<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8712
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 62-0721803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 East Camperdown Way, P.O. Box 1028, Greenville, SC 29602
(Address of principal executive offices) (Zip Code)
(864) 271-7733
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1996.
Class Outstanding at July 31, 1996
Common Stock, $1.00 Par Value 37,415,537 Shares
<PAGE>
BOWATER INCORPORATED
I N D E X
Page
Number
PART I FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheet at June 30, 1996
and December 31, 1995 3
Consolidated Statement of Operations for the
Three and Six Months Ended June 30, 1996 and
June 30, 1995 4
Consolidated Statement of Capital Accounts
for the Six Months Ended June 30, 1996 5
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1996 and June 30,
1995 6
Notes to Consolidated Financial Statements 7-8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II OTHER INFORMATION
4. Submission of Matters to a Vote of
Security Holders 15
6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
(2)
<PAGE>
PART I
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 142,894 $ 264,571
Marketable securities (Note 2) 191,016 -
Accounts receivable, net 241,499 241,847
Inventories (Note 3) 167,732 154,662
Other current assets 14,622 12,943
--------------- --------------
Total current assets 757,763 674,023
--------------- --------------
Timber and timberlands 394,260 430,400
Fixed assets, net 1,656,387 1,711,003
Intangible assets, net 21,361 23,733
Other assets 63,492 69,006
=============== ==============
$ 2,893,263 $ 2,908,165
=============== ==============
LIABILITIES AND CAPITAL
Current liabilities:
Current installments of long-term debt $ 1,604 $ 1,600
Accounts payable and accrued liabilities 182,758 189,424
Income taxes payable 13,141 85,472
Dividends payable 10,205 8,826
--------------- --------------
Total current liabilities 207,708 285,322
--------------- --------------
Long-term debt, net of current installments (Note 4) 786,996 816,532
Other long-term liabilities 190,000 181,411
Deferred income taxes 354,689 329,101
Minority interests in subsidiaries 144,080 150,768
Commitments and contingencies (Note 5)
Redeemable LIBOR preferred stock 49,683 49,619
Shareholders' equity:
Series B convertible preferred stock 111,333 111,333
Series C cumulative preferred stock 25,465 25,465
Common stock 39,862 39,501
Additional paid-in capital 420,885 410,007
Retained earnings 675,179 541,205
Equity adjustments (13,117) (13,128)
Loan to ESOT (7,188) (8,033)
Treasury stock, at cost (Note 6) (92,312) (10,938)
--------------- --------------
Total shareholders' equity 1,160,107 1,095,412
=============== ==============
$ 2,893,263 $ 2,908,165
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 453,951 $ 486,836 $ 922,834 $ 936,314
Cost of sales (Note 7) 297,432 297,815 557,438 582,592
Depreciation, amortization and cost of timber harvested 42,477 42,754 87,682 87,392
------------ ------------ ------------- ------------
Gross profit 114,042 146,267 277,714 266,330
Selling and administrative expense (Note 7) 23,703 28,587 44,654 51,397
------------ ------------ ------------- ------------
Operating income 90,339 117,680 233,060 214,933
Other expense (income):
Interest income (Note 8) (5,191) (1,393) (10,043) (3,242)
Interest expense, net of capitalized interest (Note 8) 18,223 20,310 36,570 43,614
Gain on sale of timberlands (Note 9) (1,838) (21) (76,701) (385)
Other, net (1,919) (4,163) (2,353) (4,815)
------------ ------------ ------------- ------------
9,275 14,733 (52,527) 35,172
------------ ------------ ------------- ------------
Income before income taxes and minority interests 81,064 102,947 285,587 179,761
Provision for income taxes (Note 10) 29,994 36,935 105,668 66,512
Minority interests in net income of subsidiaries 6,727 6,181 22,671 8,365
------------ ------------ ------------- ------------
Income before extraordinary charge 44,343 59,831 157,248 104,884
Extraordinary charge, net of taxes of $1,222
in 1996 and $3,808 in 1995 (Note 4) (1,931) - (1,931) (6,084)
------------ ------------ ------------- ------------
Net income $ 42,412 $ 59,831 $ 155,317 $ 98,800
============ ============ ============= ============
Earnings per common share - primary (Note 11):
Income before extraordinary charge $ 1.03 $ 1.35 $ 3.63 $ 2.37
Extraordinary charge (0.05) - (0.05) (0.15)
============ ============ ============= ============
Net income $ 0.98 $ 1.35 $ 3.58 $ 2.22
============ ============ ============= ============
Average common and common equivalent shares outstanding 42,273 42,331 42,781 41,903
============ ============ ============= ============
Earnings per common share - fully diluted (Note 11):
Income before extraordinary charge $ 1.00 $ 1.31 $ 3.54 $ 2.30
Extraordinary charge (0.04) - (0.04) (0.14)
============ ============ ============= ============
Net income $ 0.96 $ 1.31 $ 3.50 $ 2.16
============ ============ ============= ============
Average common and common equivalent shares outstanding 43,154 43,428 43,662 43,175
============ ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
(4)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
Six Months Ended June 30, 1996
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Redeemable Series B Series C
LIBOR Convertible Cumulative Additional
Preferred Preferred Preferred Common Paid in
Stock Stock Stock Stock Capital
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 49,619 $ 111,333 $ 25,465 $ 39,501 $ 410,007
Net income - - - - -
Dividends on common stock($.40 per share) - - - - -
Dividends on preferred stock:
LIBOR ($1.20 per share) - - - - -
Series B ($3.30 per share) - - - - -
Series C ($4.20 per share) - - - - -
Increase in stated value of LIBOR
preferred stock 64 - - - -
Common stock issued for exercise
of stock options - - - 361 8,906
Tax benefit on exercise of stock options 1,918
Reduction in loan to ESOT - - - - -
Purchase of common stock (Note 6) - - - - -
Treasury stock used for employee benefit
and dividend reinvestment plans - - - - 54
Foreign currency translation - - - - -
==========================================================
Balance at June 30, 1996 $ 49,683 $ 111,333 $ 25,465 $ 39,862 $ 420,885
==========================================================
<CAPTION>
Retained Equity Loan to Treasury
Earnings Adjustments ESOT Stock
--------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 541,205 $ (13,128)$ (8,033)$ (10,938)
Net income 155,317 - - -
Dividends on common stock($.40 per share) (14,944) - - -
Dividends on preferred stock:
LIBOR ($1.20 per share) (1,200) - - -
Series B ($3.30 per share) (4,025) - - -
Series C ($4.20 per share) (1,110) - - -
Increase in stated value of LIBOR
preferred stock (64) - - -
Common stock issued for exercise
of stock options - - - -
Tax benefit on exercise of stock options
Reduction in loan to ESOT - - 845 -
Purchase of common stock (Note 6) - - - (81,433)
Treasury stock used for employee benefit
and dividend reinvestment plans - - - 59
Foreign currency translation - 11 - -
============================================
Balance at June 30, 1996 $ 675,179 $ (13,117)$ (7,188)$ (92,312)
============================================
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1996 1995
-------------- ----------
<S> <C> <C>
Cash flows from (used for) operating activities:
Net income $ 155,317 $ 98,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and cost of timber harvested 87,682 87,392
Deferred income taxes 30,187 31,009
Minority interests 22,671 8,365
Gain from sale of timberlands (76,701) (385)
Extraordinary charge, net of taxes 1,931 6,084
Change in working capital:
Accounts receivable, net 348 (17,090)
Inventories (13,070) (9,143)
Accounts payable and accrued liabilities (5,203) 23,903
Income taxes payable (68,436) 31,933
Other, net 5,458 (2,808)
--------- ---------
Net cash from operating activities 140,184 258,060
--------- ---------
Cash flows from (used for) investing activities:
Cash invested in fixed assets, timber and timberlands (34,893) (43,770)
Disposition of fixed assets, timber and timberlands 116,999 1,273
Cash invested in marketable securities (191,016) --
--------- ---------
Net cash used for investing activities (108,910) (42,497)
--------- ---------
Cash flows from (used for) financing activities:
Cash dividends, including minority interests (49,037) (20,778)
Purchase of common stock (Note 6) (81,433) --
Purchases / payments of long-term debt (32,599) (191,672)
Stock options exercised 9,267 27,199
Redemption of preferred stock of subsidiary -- (15,000)
Other 851 809
--------- ---------
Net cash used for financing activities (152,951) (199,442)
--------- ---------
Net increase(decrease) in cash and cash equivalents (121,677) 16,121
Cash and cash equivalents at beginning of year 264,571 154,768
--------- ---------
Cash and cash equivalents at end of period $ 142,894 $ 170,889
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest $ (37,447) $ (43,969)
Income taxes $(143,918) $ (3,562)
</TABLE>
See accompanying notes to consolidated financial statements.
(6)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) The accompanying consolidated financial statements include the accounts of
Bowater Incorporated and Subsidiaries (the Company). The consolidated
balance sheets, statements of operations, capital accounts and cash flows
are unaudited. However, in the opinion of Company management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the interim financial statements have been made. The results
of the interim period ended June 30, 1996, are not necessarily indicative of
the results to be expected for the full year.
(2) Cash equivalents consist of investment grade commercial paper and government
obligations with original maturities of three months or less. Marketable
securities consist of the same type of investments, however, original
maturities extend beyond three months but less than one year. The Company
has both the ability and intent to hold these securities to maturity and has
recorded them at cost, which approximates market value.
(3) The composition of inventories at June 30, 1996, and December 31, 1995, was
as follows (in thousands):
June 30, 1996 December 31, 1995
(Unaudited)
At lower of cost or market:
Raw materials $ 29,667 $ 39,520
Work in process 2,716 3,014
Finished goods 72,494 48,854
Mill stores and other supplies 75,940 81,301
180,817 172,689
Excess of current cost over
LIFO inventory value (13,085) (18,027)
$167,732 $154,662
(4) During the second quarter of 1996, the Company repurchased $27.8 million of
its $300 million 9% debentures due 2009. This resulted in an extraordinary
charge of $1.9 million or $.04 per fully diluted share for the premium and
expenses related to the repurchase. The extraordinary charge in 1995 related
to the repurchase of $182 million of the Company's $200 million 8 1/2% notes
due 2001.
(5) The Company is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims, and other matters. The Company's management believes
that the ultimate disposition of these matters will not have a material
adverse effect on the Company's operations or its financial condition taken
as a whole.
(7)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) During the second quarter of 1996, the Company repurchased approximately
450,000 shares of common stock as part of a previously announced stock
repurchase plan. Since initiation of the program in February 1996, the
Company has repurchased approximately 2.1 million shares, at a total cost
of approximately $81.4 million. The shares are recorded in the
Shareholders' equity section of the Consolidated Balance Sheet at June 30,
1996 on the line entitled, "Treasury stock, at cost".
(7) Selling and administrative expense includes charges of $5.4 million and
$7.1 million for the quarter and six months ended June 30, 1996,
respectively, for an estimated payment under the Company's Long-Term Cash
Incentive Plan, established in January 1994. In the second quarter and six
months ended June 30, 1995, Cost of sales and Selling and administrative
expense include charges of $18.0 million and $6.0 million, respectively,
relating to personnel reductions.
(8) The increase in interest income for the second quarter and six months ended
June 30, 1996, compared to the same periods last year is a result of a
higher level of investment in short-term marketable securities and cash
equivalents in 1996. The decrease in interest expense, comparing the same
periods, is a result of lower debt balances in 1996 due to debt repurchases
made primarily during 1995.
(9) During the second quarter of 1996, the Company sold approximately 2,000
acres of timberlands located in South Carolina resulting in a pre-tax gain
of $1.8 million or $.01 per fully diluted share, after tax. During the
first quarter of 1996, the Company sold approximately 104,000 acres
resulting in a pre-tax gain of $74.9 million or $.84 per fully diluted
share, after tax.
(10) The effective tax rate for the second quarter of 1996 was 37.0 percent
versus 35.9 percent for the second quarter of 1995. On a year to date
basis, the effective rate for both periods was 37.0 percent.
(11) The calculation of earnings per share for the second quarter and six months
ended June 30, 1996, includes a deduction of $1.2 million and $2.4 million,
respectively, for the dividend requirements of the Company's LIBOR and
Series C preferred stock and the amortization of the difference between the
net proceeds from the LIBOR preferred stock and its mandatory redemption
value. For the second quarter and six months ended June 30, 1995, the
calculation of earnings per share included a deduction of $2.9 million and
$5.7 million, respectively, for the same items.
(8)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Summary
Earnings for the second quarter of 1996 totaled $44.3 million, or $1.00
per fully diluted share, before an extraordinary charge of $1.9 million, or $.04
per fully diluted share, for premium and expenses related to the repurchase of
$27.8 million of the Company's outstanding 9% debentures due 2009. This compares
to net income of $59.8 million, or $1.31 per fully diluted share, for the same
period last year. Included in 1995's second quarter earnings is a pre-tax charge
of $24.0 million, or $.33 per fully diluted share after tax, related to
personnel reductions. Net sales for the second quarter of 1996 totaled $454.0
million, compared to $486.8 million for the second quarter of 1995.
For the first six months of 1996, the Company's net income was $155.3
million, or $3.50 per fully diluted share, on net sales of $922.8 million. In
addition to the second quarter charge mentioned above, net income for the first
six months of 1996 includes a first quarter $37.0 million after tax gain, or
$.84 per fully diluted share, from the sale of approximately 104,000 acres of
timberlands. Net income for the first six months of 1995 was $98.8 million, or
$2.16 per fully diluted share, on net sales of $936.3 million.
Product Line Information:
(Unaudited, $ in thousands)
Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
Net sales:
Newsprint $225,189 $197,173 $460,872 $365,686
Directory and
uncoated specialties 54,042 47,237 113,825 92,613
Coated groundwood 93,091 114,308 191,846 209,580
Pulp 50,197 63,387 68,773 120,123
Communication papers 44,290 69,683 95,263 136,750
Lumber, stumpage and
other products 21,050 22,309 49,432 63,738
Distribution costs (33,908) (27,261) (57,177) (52,176)
$453,951 $486,836 $922,834 $936,314
Operating income $90,339 $117,680 $233,060 $214,933
(9)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Second Quarter Ended June 30, 1996 versus June 30, 1995
For the second quarter of 1996, the Company's operating income of $90.3
million decreased $27.4 million compared to $117.7 million in the second quarter
of 1995. Lower market pulp transaction prices and lower coated paper shipments
were partially offset by higher newsprint transaction prices.
The Company's average newsprint transaction price for the second quarter
of 1996 increased 9 percent compared to the same period last year. The Company
was able to increase transaction prices for newsprint during the latter part of
1995 due to strong demand coupled with a lack of significant capacity growth.
However, consumption of newsprint by U. S. daily newspapers began to decline in
early 1995 and continued to decline into 1996. During the second quarter of
1996, consumption of newsprint by U. S. daily newspapers declined 3 percent
compared to the second quarter of 1995. This decline was a result of reduced
advertising lineage and conservation measures taken by the newspapers to reduce
newsprint usage. As a result, publishers' newsprint inventory levels increased.
As overall U. S. demand decreased, many North American suppliers increased
export shipments, which in turn had a downward effect on those transaction
prices. In addition, two new newsprint machines began production in Korea during
the second quarter of 1996, with a third machine scheduled for startup during
the second half of the year. Reduced U. S. consumption, coupled with globally
high inventories and new foreign capacity, caused newsprint producers to cancel
the April 1, 1996, newsprint price increase previously announced. The Company's
average transaction prices for the second quarter of 1996 decreased 9 percent
compared to the first quarter of 1996. Prices continue to be under pressure.
Future newsprint price changes will depend on global economic conditions,
publisher inventory levels, and capacity changes.
Coated groundwood paper average transaction prices decreased during the
second quarter of 1996 compared to the second quarter of 1995 and the first
quarter of 1996 by 4 and 11 percent, respectively. At the present time, prices
continue to be under pressure. Since the beginning of the year, coated
groundwood paper demand has weakened. Several factors caused this to happen:
Magazine and catalog publishers continued to decrease inventory levels from the
prior year, which were built up in anticipation of higher prices; orders from
commercial printers were below prior year and the expected additional demand
from the Olympics and presidential election has been minimal while competition
from other paper grades has increased. U. S. coated groundwood paper shipments
for the second quarter of 1996 decreased 21 percent compared to the same quarter
last year. In addition, the Company's shipments declined 15 percent comparing
the second quarters. Future coated paper price changes will depend on inventory
levels and demand increases.
(10)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Second Quarter Ended June 30, 1996 versus June 30, 1995
During the second quarter of 1996, the Company's market pulp average
transaction prices declined 52 percent compared to the same period last year and
25 percent compared to the first quarter of 1996. The decline in softwood market
pulp prices, which was first evident in late 1995, was a result of lower global
paper demand and rising producer inventories. During the second quarter of this
year, however, the pulp market began to strengthen. NORSCAN (U.S., Canada,
Finland, Norway, and Sweden) inventories of softwood market pulp began to
decline; May 1996 inventory levels were 18 percent below April, and June levels
were 16 percent below May. Second quarter 1996 NORSCAN shipments of softwood
market pulp increased 9 percent compared to the same period last year. The
Company's pulp shipments increased significantly comparing the second quarter
periods. The increased demand led major pulp producers to announce a $60 per
metric ton price increase on June 1, and a $50 per metric ton price increase on
July 1, which has been partially implemented. The full amount of the $50
increase is expected to be implemented by the end of the third quarter. The
ability to effect price changes in the pulp market is dependent upon many
factors including global economic conditions and producer inventory levels.
The Communication Papers Division operating results decreased in the
second quarter of 1996 compared to the second quarter of last year. Average
transaction prices decreased 28 percent comparing these periods, offset in part
by lower raw material costs.
Operating results for the Company's directory products increased in the
second quarter of 1996 compared to the second quarter of 1995. The Company
implemented a January 1996 price increase and average transaction prices
increased 26 percent comparing second quarter 1996 to the same quarter last
year. The directory market experienced strong demand and no capacity growth
during 1995 and early 1996, similar to the newsprint market, causing prices to
rise. Currently, demand has weakened. The Company's average transaction prices
declined 5 percent in the second quarter of 1996 compared to the first quarter
of 1996.
Operating results for the Company's lumber products were higher in the
second quarter of 1996 versus the year ago period. Until recently, lumber prices
were depressed due to the decreased levels of new housing starts experienced in
1995 and early 1996. During the second quarter of 1996, an increased volume of
new housing starts, lower producer inventories, and higher foreign demand has
helped to increase prices compared to the second quarter last year.
(11)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Six Months Ended June 30, 1996 versus June 30, 1995
For the first six months of 1995, the Company's operating income was
$233.1 million, compared to $214.9 million in the first six months of 1995, an
$18.2 million improvement. Higher newsprint, coated, and directory transaction
prices were partially offset by lower market pulp transaction prices and lower
shipments of coated paper.
The Company's average newsprint transaction price for the first six
months of 1996 increased 23 percent compared to the same period last year. The
Company was able to increase transaction prices for newsprint during the second
half of 1995 due to strong demand coupled with a lack of significant capacity
growth.
During the first six months of 1996, the Company's coated groundwood
average transaction prices improved 8 percent compared to the same period last
year. This improvement was more than offset by lower shipments, which decreased
15 percent comparing the same periods.
Average transaction prices for market pulp decreased 45 percent in the
first six months of 1996 compared to the first six months of 1995. Weak demand
and high producer inventories caused prices to decline in late 1995 and the
first six months of 1996. During the second quarter of 1996, however, NORSCAN
reported lower producer inventories and higher shipments compared to the same
period last year. Major pulp producers announced a $60 per metric ton price
increase on June 1 and a $50 per metric ton price increase on July 1 due to the
increased demand.
The Company's average transaction prices for directory paper increased
30 percent for the first six months of 1996 compared to the prior year period.
The Company implemented a price increase in January 1996, as a result of
increased demand in 1995 which was also experienced by the newsprint market and
other related paper grades.
Liquidity and Capital Resources
During the first six months of 1996, the Company's operations generated
$140.2 million of cash compared to $258.1 million of cash during the first six
months of 1995, a decrease of $117.9 million. This decrease arose primarily as a
result of significantly higher tax payments of $140.4 million. The Company was
able to defer payment of its 1995 tax liability of $73.5 million until this year
and the balance represents estimated tax payments on its 1996 liability. Working
capital needs were also higher by $12.2 million. Reducing the effects of this
were higher operating income of $18.1 million; higher interest income of $6.8
million due to increased cash and marketable security balances; and lower
interest paid of $6.5 million resulting from debt prepayments completed in 1995.
(12)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
Capital expenditures for the first six months of 1996 decreased $8.9
million compared to the first six months of 1995. The decrease reflects the
completion of two large projects in 1995, specifically, a new waste treatment
plant at the Company's Mersey Operation and a new lime kiln at the Company's
Catawba mill. The Company expects total capital expenditures for 1996 to
approximate $140 million and will fund these expenditures from internal cash
flow.
During the first six months of 1996, the Company sold approximately
106,000 acres of timberlands located in Alabama and South Carolina resulting in
proceeds of approximately $117.0 million. Currently, the Company has no plans to
transact significant timberland sales for the balance of this year.
On January 4, 1996, the Board of Directors of CNC (a joint venture in
which the Company owns 51 percent) declared a $60.0 million dividend. As a
result, $29.4 million was paid to the minority shareholder on January 5, 1996.
This transaction accounted for the large increase in cash dividends in the first
six months of 1996 versus the same period last year. Also, in February 1996, the
Company announced a 33 percent increase in its quarterly common dividend from
$.15 per share to $.20 per share, effective with the April 1, 1996, dividend
payment.
On February 9, 1996, the Company's Board of Directors authorized
management to repurchase up to 10 percent of the Company's outstanding common
stock within the next twelve months. During the first six months, the Company
repurchased 2.1 million shares at a cost of $81.4 million, representing 53
percent of the total shares authorized.
During the second quarter of 1996, the Company repurchased $27.8
million of its $300 million 9% debentures due 2009 at a total cost of $30.8
million for payment of principal, premium and expenses related to the
transaction. In July 1996, the Company repurchased an additional $22.2 million
of the same issue. During the first six months of 1995, the Company similarly
reduced its capital by repurchasing $182 million of its 8.5% Notes due December,
2001, at a total cost of $191.1 million. Depending on cash availability, its
alternative uses, and the general level of interest rates, the Company may,
through various means, repurchase additional debt during the remainder of 1996.
As a result of the foregoing, the combined balance of cash, cash
equivalents, and marketable securities at June 30, 1996, was $333.9 million, an
increase of $69.3 million since December 31, 1995. This compares to an increase
in those balances in the previous year period of $16.1 million, resulting in a
balance of $170.9 million at the end of June 1995.
(13)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Environmental Issues
A referendum measure entitled, "Initiated Bill to Promote Forest
Rehabilitation and Eliminate Clearcutting" (the "Referendum") has been initiated
and qualified for the November 1996 Maine ballot. The Referendum, if passed,
would limit wood harvesting on privately-owned woodlots in Maine's unorganized
townships, where the Company is a landowner. The Company has actively opposed
the Referendum through a coalition called "Citizens for a Healthy Forest and
Economy" for a variety of reasons including, but not limited to, the Company's
belief that the Referendum imposes restrictions that lack a sound basis in
scientific forest management practices.
On September 5, 1996, the Maine Legislature will meet in a special
session called by the Governor of Maine to consider a proposal offered as a
compromise to the Referendum and captioned the "Compact for Maine's Forests"
(the "Compact"). The Compact is supported by landowners, including the Company,
and various environmental groups. If passed by the legislature, the Compact will
appear on the November 1996 ballot as an alternative choice to the Referendum.
The Company's management cannot make a determination of whether the Referendum,
the Compact, or neither will pass, nor has it evaluated all the various
operational alternatives in the event of the possible outcomes. Accordingly, the
Company cannot assess their impact on its financial condition or results of
operations.
(14)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 21, 1996, at the Company's Annual Meeting of Shareholders,
the following matters were submitted to a vote of the shareholders:
A resolution electing the following class of directors for a
term of three years: Francis J. Aguilar (35,892,495 votes in favor;
100,712 votes withheld); Kenneth M. Curtis (35,394,999 votes in
favor; 598,208 votes withheld); and John A. Rolls (35,898,457 votes
in favor; 94,750 votes withheld). The names of each other director
whose term of office as a director continued after the meeting are:
H. David Aycock, Richard Barth, H. Gordon MacNeill, Donald R.
Melville, Arnold M. Nemirow, and James L. Pate.
A resolution ratifying the appointment of KPMG Peat Marwick
as independent auditors for the Company. The resolution was
passed by a vote of 35,946,598 votes in favor; 18,429 votes
against; and 28,180 abstentions.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit No. Description
10.1 Form of Indemnification Agreement, by and
between the Company and each of James H. Dorton,
Richard F. Frisch, David G. Maffucci, and Wendy
C. Shiba.
10.2 Change in Control Agreement, dated as of August
6, 1996, by and between the Company and James H.
Dorton.
10.3 Employment Agreement, dated as of August 6,
1996, by and between the Company and James H.
Dorton.
27.1 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K:
None.
(15)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOWATER INCORPORATED
By D. G. Maffucci
D. G. Maffucci
Senior Vice President -
Chief Financial Officer
By M. F. Nocito
M. F. Nocito
Vice President - Controller
Dated: August 14, 1996
(16)
INDEX TO EXHIBITS
Exhibit No. Description
10.1 Form of Indemnification Agreement, by and between
the Company and each of James H. Dorton, Richard F.
Frisch, David G. Maffucci, and Wendy C. Shiba.
10.2 Change in Control Agreement, dated as of August 6,
1996, by and between the Company and James H. Dorton.
10.3 Employment Agreement, dated as of August 6, 1996, by
and between the Company and James H. Dorton.
27.1 Financial Data Schedule (electronic filing only).
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, by and between Bowater Incorporated, a Delaware
corporation ("Bowater"), and the undersigned executive employee of Bowater
("Executive") is dated as of this ______ day of ___________, 199___.
W I T N E S S E T H
WHEREAS, Executive serves in connection with various employee
compensation and benefits arrangements of Bowater ("Arrangements") listed on
Exhibit A; and
WHEREAS, to induce Executive's continued service in such capacity,
Bowater desires to extend certain protection to Executive in connection with
potential related liabilities and expenses;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is acknowledged, Bowater and
Executive agree as follows:
A. Right to Indemnification. Bowater shall indemnify, hold harmless,
and advance expenses to Executive (and Executive's heirs, executors,
administrators, or other legal representatives), to the fullest extent permitted
by applicable law as it presently exists or may hereafter be amended, if
Executive is made or is threatened to be made a party or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that Executive, or a
person for whom Executive is the legal representative, is or was serving at the
request of Bowater as a trustee, fiduciary, administrator or agent, or in any
other capacity with respect to the Arrangements, against all liability and loss
suffered and expenses reasonably incurred by Executive. For purposes of the
foregoing, expenses shall include, without limitation, reasonable attorney's
fees incurred by Executive in connection with counsel selected by Executive.
B. Advancement of Expenses. The right of indemnity afforded by
paragraph A above shall include the right to have Bowater pay the expenses
incurred by Executive in defending any proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by
Executive in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by Executive to repay all amounts advanced
if it should be ultimately determined that Executive is not entitled to be
indemnified under this Agreement or otherwise.
C. Claims. If a claim for indemnification or advancement of expenses
under this Agreement is not paid in full within sixty days after a written claim
therefor has been received by Bowater, Executive may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense, including reasonable attorneys' fees, of
prosecuting such claim. In any such action Bowater shall have the burden of
proving that Executive was not entitled to the requested indemnification or
advancement of expenses under applicable law.
<PAGE>
D. Non-Exclusivity of Rights. The rights conferred on Executive by this
Agreement shall not be exclusive of any other rights that Executive may have or
hereafter acquire under any statute, provision of the certificate of
incorporation or the by-laws of Bowater, agreement, vote of stockholders or
disinterested directors or otherwise.
E. Non-Duplication. Bowater's obligation, if any, to indemnify
Executive hereunder shall be reduced by any amount Executive actually collects
as indemnification from any other source.
F. Amendment. This Agreement may be modified or amended only by means
of a writing signed by Bowater and Executive.
G. Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the substantive laws of the
State of Delaware.
IN WITNESS WHEREOF, this Agreement has been executed on behalf of
Executive and by Bowater as of the date first written above.
BOWATER INCORPORATED EXECUTIVE
By: /s/ Anthony H. Barash ______________________
Name: Anthony H. Barash Name:
Title: Sr. Vice President, Corporate Affairs Date Signed: __________
and General Counsel
Date signed: ______________________
1099122-1
<PAGE>
Exhibit A
Bowater Incorporated Benefit Plan Grantor Trust
Bowater Incorporated Executive Severance Grantor Trust
Bowater Incorporated Outside Directors Benefit Plan Grantor Trust
<PAGE>
SCHEDULE TO EXHIBIT 10.1
INDEMNIFICATION AGREEMENTS
NAME DATE OF AGREEMENT
James H. Dorton 8/06/96
Richard F. Frisch 7/24/96
David G. Maffucci 7/24/96
Wendy C. Shiba 7/24/96
<PAGE>
EXHIBIT 10.2
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 6th day of August, 1996, by and between
Bowater Incorporated, a Delaware corporation having a mailing address of 55 East
Camperdown Way, Greenville, South Carolina 29602 (the "Corporation"), and James
H. Dorton of 4103 Kenyon Avenue, Huntsville, AL 35802 (the"Executive").
WHEREAS, the Corporation considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(a) "Acquiring Person" shall mean any Person who is or becomes a
"beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of
securities of the Corporation representing twenty percent
(20%) or more of the combined voting power of the
Corporation's then outstanding voting securities, unless such
Person has filed Schedule 13G and all required amendments
thereto with respect to its holdings and continues to hold
such securities for investment in a manner qualifying such
Person to utilize Schedule 13G for reporting of ownership.
<PAGE>
- 2 -
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date
hereof.
(c) "Cause" shall mean and be limited to the Executive's gross
negligence, willful misconduct or conviction of a felony,
which negligence, misconduct or conviction has a demonstrable
and material adverse effect upon the Corporation, provided
that, to the extent that the Corporation contends that Cause
exists by virtue of Executive's gross negligence or willful
misconduct, and such gross negligence or willful misconduct is
capable of being cured, the Corporation shall have given the
Executive written notice of the alleged negligence or
misconduct and the Executive shall have failed to cure such
negligence or misconduct within thirty (30) days after his
receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date
stated in a written notice of such termination delivered by
the Corporation to the Executive (which notice shall not be
delivered before the end of the thirty (30) day period
described in the preceding sentence, if applicable) and
accompanied by a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the
Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for the Executive's
termination, provided that the effective date shall not be
less than thirty (30) days from the date such notice is given.
(d) "Change in Control" of the Corporation shall be deemed to have
occurred if:
(i) any Person is or becomes an Acquiring
Person;
(ii) less than two-thirds (2/3) of the total
membership of the Board shall be Continuing
Directors; or
(iii) the stockholders of the Corporation shall
approve a merger or consolidation of the
Corporation or a plan of complete
liquidation of the Corporation or an
agreement for the sale or disposition by the
Corporation of all or substantially all of
the Corporation's assets.
(e) "Commencement Date" shall mean the date of this Agreement,
which shall be the beginning date of the term of this
Agreement.
<PAGE>
- 3 -
(f) "Continuing Directors" shall mean any member of the Board who
was a member of the Board immediately prior to the date
hereof, and any successor of a Continuing Director while such
successor is a member of the Board who is not an Acquiring
Person or an Affiliate or Associate of an Acquiring Person or
of any such Affiliate or Associate and is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors.
(g) "Disability" shall mean the Executive's total and permanent
disability as defined in the Corporation's long term
disability insurance policy covering the Executive immediately
prior to the Change in Control.
(h) "Good Reason" shall mean:
(i) an adverse change in the Executive's status, duties
or responsibilities as an executive of the
Corporation as in effect immediately prior to the
Change in Control, provided that the Executive shall
have given the Corporation written notice of the
alleged adverse change and the Corporation shall have
failed to cure such change within thirty (30) days
after its receipt of such notice;
(ii) failure of the Corporation to pay or provide the
Executive in a timely fashion the salary or benefits
to which he is entitled under any Employment
Agreement between the Corporation and the Executive
in effect on the date of the Change in Control, or
under any benefit plans or policies in which the
Executive was participating at the time of the Change
in Control (including, without limitation, any
incentive, bonus, stock option, restricted stock,
health, accident, disability, life insurance, thrift,
vacation pay, deferred compensation and retirement
plans or policies);
(iii) the reduction of the Executive's salary as in effect
on the date of the Change in Control;
(iv) the taking of any action by the Corporation
(including the elimination of a plan without
providing substitutes therefor, the reduction of the
Executive's awards thereunder or failure to continue
the Executive's participation therein) that would
substantially diminish the aggregate projected value
of the Executive's awards or benefits under the
Corporation's benefit plans or policies described in
Section 1(h)(ii) in which the Executive was
participating at the time of the Change in Control;
(v) a failure by the Corporation to obtain from any
successor the assent to this Agreement contemplated
by Section 5 hereof; or
<PAGE>
- 4 -
(vi) the relocation of the principal office at which the
Executive is to perform his services on behalf of the
Corporation to a location more than thirty-five (35)
miles from its location immediately prior to the
Change in Control or a substantial increase in the
Executive's business travel obligations subsequent to
the Change in Control.
Any circumstance described in this Section 1(h) shall constitute Good
Reason even if such circumstance would not constitute a breach by the
Corporation of the terms of the Employment Agreement between the
Corporation and the Executive in effect on the date of the Change in
Control. The Executive shall be deemed to have terminated his
employment for Good Reason effective upon the effective date stated in
a written notice of such termination given by him to the Corporation
(which notice shall not be given, in circumstances described in Section
1(h)(i), before the end of the thirty (30) day period described
therein) setting forth in reasonable detail the facts and circumstances
claimed to provide the basis for termination, provided that the
effective date may not precede, nor be more than sixty (60) days from,
the date such notice is given. The Executive's continued employment
shall not constitute consent to, or a waiver of rights with respect to,
any circumstances constituting Good Reason hereunder.
(i) "Normal Retirement Date" shall have the meaning given to such
term in the Corporation's basic qualified pension plan in
which the Executive is a participant as in effect on the date
hereof or any successor or substitute plan adopted prior to a
Change in Control.
(j) "Person" shall mean any individual, corporation, partnership,
group, association or other "person" as such term is used in
Section 13(d) and 14(d) of the Exchange Act.
2. TERM OF AGREEMENT
(a) The term of this Agreement shall initially be for the
period beginning on the Commencement Date and ending
on the day before the third anniversary of the
Commencement Date. The term of this Agreement shall
automatically be extended on the first anniversary of
the Commencement Date until the day before the fourth
anniversary of the Commencement Date without further
action by the parties, and shall be automatically
extended by an additional year on each succeeding
anniversary of the Commencement Date, unless either
the Corporation or the Executive shall have served
notice upon the other party prior to such anniversary
of its or his intention either that the term of this
Agreement shall not be extended, or that the
Executive's Employment Agreement is terminated,
provided, however, that if a Change in Control of the
Corporation shall occur during the term of this
Agreement, this Agreement shall continue in effect
until it expires in accordance with the foregoing, but
in any event for a period of not less than three (3)
years from the date of the Change in Control.
<PAGE>
- 5 -
(b) Notwithstanding Section 2(a), the term of this
Agreement shall end upon the termination of the
Executive's employment if, prior to a Change in
Control of the Corporation, the Executive's
employment with the Corporation shall have terminated
under the provisions of any Employment Agreement
between the Corporation and the Executive then in
effect.
3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A
TERMINATION
If a Change in Control of the Corporation shall have occurred and,
thereafter and during the term of this Agreement, the Executive's
employment by the Corporation is terminated for any reason other than
his death, his Disability, his retirement on his Normal Retirement
Date, by the Corporation for Cause, or by the Executive without Good
Reason, the Executive shall be under no further obligation to perform
services for the Corporation and shall be entitled to receive the
following payments:
(a) The Corporation shall pay to the Executive his full base
salary through the effective date of the termination within
five (5) business days thereafter and all benefits and awards
(including both the cash and stock components) to which the
Executive is entitled under any benefit plans or policies in
which the Executive was a participant prior to the Change in
Control (or, if more favorable, at the effective date of
termination), at the time such payments are due pursuant to
the terms of such benefit plans or policies as in effect
immediately prior to the Change in Control (or, if more
favorable, at the effective date of termination).
(b) At the election of the Executive, in addition to the
entitlements set forth in Section 3(a) but in lieu of any
payment to the Executive of any salary or severance payments
or benefits to which the Executive would be entitled under the
provisions of any Employment Agreement between the Corporation
and the Executive then in effect (if any), the Corporation
shall pay to the Executive, in a lump sum not later than ten
(10) business days following the effective date of the
termination:
(i) an amount equal to three (3) times the Executive's
annual base salary on the effective date of the
termination or, if higher, immediately prior to the
Change in Control;
(ii) an amount equal to three (3) times the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation
<PAGE>
- 6 -
at the same level of performance, at the same level
of salary, and in the same position as immediately
prior to the Change in Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of the termination occurs and ending on the date
of the termination, one-twelfth of the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation at
the same level of performance, at the same level of
salary, and in the same position as immediately prior
to the Change in Control.
(vi) If a payment may be increased by reference to an
alternate calculation which cannot be made by the
time the payment is due, payment of the lesser, known
amount shall be made when due, and if any additional
amount becomes due, such additional amount shall be
paid within ten (10) days after the information upon
which calculation of such payment is dependent first
becomes available.
The amount of all payments due to the Executive pursuant to
this Section 3(b) shall be reduced by 1/36 for each full
calendar month by which the date which is three (3) years from
the effective date of the Executive's termination extends
beyond the Executive's Normal Retirement Date.
<PAGE>
- 7 -
Upon entering into this Agreement and for a period of fourteen
(14) days following each anniversary of the date hereof (the
"Election Period"), the Executive may, in writing, direct the
Corporation to pay any amounts to which he is entitled under
this Section 3(b) in equal annual installments (not to exceed
ten (10) annual installments), with the first such installment
payable within ten (10) business days of the effective date of
the termination and each successive installment payable on the
anniversary of the effective date of the termination or the
next following business day if such date is not a business day
(the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
(c) The Corporation shall pay or provide to the Executive or his
surviving spouse or children, as the case may be, such amounts
and benefits as may be required so that the pension and other
post-retirement benefits paid or made available to the
Executive, his surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
in effect immediately prior to the Change in Control, assuming
the Executive continued in the employ of the Corporation at
the same compensation until the third anniversary of the
effective date of the termination of the Executive's
employment or until his Normal Retirement Date, whichever is
earlier. Notwithstanding any conflicting restrictions in the
Plans or the fact of the termination of the Executive's
employment, until the Executive's Normal Retirement Date, the
Executive or his surviving spouse and his children shall
maintain a continuing right to receive the pension and other
benefits under the above Plans with payments to begin upon
retirement and to elect an imputed retirement on the
Executive's 50th birthdate or any of his birthdates thereafter
until his Normal Retirement Date, such election to be made by
so notifying the Corporation within one (1) year after
termination of his employment.
(d) The Corporation shall pay for or provide the Executive
individual out-placement assistance as offered by a member
firm of the Association of Out-Placement Consulting Firms.
(e) If any payment or benefit to or for the benefit of the
Executive in connection with a Change in Control of the
Corporation or termination of the Executive's employment
following a Change in Control of the Corporation (whether
pursuant to the terms of this Agreement, or any other plan or
arrangement or agreement with the Corporation, any Person
whose actions result in a Change in Control of the Corporation
or any Affiliate or Associate of the Corporation or any such
Person) is subject to the Excise Tax (as hereinafter defined),
the Corporation shall pay to the Executive an additional
amount such that the total amount of all such
<PAGE>
- 8 -
payments and benefits (including payments made pursuant to
this Section 3(e) net of the Excise Tax and all other
applicable federal, state and local taxes) shall equal the
total amount of all such payments and benefits to which the
Executive would have been entitled, but for this Section 3(e),
net of all applicable federal, state and local taxes except
the Excise Tax. For purposes of this Section 3(e), the term
"Excise Tax" shall mean the tax imposed by Section 4999 of the
Internal Revenue Code of 1986 (the "Code") and any similar tax
that may hereafter be imposed.
The amount of the payment to the Executive under this Section
3(e) shall be estimated by a nationally recognized firm of
certified public accountants, which firm may not have provided
services to the Corporation or any Affiliate of the
Corporation within the previous three years and shall not
provide services thereto in the following three years, based
upon the following assumptions:
(i) all payments and benefits to or for the
benefit of the Executive in connection with
a Change in Control of the Corporation or
termination of the Executive's employment
following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess
parachute payments" shall be deemed to be
subject to the Excise Tax except to the
extent that, in the opinion of tax counsel
selected by the firm of certified public
accountants charged with estimating the
payment to the Executive under this Section
3(e), such payments or benefits are not
subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay
federal, state and local taxes at the
highest marginal rate of taxation for the
applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that the
amount of the estimated payment is less than the amount
actually due to the Executive under this Section 3(e), the
amount of any such shortfall shall be paid to the Executive
within ten (10) days after the existence of the shortfall is
discovered.
(f) The Executive shall not be required to mitigate the amount of
any payment provided in this Section 3, nor shall any payment
or benefit provided for in this Section 3 be offset by any
compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
(g) If any payment to the Executive required by this Section 3 is
not made within the time for such payment specified herein,
the Corporation shall pay to the Executive interest on such
payment at the legal rate payable from time to time upon
<PAGE>
- 9 -
judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all costs,
including reasonable attorney's fees and expenses of either litigation
or arbitration, incurred by the Executive in contesting or disputing
any termination of his employment following a Change in Control or in
seeking to obtain or enforce any right or benefit provided by this
Agreement.
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be enforceable by the
Executive, his heirs, executors, administrators, successors and
assigns. This Agreement shall be binding upon the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Corporation expressly to assume and agree to perform this Agreement
in accordance with its terms. The Corporation shall obtain such
assumption and agreement prior to the effectiveness of any such
succession.
6. NOTICE
Any notices and all other communications provided for herein shall be
in writing and shall be deemed to have been duly given when delivered
or mailed, by certified or registered mail, return receipt requested,
postage prepaid addressed to the respective addresses set forth on the
first page of this Agreement or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt. All notices to the Corporation shall be addressed to the
attention of the Board with a copy to each of the General Counsel, the
Vice President-Human Resources and the Secretary of the Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or discharged
except in a writing specifically referring to such provision and signed
by the party against which enforcement of such modification, waiver or
discharge is sought. No waiver by either party hereto of the breach of
any condition or provision of this Agreement shall be deemed a waiver
of any other condition or provision at the same or any other time.
<PAGE>
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8. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the substantive laws of the State of
Delaware.
9 VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in the city nearest to the Executive's principal residence
(or, at the Executive's election, in the city within the state in which
the Executive's principal residence is located nearest to such
principal residence) which has an office of the American Arbitration
Association by one arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The
Corporation hereby waives its right to contest the personal
jurisdiction or venue of any court, federal or state, in an action
brought to enforce this Agreement or any award of an arbitrator
hereunder which action is brought in the jurisdiction in which such
arbitration was conducted, or, if no arbitration was elected, in which
arbitration could have been conducted pursuant to this provision.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
12. SUPERSEDURE
This Agreement shall cancel and supersede any and all prior agreements
between the Executive and the Corporation entitled "Severance
Agreement".
<PAGE>
- 11 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
/s/ Richard F. Frisch
By: Richard F. Frisch
Its: Vice President - Human Resources
/s/ James H. Dorton
James H. Dorton
<PAGE>
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 6th day of August, 1996, by and
between BOWATER INCORPORATED, a Delaware corporation having a mailing address of
55 East Camperdown Way, Greenville, South Carolina 29602 (the "Corporation"),
and James H. Dorton, of 4103 Kenyon Avenue, Huntsville, AL 35802 (the
"Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President - Treasurer; and
WHEREAS, the Executive is desirous of serving the Corporation in such
capacity;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. During the term of this Agreement the Corporation
agrees to continue to employ the Executive, and the Executive agrees to continue
in the employ of the Corporation, in accordance with and subject to the
provisions of this Agreement.
2. Term.
(a) Subject to the provisions of subparagraphs (b) and
(c) of this Section 2, the term of this Agreement
shall begin on the date the Executive reports for
duty hereunder (the "Commencement Date") and shall
continue thereafter until terminated by either party
by written notice given to the other party at least
thirty (30) days prior to the effective date of any
such termination. The effective date of the
termination shall be the date stated in such notice,
provided that if the Corporation specifies an
effective date that is more than (30) days following
the date of such notice, the Executive may, upon
thirty (30) days' written notice to the Corporation,
accelerate the effective date of such termination.
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<PAGE>
(b) Notwithstanding Section 2(a), upon the occurrence of
a Change in Control as defined in the Change in
Control Agreement of even date herewith between the
Corporation and the Executive (the "Change in Control
Agreement"), the term of this Agreement shall be
deemed to continue until terminated, but in any
event, for a period of not less than three (3) years
following the date of the Change in Control, unless
such termination shall be at the Executive's election
for other than "Good Reason" as that term is defined
in the Change in Control Agreement.
(c) Notwithstanding Section 2(a), the term of this
Agreement shall end upon:
(i) the death of the Executive;
(ii) the inability of the Executive to perform
his duties properly, whether by reason of
ill-health, accident or other cause, for a
period of one hundred and eighty (180)
consecutive days or for periods totaling one
hundred and eighty (180) days occurring
within any twelve (12) consecutive calendar
months; or
(iii) the Executive's retirement on his early or
normal retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President - Treasurer, with the duties and responsibilities
customarily attendant to that office, provided that the Executive shall
undertake such other and further assignments and responsibilities of at least
comparable status as the Board of Directors may direct. The Executive shall
diligently and faithfully devote his full working time and best efforts to the
performance of the services under this Agreement and to the furtherance of the
best interests of the Corporation.
4. Place of Employment. The Executive will be employed at the corporate
offices in the City of Greenville, South Carolina or at such other place as the
Corporation shall designate from time to time, provided, however, that if the
Executive is transferred to another place of employment, necessitating a change
in his residence, the Executive shall be entitled to financial assistance in
accordance with the terms of the Corporation's relocation policy then in effect.
The Executive will be entitled to relocation assistance for his move to
Greenville, South Carolina, in accordance with the terms of the
2
<PAGE>
Corporation's current relocation policy, except that he shall be entitled to a
miscellaneous relocation allowance in the amount of $10,000, which shall be
grossed up for taxes in accordance with the gross-up method described in the
current relocation policy.
5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the
Executive a base salary of $140,000 (salary grade 31)
payable in substantially equal periodic installments
on the Corporation's regular payroll dates. The
Executive's base salary shall be reviewed at least
annually and from time to time may be increased (or
reduced, if such reduction is effected pursuant to
across-the-board salary reductions similarly
affecting all management personnel of the
Corporation).
(b) Bonus Plan. In addition to his base salary, the
Executive shall be entitled to receive a bonus under
the Corporation's bonus plan in effect from time to
time determined in the manner, at the time, and in
the amounts set forth under such plan. The Executive
shall be eligible for a bonus for calendar year 1996
equal to 50% of the amount he would have received if
he had been employed as of January 1, 1996.
(c) Benefit Plans. The Corporation shall make
contributions on the Executive's behalf to the
various benefit plans and programs of the Corporation
in which the Executive is eligible to participate in
accordance with the provisions thereof as in effect
from time to time. The Executive and his family will
be covered under the Corporation's medical and dental
plans as of August 1, 1996, subject to the
Executive's obligation to contribute the employee
share of the cost of such coverage. As of the
Commencement Date, the Executive shall be awarded
Equity Participation Rights ("EPR"s) for 5,000 units
subject to the same terms and conditions as were
applicable to other Executives in the same salary
grade receiving EPRs in the calendar year 1996, at a
reference price per unit equal to the "Fair Market
Value" of a share of common stock of Bowater
Incorporated on the Commencement Date, in accordance
with the definition of "Fair Market Value" in the
Bowater Incorporated Equity Participation Rights
Plan.
3
<PAGE>
(d) Vacations. The Executive shall be entitled to paid
vacation, in keeping with the Corporate policy as in
effect from time to time, to be taken at such time or
times as may be approved by the Corporation.
(e) Expenses. The Corporation shall reimburse the
Executive for all reasonable expenses properly
incurred, and appropriately documented, by the
Executive in connection with the business of the
Corporation.
(f) Perquisites. The Corporation shall make available to
the Executive all perquisites to which he is entitled
by virtue of his position.
6. Nondisclosure. During and after the term of this Agreement, the
Executive shall not, without the written consent of the Board of Directors of
the Corporation, disclose or use directly or indirectly, (except in the course
of employment hereunder and in furtherance of the business of the Corporation or
any of its subsidiaries and affiliates) any of the trade secrets or other
confidential information or proprietary data of the Corporation or its
subsidiaries or affiliates; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same or similar
businesses.
7. Noncompetition. During the term of this Agreement, and for a period
of one (1) year after the date the Executive's employment terminates, the
Executive shall not, without the prior approval of the Board of Directors of the
Corporation in the same or a similar capacity engage in or invest in, or aid or
assist anyone else in the conduct of any business (other than the businesses of
the Corporation and its subsidiaries and affiliates) which directly competes
with the business of the Corporation and its subsidiaries and affiliates as
conducted during the term hereof. If any court of competent jurisdiction shall
determine that any of the provisions of this Section 7 shall not be enforceable
because of the duration or scope thereof, the parties hereto agree that said
court shall have the power to reduce the duration and scope of such provision to
the extent necessary to make it enforceable and this Agreement in its reduced
form shall be valid and enforceable to the extent permitted by law. The
Executive acknowledges that the Corporation's remedy at law for a breach by the
Executive of the provisions of this Section 7 will be inadequate. Accordingly,
in the event of the breach or threatened breach by the Executive of this Section
7, the Corporation shall be entitled to injunctive relief in addition to any
other remedy it may have.
4
<PAGE>
8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless the Corporation shall have terminated the Executive for
"Cause", the Corporation shall pay the Executive severance pay in an amount
equal to twelve (12) months of the Executive's base salary on the effective date
of the termination, plus 1/12 of the amount of the last bonus paid to the
Executive under the Corporation's bonus plan applicable to the Executive for
each month in the period beginning on January 1 of the year in which the date of
the termination occurs and ending on the date of the termination and for each
months' base salary to which the Executive is entitled under this Section 8,
provided, however, that any amount paid to the Executive by the Corporation for
services rendered subsequent to the thirtieth (30th) day following the
communication to the Executive of notice of termination shall be deducted from
the severance pay otherwise due hereunder. Such payment shall be made in a lump
sum within ten (10) business days following the effective date of the
termination. The severance pay shall be in lieu of all other compensation or
payments of any kind relating to the termination of the Executive's employment
hereunder; provided that the Executive's entitlement to compensation or payments
under the Corporation's retirement plans, stock option or incentive plans,
savings plans or bonus plans attributable to service rendered prior to the
effective date of the termination shall not be affected by this clause and shall
continue to be governed by the applicable provisions of such plans; and further
provided that in lieu hereof, at his election, the Executive shall be entitled
to the benefits of the Change in Control Agreement of even date hereof between
the Corporation and the Executive, if termination occurs in a manner and at a
time when such Severance Agreement is applicable. For purposes of this
Agreement, the term for "Cause" shall mean because of gross negligence or
willful misconduct by the Executive either in the course of his employment
hereunder or which has a material adverse effect on the Corporation or the
Executive's ability to perform adequately and effectively his duties hereunder.
9. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered or mailed, by registered or certified mail, return receipt requested
to the respective addresses of the parties set forth above, or to such other
address as any party hereto shall designate to the other party in writing
pursuant to the terms of this Section 9.
10. Severability. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision.
5
<PAGE>
11. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of Delaware.
12. Supersedure. This Agreement shall cancel and supersede all prior
agreements relating to employment between the Executive and the Corporation,
except the Change in Control Agreement.
13. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this
Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Richard F. Frisch /s/ James H. Dorton
Richard F. Frisch, James H. Dorton
Vice President - Human Resources
6
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
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49,683 49,683
136,798 136,798
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<INTEREST-EXPENSE> 18,223 36,570
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<INCOME-CONTINUING> 44,343 157,248
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