced in January 2006 that it plans to close its Chesapeake,Virginia, site in 2006 but remains committed to its styrenic polymerPerformance Products and will identify production alternatives for impactedproducts. In addition to ARCEL and DYLARK resins that are discussed below,current sales in the styrenic polymer Performance Products business are inignition resistant products used primarily for television cabinets and marketedunder the trademark ZYNTAR; additive modified polystyrene grades used inapplications requiring consistent colour, U.V. or other properties; and NAS andZYLAR (high-clarity styrene acrylic copolymers and blends or alloys thereof,respectively).

 

----

 

*ARCEL and DYLARK Resins*

 

NOVA Chemicals’Beaver Valley site in Monaca, Pennsylvania produces ARCEL moldable foam resinsthat contain polystyrene and an ethylene-based polymer. This expandable bead issold primarily into the protective packaging market. NOVA Chemicalsexpanded the capacity to produce ARCEL moldable foam resin at its Beaver Valleysite in 2004 and 2005 and plans additional production capacity expansionsduring 2006, 2007 and 2008. In addition to producing ARCEL moldable foam resinsat its Beaver Valley site, in September 2005, NOVA Chemicals enteredinto a long-term agreement with Loyal Chemical Industrial Corporation tomanufacture ARCEL moldable foam resin near Shanghai, China.

 

TheBeaver Valley site also produces DYLARK resins that are a modified styrenicbased polymer that provides ease of processing, performance at elevated temperaturesand foam adhesion for use in instrument panels, as well as other parts, in theglobal automotive industry. In addition, NOVA Chemicals recentlyintroduced DYLARK FG resin, which the Corporation believes provides significantopportunities in the food packaging and food service industries. DYLARK FGresin, which is currently produced at NOVA Chemicals’ Beaver Valley siteand which NOVA Chemicals plans to produce at its Belpre, Ohio sitebeginning in 2006, combines low-temperature toughness with high-temperaturerigidity for superior freezer-to-microwave performance.

 

*Chile*

 

Aspart of the Shell acquisition in January 2000, NOVA Chemicalsacquired an EPS production plant and two EPS molding plants in Chile. Theplants produce small volumes of products for the South American fish packaging,housing and construction markets. NOVA Chemicals decided to ceaseproduction of EPS at its Quilicura, Chile facility in December 2005.NOVA Chemicals still operates EPS molding plants in Quilicura andEl Tepual, Chile.

 

*Europe*

 

OnOctober 1, 2005, NOVA Chemicals merged its European styrenic polymersbusiness into a 50:50 joint venture with Innovene, BP’scommodity chemicals business. The new joint venture is namedNOVA Innovene. On December 16, 2005, United Kingdom-based INEOSannounced that it had acquired Innovene. NOVA Chemicals does not expectthis acquisition to have any immediate effect on NOVA Innovene.NOVA Innovene operates seven facilities in Europe with total rated annualEuropean styrenic polymer production capacity of 2.5 billion pounds.NOVA Innovene is the largest producer of SPS in Europe, with an aggregatecapacity of 1.6 billion pounds per year produced at facilities in Breda,The Netherlands, Carrington, United Kingdom, Marl, Germany, Wingles,France (this facility is still owned by BP and will not be legally transferredto NOVA Innovene until at least 2007) and Trelleborg, Sweden.

 

NOVA Innovenehas the capability to produce EPS at six of its seven European sites, withaggregate annual capacity of approximately 900 mmlbs, making it the topEuropean EPS producer. On October 11, 2005, NOVA Innovene announcedplans to permanently cease EPS production at its Berre, France plant in 2006and permanently shut down an EPS plant in Carrington, United Kingdom, representingnearly 30% of NOVA Innovene’s total EPS capacity and more than 10% ofWestern European industry capacity.

 

*Styrenic Polymer Feedstock Requirements*

 

NOVA Chemicals’styrenic polymer feedstock requirements can currently be satisfied throughinternal styrene monomer production. Where styrene monomer is geographicallydislocated, the Corporation may use a series of swaparrangements with other producers to position the styrene monomer whereNOVA Chemicals needs it.

 

InAugust 2002, NOVA Chemicals and BASF Corporation signed a long-termstyrene monomer supply contract. This contract gives both producers securesupply of styrene monomer to their downstream businesses at producer economicsin both North America and Europe. NOVA Chemicals meets its contractualsupply requirement from existing facilities in North America, including the450 mmlb expansion of its Bayport, Texas plant, which was completed in thethird quarter of 2005. This approach helps two major styrenic polymer producersmeet their regional feedstock needs while adding only minimal new capacity tothe industry.

 

----

 

**DISTRIBUTIONOF PRODUCTS**

 

NOVA Chemicals’products are marketed primarily through its sales force, with support fromestablished distributors, agents and traders. Canadian products are sold intothe United States primarily through NOVA Chemicals’ wholly ownedsubsidiary, NOVA Chemicals Inc., for resale through distributionarrangements. NOVA Chemicals’ wholly owned subsidiary, NOVA Chemicals(International) S.A., sells in Europe and Asia either directly or throughdistribution arrangements. Distribution agreements among NOVA Chemicals’affiliates provide for arm’s length pricing.

 

Thefollowing table summarizes, for the years ended December 31, 2005, 2004and 2003, the geographic segments in which NOVA Chemicals sells itsproducts and the percentage of sales in such segments:

 
| ** **                  | ** ** | **Percentage of Sales,  Year Ended  December 31** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------------------|------------|
| **Geographic Segment** | ** ** | **2005**                                                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                        |       |                                                                  |       |   |   |   |   |
| Canada                      |       | 36                                                                    | %          | 33 | % | 36 | % |
| United  States              |       | 44                                                                    | %          | 45 | % | 45 | % |
| Europe and  Others          |       | 20                                                                    | %          | 22 | % | 19 | % |

 

Nosignificant portion of NOVA Chemicals’ business is dependent upon a singlecustomer. Sales to Canadian and United States federal, state, provincial andlocal governmental bodies account for less than 1% of annual sales.

 

Intotal, NOVA Chemicals has negotiated contracts that contain cost-recoverymechanisms and a market-indexed component, for approximately 2.0 billionpounds of ethylene.

 

Aspart of NOVA Chemicals’ ethylene production process, and in thepreparation of feedstocks for this process, a number of co-products are alsomanufactured, including propylene, crude C4 hydrocarbons, C5 dienes,aromatics, C9 resin oils, dicyclopentadiene, hydrogen, fuelsand carbon dioxide. NOVA Chemicals has agreements with Alberta-basedcustomers for the sale of carbon dioxide. Co-products are shipped to markets inAlberta, Ontario and the U.S. Gulf Coast.

 

EffectiveApril 2003, NOVA Chemicals and Helm AG entered into a sales and marketing agreement for styrene monomer inEurope. The medium-term agreement includes the transfer to Helm AG of allsales and marketing activities for NOVA Chemicals’ existing Europeanstyrene monomer merchant sales.

 

Inconnection with the joint venture agreement with Innovene, NOVA Chemicalsentered into a non-competition agreement and an exclusive distributionagreement with NOVA Innovene effective October 1, 2005. Theseagreements require all sales in Europe of NOVA Chemicals’ styrenicpolymers, including Performance Products (excluding DYLARK automotive resins),be made through NOVA Innovene. NOVA Chemicals and NOVA Innovenealso have reciprocal agreements that require all sales in North America ofNOVA Innovene’s styrenic polymers be made through NOVA Chemicals.

 

NOVA Chemicalsleases approximately 4,700 railcars from various companies for use intransportation and delivery of its polyethylene and styrenic polymer productsto customers in North America. NOVA Chemicals also owns approximately150 railcars. Trucks are used for distributing products sold in bags andboxes and smaller loads of bulk products. Transport ships are used to transportbulk product, mostly to Asia. NOVA Chemicals does not own or lease trucksor ships, but does pay transportation fees under short-term arrangements.

 

NOVA Chemicals’feedstocks and co-products are produced in liquid or gaseous form, and aretransported primarily by pipeline, but also in significant quantity by ship,truck and in rail tank cars. NOVA Chemicals leases approximately1,400 rail tank cars from various companies in order to transportfeedstocks, co-products and styrene monomer.

 

----

 

**COMPETITION**

 

NOVA Chemicalscompetes with other chemical producers on the basis of price, service, productquality, performance and deliverability. Among NOVA Chemicals’ competitorsare some of the world’s largest plastics and chemicals companies and majorintegrated oil companies that are larger and have greater financial resources.Some also have their own raw material resources. The keys to competingsuccessfully in this industry are scale of facilities, low-cost feedstocks anddifferentiated product and process technologies.

 

Pricesfor NOVA Chemicals’ standard petrochemical and polymer products aredetermined by market factors such as supply/demand balances and feedstock coststhat are beyond NOVA Chemicals’ control. NOVA Chemicals generallysells these products at prevailing market prices but, on occasion,products are sold based on negotiated prices.

 

**CYCLICALITY**

 

NOVA Chemicals’historical operating results reflect the cyclical and volatile nature of thecommodity plastics and chemicals businesses. The markets for the Corporation’solefins/polyolefins and styrenics businesses historically experiencealternating periods of inadequate capacity and tight supply, causing prices andprofit margins to increase, followed by periods of oversupply resulting fromcapacity additions. The oversupply leads to declining capacity utilizationrates, prices and profit margins. Currently, known ethylene and styrene chaincapacity additions in North America over the next several years arelimited. The primary driver of a cyclical upswing in the ethylene and styrenicssectors is generally the combination of limited supply growth and improveddemand growth, which is driven by sustained Gross Domestic Product andindustrial production growth.

 

Themarkets for ethylene, polyethylene, styrene and styrenic polymers are alsohighly cyclical, resulting in volatile profits and cash flow over the businesscycle. Because NOVA Chemicals derives nearly all of its revenue from salesof these products, its operating results are more sensitive to this cyclicalnature than many of its competitors that have more diversified businesses.

 

Thiscyclicality is exacerbated by recent volatility in feedstock prices. As aresult of many factors, feedstock and energy prices rose significantlythroughout 2004 and 2005 to levels above the historical average. In response tohigher feedstock prices and other market factors, commodity plastics andchemicals producers announced multiple price increases.

 

**PATENTS,LICENSES AND TRADEMARKS**

 

NOVA Chemicalsowns directly, or licenses from affiliates, a large number of patents inCanada, the United States and other countries. NOVA Chemicals also owns,or licenses through a wholly owned subsidiary, a number of trademarks, whichare used to identify various petrochemical products. While these patents andtrademarks constitute valuable assets, NOVA Chemicals does not regard anysingle patent or trademark as being material to its operations as a whole.

 

During2005, 116 patent applications were filed in the name ofNOVA Chemicals or its subsidiaries worldwide. These include divisional andcontinuation patent applications as well as national and regional patentapplications (which may result in more than one issued patent). 51 of theapplications were in the olefins/polyolefins field and 65 were in the styrenicsfield. Worldwide, during 2005, 111 patents were issued toNOVA Chemicals or its subsidiaries, 53 in the olefins/polyolefins fieldand 58 in the styrenics field.

 

Inconnection with the NOVA Innovene joint venture, NOVA Chemicalsgranted a royalty-free license to NOVA Innovene for all of theintellectual property that NOVA Chemicals used to manufacture its productsin Europe before NOVA Innovene began operations. The license generallycovers all of NOVA Chemicals’ commodity SPS and EPS products and relatedtechnologies that it manufactured or had under development in Europe. With theexception of EPS Silver resins and STYROSUN polystyrene,NOVA Chemicals’ Performance Products are not licensed to theNOVA Innovene joint venture.

 

----

 

**TECHNOLOGYAND LICENSING**

 

NOVA Chemicalsactively supports all of its technologies to maintain its competitive position,including technologies developed by NOVA Chemicals and those licensed fromthird parties. Some of the technologies licensed from third parties are subjectto certain restrictions on use.

 

NOVAChemicals was initially a licensee of the technology used in its operations.Over the past decade, NOVA Chemicals has acquired a variety of business unitswith associated technology assets in areas including process and catalysttechnology, as well as polymer technologies. In addition, NOVA Chemicals hasexpanded its research and development activities. The result is a technologyportfolio with over 700 patents, the development of new margin enhancingprocess technologies such as Advanced SCLAIRTECH technology, new proprietarysingle-site catalyst positions and a wide range of new Performance Products inboth styrenic polymers (such as ARCEL resins) and polyethylene (such as SURPASSresins).

 

**PolyethyleneTechnologies and Products**

 

NOVA Chemicalshas two key, internally developed, technologies for the production ofpolyethylene — SCLAIRTECH technology and Advanced SCLAIRTECH technology.In addition to these technologies, NOVA Chemicals conducts research anddevelopment on other polyethylene technologies including gas-phase and highpressure technology.

 

NOVA Chemicalsacquired its proprietary SCLAIRTECH technology and a global SCLAIRTECHtechnology licensing business from DuPont in 1994. NOVA Chemicals operatesone production facility utilizing SCLAIRTECH technology near Corunna, Ontariothat produces HDPE grades under the SCLAIR brand. In addition,NOVA Chemicals currently licenses its SCLAIRTECH technology to numerouschemical companies that utilize it at 11 plants worldwide.

 

In2001, NOVA Chemicals began commercial operation of its new, proprietaryAdvanced SCLAIRTECH technology for the production of polyethylene. This firststep in the introduction of this technology utilized a proprietary Z-N catalystto manufacture new polyethylene products. In 2002, a line of new, Z-Ncatalyzed, octene-based Performance Products for film applications werelaunched under the SCLAIR brand.

 

InApril 2003, NOVA Chemicals announced the commercial introduction ofits first polyethylene resins produced with Advanced SCLAIRTECH technology andutilizing its new proprietary single-site catalyst. NOVA Chemicalsmanufactures and sells these polyethylene Performance Products under the brandname SURPASS. SURPASS products have been commercialized for film, rotationalmolding and thin wall injection molding applications.

 

During2005, NOVA Chemicals focused on developing and commercializing PerformanceProducts using Advanced SCLAIRTECH technology, including those used in film, injectionmolding and rotational molding. A total of five new grades were developed andcommercialized during 2005, including three SURPASS film grades and one SURPASSinjection molding grade. Customer interest in these grades is high, due to theunique combination of polymer properties afforded through the AdvancedSCLAIRTECH technology. NOVA Chemicals continues to evolve both short andlonger term SURPASS resin development work to exploit fully the process andcatalyst capabilities of Advanced SCLAIRTECH technology.

 

**Catalysts**

 

NOVA Chemicalshas developed three key proprietary families of catalyst technology. The firstis a family of proprietary single-site catalysts for Advanced SCLAIRTECH andother polymer technologies including gas-phase polyethylene. These single-sitecatalysts impart unique properties and create products that compete withmany metallocene-based polyethylenes. The second family of catalysts includesproprietary Z-N catalysts used for SCLAIRTECH technology and AdvancedSCLAIRTECH technologies. Finally, the NOVACATTM family of catalysts wasdeveloped by NOVA Chemicals and its catalyst development partner, INEOS(formerly BP Chemicals), for use in gas-phase polyethylene. NOVACATcatalysts have been commercialized on NOVA Chemicals’ gas-phase plant,PE1, in Joffre, Alberta. NOVACAT catalysts provide enhanced throughput, productrange and properties when compared to traditional Z-N catalysts in commercialgas-phase polyethylene production facilities. The NOVACAT family of catalystsis currently being run on several different gas-phase technologies.

 

----

 

During2005, NOVA Chemicals and INEOS continued their work on the NOVACATcatalyst and successfully developed and demonstrated variants of the catalysttargeted towards use in butene LLDPE and narrow molecular weight HDPE markets.In May 2005, NOVA Chemicals (International) S.A., a wholly ownedsubsidiary of NOVA Chemicals, announced it had entered into a license andsales agreement with Westlake Petrochemicals LP for NOVACAT polyethylenecatalysts.

 

In2005, NOVA Chemicals also entered into a researchdevelopment collaboration with Edmonton-based Quantiam Technologies Inc.to develop coating and catalysts technologies to improve furnace operations inthe hydrocarbon steam cracking manufacturing process. If developed, thesetechnologies will complement the ANK400 anti-coking technology thatNOVA Chemicals previously developed and licensed to Kubota Corporation in2002 and which are now used in eight manufacturing facilities throughout theworld.

 

**StyrenicPolymers Technologies and Products**

 

NOVA Chemicalsowns or has the rights to a significant portfolio of styrenics technology, bothin the fields of polymer production and styrenics polymer applications. Priorto 1999, NOVA Chemicals licensed technology from a number of othercompanies and developed its own technology for the polymerization of styrene.As part of the Huntsman and Shell acquisitions, NOVA Chemicalsacquired additional access to a broad range of styrenics product and processtechnology, as well as knowledge in polystyrene and high performance styrenicsproducts. The technologies acquired include the one-step Shell processtechnology for EPS and polystyrene process and compounding technology relatingto several polystyrene Performance Products.

 

NOVAChemicals key polystyrene Performance Products include foamed styrenic polymersand rigid styrenic polymers. The foamed styrenic polymers include ARCELmoldable foam resins that are sold primarily into the protective packagingmarket, EPS Silver resins that are sold primarily into the Europeanconstruction and building marketplace and DYLITE premium cup and containergrade resins used for EPS cups and, with NOVA Chemicals’ IMage technology,to make unique thin wall cups with outstanding graphics. The rigid styrenicpolymers include ZYLAR clear acrylic copolymer resins for use in the foodpackaging and consumer goods industries and DYLARK resins for use in theautomotive industry and food packaging and food services industry.

 

InMay 2005, NOVA Chemicals announced the commercial introduction of two newDYLARK high-impact engineering resins, DYLARK 510XT and 520XT. The new DYLARK500XT series of resins for use in automotive instrument panels and otherinterior applications provide enhanced stiffness and dimensional stability. In June 2005,NOVA Chemicals introduced ZYLAR 631 resin, a clear, tough resinfor injection molding, with the added benefit of energy, labour costs andcycle time reduction to the molder. Potential applications include appliancesand medical. In September 2005, NOVA Chemicals announced the launchof ZYLAR EX 720 resins, the newest addition to the ZYLAR suite ofclear acrylic copolymers. ZYLAR EX 720 resins have excellentlow-temperature toughness and clarity for applications such as refrigerated orfrozen food packaging. In September 2005, NOVA Chemicals also announcedthe introduction of DYLARK FG 2500 styrenic copolymer formicrowavable food packaging applications, which combines low-temperaturetoughness with high-temperature rigidity for superior freezer-to-microwaveperformance. In October 2005, NOVA Chemicals announced that it hadacquired the exclusive rights to an EPS cup manufacturing technology fromAutonational BV. This technology, which will be marketed as IMage technology,is used to manufacture cups and containers that offer both enhanced graphicsand superior hot and cold insulation.

 

**RESEARCHAND DEVELOPMENT**

 

NOVA Chemicalsspent $38 million in each of 2005 and 2004 and $35 million in 2003 onresearch and development activities. NOVA Chemicals also spent$12 million in 2005 and $10 million in each of 2004 and 2003 ontechnical support and activities relating to improvements of existing products.NOVA Chemicals’ operating budget for 2006 is $43 million for researchand development and $11 million for technical support.

 

----

 

**Olefins/Polyolefins**

 

NOVA Chemicalsolefins/polyolefins business conducts research at the NOVA ChemicalsResearch & Technology Center (“NRTC”) and the NOVA ChemicalsTechnical Center, both located in Calgary, Alberta. Both centers are equippedwith state of the art test facilities for the development of new catalysts,olefin and polyolefin processes as well as full scale testing of new products.The demonstration plant for the Advanced SCLAIRTECH technology is located atthe St. Clair River site in Corunna, Ontario and is capable of testing newcatalysts, new polyethylene products, mixing methods in reactors and solventseparation processes.

 

**Styrenics**

 

NOVA Chemicals’styrenics business currently operates two technical centers located at theBeaver Valley site in Monaca, Pennsylvania and at Chesapeake, Virginia. NOVAChemicals announced in January 2006 that it plans to close its ChesapeakeTechnology Center and consolidate its United States styrenics technologyorganization at its Beaver Valley site in 2006. The styrenics business alsooperates a pilot plant at the Beaver Valley site. This pilot plant is capableof simulating mass and suspension polymerization, as well as synthesis of EPSand the compounding of specialty blends and alloys. The styrenics business alsoprovides computer-aided design engineering resources in Southfield, Michiganand Chesapeake to support Performance Products, automotive applications andcustomers.

 

InDecember 2003, NOVA Chemicals opened a new styrenics research lab atthe NRTC located in Calgary, Alberta. This research lab focuses on thedevelopment of new technology platforms for styrenics by leveraging the skillsand capabilities already in existence at NRTC.

 

**ENVIRONMENTALREGULATION AND THE RESPONSIBLE CARE® PROGRAM**

 

Likeother companies in its industry, NOVA Chemicals is subject to extensiveenvironmental laws and regulations at all levels of government concerning themanufacture, processing and importation of certain petrochemical substances,discharges or releases (whether to air, land or water) and the generation,handling, storage, transportation, treatment, disposal and clean-up ofregulated materials.

 

AlthoughNOVA Chemicals believes that its businesses, operations and facilities arebeing operated in material compliance with applicable environmental laws andregulations, the operation of any petrochemical facility and the distributionof petrochemical products involve the risks of accidental discharges of hazardousmaterials, personal injury and property and environmental damage. Furthermore,applicable environmental laws and regulations provide for substantial fines,regulatory penalties and criminal sanctions in the event of non-compliance.There can be no assurance that NOVA Chemicals will not incur materialcosts or liabilities as a result of such occurrences or the enforcement ofenvironmental laws.

 

Riskof substantial environmental costs and liabilities is inherent in particularoperations and products of NOVA Chemicals, as it is with other companiesengaged in similar businesses, and there can be no assurance that materialcosts and liabilities, including uninsured liabilities, will not be incurredwith respect to future operations.

 

UnitedStates and Canadian generally accepted accounting principles require companiesto record liabilities associated with future plant decommissioning and siterestoration costs on both active and inactive plants at their fair value basedon a discounted value of the expected costs to be paid when the assets areretired. At December 31, 2005, NOVA Chemicals had $26 million ofaccumulated reserve for these activities. This accumulated reserve is comprisedof approximately $18 million anticipated to be required for the futuredecommissioning and site restoration of currently active plant sites,approximately $3 million anticipated to be required for thedecommissioning and site restoration of plant sites that have been divested orare no longer in use and approximately $5 million for ongoingenvironmental management and the planned dismantling of currently operatingplant sites.

 

NOVA Chemicals reviewsits accumulated reserves for decommissioning and site restoration quarterly todetermine if adjustments are required. The reserved amount for futuredecommissioning and site restoration does not include any deduction for salvageor land value that may be realized, however these will be taken intoconsideration as the assets are depreciated. Because these plants may bein operation in excess of 40 years, significant uncertainty existsconcerning the nature of the decommissioning and site restoration activitiesthat may be required. Furthermore, significant judgement is 

 

----

 

involved in the estimation process, since the degreeof natural attenuation, evolution of new technologies and potential future landuses may mitigate future environmental liabilities andpotential costs.

 

Fromtime to time NOVA Chemicals has entered into various consent agreements orbeen subject to administrative orders for pollution abatement or remedialaction in connection with its businesses. NOVA Chemicals is currentlyinvolved in investigations and clean-ups under the U.S. ComprehensiveEnvironmental Response, Compensation and Liability Act and comparable state lawsat four sites in connection with hazardous substances that in the past had beentransported to third-party disposal sites. NOVA Chemicals does not believethat its share of response costs at any of such sites will, individually or inthe aggregate, result in a material liability for NOVA Chemicals. It ispossible that, based upon the nature of the hazardous substances generated atexisting and discontinued operations, NOVA Chemicals may be involvedin investigations and clean-ups at additional sites in the future.

 

NOVAChemicals has operated an environmental audit program to determine regulatorycompliance by its operating facilities since 1990. In September 1995,NOVA Chemicals adopted the Responsible Care program as the basis for itsoverall safety, health, environment and risk program. The Responsible Careprogram is a comprehensive program which was initiated by the Canadian ChemicalProducers’ Association (“CCPA”) and has since been adopted by the AmericanChemistry Council (“ACC”) in the United States as well as by chemical industryassociations in over 52 countries worldwide. The Responsible Care programrequires program participants to commit to the responsible management of thetotal life cycle of their products. NOVA Chemicals has implemented theResponsible Care program in all its Canadian and United States operations.

 

NOVA Chemicals’Responsible Care Audit Program was evaluated by a leading internationalenvironment, health and safety consulting firm in January 2002 and December 2004.On the basis of its review the consultant found that the Audit Program wasprogressive, soundly designed and effectively implemented, and concluded thatit was highly rated when compared to other programs with which the consultantwas familiar. In the second quarter of 2003, the CCPA released its final reportfor the Responsible Care re-verification for NOVA Chemicals’ Canadianlocations based on their 2002-2005 protocol. According to the CCPA’s finalreport, the re-verification team is satisfied with the approach used by theCorporation to apply and meet the requirements of the Responsible Careinitiative. NOVA Chemicals’ next CCPA Responsible Care re-verificationaudit is scheduled for April 2006.

 

Inthe fourth quarter of 2004, NOVA Chemicals was one of the first membercompanies of the ACC to participate in an ACC-mandated series of audits ofmember company Responsible Care Management Systems (“RCMS”). The audit wasconducted by an external accredited audit firm and focused on corporate level(headquarters) Responsible Care systems, procedures and documentation. Theaudit concluded that NOVA Chemicals is in compliance with corporate levelRCMS requirements and NOVA Chemicals’ corporate level was officiallycertified as RCMS compliant in January 2005. Subsequent audits arefocusing on conformance with RCMS requirements at operating facilities andmanufacturing plants. In October 2005, NOVA Chemicals’ Chesapeake,Virginia operating facility was audited by an external accredited audit firmand the audit concluded that the facility is in compliance with RCMSrequirements. All ACC member companies will be required to participate inand to pass such audits as a condition of ACC membership.

 

NOVA Chemicalsis active in a number of voluntary environmental initiatives to reduceemissions and wastes from its facilities. In addition to participation in theCCPA’s National Emissions Reduction Masterplan, NOVA Chemicals is alsoparticipating in Canada’s Accelerated Reduction and Elimination of Toxics, andgreenhouse gas emissions management programs. Through an aggressive greenhousegas emissions management program and its participation in Canada’s VoluntaryClimate Change Challenge and Registry Program, NOVA Chemicals is committedto economically viable solutions to climate change concerns, including, forexample, NOVA Chemicals’ participation in the joint venture with ATCO andEPCOR to construct a natural-gas-fired cogeneration power plant at itsproduction site at Joffre, Alberta. This project has substantially reducedgreenhouse gas emissions when compared with continuing to supply the electricalneeds of the Joffre site from Alberta’s primarily coal fired electricalgeneration facilities. NOVA Chemicals’ agreements with Alberta-basedcustomers for the sale of carbon dioxide also help NOVA Chemicals reduceits carbon dioxide emissions. NOVA Chemicals is also directly involved inthe Canadian Chemical Industry’s Environmental Performance Memoranda ofUnderstanding with the Federal, Ontario and Alberta governments.

 

NOVA Chemicalsis participating in an initiative by the ACC to conduct research into the longrange health and environmental impacts of chemicals. This participation isconsistent with NOVA Chemicals’ Responsible Care commitment, 

 

----

 

and the resulting research will enable thechemicals industry to contribute to the scientific and public policy debatewhich impacts legislation affecting the industry.

 

TheKyoto Protocol to the United Nations Framework Convention on Climate Changetook effect during the first quarter of 2005. As a result of the Canadiangovernment’s decision to ratify the Kyoto Protocol, Canada is required toreduce its greenhouse gas emissions by 6% below 1990 levels during theyears 2008 through 2012 and legally binding greenhouse gas emissionreduction targets will be imposed on NOVA Chemicals’ operations in Canada.In addition, Canada has recently decided to classify carbon dioxide and severalother greenhouse gases as toxic substances under the Canadian EnvironmentalProtection Act, which will give the government the ability to legislatereductions in greenhouse gas emissions. Similarly, NOVA Innovene’sEuropean operations are located in countries where greenhouse gas emissiontargets will be imposed. There is no national greenhouse gas emission reductionprogram that imposes reduction targets in the United States, but somestates have announced an intention to implement such programs andNOVA Chemicals’ operations in the United States could also havetargets imposed. In view of the uncertainty of how and when implementation willoccur, NOVA Chemicals cannot estimate compliance costs or whether theywill be material.

 

Environmentalcapital expenditures for NOVA Chemicals, including pollution abatement andremedial programs, were $12 million in 2005, $17 million in 2004 and$9 million in 2003 and are estimated to be $19 million in 2006.Operating expenses relating to environmental protection were $13 millionin 2005, $15 million in 2004 and $16 million in 2003 and areestimated to be $12 million in 2006. Total remedial expenditures todismantle and remediate discontinued facilities and sites totaled$1 million in 2005, $2 million in 2004 and $1 million in 2003.This figure is expected to be $1 million in 2006.

 

**EMPLOYEEAND LABOUR RELATIONS**

 

NOVA Chemicalscurrently employs approximately 3,600 full-time employees globally.

 

Collectivebargaining agreements with various unions, covering approximately 500, or 14%,of the approximately 3,600 North American employees, are in place atcertain plants located in Ontario, Massachusetts and Pennsylvania. A collectivebargaining agreement involving approximately 48 employees atNOVA Chemicals’ styrene plant in Sarnia, Ontario was negotiated in 2004and will expire on January 31, 2007. A collective bargaining agreement involvingapproximately 225 employees at NOVA Chemicals’ olefins plant inCorunna, Ontario was negotiated in 2004 and will expire on March 31, 2007.The terms of collective bargaining agreements involving approximately30 employees at the polystyrene plant at Springfield, Massachusetts andapproximately 200 employees at the polystyrene plant at the Beaver Valleysite in Monaca, Pennsylvania will expire on September 30, 2007 and May 12,2006, respectively. NOVA Chemicals engages in continuous dialogue with theunions to address current issues and proactively address potentialbargaining items.

 

NOVA Chemicalsprovides medical, health, life insurance, pension plans and other benefits toits employees, which are comparable with other companies in the chemicals industrywhere its operations are located.

 

**FOREIGNOPERATIONS**

 

Foreignoperations are subject to various risks differing from those in Canada and theUnited States including political events, tax changes, labour difficulties,price controls and other governmental actions. NOVA Chemicals activelyaddresses these risks as part of its risk management system.

 

NOVA Chemicalssells its products worldwide. NOVA Chemicals has established itsinternational commercial headquarters in Switzerland to coordinate commercialactivities outside of North America and maintains sales support operations infive countries.

** **

**LEGALPROCEEDINGS**

 

NOVA Chemicalsis involved in litigation from time to time in the ordinary course of itsbusiness. In management’s opinion none of the litigation thatNOVA Chemicals is currently involved in is material toNOVA Chemicals’ financial condition or results of operations.

 

----

 

**RISK FACTORS**

 

***The cyclicality of commodity plastics and chemicals businesses may causesignificant fluctuation in NOVA Chemicals’ income and cash flow.***

 

NOVAChemicals’ historical operating results reflect the cyclical and volatilenature of commodity plastics and chemicals businesses. The olefins/polyolefinsand styrenics businesses historically experience alternating periods ofinadequate capacity and tight supply, causing prices and profit margins toincrease, followed by periods of oversupply, resulting from capacity additions.The oversupply leads to declining capacity utilization rates, prices and profitmargins. The markets for ethylene, polyethylene, styrene and styrenic polymersare also highly cyclical, resulting in volatile profits and cash flow over thebusiness cycle. Because NOVA Chemicals derives nearly all of its revenuefrom sales of these products, its operating results are more sensitive to thiscyclical nature than many of its competitors who have more diversifiedbusinesses. This cyclicality is exacerbated by volatility in feedstock prices.NOVA Chemicals cannot provide assurance that pricing or profitability inthe future will be comparable to any particular historical period, includingthe most recent period shown in its operating results.

 

Excessindustry capacity, especially at times when demand is weak, has in the past andmay in the future cause NOVA Chemicals and other industry participants tolower production rates, which can reduce its margins, income andcash flow.

 

***Rising costs of raw materials andenergy may result in increased operating expenses and reduced resultsof operations.***

 

NOVAChemicals purchases large amounts of raw materials, including natural gas andbenzene, and energy for its businesses, representing a substantial portion ofits operating expenses. The prices of raw materials and energy generally followprice trends of, and vary with market conditions for, crude oil and naturalgas, which have historically been highly volatile and cyclical.NOVA Chemicals’ raw material costs have fluctuated significantly in thelast few years. Although certain of NOVA Chemicals’ customer contracts arebased on changes in feedstock costs or provide for surcharges if feedstockcosts change, many contracts are tied to market prices and therefore do notnecessarily allow for the immediate flow through of rising feedstock costs.NOVA Chemicals cannot predict whether and to what extent feedstock orenergy prices will rise in the future or whether and to what extent it will beable to pass on such cost increases to its customers. Any significant feedstockcost increase could have a material adverse effect on NOVA Chemicals’business, results of operations, financial condition and cash flow.

 

***NOVA Chemicals sells commodityproducts in highly competitive markets and faces significant price pressure.***

 

NOVAChemicals sells its products in highly competitive markets. Due to thecommodity nature of a majority of its products, with the exception to somedegree of Performance Products, competition in these markets is based primarilyon price and to a lesser extent on product performance, product quality,product deliverability and customer service. As a result, NOVA Chemicals may notbe able to protect its market position by product differentiation or pass oncost increases to its customers. Accordingly, increases in raw material costsand other costs may not necessarily correlate with changes in productprices, either in the direction of the price change or in magnitude. AlthoughNOVA Chemicals strives to maintain or increase its profitability byreducing costs through improving production efficiency, emphasizing higher marginproducts and controlling selling and administration expenses,NOVA Chemicals cannot provide assurance that these efforts will besufficient to offset fully the effect of any pricing changes on its operatingresults.

 

AmongNOVA Chemicals’ competitors are some of the world’s largest chemicalscompanies and major integrated petroleum companies that have their own rawmaterial resources. Some of these companies may be able to produceproducts more economically than NOVA Chemicals can. In addition, some ofNOVA Chemicals’ competitors are larger and have greater financialresources, which may enable them to invest significant capital into theirbusinesses, including expenditures for research and development. If any ofNOVA Chemicals’ current or future competitors develop proprietarytechnology that enables them to produce products that compete with those ofNOVA Chemicals at a significantly lower cost, segments ofNOVA Chemicals’ technology could be rendered over time uneconomical orobsolete. The entrance of new competitors into the industry may reduceNOVA Chemicals’ ability to capture profit margins in circumstances wherecapacity utilization in the industry is decreasing. Further, production fromlow-cost producers in petroleum-rich countries is increasing in thepetrochemical industry and may expand significantly in the future. Any ofthese developments could affect NOVA Chemicals’ ability to enjoy higherprofit margins during periods of increased demand.

 

----

 

***External factors beyond NOVA Chemicals’ control can cause fluctuationsin demand for NOVA Chemicals’ products and in its prices and margins,which may negatively affect income and cash flow.***

 

Externalfactors can cause significant fluctuations in demand for NOVA Chemicals’products and volatility in the price of raw materials and other operatingcosts. Examples of external factors include general economic conditions,including a prolonged economic downturn, competitor actions, technologicaldevelopments, unplanned facility shutdowns, international events andcircumstances, and governmental regulation.

 

Demandfor NOVA Chemicals’ products is influenced by general economic conditions. Anumber of NOVA Chemicals’ products are highly dependent on durable goodsmarkets, which are themselves particularly cyclical.If the global economy does not improve, demand for NOVA Chemicals’products and its income and cash flow would be adversely affected.

 

NOVAChemicals may reduce production, idle a facility for an extended period oftime, or discontinue certain products because of high raw material prices, anoversupply of a particular product, feedstock unavailability and/or lack ofdemand for that particular product. When NOVA Chemicals decides to reduceor idle production, reduced operating rates are often necessary for severalquarters or, in certain cases, longer and cause NOVA Chemicals to incurcosts, including the expenses of the outages and the restart of thesefacilities.

 

***NOVA Chemicals has asignificant amount of debt, which could adversely affect its financialcondition.***

 

NOVA Chemicalshas a significant amount of indebtedness. As of December 31, 2005,NOVA Chemicals had (a) total indebtedness of approximately$2.0 billion and (b) additional amounts of approximately$375 million available for borrowing under its credit facility (before$87 million in letters of credit), subject to customary conditions. Inaddition, on January 20, 2006, NOVA Chemicals established a newunsecured revolving credit facility in the amount of $100 million.

 

Thelevel of indebtedness could have important consequences, such as limiting cashflow available for general corporate purposes due to debt service requirements,limiting NOVA Chemicals’ ability to obtain additional debt financing onadvantageous terms in the future, limiting NOVA Chemicals’ flexibility inaddressing competitive and other changes in its industry and economicconditions generally due to cash flow restrictions, exposingNOVA Chemicals to risks inherent in interest rate fluctuations, andincreasing NOVA Chemicals’ vulnerability to general economic downturns andadverse competitive and industry conditions. These risks, if realized, couldplace NOVA Chemicals at a competitive disadvantage compared to any of itscompetitors that are less leveraged.

 

Inaddition, subject to the restrictions in its credit facility and indentures,NOVA Chemicals may incur significant additional indebtedness fromtime to time. If new debt is added to current debt levels, the relatedrisks described above would intensify. If such debt financing is not availablewhen required or is not available on acceptable terms, NOVA Chemicals may beunable to grow its business, take advantage of business opportunities, respondto competitive pressures or refinance maturing debt, any of which could have amaterial adverse effect on its operating results and financial condition.

*** ***

***Operating problems in NOVA Chemicals’business may adversely affect NOVA Chemicals’ income and cash flow.***

 

Theoccurrence of material operating problems at NOVA Chemicals’ facilities,including any of the events described below, may have a material adverseeffect on the productivity and profitability of a particular manufacturingfacility, or on NOVA Chemicals’ operations as a whole. NOVA Chemicals’income and cash flow are dependent on the continued operation of its variousproduction facilities. NOVA Chemicals’ operations are subject to the usualhazards associated with chemical manufacturing and the related storage andtransportation of raw materials, products and wastes, including pipeline,storage tank and other leaks and ruptures; fires; mechanical failure; labourdifficulties; remediation complications; discharges or releases of pollutants,contaminants or toxic or hazardous substances or gases and other environmentalrisks; explosions; chemical spills; unscheduled downtime; transportationinterruptions; and inclement weather and natural disasters.

 

Someof these hazards may cause personal injury and loss of life, severe damageto or destruction of property and equipment and environmental damage, and may resultin suspension of operations and the imposition of civil, regulatory or criminalpenalties. Furthermore, NOVA Chemicals is also subject to present andfuture claims with respect to workplace 

 

----

 

exposure, workers’ compensation and other matters.NOVA Chemicals carries insurance against potential operating hazards whichis consistent with industry norms. If NOVA Chemicals were to incur asignificant liability that was not covered by insurance, it could significantlyaffect NOVA Chemicals’ productivity, profitability and financial position.

 

***NOVA Chemicals is exposed to costsarising from environmental compliance, cleanup and adverse litigation, which may havea substantial adverse effect on NOVA Chemicals’ business, financial condition,operating results and cash flow.***

 

NOVAChemicals is subject to extensive federal, provincial, state and localenvironmental laws and regulations concerning the manufacture, processing andimportation of certain petrochemical substances, air emissions, waterdischarges and the generation, handling, storage, transportation, treatment,disposal and clean up of regulated substances. NOVA Chemicals’ operationsinvolve the risk of accidental discharges or releases of toxic or hazardousmaterials, personal injury, property and environmental damage. Furthermore,applicable environmental laws and regulations are complex, change frequentlyand provide for substantial fines, regulatory penalties and criminal sanctionsin the event of non-compliance. In addition, substantial costs can sometimesresult from orders that require rectification of environmental conditions.NOVA Chemicals cannot provide assurance that it will not incur substantialcosts or liabilities as a result of such occurrences or the enforcement ofenvironmental laws.

 

Riskof substantial environmental costs and liabilities is inherent inNOVA Chemicals’ business, as it is with other companies engaged in similarbusinesses. Also, NOVA Chemicals has liabilities and obligations arisingin connection with discontinued operations, and has specific contractualobligations with respect to pre-closing environmental conditions at certainfacilities divested by predecessor companies. Environmental investigations andremedial work have commenced at most locations and provision has been made inNOVA Chemicals’ financial statements to cover the estimated costs ofremediation of discontinued sites. NOVA Chemicals has incurred, and may incurin the future, environmental costs and liabilities and has made provisions inits financial statements for known matters. Nevertheless, NOVA Chemicalscannot provide assurance that it will not incur substantial costs andliabilities resulting from future events or unknown circumstances which exceedits reserves or will be material.

 

Fromtime to time, NOVA Chemicals has entered into consent agreements or beensubject to administrative orders for pollution abatement or remedial action.Under some environmental laws, NOVA Chemicals may be subject tostrict and under certain circumstances, joint and several liabilityfor the costs of environmental contamination on or from its properties, and atoff-site locations where NOVA Chemicals disposed of or arranged fordisposal or treatment of hazardous substances, and may also incur liabilityfor related damages to natural resources. NOVA Chemicals has been named asa potentially responsible party under the U.S. Comprehensive EnvironmentalResponse, Compensation and Liability Act of 1980, or its state equivalents, atfour third-party sites. NOVA Chemicals cannot provide assurance thatsignificant costs will not be incurred.

*** ***

***NOVA Chemicals could incursignificant costs to comply with the Kyoto Protocol or other greenhouse gasemission reduction requirements, which in turn could reduce NOVA Chemicals’operating results and cash flow.***

 

TheKyoto Protocol to the United Nations Framework Convention on Climate Changetook effect during the first quarter of 2005. As a result of the Canadiangovernment’s decision to ratify the Kyoto Protocol, Canada is required toreduce its greenhouse gas emissions by 6% below 1990 levels during the years2008 through 2012 and legally binding greenhouse gas emission reduction targetswill be imposed on NOVA Chemicals operations in Canada. In addition, Canadahas recently decided to classify carbon dioxide and several other greenhousegases as toxic substances under the Canadian Environmental Protection Act,which gives the government the ability to legislate reductions in greenhousegas emissions. Similarly, NOVA Innovene’s European operations are locatedin countries where greenhouse gas emission targets will be imposed. There is nonational greenhouse gas emission reduction program that imposes reductiontargets in the United States, but some states have announced an intentionto implement such programs and NOVA Chemicals’ operations in theUnited States could also have targets imposed. In view of the uncertaintyof how and when implementation will occur, NOVA Chemicals cannot estimatecompliance costs or whether they will be material.

 

***NOVA Chemicals’ business may beadversely affected by risks associated with international operations.***

 

AlthoughNOVA Chemicals reports its results in U.S. dollars, it conducts asignificant portion of its business outside the United States, and is subjectto risks normally associated with international operations. These risks includethe need to 

 

----

 

convert currencies thatNOVA Chemicals may receive as payment for its products intocurrencies required to pay its debt, or into currencies with whichNOVA Chemicals purchases raw materials or pays for services, which couldresult in a gain or loss depending on fluctuations in exchange rates.Fluctuations in exchange rates can also affect the relative competitiveposition of a particular manufacturing facility, as well as NOVA Chemicals’ability to market its products successfully in other markets. Other risks ofinternational operations include trade barriers, tariffs, exchange controls,national and regional labour strikes, social and political risks, generaleconomic risks, required compliance with a variety of foreign laws, includingtax laws and the difficulty of enforcing agreements and collecting receivablesthrough foreign legal systems.

 

***Interruptionsin NOVA Chemicals’ supply of raw materials could adversely affect NOVAChemicals’ business.***

 

NOVAChemicals purchases large amounts of raw materials, including crude oil,natural gas and benzene, and energy for its businesses. If temporary shortagesdue to disruptions in supply caused by weather, transportation, productiondelays or other factors require NOVA Chemicals to secure its raw materialsfrom sources other than its current suppliers, NOVA Chemicals cannotprovide assurance that it will be able to do so on terms as favourable as itscurrent terms or at all.

 

***NOVA Chemicals may be subjectto losses that are not covered by insurance.***

 

NOVAChemicals carries comprehensive liability and property (including fire andextended perils) insurance on all of its facilities, with deductibles and otherpolicy specifications and insured limits customarily carried inNOVA Chemicals’ industry for similar properties. NOVA Chemicals’insurance costs have increased recently. In addition, some types of losses,such as losses resulting from war or acts of terrorism are not insured.NOVA Chemicals determines coverage limits based on what it believes to bea reasonable maximum foreseeable loss scenario for its operations. In the eventthat an uninsured loss or a loss in excess of insured limits occurs, NOVA Chemicalsmay not be reimbursed for the cost to replace capital invested in thatproperty, nor insured for the anticipated future revenues derived from themanufacturing activities conducted at that property, while NOVA Chemicalscould remain obligated for any mortgage indebtedness or other financialobligations related to the property. Any such loss could adversely affectNOVA Chemicals’ business, results of operations or financial condition.

 

***NOVA Chemicals has made and may continueto make investments in entities that it does not control.***

 

NOVA Chemicalshas established joint ventures and made minority interest investments designedto increase its vertical integration, enhance customer service and increaseefficiencies in its marketing and distribution in the United States and othermarkets. NOVA Chemicals’ principal joint ventures and minority investmentsinclude NOVA Innovene, E3 and the Joffre Co-Generation Plant.NOVA Chemicals does not control these entities.

 

NOVA Chemicals’inability to control entities in which it invests may affect its abilityto receive distributions from those entities or to fully implement its businessplan. The incurrence of debt or entry into other agreements by an entity notunder NOVA Chemicals’ control may result in restrictions orprohibitions on that entity’s ability to pay dividends or make otherdistributions to NOVA Chemicals. Even where these entities are notrestricted by contract or by law from making distributions toNOVA Chemicals, NOVA Chemicals may not be able to influence theoccurrence or timing of such distributions. In addition, if any of the otherinvestors in a non-controlled entity fails to observe its commitments,that entity may not be able to operate according to its businessplan or NOVA Chemicals may be required to increase its level ofcommitment. If any of these events were to transpire, NOVA Chemicals’business, results of operations and financial condition could beadversely affected.

 

***Labour disputes could have anadverse effect on NOVA Chemicals’ business.***

 

Asof December 31, 2005, NOVA Chemicals had approximately3,600 employees globally. Approximately 500, or 14%, of itsNorth American employees are represented by unions under four separatecollective bargaining agreements. If NOVA Chemicals is unable to negotiateacceptable contracts with these unions upon expiration of an existing contractor other employees were to become unionized, NOVA Chemicals couldexperience work stoppages, a disruption in operations or higher labour costs,which could have an adverse effect on business, financial condition, results ofoperations and cash flow.

 

----

 

***NOVA Chemicals’ business is dependent on its intellectual property. IfNOVA Chemicals’ patents are declared invalid or its trade secrets become knownto its competitors, its ability to compete may be adversely affected.***

 

Proprietaryprotection of NOVA Chemicals’ processes, apparatuses and other technologyis important to NOVA Chemicals’ business. Consequently,NOVA Chemicals relies on judicial enforcement for protection of itspatents. While a presumption of validity exists with respect to patents issuedto NOVA Chemicals in the United States and Canada, there can be noassurance that any of NOVA Chemicals’ patents will not be challenged,invalidated or circumvented. Furthermore, if any pending patent applicationfiled by NOVA Chemicals does not result in an issued patent, then the useof any such intellectual property by NOVA Chemicals’ competitors couldhave an adverse effect on NOVA Chemicals’ businesses, financial condition,results of operations or cash flow. Additionally,NOVA Chemicals’ competitors or other third parties may obtain patentsthat restrict or preclude NOVA Chemicals’ ability to lawfully produce orsell its products in a competitive manner, which could have an adverse effecton business, financial condition, results ofoperations or cash flow.

 

NOVA Chemicalsalso relies upon unpatented proprietary know-how and continuing technologicalinnovation and other trade secrets to develop and maintain its competitiveposition. While it is NOVA Chemicals’ policy to enter into confidentialityagreements with its employees and third parties to protect its intellectualproperty, these confidentiality agreements may be breached and,consequently, may not provide meaningful protection forNOVA Chemicals’ trade secrets or proprietary know-how, or adequateremedies may not be available in the event of an unauthorized use ordisclosure of such trade secrets and know-how. In addition, others could obtainknowledge of such trade secrets through independent development or other accessby legal means. Although NOVA Chemicals does not regard any single patentor trademark as being material to its operations as a whole, the failure of itspatents or confidentiality agreements to protect its processes, apparatuses,technology, trade secrets or proprietary know-how could have an adverse effecton its business, financial condition, results ofoperations or cash flow.

 

----

 

**DIVIDENDS**

 

Historically,NOVA Chemicals has paid dividends on its common shares at the rate ofCdn. $0.10 per quarter. In 2005, NOVA Chemicals paidU.S. $27 million in dividends on its common shares. There arecurrently no material contractual restrictions on NOVA Chemicals’ ability todeclare and pay dividends on its common shares. The declaration and payment ofdividends is at the discretion of the Board of Directors of NOVA Chemicals,which will consider earnings, capital requirements, the financial condition ofNOVA Chemicals and other relevant factors. It is, however, the Corporation’scurrent intention to retain most of its earnings to support current operationsand reduce debt, and to continue to pay dividends at historic levels.

 

NOVAChemicals has paid the following dividends on its common shares during thepreceding three years:

 
| ** **     | ** ** | ** ** | ** ** | **Dividends per share** | ** ** |
|----------------|------------|------------|------------|-----------------------------------|------------|
| ** **     | ** ** | ** ** | ** ** | **2005**                          | ** ** | **2004** | ** ** | **2003** | ** ** |
|           |       |       |       |                              |       |   |   |   |   |
| Common  Shares |       | Cdn.       |       | $                                 | 0.40       |   | $ | 0.40 |   | $ | 0.40 |   |
|                |            |            |            |                                   |            |  |  |  |  |  |  |  |

 

**DESCRIPTION OF CAPITAL STRUCTURE**

 

NOVAChemicals is authorized to issue an unlimited number of common shares, firstpreferred shares and second preferred shares. Currently, only common shares areissued and outstanding.

 

**CommonShares**

 

Eachcommon share has one vote. The holders of the common shares are entitled toattend and vote at all meetings of shareholders except meetings of only theholders of another class or series of shares of the Corporation. Inaddition, subject to the preferential rights attaching to any shares of theCorporation ranking in priority to the common shares, the holders of the commonshares are entitled to receive any dividends that may be declared by theBoard of Directors on the common shares. Subject to the rights of the holdersof shares of the Corporation ranking in priority to the common shares, theholders of the common shares are entitled to participate rateably amongstthemselves and rateably with the holders of any shares ranking on a parity withthe common shares in any distribution of the remaining property of theCorporation in the event of the dissolution, liquidation or winding-up of NOVAChemicals or any other distribution of its property amongst its shareholdersfor the purposes of winding-up its affairs.

 

InMay 1999, NOVA Chemicals’ shareholders approved a shareholder rightsplan where one right was issued for each outstanding common share. The rightsremain attached to the shares and are not exercisable until the commencement orannouncement of a takeover bid for NOVA Chemicals’ common shares or untila person acquires 20% or more of NOVA Chemicals’ common shares. The rightsplan, as amended and restated, was reconfirmed by shareholders in April 2005.The plan expires in May 2009.

 

**FirstPreferred Shares**

 

Subjectto the following and to applicable law, the first preferred shares as a class arenot entitled to receive notice of, attend or vote at meetings of theshareholders of the Corporation. The first preferred shares may from timeto time be issued in one or more series, and the Board of Directors may fixfrom time to time before such issue the number of first preferred shares thatis to comprise each series and the designation, rights, privileges,restrictions and conditions attaching to each series of first preferredshares, including any voting rights, the rate or amount of dividends or themethod of calculating dividends, the dates of payment thereof, the terms andconditions of redemption, purchase and conversion, if any, and any sinking fundor other provisions. If issued, the first preferred shares of each series will,with respect to the payment of dividends and the distribution of assets onreturn of capital in the event of liquidation, dissolution or winding-up ofNOVA 

 

----

 

Chemicals, whether voluntaryor involuntary, or any other return of capital or distribution of the assets ofthe Corporation amongst its shareholders for the purpose of winding-up itsaffairs, have preference over the common shares, the second preferred sharesand over any other shares of the Corporation ranking by their terms junior tothe first preferred shares of the series. The first preferred shares of anyseries may also be given such other preferences over the commonshares, the second preferred shares and any other shares ranking junior to suchfirst preferred shares as may be established by the Board of Directors.

 

**SecondPreferred Shares**

 

Subjectto the following and to applicable law, the second preferred shares as a class arenot entitled to receive notice of, attend or vote at meetings of theshareholders of the Corporation. The second preferred shares may from timeto time be issued in one or more series, and the Board of Directors may fixfrom time to time before such issue the number of second preferred shares thatis to comprise each series and the designation, rights, privileges,restrictions and conditions attaching to each series of second preferredshares, including any voting rights, the rate or amount of dividends or themethod of calculating dividends, the dates of payment thereof, the terms andconditions of redemption, purchase and conversion, if any, and any sinking fundor other provisions. The second preferred shares of each series will, withrespect to the payment of dividends and the distribution of assets on return ofcapital in the event of liquidation, dissolution or winding-up of NOVAChemicals, whether voluntary or involuntary, or any other return of capital ordistribution of the assets of the Corporation amongst its shareholders for thepurpose of winding-up its affairs, have preference over the common shares andover any other shares of the Corporation ranking by their terms junior to thesecond preferred shares of the series. The second preferred shares of any series may alsobe given such other preferences over the common shares and any other sharesranking junior to such second preferred shares as may be established bythe Board of Directors.

 

**CREDIT RATINGS**

 

NOVAChemicals has outstanding 7% medium term notes due 2006, 7.4% medium term notesdue 2009, 7.85% senior notes due 2010, 6.5% senior notes due 2012, seniorfloating rate (six-month LIBOR plus 3.125%) notes due 2013, 7.875% debenturesdue 2025 and 7.25% debentures due 2028. NOVA Chemicals’ notes and debentureshave been rated BB+ (negative) by Standard & Poor’s Corporation (“S&P”),Ba2 (negative) by Moody’s Investor Service, Inc. (“Moody’s”),BBB (low) (stable) by Dominion Bond Rating Service (“DBRS”) andBB+ (stable) by Fitch Ratings Ltd. (“Fitch”) (each a “Rating Agency”).

 

Creditratings are intended to provide investors with an independent measure of creditquality of an issue of securities. Rating for debt instruments are presented inranges by each of the Rating Agencies. The highest quality of securities arerated AAA, in the case of S&P, DBRS and Fitch, or Aaa,in the case of Moody’s. The lowest quality of securities are rated D, in thecase of S&P, DBRS and Fitch, or C, in the case of Moody’s.

 

Accordingto the S&P rating system, notes rated BB, B, CCC, CC, and C are regarded ashaving significant speculative characteristics. BB indicates the least degreeof speculation and C the highest. While such notes will likely have somequality and protective characteristics, these may be outweighed by largeuncertainties or major exposures to adverse conditions. Notes rated BB are lessvulnerable to nonpayment than other speculative issues. However, the obligor facesmajor ongoing uncertainties or exposure to adverse business, financial, oreconomic conditions, which could lead to the obligor’s inadequate capacity tomeet its financial commitment on the obligation. The ratings from AA to CCC may bemodified by the addition of a plus (+) or minus (-) sign to show relativestanding within the major rating categories.

 

Accordingto the Moody’s rating system, notes which are rated Ba are judged to havespeculative elements; their future cannot be considered as well-assured. Oftenthe protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both goodand bad times over the future. Uncertainty of position characterizes bonds inthis class. Moody’s applies numerical modifiers 1, 2, and 3 in each genericrating classification from Aa through Caa. Themodifier 1 indicates that the obligation ranks in the higher end of its genericrating category; the modifier 2 indicates a mid-range ranking; and the modifier3 indicates a ranking in the lower end of that generic rating category.

 

Accordingto the DBRS rating system, notes rated BBB are of adequate credit quality.Protection of interest and principal is considered acceptable, but the entityis fairly susceptible to adverse changes in financial and economic conditions,or there may be other adverse conditions present which reduce the strengthof the entity and its rated securities. 

 

----

 

Each rating category from AAto C is denoted by the subcategories high and low. The absence of either a highor low designation indicates the rating is in the middle of the category.

 

Accordingto the Fitch rating system, notes rated BB indicate that there is a possibilityof credit risk developing, particularly as the result of adverse economic changeover time. However, business or financial alternatives may be available toallow financial comitments to be met. The ratings from AA to CCC may bemodified by a plus (+) or minus (—) sign to show relative standingwithin the major rating categories.

 

Thecredit ratings accorded to the notes by the Rating Agencies are notrecommendations to purchase, hold or sell the notes inasmuch as such ratings donot comment as to market price or suitability for a particular investor. Thereis no assurance that any rating will remain in effect for any given period oftime or that any rating will not be revised or withdrawn entirely by a RatingAgency in the future if in its judgement circumstances so warrant.

 

**MARKET FOR SECURITIES**

 

**COMMONSHARES**

 

NOVAChemicals’ outstanding common shares are listed on the Toronto and New Yorkstock exchanges (“TSX” and “NYSE”, respectively). The following table setsforth the price range and volume of securities traded on the TSX and NYSE foreach month in 2005:

 
| ** **          | ** ** | **TSX**          | ** **              | **NYSE**   | ** **        |
|---------------------|------------|------------------|-------------------------|------------|-------------------|
| **Month**           | ** ** | **Price  Range** | ** **              | **Volume** | ** **        | **Price  Range** | ** ** | **Volume** | ** ** |
|                |       | ($Cdn.)          |                    |       |              |   |   |   |   |
|                |       |             |                    |       |              |   |   |   |   |
| January 2005   |       | $                | 50.88 - 58.62 |       | 9.0 million  |   | $ | 42.25 - 47.60 |   | 9.5 million |   |
| February 2005  |       | $                | 55.01 - 62.63 |       | 8.1 million  |   | $ | 44.19 - 50.91 |   | 7.1 million |   |
| March 2005     |       | $                | 50.10 - 64.25 |       | 9.1 million  |   | $ | 41.36 - 52.20 |   | 12.0 million |   |
| April 2005     |       | $                | 39.60 - 53.09 |       | 11.8 million |   | $ | 31.64 - 43.74 |   | 14.6 million |   |
| May 2005       |       | $                | 36.80 - 43.25 |       | 10.5 million |   | $ | 29.07 - 34.72 |   | 11.9 million |   |
| June 2005      |       | $                | 36.65 - 43.11 |       | 12.7 million |   | $ | 29.75 - 34.78 |   | 10.0 million |   |
| July 2005      |       | $                | 37.03 - 44.80 |       | 9.2 million  |   | $ | 30.31 - 36.90 |   | 9.6 million |   |
| August 2005    |       | $                | 37.75 - 43.78 |       | 9.1 million  |   | $ | 31.76 - 36.44 |   | 7.1 million |   |
| September 2005 |       | $                | 37.93 - 43.20 |       | 8.2 million  |   | $ | 32.05 - 37.14 |   | 11.2 million |   |
| October 2005   |       | $                | 40.71 - 45.07 |       | 7.8 million  |   | $ | 34.62 - 38.45 |   | 11.1 million |   |
| November 2005  |       | $                | 41.96 - 46.70 |       | 8.2 million  |   | $ | 35.70 - 39.17 |   | 10.4 million |   |
| December 2005  |       | $                | 38.60 - 45.80 |       | 9.6 million  |   | $ | 33.13 - 39.81 |   | 13.7 million |   |

 

**TransferAgents and Registrars**

 

Thetransfer agent and registrar for NOVA Chemicals’ common shares isCIBC Mellon Trust Company at its principal office inCalgary, Alberta.

 

**DEBTSECURITIES**

 

During2005, NOVA Chemicals issued and sold $400 million aggregate principalamount of senior floating rate (six-month LIBOR plus 3.125%) notes due2013. NOVA Chemicals received approximately $397 million of netproceeds from the sale of the notes (after deducting discounts to the initialpurchasers and estimated offering expenses), of which approximately$286 million was used to repay its obligations under accounts receivablesecuritization programs. NOVA Chemicals used the balance of the proceedsfor general corporate purposes.

 

----

 

**DIRECTORS AND OFFICERS**

 

Asa group, based on information provided to NOVA Chemicals by each director andexecutive officer, all directors and executive officers of NOVA Chemicalsbeneficially owned, directly or indirectly, or exercised control or directionover 792,559 common shares of NOVA Chemicals as at February 15, 2006,representing approximately .96% of the outstanding common shares.

** **

**DIRECTORS**

 

Thefollowing table sets forth as of February 15, 2006, in alphabetical order,the name of each director of NOVA Chemicals, his or her residence,principal occupation(s) during the five preceding years and the period duringwhich he or she has served as a director of NOVA Chemicals or itspredecessors. The terms of office of all of the directors ofNOVA Chemicals expire at the termination of the 2006 annual meeting,or until a successor is elected or appointed. Each of the directors hasbeen nominated for election to serve as a director for a further one yearperiod ending at the termination of the 2007 annual meeting.

 
| **Name and Residence**                                                | ** ** | **Period during which  a director  of NOVA Chemicals or its  predecessor** | ** ** | **Principal Occupation****During the Preceding Five Years(1)**                                                                                                                            |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                  |       |                                                                                                |       |                                                                                                                                                                                           |
| JERALD ALLEN  BLUMBERG(2)(3)(4)  Colorado, U.S.A.                     |       | Since February 15,  2000                                                                       |       | Retired Executive Vice  President of E.I. du Pont de Nemours and Company (science company)                                                                                           |
| DR. FRANK PETER  BOER(3)(5)  Florida, U.S.A.                     |       | Since February 21,  1991                                                                       |       | President and Chief  Executive Officer, Tiger Scientific Inc. (science and technology, consulting  and investments)                                                                            |
| JACQUES BOUGIE,  O.C.(5)(6)(7)  Québec, Canada                   |       | Since June 14, 2001                                                                            |       | Retired President and  Chief Executive Officer, Alcan Inc. (international aluminum company). Prior  to June 2001, President and Chief Executive Officer, Alcan Inc.                  |
| DR. JOANNE VANISH  CREIGHTON(3)(5)Massachusetts, U.S.A.          |       | Since June 14, 2001                                                                            |       | President and Professor of  English, Mount Holyoke College (higher education)                                                                                                             |
| ROBERT EMMET DINEEN, JR.(2)(6)  New York, U.S.A.                 |       | Since July 2, 1998                                                                             |       | Of counsel, Shearman &  Sterling LLP, Attorneys-at-Law. Prior to January 2006, Senior  Partner, Shearman & Sterling LLP                                       |
| LOUIS YVES FORTIER, C.C.,  Q.C.(2)(5)  Québec, Canada            |       | Since July 2, 1998                                                                             |       | Chairman and Senior  Partner, Ogilvy Renault, Barristers and Solicitors                                                                                                                        |
| KERRY LLOYD HAWKINS(3)(6)  Manitoba, Canada                           |       | Since July 2, 1998                                                                             |       | Retired President of  Cargill Limited and Chief Executive Officer of Canadian operations,  Cargill Limited (grain handling, transportation and processing of  agricultural products) |
| JEFFREY MARC LIPTON  Pennsylvania, U.S.A.                             |       | Since April 18, 1996                                                                           |       | President and Chief  Executive Officer, NOVA Chemicals                                                                                                                                         |
| ARNOLD MARTIN  LUDWICK(5)(6)  Québec, Canada                     |       | Since February 15,  2000                                                                       |       | Retired Deputy Chairman,  Claridge Inc. (investment holding company). Prior to December 2002,  Deputy Chairman, Claridge Inc.                                              |
| JAMES MALCOLMEDWARD (TED) NEWALL, O.C.(2)(7)Alberta, Canada |       | Since August 13, 1991                                                                          |       | Chairman of the Board,NOVA Chemicals                                                                                                                                                           |
| JANICE GAYE RENNIE,  F.C.A.(3)(6)  Alberta, Canada                    |       | April 1991 — December 2004;  since January 1, 2006                         |       | Independent investor,  director and business advisor. From September 2004 to September 2005,  Senior Vice President of Human Resources and Organizational                            |

 

----

 
|                                              |   |                         |   | Effectiveness, EPCOR  Utilities Inc. (energy and energy-related services and products). Prior  to September 2004, Principal, Rennie and Associates (investment  management) |
|---------------------------------------------------|--------|------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| JAMES MARK STANFORD,  O.C.(2)(3)  Alberta, Canada |   | Since December 3,  1999 |   | President, Stanford  Resource Management Inc. (investment management)                                                                                                       |

 
| Notes: |
|--------|
|   |   | (1) |   | Information with respect to  the principal occupations of each director is based on information furnished  to NOVA Chemicals. |
|   |   | (2) |   | Member of the Corporate  Governance Committee of the Board of Directors. |
|   |   | (3) |   | Member of the Human  Resources Committee of the Board of Directors. |
|   |   | (4) |   | Mr. Blumberg was  formerly a director of Burlington Industries Inc., which declared  bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in 2001. |
|   |   | (5) |   | Member of the Public Policy  and Responsible Care Committee of the Board of Directors. |
|   |   | (6) |   | Member of the Audit,  Finance and Risk Committee of the Board of Directors. |
|   |   | (7) |   | Messrs. Bougie and  Newall serve as directors of Novelis Inc. (“Novelis”), and in such  capacity are subject to management cease trade orders issued by certain of  the Canadian provincial securities administrators against the directors and  officers of Novelis by reason of Novelis’ default in filing its interim  unaudited financial statements for the period ended September 30, 2005.  The cease trade orders preclude Messrs. Bougie and Newall from trading  in securities of Novelis until the financial statements are filed. |

 

**EXECUTIVEOFFICERS**

 

Thefollowing table sets forth, in alphabetical order, the name of each executiveofficer of NOVA Chemicals, his residence, present positions withinNOVA Chemicals and his principal occupations during the fivepreceding years.

 
| **Name and Residence**                         | ** ** | **Present  Principal Occupation**                                 | ** ** | **Principal  Occupation  During The Preceding Five Years(1)**                                                                                                                            |
|------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                           |       |                                                                   |       |                                                                                                                                                                                     |
| JEFFREY MARC LIPTONPennsylvania, U.S.A.        |       | President and Chief  Executive Officer                                 |       | President and Chief  Executive Officer, NOVA Chemicals                                                                                                                                   |
| LAWRENCE ALLAN MACDONALD  Pennsylvania, U.S.A. |       | Senior Vice President and  Chief Financial Officer                |       | Senior Vice President and  Chief Financial Officer, NOVA Chemicals; prior to October 2001,  Senior Vice President, Manufacturing East, NOVA Chemicals                     |
| JACK STEPHEN MUSTOEPennsylvania, U.S.A.        |       | Senior Vice President,  Legal, General Counsel and Corporate Secretary |       | Senior Vice President,  Legal, General Counsel and Corporate Secretary, NOVA Chemicals; prior to April 2004,  Senior Vice President, Legal and General Counsel, NOVA Chemicals |
| CHRISTOPHER DANIEL PAPPASPennsylvania, U.S.A.  |       | Senior Vice President and  President, Styrenics                   |       | Senior Vice President and  President, Styrenics, NOVA Chemicals                                                                                                                |
| ALBERT TERENCE POOLEAlberta, Canada            |       | Executive Vice President,  Corporate Strategy and Development          |       | Executive Vice President,  Corporate Strategy and Development, NOVA Chemicals                                                                                                       |
| DALE HOWARD SPIESSPennsylvania, U.S.A.         |       | Senior Vice President and  President, Olefins/Polyolefins              |       | Senior Vice President and  President, Olefins/Polyolefins, NOVA Chemicals; prior to November 2001,  Senior Vice President, Polyethylene Sales and Marketing, NOVA Chemicals    |
| JOHN LAW WHEELERPennsylvania, U.S.A.           |       | Senior Vice President and  Chief Information Officer                   |       | Senior Vice President andChief Information Officer, NOVA  Chemicals                                                                                                                      |

 
| Note:  |   |
|--------|--------|
|   | (1)    | Information provided with  respect to the past principal occupations of each executive officer is based  on information furnished to NOVA Chemicals. |
|        |        |  |  |

 

----

 

**REPORT OF THE AUDIT, FINANCE AND RISK COMMITTEE**

 

*During 2005 and until the Board of Directors meeting in February 2006,the Audit, Finance and Risk Committee (“AFR Committee”) was composed of Messrs. Hawkins(Chairman), Blumberg, Bougie, Dineen and Ludwick. At its meeting in February 2006,the Board of Directors changed the composition of the Audit, Finance and RiskCommittee to include Messrs. Hawkins (Chairman), Bougie, Dineen andLudwick and Mrs. Rennie. The AFR Committee is governed by a mandate, acopy of which is attached as Annex 1 to this Annual Information Form andwhich can also be accessed at www.novachemicals.com. NOVA Chemicals hasalso adopted a Code of Ethics for the Chief Executive Officer and seniorfinancial officers, including the Chief Financial Officer, which can beaccessed at www.novachemicals.com. All of the AFR Committee members are “independent”as that term is defined by the Canadian securities administrators’ MultilateralInstrument 52-110 — Audit Committees (“Multilateral Instrument 52-110”),the U.S. Securities and Exchange Commission (the “SEC”) and theNew York Stock Exchange listing standards. All members are considered tobe “financially literate” for purposes of Multilateral Instrument 52-110, andeach of Messrs. Hawkins, Bougie, and Ludwick and Mrs. Rennie havebeen determined to be an “audit committee financial expert” in accordance withSEC rules. Mrs. Rennie serves on the audit committees of three otherpublic companies. The Board has determined that such service will not impairher ability to serve effectively on the AFR Committee of NOVA Chemicals.*

 

*The AFR Committee assists the Board of Directors infulfilling its oversight responsibilities relating to: the integrity of theCorporation’s financial statements; the financial reporting process; thesystems of internal accounting and financial controls; the independent auditor’squalifications and independence; the performance of the internal and externalauditors; risk management processes; pension and savings plans; and complianceby the Corporation with ethics policies and legal and regulatory requirements.In fulfilling its oversight responsibilities, the AFR Committee reviewedthe audited financial statements with management including a discussion of thequality, not just the acceptability, of the accounting principles, thereasonableness of significant judgements and the clarity of disclosures in thefinancial statements. The AFR Committee reviewed with Ernst &Young LLP, the independent auditors, their judgements as to the quality,not just the acceptability, of NOVA Chemicals’ accounting principles andsuch other matters as are required to be discussed with the AFR Committeeunder generally accepted auditing standards, including the matters to bediscussed in accordance with Statement of Auditing Standards No. 61. Inaddition, the AFR Committee has discussed with the independent auditors theauditors’ independence from management and NOVA Chemicals including thematters in the written disclosures required by the Independence Standards BoardStandard No. 1 and concluded that Ernst & Young LLP isindependent in accordance with this standard and the Canadian standards forauditor independence.*

 

*The AFR Committee discussed with NOVA Chemicals’internal and independent auditors the overall scope and plans for theirrespective audits. The AFR Committee meets with the internal and independentauditors, with and without management present, to discuss the results of theirexaminations, their evaluations of NOVA Chemicals’ internal controls, andthe overall quality of NOVA Chemicals’ financial reporting.*

 

*In reliance on the reviews and discussions referred toabove, the AFR Committee recommended to the Board of Directors (and the Boardof Directors has approved) that the audited financial statements be included inthe Annual Report on Form 40-F for the year ended December 31,2005 for filing with the SEC.*

 
| * * | *BY THE  AUDIT, FINANCE AND RISK COMMITTEE*                   |
|----------|---------------------------------------------------------------|
| * * | *K.L. Hawkins (Chairman)  J.A. Blumberg**J. Bougie* | *R.E.  Dineen*  *A.M. Ludwick* |

 

The above report of the AFRCommittee shall not be deemed incorporated by reference by any generalstatement incorporating by reference this Annual Information Form into anyfiling under the U.S. Securities Act of 1933 or the 

 

----

 

U.S. SecuritiesExchange Act of 1934, except to the extent that NOVA Chemicals specificallyincorporates this information by reference, and shall not otherwise be deemedfiled under such acts.

 

**Fees Billedby Ernst & Young LLP**

 

Thefollowing fees were billed to NOVA Chemicals by Ernst &Young LLP and approved by the Board of Directors during the prior twoyears:

 
| ** **          | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|---------------------|------------|-----------|------------|-----------|------------|
|                |       |      |       |      |       |
| Audit Fees          |       | $         | 2,808,386  |      | $          | 2,928,383 |   |
| Audit-Related  Fees |       | 233,308   |       | 290,750   |       |
| Tax Fees            |       | 1,758,841 |       | 2,331,567 |       |
| All Other  Fees     |       | 1,982     |       | 975       |       |
|                |       |      |       |      |       |
| Total Fees          |       | $         | 4,802,517  |      | $          | 5,551,675 |   |

 

Auditfees include fees for the audit of the consolidated financial statements ofNOVA Chemicals, the external auditor’s reporting on the effectiveness ofinternal controls over financial reporting, statutory audits of subsidiaries,review of quarterly reports, provision of consent letters and comfort lettersin connection with certain regulatory matters, review of prospectuses andFrench translation of the consolidated financial statements. Fee amounts arebased on invoices relating to the 2005 year end audit that have been receivedand those expected to be billed.

 

Audit-relatedfees include fees for services that are related to the audit of theconsolidated financial statements. These services include the audit offinancial statements for NOVA Chemicals’ pension plans and non-statutoryaudits of subsidiaries and affiliates, and consultation on accounting anddisclosure matters.

 

Taxfees include fees for the preparation of income tax returns, value-added taxreturns, and customs filings for NOVA Chemicals and its subsidiaries,preparation of income tax returns and provision of tax advice to expatriateemployees, and advice on tax-related matters.

 

Allother fees consisted primarily of online data base services.

 

**AdditionalInformation Relating to the Audit, Finance and Risk Committee**

 

Asnoted above, the AFR Committee is composed of Messrs. Hawkins, Bougie,Dineen and Ludwick and Mrs. Rennie. Mr. Hawkins, Chairman of the AFRCommittee, graduated from North Dakota State University with a degree inbusiness economics. In December 2005, he retired as the President ofCargill Limited and Chief Executive Officer of its Canadian operations. In hiscapacity at Cargill Limited, Mr. Hawkins had supervisory responsibilityfor the finance function. Mr. Bougie graduated from the University ofMontreal with a law degree and with a degree in business administration. Mr. Bougieis the past President and Chief Executive Officer of Alcan Inc. In hiscapacity at Alcan Inc., Mr. Bougie had supervisory responsibility forthe finance function. Mr. Dineen graduated cum laude from SyracuseUniversity with an LL.B. and from Brown University with a B.A. He is of counselto the law firm of Shearman & Sterling LLP and has extensiveexpertise in public finance transactions and specializes in U.S. andinternational private banking and financial transactions. Mr. Ludwickgraduated from the University of Manitoba with a B.A., was a member of theInstitute of Chartered Accountants of Manitoba from 1962-2000, and earned hisM.B.A. from the Harvard University Graduate School of Business Administration. Mr. Ludwickis the retired President, Chief Executive Officer and Deputy Chairman ofClaridge Inc. Mrs. Rennie graduated with distinction from theUniversity of Alberta with a Bachelor of Commerce and has been a member of theCanadian Institute of Chartered Accounts and the Institute of CharteredAccountants of Alberta since 1981. Mrs. Rennie was elected a fellow of theInstitute of Chartered Accountants of Alberta in 1998. Mrs. Rennie hasobtained extensive financial expertise through her education and work experiences,including working as a Chartered Accountant for Ernst & Young LLP(Chartered Accountants) from 1979 to 1985 and as a financial officer of severalprivately held companies. In addition, Mrs. Rennie has chaired or servedon the audit committees of several other publicly traded companies, includingWest Fraser Timber Co. Ltd., EPCOR Utilities Inc., CanadianHotel Income Properties Real Estate Investment Trust and Matrikon Inc.

 

----

 

TheBoard of Directors approves, on the recommendation of the AFR Committee,all fees paid to the external auditors. In addition, in accordance withapplicable rules regarding audit committees, including MultilateralInstrument 52-110, the AFR Committee reviews and approves (in advance) thescope and related fees for all non-audit services which are to be provided bythe external auditors. In considering whether to approve non-audit services,the AFR Committee considers whether the provision of these non-audit services may impactthe objectivity and independence of the external auditor and, in respect ofnon-audit services provided by Ernst & Young LLP in 2005, theAFR Committee has concluded that it does not.

 

**INTERESTS OF EXPERTS**

 

Theaudited consolidated financial statements of NOVA Chemicals as at and forthe years ended December 31, 2005, 2004 and 2003 filed with Canadiansecurities administrators were audited by Ernst & Young LLP,Chartered Accountants.

 

Thepartners of Ernst & Young LLP, Chartered Accountants, theauditors of NOVA Chemicals, beneficially own, directly or indirectly, nosecurities of NOVA Chemicals.

 

**ADDITIONAL INFORMATION**

 

Additionalinformation relating to NOVA Chemicals is filed with Canadian securitiesadministrators. Additional information, including directors’ and officers’remuneration and indebtedness, principal holders of NOVA Chemicals’securities and securities authorized for issuance under equity compensationplans, is contained in NOVA Chemicals’ Management Proxy Circular withrespect to the 2006 Annual Meeting of Shareholders. Additional financialinformation is provided in the audited consolidated financial statements ofNOVA Chemicals as at and for the years ended December 31, 2005, 2004and 2003, together with the auditors’ report thereon, and management’sdiscussion and analysis included in NOVA Chemicals’ 2005 AnnualReport. All of this information can be accessed through the System forElectronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.

 

Copiesof Board and Committee mandates and other corporate governance documents areavailable at www.novachemicals.com. In addition, the AFR Committee Mandate isattached to this Annual Information Form as Annex 1.

 

----

 

**ANNEX 1AUDIT, FINANCE AND RISK COMMITTEE MANDATE**

 

**Creation**

 

Pursuantto Article Three of the General By-law of NOVA Chemicals Corporation (the “Corporation”),a committee of the directors to be known as the “Audit, Finance and RiskCommittee” (the “Committee”) is established.

 

**Purpose**

 

TheCommittee is appointed by the Board to assist the Board in fulfilling itsoversight responsibility relating to: the integrity of the Corporation’sfinancial statements; the financial reporting process; the systems of internalaccounting and financial controls; the external auditor’s qualifications andindependence; the performance of the internal and external auditors; riskmanagement processes; pension and savings plans; and compliance by theCorporation with ethics policies and legal and regulatory requirements.

 
| **Committee  Membership**              |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|----------------------------------------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                             |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Composition of the  Committee          |   | a)     |   | The Committee must be  composed of a minimum of four directors, none of whom may be an officer  of the Corporation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Appointment and Term of  Members       |   | b)     |   | The members of the  Committee must be appointed or reappointed at the organizational meeting of  the Board immediately following each Annual Meeting of the shareholders of  the Corporation. Each member of the Committee continues to be a Committee  member until a successor is appointed, unless he or she resigns or is removed  by the Board or ceases to be a director of the Corporation. Where a vacancy  occurs at any time in the membership of the Committee, it may be filled  by the Board and shall be filled by the Board if the membership of the  Committee is less than four directors as a result of the vacancy;                                                                                    |
| Financial Literacy                     |   | c)     |   | Each member of the  Committee must be financially literate, as the Board interprets such  qualification in its business judgment, or must become financially literate  within a reasonable period of time after appointment to the Committee. At  least one member of the Committee shall be designated as an “audit committee  financial expert”, as defined by applicable legislation and regulation. The  designation of a person as an audit committee financial expert does not  impose on such person any duties, obligation, or liability that are greater  than the duties, obligations, or liability imposed on such person as a member  of the Committee and the Board in the absence of such designation; |
| Independence                           |   | d)     |   | Each member of the  Committee shall be “independent” as defined in the applicable existing  listing standards, provided that the Board may appoint one  non-independent member to the Committee, if the Board determines, in its  business judgment, that it is in the best interests of the Corporation and  its shareholders to appoint such non-independent member;                                                                                                                                                                                                                                                                                                                                          |
| Appointment of Chairman  and Secretary |   | e)     |   | The Board or, if it does  not do so, the members of the Committee, must appoint one of their members as  a Chairman. If the Chairman of the Committee is not present at any meeting of  the Committee, the Chairman of the meeting must be chosen by the Committee  from the Committee members present. The Chairman presiding at any meeting of  the Committee has a deciding vote in case of deadlock. The Committee must  also appoint a Secretary who need not be a director;                                                                                                                                                                                                                                              |
| Use of Outside Experts                 |   | f)     |   | Where Committee members  believe that, to properly discharge their fiduciary obligations to the  Corporation, it is necessary to obtain the advice of independent legal,  accounting, or other experts, the Chairman shall, at the request of the  Committee, engage the necessary experts at the Corporation’s expense. The  Board must be kept apprised of both the selection of the experts and the  experts’ findings through the Committee’s regular reports to the Board;                                                                                                                                                                                                                                 |
| **Meetings**                           |   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Time, Place and                        |   | a)     |   | The time, place and  procedure of Committee meetings shall be determined by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

----

 
| Procedure of Meetings                             |       |                                         | Committee members,  provided that: |
|---------------------------------------------------|------------|----------------------------------------------|------------------------------------|
| Quorum                                            |       | i)                                           |                               | a quorum for meetings must  be two members, present in person or by telephone or other telecommunication  device that permits all persons participating in the meeting to communicate  with each other; |
| Quarterly Meetings                                |       | ii)                                          |                               | the Committee must meet at  least quarterly; |
| Notice of Meetings                                |       | iii)                                         |                               | notice of the time and  place of every meeting must be given in writing or by facsimile to each  member of the Committee, the internal auditors and the external auditors of  the Corporation at least 24 hours prior to the Committee meeting; |
| Waiver of Notice                                  |       | iv)                                          |                               | a member may waive  notice of a meeting, and attendance at the meeting is a waiver of notice of  the meeting, except where a member attends a meeting for the express purpose  of objecting to the transaction of any business on the grounds that the  meeting is not lawfully called; |
| Attendance of External  Auditors                  |       | v)                                           |                               | the external auditors are  entitled to attend each meeting at the Corporation’s expense; |
| Calling a Meeting                                 |       | vi)                                          |                               | a meeting of the Committee  may be called by the Secretary of the Committee on the direction of the  Chairman or Chief Executive Officer of the Corporation, by any member of the  Committee, the external auditors or internal auditors; |
| Committee Determines  Attendees                   |       | vii)                                         |                               | notwithstanding the  provisions of this paragraph, the Committee has the right to request any officer  or employee of the Corporation or the Corporation’s outside counsel or  external auditor to be present or not present at any part of the  Committee meeting; and |
| Reports to the Board                              |       | b)                                           |                               | The Committee shall make  regular reports to the Board. |
| **Duties and  Responsibilities of the Committee** |       |                                         |                               |   |
| **1.**                                            | ** ** | **Financial  Statements and Disclosure**     |
|                                              |       | Annual Report and  Disclosures*              |                               | a) |   | Review and discuss with  management, the external auditor and recommend for approval by the Board, the  Corporation’s annual report, annual information form (including the  audited annual financial statements and disclosures made in management’s  discussion and analysis), Management Information Circular (including the  report of the Committee), any reports on adequacy of internal controls, all  financial statements in prospectuses or other offering documents, and any  financial statements required by regulatory authorities; |
|                                              |       | Prospectuses*                                |                               | b) |   | Review and discuss with  management and the external auditor, and recommend for approval by the Board,  any prospectuses, but excluding any prospectus supplements issued under a  shelf prospectus of the Corporation, and any pricing supplements issued under  a medium term note prospectus supplement of the Corporation; |
|                                              |       | Quarterly Interim Reports  and Disclosures   |                               | c) |   | Review and discuss with  management and the external auditor the Corporation’s interim reports,  including the quarterly financial statements and press releases on quarterly  and year end financial results, prior to public release; |
|                                              |       | Accounting Policies and  Estimates           |                               | d) |   | Review and approve all  accounting policies that would have a significant effect on the Corporation’s  financial statements, and any changes to such policies. This review will  include a discussion with management and the external auditor concerning: |
|                                              |       |                                         |                               |   |   | i) |   | any areas of management  judgment and estimates that may have a critical effect on the financial  statements; |
|                                              |       |                                         |                               |   |   | ii) |   | the effect of using  alternative accounting treatments which are acceptable under Canadian and US  GAAP; |
|                                              |       |                                         |                               |   |   | iii) |   | the appropriateness,  acceptability, and quality of the Corporation’s accounting policies; and |
|                                              |       |                                         |                               |   |   | iv) |   | any material written  communication between the external auditor and management, such as the annual  management letter and the schedule of unadjusted differences; |
|                                              |       | Financial Information and  Earnings Guidance |                               | e) |   | Discuss with management  the use of “pro forma” or “adjusted non-GAAP information” in the  Corporation’s press releases, as well as approval in principle of the process  to provide financial information and earnings guidance to analysts and rating  agencies; |
|                                                   |            |                                              |                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

 
|   |       | Regulatory and Accounting  Initiatives    |   | f)     |   | Discuss with management  and the external auditor the effect of regulatory and accounting initiatives  as well as the use of off-balance sheet structures on the Corporation’s  financial statements;                                                                                                                  |
|--------|------------|-------------------------------------------|--------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       | Litigation                                |   | g)     |   | Discuss with the  Corporation’s General Counsel any litigation, claim or other contingency  (including tax assessments), that could have a material effect on the  financial position or operating results of the Corporation, and the manner in  which these matters have been disclosed in the financial statements; |
|   |       | Financing Plans                           |   | h)     |   | Review the financing plans  and objectives of the Corporation, as received from and discussed with  management;                                                                                                                                                                                                             |
| **2.** | ** ** | **Risk  Management and Internal Control** |
|   |       | Risk Management Policies*                 |   | a)     |   | Review and recommend for  approval by the Board changes considered advisable, after consultation with  officers of the Corporation, to the Corporation’s policies relating to:                                                                                                                                         |
|   |       |                                      |   |   |   | i)                                                                                                                                                                                                                                                                                                                          |   | the risks inherent in the  Corporation’s businesses, facilities and strategic direction; |
|   |       |                                      |   |   |   | ii)                                                                                                                                                                                                                                                                                                                         |   | the overall risk  management strategies (including insurance coverage); |
|   |       |                                      |   |   |   | iii)                                                                                                                                                                                                                                                                                                                        |   | the risk retention  philosophy and the resulting uninsured exposure of the Corporation; and |
|   |       |                                      |   |   |   | iv)                                                                                                                                                                                                                                                                                                                         |   | the loss prevention  policies, risk management and hedging programs, and standards and  accountabilities of the Corporation in the context of competitive and  operational considerations; |
|   |       | Adequacy of Internal  Controls            |   | b)     |   | Review at least quarterly,  the results of management’s evaluation of the adequacy and effectiveness of  internal controls within the Corporation in connection with the  certifications signed by the CEO and CFO. Management’s evaluation will  include a review of:                                            |
|   |       |                                      |   |   |   | i)                                                                                                                                                                                                                                                                                                                          |   | policies and procedures to  ensure completeness and accuracy of information disclosed in the quarterly  and annual reports, prevent earnings management and detect financial  statement misstatements due to fraud and error; and |
|   |       |                                      |   |   |   | ii)                                                                                                                                                                                                                                                                                                                         |   | internal control  recommendations of the internal and external auditors, including any special  steps taken to address material control deficiencies and any fraud, whether  or not material, that involves management or other employees who have a  significant role in the Corporation’s internal controls; |
|   |       | Risk Management Processes                 |   | c)     |   | Review with management at  least annually the Corporation’s processes to identify, monitor, evaluate,  and address important enterprise-wide business risks;                                                                                                                                                           |
|   |       | Financial Risk Management                 |   | d)     |   | Review with management  activity related to management of financial risks to the Corporation;                                                                                                                                                                                                                               |
| **3.** | ** ** | **External  Auditors**                    |
|   |       | Appointment and  Remuneration of          |   | a)     |   | Review and recommend to  the Board in accordance with the ultimate authority and responsibility of the  Committee and the Board,                                                                                                                                                                                            |
|   |       | External Auditors*                        |   |   |   | i)                                                                                                                                                                                                                                                                                                                          |   | the selection, evaluation,  reappointment or, where appropriate, replacement of external auditors; |
|   |       |                                      |   |   |   | ii)                                                                                                                                                                                                                                                                                                                         |   | the nomination and  remuneration (including non-audit fees) of external auditors to be appointed  at each Annual Meeting of Shareholders; |
|   |       |                                      |   | b)     |   | Resolve any disagreements  between management and the external auditor regarding financial reporting;                                                                                                                                                                                                                       |
|   |       |                                      |   | c)     |   | The external auditors  shall report directly to the Committee;                                                                                                                                                                                                                                                              |
|   |       | Independence of External  Auditors        |   | d)     |   | Review a formal written  statement requested at least annually from the external auditor describing:                                                                                                                                                                                                                        |
|   |       |                                      |   |   |   | i)                                                                                                                                                                                                                                                                                                                          |   | the firm’s internal  quality control procedures; |
|   |       |                                      |   |   |   | ii)                                                                                                                                                                                                                                                                                                                         |   | any material issues raised  by the most recent internal quality control review, peer review of the firm  or any investigation by governmental or professional authorities within the  preceding five years respecting one or more independent audits carried out by  the firm; |
|   |       |                                      |   |   |   | iii)                                                                                                                                                                                                                                                                                                                        |   | any steps taken to deal  with any such issues; and |

 

----

 
|   |       |                                                    |   |   |   | iv)                                                                                                                                                                                                                                                                                                                                                                                                                      |   | all relationships between  the external auditors and the Corporation;                                                                   |
|--------|------------|---------------------------------------------------------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                    |   |   |   | The Committee will  actively engage in a dialogue with the external auditor with respect to  whether the firm’s quality controls are adequate, and whether any of the  disclosed relationships or non-audit services may impact the objectivity  and independence of the external auditor. The Committee shall present its  conclusion with respect to the independence of the external auditor to the  Board; |
|   |       | Rotation of Senior Audit  Partner                       |   | e)     |   | Ensure the rotation of  senior audit personnel who have primary responsibility for the audit work, as  required by law;                                                                                                                                                                                                                                                                                                  |
|   |       | Remuneration of External  Auditors                      |   | f)     |   | Review and approve (in  advance) the scope and related fees for all auditing services and non-audit  services permitted by regulation which are to be provided by the external  auditor for non-audit services which are approved by the Committee prior to  completion of the audit;                                                                                                                                    |
|   |       |                                                    |   |   |   | The Committee may form and  delegate authority to subcommittees consisting of one or more members when  appropriate, including the authority to grant preapprovals of audit and  permitted non-audit services, provided that decisions of such subcommittee to  grant preapprovals shall be presented to the full Committee at its next  scheduled meeting;                                                    |
|   |       | Restrictions on Hiring  Employees of External Auditor   |   | g)     |   | Ensure the establishment  of policies relating to the Corporation’s hiring of employees or former  employees of the external auditor, if such individuals have participated in  the audit of the Corporation, as required by law;                                                                                                                                                                                   |
|   |       | Meeting with Auditors and  Management                   |   | h)     |   | The Committee should meet  with the external and internal auditors without management present and  discuss any issues related to performance of the audit work, any  restrictions, and any significant disagreement with management. The Committee  should also meet separately with management to discuss any issues raised by  the auditors;                                                                           |
| **4.** | ** ** | **Internal  Audit**                                     |
|   |       | Mandate and Appointment of  Internal Audit              |   | a)     |   | i)                                                                                                                                                                                                                                                                                                                                                                                                                       |   | review and approve the  mandate of the internal audit function including internal audit’s purpose,  authority, and responsibility, |
|   |       |                                                    |   |   |   | ii)                                                                                                                                                                                                                                                                                                                                                                                                                      |   | approve whether the  internal audit activity should be outsourced and if outsourced approve the  supplier, and                          |
|   |       |                                                    |   |   |   | iii)                                                                                                                                                                                                                                                                                                                                                                                                                     |   | review the appointment and  replacement of the senior internal audit executive, if there is no outsourced  provider;                    |
|   |       | Internal Audit Plans                                    |   | b)     |   | Review and approve the  annual Internal Audit Plan and objectives, the degree of coordination with the  external auditor, and the extent to which the planned audit scope can be  relied upon to detect weaknesses in internal controls, fraud, and other  illegal acts;                                                                                                                                                 |
|   |       | Internal Audit  Responsibilities                        |   | c)     |   | Discuss with management  and the external auditor the internal audit department’s responsibilities,  budget, and staffing and any recommended changes in the scope of internal  audit;                                                                                                                                                                                                                              |
|   |       | Audit Findings and  Recommendations                     |   | d)     |   | Review the significant  control issues identified in internal audit reports issued to management and  the responses and actions taken by management to address weaknesses in  controls;                                                                                                                                                                                                                                  |
| **5.** | ** ** | **Pension  and Savings Plans**                          |
|   |       | Statements of Pension  Investment Policy and Procedures |   | a)     |   | Review and approve the  Corporation’s Statement of Investment Principles and Beliefs, and the  Statements of Investment Procedures;                                                                                                                                                                                                                                                                                 |
|   |       | Pension Funding                                         |   | b)     |   | Approve funding decisions  for the retirement plans in accordance with actuarial reports and legal  requirements in the applicable jurisdictions;                                                                                                                                                                                                                                                                        |
|   |       | Amendments to Plans for  Changes in Benefit Levels      |   | c)     |   | Review and approve  amendments to savings and retirement plans for changes in benefits provided  under the plans, other than administrative or legislative changes;                                                                                                                                                                                                                                                      |
|   |       | Appointment of Auditors,  Actuaries,                    |   | d)     |   | Approve the recommendations  of the officers of the Corporation regarding the reappointment or appointment  of auditors and recommendations of the Pension and                                                                                                                                                                                                                                                           |

 

----

 
|   |       | and Investment Managers                                                         |   |   |   | Savings Plan Committees  regarding appointment of investment managers and actuaries of the savings  plans and retirement plans, as appropriate;                                                                                                                                                                                                                                                                                                                                          |
|--------|------------|---------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       | Savings and Retirement  Plan Financial Statements                               |   | e)     |   | Receive confirmation from  management that the annual financial statements of the savings plans,  retirement plans, and related trust funds, have been prepared and filed as  required by applicable regulations;                                                                                                                                                                                                                                                                        |
|   |       | Pension and Savings Plans  Committees Reports*                                  |   | f)     |   | Review and recommend for  approval by the Board, the annual Pension Committee Reports on the operation  and administration of savings and retirement plans and trust funds;                                                                                                                                                                                                                                                                                                              |
|   |       | Mandates of the Pension  and Savings Plan Committees and Appointment of Members |   | g)     |   | Review and approve the  mandates of the Pension and Savings Plans Committees (to be approved jointly  with the Human Resources Committee of the Board), any amendments thereto, and  the appointment or re-appointment of pension and savings plan committee  members as provided in the mandates;                                                                                                                                                                                       |
|   |       | Delegation to the Pension  and Savings Plan Committees                          |   | h)     |   | Approve the delegation of  certain responsibilities to members of the Pension and Savings Plans  Committees;                                                                                                                                                                                                                                                                                                                                                                             |
|   |       | Actuarial Reports and  Funding Assumptions                                      |   | i)     |   | Review the actuarial  reports on retirement plans as required by applicable regulations, any  special actuarial reports, and the funding assumptions to be used in  preparing the reports;                                                                                                                                                                                                                                                                                               |
|   |       | Accounting Assumptions                                                          |   | j)     |   | Review and approve, at  least annually, the accounting assumptions used for disclosure of liabilities  for retirement plans and post-retirement liabilities;                                                                                                                                                                                                                                                                                                                             |
| **6.** | ** ** | **General  Duties**                                                             |
|   |       | Business Conduct Policy  Compliance                                             |   | a)     |   | Obtain reports at least  annually from the Chief Compliance Officer on the Corporation’s and its  subsidiary/foreign affiliated entities’ conformity with applicable legal and  ethical compliance programs (e.g., the Corporation’s Business Conduct  Policy);                                                                                                                                                                                                      |
|   |       | Code of Ethics                                                                  |   | b)     |   | Ensure that the  Corporation has adopted a code of ethics for senior financial officers and  review at least annually a report from the CEO and CFO of their assessment of  the ethical culture and control environment in the finance function;                                                                                                                                                                                                                                         |
|   |       | Compliance Reporting  Process                                                   |   | c)     |   | Ensure that a process and  procedure has been established by the Corporation for receipt, retention and  treatment of complaints regarding non-compliance with the Corporation’s Business  Conduct Policy, violations of laws or regulations, or concerns regarding  accounting, internal accounting controls or auditing matters. The Committee  must ensure that procedures for receipt of complaints allow for confidential,  anonymous submission of complaints from employees; |
|   |       | Regulatory Matters                                                              |   | d)     |   | Discuss with management  and the independent auditor any correspondence with regulators or  governmental agencies and any published reports which raise material issues  regarding the Corporation’s compliance policies;                                                                                                                                                                                                                                                           |
|   |       | Mandate Review*                                                                 |   | e)     |   | Review and recommend for  approval changes considered advisable based on the Committee’s assessment of  the adequacy of this Mandate. Such review will occur on an annual basis and  the recommendations, if any, will be made to the Board in accordance with the  procedure set out in the Corporate Governance Committee mandate;                                                                                                                                                |
|   |       | Annual Performance  Evaluation                                                  |   | f)     |   | The Committee will conduct  an annual evaluation of its performance as a committee and report the results  to the Board.                                                                                                                                                                                                                                                                                                                                                                 |

 

* Board approval required

 

----