Novartis AG (NVS)

CONTRACTS WITH MEMBERS OF THE EXECUTIVE COMMITTEE

In accordance with good corporate governance, it is a principle of Novartis that new employment contracts with members of the Executive Committee should contain:

·                  No unusually long notice periods;

·                  No change-of-control clauses; and

·                  No severance payments.

Two existing contracts with members of the Executive Committee are not in line with this principle since they provide for a notice period of 36 months (in both cases) or a change-of-control clause (in one case). To align these contracts, Novartis gave notice in 2007 to these two members of the Executive Committee. Both contracts will expire in 2010.

As per the Annual General Meeting held on February 24, 2009, the Board of Directors and Dr. Vasella entered into a new employment contract for Dr. Vasella regarding his current roles as Chairman and Chief Executive Officer of Novartis. The new contract is automatically renewed for one-year periods, if not terminated with a notice period of six months.

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In accordance with best practices in corporate governance, it is Novartis’ principle that new employment contracts with members of the Executive Committee should contain:

·      No unusually long notice periods;

·      No change-of-control clauses; and

·      No severance payments.

Two existing contracts with members of the Executive Committee are not in line with this principle since they provide for a notice period of 36 months (in both cases) or a change-of-control clause (in one case). To align these contracts, Novartis gave notice in 2007 to these two members of the Executive Committee.

The employment contract of Dr. Daniel Vasella in his current roles as Chairman and Chief Executive Officer, which includes a severance payment of USD 57 million (based on the year-end spot exchange rate of CHF 1.055 = USD 1.00) and a payment in case of a change-of-control event of USD 142 million (based on the same year-end spot exchange rate), will expire at the Annual General Meeting in 2009. These two payments are mutually exclusive. In October 2008, the Board and Dr. Vasella have reached an agreement on the terms of a new contract extending his current roles as Chairman and Chief Executive Officer of Novartis. The new contract will be finalized before the existing contract expires.

CONTRACTS WITH MEMBERS OF THE EXECUTIVE COMMITTEE

        In 2007, in accordance with evolving best practices in corporate governance, Novartis adopted a principle that new employment contracts with members of the Executive Committee should contain:

•

No unusually long notice periods;



•

No change-of-control clauses;



•

No severance payments.

        As Novartis is determined to apply this principle also to all existing contracts with members of the Executive Committee, a significant number of these contracts were recently amended. To align the remaining contracts, Novartis has given notice to those members of the Executive Committee whose contracts still provide for a notice period of 36 months (in all three cases) or a change-of-control clause (in two of these cases, each extending the 36 months notice period by 24 months in such event).

        The employment contract with the Chairman and Chief Executive Officer contains a severance payment of USD 53 million (based on a year-end spot exchange rate of CHF 1.135 = USD 1.00) and a payment in case of a change-of-control event of USD 132 million (based on the same year-end spot exchange rate). These two payments are mutually exclusive. The employment contract will expire at the Annual General Meeting in 2009. The Lead Director on behalf of the independent Directors has entered into discussions with Daniel Vasella for a new contract.