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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 1-8712
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
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DELAWARE 62-0721803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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55 EAST CAMPERDOWN WAY
P. O. BOX 1028
GREENVILLE, SOUTH CAROLINA 29602
(864) 271-7733
(Address and telephone number of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
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Common Stock, par value $1 per share New York Stock Exchange, Inc.
The Pacific Stock Exchange Incorporated
The London Stock Exchange
The Swiss Stock Exchanges
Depositary Shares, each representing one-fourth New York Stock Exchange, Inc.
of a share of 8.40% Series C Cumulative
Preferred Stock, par value $1 per share
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 24, 1997, was $1,599,608,255.
As of March 24, 1997, there were 39,837,573 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
parts of this report indicated below:
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Annual Report to Shareholders for the year ended December 31, 1996. Parts I, II and IV
Proxy Statement with respect to the Annual Meeting of Shareholders Part III
to be held on May 21, 1997.
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PART I
ITEM 1. BUSINESS
GENERAL
Bowater Incorporated (together with its consolidated subsidiaries, the
"Company") is engaged in the manufacture, sale and distribution of newsprint,
directory paper, uncoated groundwood specialties, coated groundwood paper,
market pulp and lumber. The Company operates facilities in both the United
States and Canada, and, as of December 31, 1996, managed and controlled
approximately 3.6 million acres of timberlands to support these facilities. The
Company markets and distributes its various products in North and South America
and overseas.
The Company was incorporated in Delaware in 1964. The Company's principal
executive offices are currently located at 55 East Camperdown Way, Greenville,
South Carolina 29602, and its telephone number at that address is (864)
271-7733.
All three of the Company's divisions have been classified within a single
business segment, Pulp, Paper and Related Products. Information regarding net
export sales is incorporated herein by reference to page 39 of the Company's
1996 Annual Report (the "Annual Report"). Information regarding the amount of
total revenue contributed by each of the Company's product lines is incorporated
herein by reference to pages 42-43 of the Annual Report. Information regarding
the Company's fixed assets is incorporated herein by reference to page 33 of the
Annual Report.
Information regarding the Company's liquidity and capital resources is
incorporated herein by reference to pages 23-27 of the Annual Report.
Information regarding the sale of real property and Star Forms Incorporated
("Star Forms," formerly known as the Bowater Communication Papers Division) is
incorporated herein by reference to page 33 of the Annual Report.
OPERATING DIVISIONS
The Company operates through three divisions: the Bowater Newsprint
Division, the Bowater Coated Paper & Pulp Division and the Great Northern Paper
("GNP") Division. In 1995, the Company operated through four divisions; in 1996,
the Company sold the Star Forms Division.
The Bowater Newsprint Division consists of four manufacturing facilities:
the Calhoun Operation and Calhoun Newsprint Company ("CNC") (which is owned
approximately 51 percent by the Company and approximately 49 percent by Herald
Company, Inc.) located in Calhoun, Tennessee; the Mersey Operation (which is
owned 51 percent by the Company and 49 percent by The Washington Post Company)
located in Liverpool, Nova Scotia; Bowater Lumber located in Albertville,
Alabama; and the Mersey Sawmill at Oakhill (which is also owned 51 percent by
the Company and 49 percent by The Washington Post Company) located in
Bridgewater, Nova Scotia. This division is also supported by seven domestic
sales offices, which are responsible for marketing all of the Company's domestic
newsprint and some uncoated groundwood specialties. In 1996, the Company
incorporated Paper Traders International Pte Ltd ("Paper Traders"), a
wholly-owned subsidiary located in Singapore. Paper Traders is responsible for
the Company's newsprint sales in Asia and other Pacific Rim countries.
The Bowater Coated Paper & Pulp Division consists of the Carolina Operation
located in Catawba, South Carolina, and four sales offices. This division is
responsible for selling all of the Company's coated groundwood paper, as well as
all of the Company's market pulp.
The GNP Division consists of three manufacturing facilities: the
Millinocket Operation located in Millinocket, Maine; the East Millinocket
Operation located in East Millinocket, Maine; and Pinkham Lumber located in
Ashland, Maine. This division is supported by one sales office and is
responsible for selling all of the Company's directory paper and some uncoated
groundwood specialties.
NEWSPRINT, DIRECTORY PAPER AND UNCOATED GROUNDWOOD SPECIALTIES
The Company is the largest manufacturer of newsprint in the United States.
Including its Mersey Operation, the Company's annual capacity is approximately 8
percent of the North American capacity total and approximately 3 percent of the
worldwide capacity total. The Company is also the largest manufacturer of
directory paper in North America with approximately 28 percent of United States
market share.
The Calhoun Operation is located on the Hiwassee River in Tennessee and is
one of the largest and most productive newsprint mills in North America. At this
facility, the Company operates four paper machines, which produced 605,871 tons
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of newsprint and uncoated groundwood specialties in 1996. Also located at this
facility is CNC's paper machine, which produced 239,263 tons of newsprint in
1996. Although the Company manages and operates the entire facility, CNC also
owns 68.4 percent of the thermomechanical pulp ("TMP") mill and 100 percent of
the recycled fiber plant at the facility. The Company owns the remaining 31.6
percent of the TMP mill and 100 percent of the other assets at this location.
These other assets include kraft and stone groundwood pulp mills and other
support equipment necessary to produce the finished product.
The Mersey Operation is located on an ice-free port providing economical
access to ports along the eastern seaboard of the United States and throughout
the world. Its two paper machines, built in 1929, were rebuilt between 1983 and
1985 and produced 261,963 tons of newsprint in 1996. This facility also operates
a TMP mill, a wastewater treatment facility and other support equipment required
to produce the finished product.
Newsprint, directory paper and uncoated groundwood specialties are also
produced at three other Company locations. The newsprint machine at the Carolina
Operation, located on the Catawba River in South Carolina, produced 247,132 tons
in 1996 and is one of the largest and most productive newsprint machines in the
industry. The Company's East Millinocket Operation, located on the West Branch
of the Penobscot River in northern Maine, has two paper machines which were
built in 1954 and rebuilt in 1986. These two machines produced a total of
284,270 tons of newsprint, directory paper and uncoated groundwood specialties
in 1996. This facility also operates a groundwood pulp mill, a recycled fiber
plant and other support equipment required to produce the finished product. The
Company's Millinocket Operation, located eight miles from the East Millinocket
Operation, has four paper machines that produced 146,493 tons of directory paper
and uncoated groundwood specialties in 1996. These paper grades are used in
directories, catalogs, newspaper advertising inserts and magazines, and are sold
primarily to customers east of the Mississippi River.
Domestic newsprint, directory paper and uncoated groundwood specialty paper
sales are made directly by the Company through its regional sales offices
located near major metropolitan areas in the eastern half of the United States,
while export sales are made primarily through international sales agents local
to their markets. CNC's minority shareholder and its affiliates purchase the
equivalent of all of CNC's annual output, and The Washington Post Company
purchases approximately 80,000 tons of newsprint annually. Combined, these two
customers in 1996 accounted for approximately 10 percent of the Company's
consolidated net sales and approximately 22 percent of the Company's newsprint
sales. The Company distributes newsprint, directory paper and uncoated
groundwood specialties by rail, truck, ship and barge.
COATED GROUNDWOOD PAPER
The Company is one of the largest producers of coated groundwood paper in
the United States and North America with approximately 10 percent and 8 percent
of the United States and North American capacity, respectively. Coated
groundwood paper produced by the Company is primarily light weight coated paper
and is used in magazines, catalogs, advertising pieces, textbooks, direct mail
pieces and coupons.
The Company manufactures a variety of coated grades on two paper machines
at the Carolina Operation and on three of the four paper machines at the
Millinocket Operation. Both machines at the Carolina Operation utilize
off-machine blade coaters. At the Millinocket Operation, two machines produce a
base stock which is coated on an off-machine blade coater while the third
machine has an on-machine roll coater. In 1996, the two coated machines at the
Carolina Operation produced 328,468 tons of coated groundwood paper, and the
three machines at the Millinocket Operation produced 106,098 tons of coated
groundwood paper. The Carolina Operation includes a kraft mill, a TMP mill and
other support equipment required to produce the finished product. The
Millinocket Operation includes a sulphite mill and other support equipment
required to produce the finished product.
Domestic coated groundwood paper is sold by the Company and paper brokers
to major printers, publishers, and catalogers. It is distributed by truck and
rail from the Carolina and Millinocket facilities. These facilities are
strategically located to supply the southeastern and northeastern United States,
respectively, and jointly serve the midwestern market. Export markets are
serviced primarily through international agents.
MARKET PULP
In addition to furnishing its internal pulp requirements, the Company
produced 261,015 tons of softwood market pulp at its Carolina Operation in 1996
for use by manufacturers of fine paper, tissues and other paper products and the
Calhoun Operation produced 118,198 tons of hardwood market pulp for sale to its
customers. During 1996, the Calhoun Operation completed a pulp dryer rebuild,
which enables the Company to significantly increase market pulp production.
During 1994,
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the Calhoun Operation also replaced two existing recovery boilers with a larger
recovery boiler. The new recovery boiler enables this facility to realize
significant cost reductions and meet current environmental regulations.
In 1996, 73 percent of the Company's market pulp was sold to the export
market. Export sales are made through international sales agents local to their
markets, while domestic sales are made directly by the Company and sales agents.
The Company distributes market pulp primarily by rail and ship.
LUMBER AND OTHER WOOD PRODUCTS
In connection with its primary business of manufacturing and distributing
various paper products and market pulp, the Company is engaged in related
businesses.
At December 31, 1996, the Company owned or managed under lease
approximately 3.6 million acres of timberlands throughout six states and Nova
Scotia. Approximately 2.1 million acres of these timberlands are located in the
state of Maine. The Company maintains one nursery and contracts with numerous
other nurseries in order to replace trees harvested from its timberlands. The
Company also employs harvest activities designed to promote natural
regeneration.
The Company operates three sawmills that produce construction grade lumber.
Bowater Lumber produced 96.7 million board feet of lumber in 1996. This lumber
is sold in the southern and midwestern United States. The Mersey Sawmill at Oak
Hill, which produced 32.0 million board feet of lumber in 1996, sells to
customers in eastern Canada and the United Kingdom. Pinkham Lumber produced 66.2
million board feet of lumber in 1996, with the majority of this product sold to
customers in New England. The Company distributes lumber by truck, rail and
ship. The Company also sold 679,000 cords of wood during 1996. This is primarily
shipped by truck to local sawmills and other paper companies.
RECYCLING CAPABILITY
The Company has focused its efforts in recent years on meeting the demand
for recycled-content paper products, which provides an environmental benefit in
reducing solid waste landfill deposits. In addition, this effort allows
publishers and other customers to meet recycled-content standards.
The Company operates recycling plants at its Calhoun and East Millinocket
Operations. Taking a mixture of old newspapers and old magazines ("recovered
paper"), generally 70% and 30%, respectively, at the Calhoun Operation and 80%
and 20%, respectively, at the East Millinocket Operation, these plants utilize
advanced mechanical and chemical processes to manufacture high quality pulp.
When this recycled fiber is combined with virgin fiber, the resulting products,
which include recycled-content newsprint, directory paper and uncoated
groundwood specialties, are comparable in quality to paper produced with 100
percent virgin fiber pulp. In 1996, the Company produced 223,000 tons of
recycled-content fiber pulp for its paper mills. This level of production
required 322,000 tons of recovered paper.
COMPETITION
In general, the Company's products are globally-traded commodities. Pricing
and the level of shipments of these products are influenced by the balance
between supply and demand as affected by global economic conditions, changes in
consumption and capacity, the level of customer and producer inventories and
fluctuations in exchange rates.
Newsprint and market pulp, two of the Company's principal products, are
produced by numerous worldwide manufacturers. Aside from quality specifications
to meet customer needs, the production of newsprint and market pulp generally do
not depend upon a proprietary process or formula. There are approximately twenty
major worldwide producers of newsprint with which the Company competes. In
addition, the Company faces actual and potential competition from numerous
smaller producers located around the world. Price, quality, service and the
ability to produce paper with recycled content are important competitive
determinants. The Company is not a major producer in the pulp market.
The Company competes with three major worldwide producers and several
smaller producers of directory paper. Price, quality and service, as well as the
ability to produce lower basis weights and recycled products, are all important
competitive determinants. The Company is not a major producer in the uncoated
groundwood specialties market.
The Company competes with approximately twelve coated groundwood producers
located in North America. In addition, there are approximately seven major
offshore suppliers of coated groundwood paper that sell into the North American
market. As a major supplier to printers in North America, the Company also
competes with numerous worldwide suppliers of other grades of paper such as
coated freesheet, supercalendered and uncoated groundwood papers. Price, quality
and service
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are important competitive determinants, but a degree of proprietary knowledge is
required in both the manufacture and use of this product, which requires close
customer-supplier relationships.
As with other globally manufactured and sold commodities, the competitive
position of the Company's products is significantly affected by the volatility
of currency exchange rates. As several of the Company's primary competitors are
located in Canada, Sweden and Finland, the relative rates of exchange between
those countries' currencies and the United States dollar can have a substantial
effect on the Company's ability to compete. In addition, the degree to which the
Company competes with foreign producers depends in part on the level of demand
abroad. Shipping costs generally cause producers to prefer to sell in local
markets when the demand is sufficient in those markets.
Trends in electronic data transmission and storage could adversely affect
traditional print media, including products of the Company's customers; however,
neither the timing nor the extent of those trends can be predicted with
certainty. Industry reports indicate that the Company's newspaper publishing
customers in North America have experienced some loss of market share to other
forms of media and advertising, such as direct mailings and newspaper inserts
(both of which are end uses for several of the Company's products), cable
television and the internet. Some of these customers are also facing a decline
in newspaper readership, circulation and advertising lineage. The Company does
not believe that this is the case in most overseas markets.
Part of the Company's competitive strategy is to be a lower cost producer
of its products while maintaining strict quality standards and responding to
environmental concerns. Aside from cost reduction programs and continuous
process improvement projects, the Company believes that its access to relatively
low-cost wood also affords it competitive advantages in controlling costs. The
Company's two recycling facilities have further enhanced its competitive
position by enabling it to respond to customer demand for recycled-content
newsprint, directory paper and uncoated groundwood specialties.
RAW MATERIALS AND ENERGY
The manufacture of pulp and paper requires significant amounts of wood and
energy. In 1996, the Company consumed approximately 3.3 million cords of wood
for pulp, paper and lumber production. The Company obtained approximately 1.2
million cords of wood (38 percent) from Company-owned properties to satisfy
these requirements. The additional amounts of wood needed for pulp, paper and
lumber production, totaling 2.1 million cords, were purchased, primarily under
contract, from local wood producers, private landowners and sawmills (in the
form of residual chips) at market prices. The Company also harvested wood from
Company-owned properties for sale to other sawmills and paper companies.
Recovered paper is purchased from suppliers in the regions of the Company's
recycling plants. These suppliers collect, sort and bale the material before
selling it to the Company, primarily under long-term contracts, with prices and
available quantities fluctuating according to market conditions. The Company is
one of the largest purchasers of recovered paper in North America.
Steam and electrical power are the primary forms of energy used in pulp and
paper production. Process steam is produced in boilers at the various mill sites
from a variety of fuel sources. Internally generated electrical power at the
Calhoun and Carolina Operations is used to supplement purchased electrical
power. The Mersey Operation purchases all of its steam and electrical power
requirements. The GNP Division has the capacity to be totally self-sufficient
electrically with six hydroelectric facilities located on the West Branch of the
Penobscot River (containing 31 hydroelectric generators) and seven steam turbine
generators located in the mill power plants.
The Company operates its Maine hydroelectric facilities pursuant to
long-term licenses granted by the Federal Energy Regulatory Commission ("FERC")
or its predecessor, the Federal Power Commission. The licenses for certain dams
expired on December 31, 1993. Over the past several years, the Company was
engaged in the relicensing process to obtain new 30-year licenses, while
operating under interim licenses. On October 22, 1996, FERC issued new 30-year
licenses allowing the Company to continue operating its hydroelectric facilities
with substantially similar terms and conditions as the old licenses. On November
22, 1996, five intervenors filed requests for rehearing, generally rearguing
issues already considered by FERC. These requests are now under consideration by
FERC, and although no assurances can be given, management believes that the
requests should not result in any material adverse change to the terms or
conditions of the licenses.
EMPLOYEES
As of December 31, 1996, the Company employed 5,025 people, of whom 3,572
were represented by bargaining units. A six-year labor contract extension at the
Company's Carolina Operation was ratified effective February 28, 1997, with an
expiration date of April 28, 2003. This contract covers all of the plant's
hourly employees. The labor contract with most of the plant's hourly employees
at the Calhoun Operation expires July 2, 2002. The wage portion of the labor
contract covering all unionized employees at the Mersey Operation was
renegotiated effective May 1, 1996. All portions of this labor contract
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expire on April 30, 1998. The labor agreement for the majority of unionized
employees of the GNP Division expires on July 31, 2001, while all other
agreements at the division expire during 2002. All plant facilities are situated
in areas where adequate labor pools exist and relations with employees are
considered good.
TRADEMARKS AND NAME
The Company owns the trademarked Company logo exclusively throughout the
world. The Company is licensed to use the name "Bowater" in connection with the
sale of all products in the Western Hemisphere and with the sale of paper, pulp
and lumber in the Eastern Hemisphere. In 2001, the Company has an option to
acquire certain ownership rights to the name "Bowater". The Company considers
its interests in the Company logo and name to be valuable and necessary to the
conduct of its business.
ENVIRONMENTAL MATTERS
Information regarding environmental matters is incorporated herein by
reference to pages 24-25 of the Annual Report.
The Company believes that its United States and Canadian operations are in
substantial compliance with all applicable federal, state and provincial
environmental regulations and that all currently-required control equipment is
in operation. While it is impossible to predict future environmental regulations
that may be established, the Company believes that it will not be at a
competitive disadvantage with regard to meeting future United States or Canadian
standards.
The Company has taken positive action to address concerns about municipal
solid waste by constructing a recycled fiber plant at its Calhoun and East
Millinocket Operations. See Recycling Capability on page 3.
ITEM 2. PROPERTIES
Information regarding the Company's properties is incorporated herein by
reference to the material included in Item 1, "Business" of this Form 10-K, and
on page 40 and the back cover page of the Annual Report.
In addition to the properties that it owns, the Company also leases under
long-term leases certain timberlands, office premises, and office computer and
transportation equipment. Information regarding timberland leases and operating
leases is incorporated herein by reference to page 39 of the Annual Report.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
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EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 26, 1997
The Company's executive officers, who are elected by the Board of Directors
to serve one-year terms, are listed below. There are no family relationships
among officers, or any arrangement or understanding between any officer and any
other person pursuant to which the officer was selected.
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SERVED AS
NAME AGE POSITION OFFICER SINCE
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Arnold M. Nemirow 54 Chairman, President and Chief Executive Officer 1994
Anthony H. Barash 54 Senior Vice President -- Corporate Affairs and General Counsel 1996
E. Patrick Duffy 55 Senior Vice President and President -- Coated Paper & Pulp Division 1995
Arthur D. Fuller 52 Senior Vice President and President -- Newsprint Division 1995
David G. Maffucci 46 Senior Vice President -- Chief Financial Officer 1992
Donald G. McNeil 46 Senior Vice President and President -- Great Northern Paper, Inc. 1995
Robert J. Pascal 64 Senior Vice President 1986
Donald J. D'Antuono 53 Vice President -- Corporate Development 1977*
James H. Dorton 40 Vice President -- Treasurer 1996
Richard F. Frisch 49 Vice President -- Human Resources 1995
Steven G. Lanzl 48 Vice President -- Information Technology 1996
Robert D. Leahy 45 Vice President -- Corporate Relations 1993
Robert A. Moran 52 Vice President -- Manufacturing Services 1992
Michael F. Nocito 42 Vice President -- Controller 1993
Wendy C. Shiba 46 Secretary and Assistant General Counsel 1993
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* Except for the period from 1978 to 1979.
Arnold M. Nemirow became Chairman on March 31, 1996, and Chief Executive
Officer on March 1, 1995. He has been President and a director of the Company
since September 1994 and was Chief Operating Officer from September 1994 through
February 1995. Previously he was President, Chief Executive Officer and a
director of Wausau Paper Mills Company, a pulp and paper company, from July 1990
through July 1994, Chairman, President, Chief Executive Officer and a director
of Nekoosa Papers, Inc., the business papers division of Great Northern Nekoosa
Corporation, from 1988 to March 1990 and Vice President of Great Northern
Nekoosa Corporation from 1984 to March 1990.
Anthony H. Barash became Senior Vice President -- Corporate Affairs and
General Counsel on April 1, 1996. From 1993 through March 31, 1996, he was a
partner of the law firm Seyfarth, Shaw, Fairweather & Geraldson, where he was a
member of the firm's Business Law and Real Estate Group. Previously, from 1980
to 1993, he was a senior partner of the law firm Barash & Hill, where he also
concentrated in business and real estate law.
E. Patrick Duffy became Senior Vice President and President -- Coated Paper
& Pulp Division in April 1995. He was President of the Telecommunications
Business Unit of R.R. Donnelly and Sons, a printing company located in Chicago,
Illinois, from 1993 to 1995, where he was responsible for the sale and
manufacture of printed products, and President of its Catalog Group from 1990 to
1992. Previously he was a Senior Vice President of R.R. Donnelly and Sons.
Arthur D. Fuller became Senior Vice President and President -- Newsprint
Division in January 1995. He was Vice President Finance, Planning &
Administration of MacMillan Bloedel Packaging Inc., the containerboard and
packaging business of MacMillan Bloedel Ltd., from 1993 to 1995. From 1991 to
1993 he was a partner of Nukraft, which sought to develop a recycled linerboard
mill, and from 1987 to 1990 he was Vice President and General Manager of Great
Southern Paper Company, the containerboard division of Great Northern Nekoosa
Corporation. Earlier he held various management positions with Great Southern
Paper Company.
David G. Maffucci became Senior Vice President -- Chief Financial Officer
in October 1995. He had served as Vice President -- Treasurer since July 1993
and Treasurer from July 1992 to July 1993 and relinquished the title of
Treasurer in August 1996. From 1977 to 1992 he held various positions of
increasing responsibility in the Company's Finance Department.
Donald G. McNeil became Senior Vice President on March 1, 1995, and has
been President of GNP since November 1994. He was President and General Manager
of Bowater Mersey Paper Company, a subsidiary of the Company ("Mersey"), from
1992 to 1994. He was General Manager of Mersey from 1991 to 1992 and Assistant
General Manager from 1990 to 1991. From 1977 through 1989 he held various
engineering and management positions with Mersey.
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Robert J. Pascal became Senior Vice President in February 1994. He was Vice
President from 1986 to 1994 and President of the Communication Papers Division
from 1990 to November 1996, prior to which he was General Manager of that unit.
He was Group Vice President of Pitney Bowes, Inc. from 1981 to 1986.
Donald J. D'Antuono was appointed Vice President -- Corporate Development
in 1991. He was Vice President -- Investor Relations from 1984 to 1991, Vice
President -- Controller from 1979 to 1984, Treasurer of Mersey from 1978 to 1979
and Controller of the Company from 1977 to 1978.
James H. Dorton became Vice President -- Treasurer in August 1996. From
1990 through July 31, 1996, he was Treasurer of Intergraph Corporation, a
manufacturer and designer of computers and software for engineering
applications, where he was responsible for treasury management, corporate
finance and shareholder relations. He was Assistant Treasurer of Intergraph
Corporation from 1986 to 1990.
Richard F. Frisch became Vice President -- Human Resources in May 1995. He
was Director of Compensation and Benefits from June 1994 to May 1995. Prior to
then he was employed by Scott Paper Company, a pulp and paper company, at its
Philadelphia, Pennsylvania, headquarters, most recently as Director of Benefits
from 1991 to June 1994, where he was responsible for strategic design and
management of benefit plans.
Steven G. Lanzl became Vice President -- Information Technology in October
1996. From 1992 to October 1996 he was with E.I. du Pont de Nemours and Company,
a diversified chemical and petroleum products company, where he was responsible
for planning information system initiatives. Earlier he was with DuPont Asia
Pacific, Ltd., in Japan as Manager of Information Systems Planning.
Robert D. Leahy was appointed Vice President -- Corporate Relations in
March 1993. He served as Director of Media Communications at International Paper
Company, a paper and forest products company, from 1989 to March 1993, where he
was responsible for domestic and international media communications. He was Vice
President of Corporate Communications for Andal Corporation, a metal products
company, from 1987 to 1989, where he was responsible for marketing
communications and investor and government relations. Previously he held various
senior level communications/public affairs positions in both corporate and
agency settings.
Robert A. Moran became Vice President -- Manufacturing Services in May 1996
and was Vice President -- Pulp and Paper Manufacturing Services from 1992 to May
1996. He was Vice President -- Manufacturing Services for the Pulp and Paper
Group from 1991, Director of Planning and Development for the Pulp and Paper
Group from 1988 to 1991 and also served as Assistant General Manager of the
Carolina Operation during 1988.
Michael F. Nocito has been Vice President -- Controller since 1993. He was
Controller of the Calhoun Operation from 1992 to 1993 and Assistant Controller
of the Calhoun Operation from 1988 to 1992. From 1978 to 1988 he held various
positions of increasing responsibility in the Company's Finance Department.
Wendy C. Shiba has been Secretary and Assistant General Counsel since 1993.
From 1992 to 1993, she was Corporate Chair of the City of Philadelphia Law
Department where she managed the Corporate Group, which was responsible for all
of the City's nonlitigation legal work. She was Associate Professor of Law from
1990 to 1993 and Assistant Professor of Law from 1985 to 1990 at Temple
University School of Law, where she taught subjects relating to corporate law
and served as a consultant in legal writing and corporate law. Earlier she
practiced corporate law in the private sector.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's common stock, $1 par value ("Common Stock"), is listed on
the New York Stock Exchange (stock symbol BOW), the Pacific Stock Exchange, the
London Stock Exchange and the Swiss Stock Exchanges. Price information with
respect to the Company's Common Stock on the inside back cover page of the
Annual Report is incorporated herein by reference.
(b) As of March 24, 1997, there were 5,506 holders of record of the
Company's Common Stock.
(c) The Company paid consecutive quarterly dividends of $.15 per share of
Common Stock during 1995. The quarterly dividend was increased to $.20 per share
of Common Stock effective with the dividend payable April 1, 1996. This amount
was paid quarterly during the balance of 1996.
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Future declarations of dividends on the Company's Common Stock are
discretionary with the Board of Directors, and the declaration of any such
dividends will depend upon, among other things, the Company's earnings, capital
requirements and financial condition. Dividends on the Common Stock may not be
paid if there are any unpaid or undeclared accrued dividends on the Company's
outstanding preferred stock, which currently consists of the Company's LIBOR
Preferred Stock, Series A and 8.40% Series C Cumulative Preferred Stock. At
December 31, 1996, there were no arrearages on dividends accrued on any of the
Company's preferred stock.
In addition, the Company's ability to pay dividends on any of its preferred
stock and on its Common Stock depends on its maintaining adequate net worth and
compliance with the required ratio of total debt to total capital as defined in
and required by the Company's current credit agreement (the "Credit Agreement").
The Credit Agreement requires the Company to maintain a minimum net worth
(generally defined therein as common shareholders' equity plus any outstanding
preferred stock) of $974 million as of December 31, 1996. In addition, the
Credit Agreement imposes a maximum 60 percent ratio of total debt to total
capital (defined therein as total debt plus net worth). At December 31, 1996,
the net worth of the Company and the ratio of total debt to total capital as
defined under the agreement were $1.2 billion and 39 percent, respectively.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding the Company's financial position and operating record
is incorporated herein by reference to pages 42-43 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding the Company's business and financial results is
incorporated herein by reference to pages 21-27 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to
pages 28-41 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors is incorporated herein by
reference to the material under the heading "Election of
Directors -- Information on Nominees and Directors" in the Company's Proxy
Statement with respect to the Annual Meeting of Shareholders scheduled to be
held May 21, 1997 (the "Proxy Statement"), filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
Information regarding the Company's executive officers is provided under
the caption "Executive Officers of the Registrant as of March 26, 1997" on pages
6-7 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the material under the headings "Election of
Directors -- Information on Nominees and Directors -- Director Compensation",
"Executive Compensation", "Human Resources and Compensation Committee Report on
Executive Compensation" and "Total Shareholder Return" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning (1) any person or group known to the Company to be
the beneficial owner of more than 5 percent of the Company's voting stock, and
(2) ownership of the Company's equity securities by management is incorporated
herein by reference to the material under the heading "Certain Information
Concerning Stock Ownership" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
8
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following are filed as a part of this Report on Form 10-K:
(1) The following are included at the indicated page in the Annual Report
and are incorporated by reference herein:
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
Consolidated Statement of Operations for Each of the Years in the Three-Year Period Ended
December 31, 1996.......................................................................... 28
Consolidated Balance Sheet at December 31, 1996 and 1995..................................... 29
Consolidated Statement of Capital Accounts for Each of the Years in the Three-Year Period
Ended December 31, 1996.................................................................... 30
Consolidated Statement of Cash Flows for Each of the Years in the Three-Year Period Ended
December 31, 1996.......................................................................... 31
Notes to Consolidated Financial Statements................................................... 32-40
Management's Statement of Responsibility and Independent Auditors' Report.................... 41
</TABLE>
(2) All financial statement schedules are omitted because they are not
applicable, or the amounts associated with them are immaterial, or
because the required information is included in the financial
statements or notes thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 1,
1994, File No. 1-8712 (the "February 1994 8-K")).
3.3 Certificate of Designations of the 8.40% Series C Cumulative Preferred Stock of the Company (incorporated
by reference to Exhibit 4.2 to the February 1994 8-K).
3.4 Bylaws of the Company amended and restated as of July 26, 1995 (incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1995, File
No. 1-8712 (the "September 1995 10-Q")).
4.1 Agreement pursuant to S-K Item 601(b)(4)(iii)(A) to provide the Commission upon request copies of certain
other instruments with respect to long-term debt not being registered where the amount of securities
authorized under each such instrument does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement No. 2-93455).
4.2 Indenture, dated as of August 1, 1989, by and between the Company and Manufacturers Hanover Trust Company,
as Trustee, with respect to the 9% Debentures Due 2009 (incorporated by reference to Exhibit 4.7 to the
Company's Registration Statement No. 33-61219).
4.3 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank, N.A., as
Trustee, with respect to the 9 3/8% Debentures Due 2021 (incorporated by reference to Exhibit 4.8 to the
Company's Annual Report on Form 10-K for the period ending December 31, 1991, File No. 1-8712 (the "1991
10-K")).
4.4 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank, N.A., as
Trustee, with respect to the 8 1/2% Notes Due 2001 (incorporated by reference to Exhibit 4.9 to the 1991
10-K).
4.5 Indenture, dated as of October 15, 1992, by and between the Company and The Chase Manhattan Bank (N.A.) as
Trustee, with respect to the 8 1/4% Notes Due 1999 (incorporated by reference to Exhibit 4.10 to the
Company's Annual Report on Form 10-K for the period ending December 31, 1992, File No. 1-8712 (the "1992
10-K")).
4.6 Indenture, dated as of October 15, 1992, between the Company and The Chase Manhattan Bank (N.A.) as
Trustee, with respect to the 9 1/2% Debentures Due 2012 (incorporated by reference to Exhibit 4.11 to the
1992 10-K).
4.7 Deposit Agreement, dated as of February 1, 1994, by and among the Company, Trust Company Bank, as
Depositary, and the holders from time to time of the Depositary Receipts relating to the Company's 8.40%
Series C Cumulative Preferred Stock, together with form of Depositary Receipt (incorporated by reference
to Exhibit 4.4 to the February 1994 8-K).
4.8 See Exhibits 3.1, 3.3 and 3.4.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
+10.1 Employment Agreement, dated as of July 20, 1994, by and between the Company and Arnold M. Nemirow
(incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the period
ending December 31, 1994, File No. 1-8712 (the "1994 10-K")).
+10.2 * Employment Agreement, dated as of October 21, 1996, by and between the Company and Steven G. Lanzl.
+10.3 Employment Agreement, dated as of April 1, 1995, by and between the Company and E. Patrick Duffy
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period
ending March 31, 1995, File No. 1-8712 (the "March 1995 10-Q")).
+10.4 Form of Employment Agreement by and between the Company and each of Robert D. Leahy, Robert A. Moran,
Michael F. Nocito, Aubrey S. Rogers, and Wendy C. Shiba (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the period ending December 31, 1993, File No. 1-8712 (the "1993
10-K")).
+10.4.1 * Modification of Employment Agreement, dated as of January 1, 1997, by and between the Company and Aubrey
S. Rogers.
+10.5 Form of Change in Control Agreement, by and between the Company and each of Donald J. D'Antuono, Edward
Patrick Duffy, Richard F. Frisch, Arthur D. Fuller, Robert D. Leahy, David G. Maffucci, Donald G. McNeil,
Robert A. Moran, Arnold M. Nemirow, Michael F. Nocito, Robert J. Pascal, Aubrey S. Rogers and Wendy C.
Shiba (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
period ending December 31, 1995, File No. 1-8712 (the "1995 10-K")).
+10.6 * Form of Change in Control Agreement by and between the Company and each of Anthony H. Barash, James H.
Dorton and Steven G. Lanzl.
+10.7 Employment Agreement, dated May 20, 1993, by and between the Company and Robert J. Pascal (incorporated by
reference to Exhibit 10.6 to the 1993 10-K).
+10.7.1 Modification of Employment Agreement and Other Covenants, dated as of February 16, 1996, by and between
the Company and Robert J. Pascal (incorporated by reference to Exhibit 10.7.1 to the 1995 10-K).
+10.8 Employment Agreement, dated August 25, 1988, by and between the Company and Donald J. D'Antuono
(incorporated by reference to Exhibit 10.7 to the 1993 10-K).
+10.8.1 Amendment to Employment Agreement, dated August 23, 1989, by and between the Company and Donald J.
D'Antuono (incorporated by reference to Exhibit 10.7.1 to the 1993 10-K).
+10.9 Employment Agreement, dated as of June 1, 1995, by and between the Company and Richard F. Frisch
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ending June 30, 1995, File No. 1-8712).
+10.10 Employment Agreement, dated as of August 6, 1996, by and between the Company and James H. Dorton
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period
ending June 30, 1996, File No. 1-8712 (the "June 1996 10-Q")).
+10.11 Employment Agreement, dated as of January 12, 1995, by and between the Company and Arthur D. Fuller
(incorporated by reference to Exhibit 10.10 to the 1994 10-K).
+10.12 Employment Agreement, dated as of November 1, 1995, by and between the Company and David G. Maffucci
(incorporated by reference to Exhibit 10.12 to the 1995 10-K).
+10.13 Employment Agreement, dated as of March 1, 1995, by and between the Company and Donald G. McNeil
(incorporated by reference to Exhibit 10.12 to the 1994 10-K).
+10.14 Employment Agreement, dated as of April 1, 1996, by and between the Company and Anthony H. Barash
(incorporated by reference to Exhibit 10.14 to the 1995 10-K).
+10.15 Compensatory Benefits Plan of the Company, as amended and restated as of April 30, 1991 (incorporated by
reference to Exhibit 10.8 to the 1991 10-K).
+10.15.1* Amendment, effective as of January 1, 1996, to the Compensatory Benefits Plan of the Company.
+10.16 Annual Bonus Plan of the Company (incorporated by reference to Exhibit 10.16 to the 1994 10-K).
+10.16.1* Administrative Guide to Annual Bonus Plan of the Company.
+10.17 1984 Stock Option Plan of the Company (incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement No. 2-90172).
+10.17.1 Amendment, effective as of January 1, 1987, to the 1984 Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.10A to the Company's Registration Statement No. 33-11228).
+10.17.2 Amendment to 1984 Stock Option Plan of the Company, dated as of July 22, 1987 (incorporated by reference
to Exhibit 10.17.2 to the 1995 10-K).
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
+10.17.3 Amendment to 1984 Stock Option Plan of the Company, dated as of August 23, 1989 (incorporated by reference
to Exhibit 10.1B to the Company's Annual Report on Form 10-K for the period ending December 31, 1989, File
No. 1-8712 (the "1989 10-K")).
+10.17.4 Amendment No. 4 to 1984 Stock Option Plan of the Company, dated as of August 15, 1995 (incorporated by
reference to Exhibit 10.17.4 to the 1995 10-K).
+10.18 Deferred Compensation Plan for Outside Directors of the Company, as amended and restated effective as of
January 1, 1996 (incorporated by reference to Exhibit 10.18 to the 1995 10-K).
+10.18.1* Deferred Compensation Plan for Outside Directors of the Company, as amended and restated effective January
1, 1997.
+10.19 Retirement Plan for Outside Directors of the Company, effective as of July 1, 1988 (incorporated by
reference to Exhibit 10.19 to the 1995 10-K).
+10.19.1 First Amendment to Retirement Plan for Outside Directors (incorporated by reference to Exhibit 10.19.1 to
the 1995 10-K).
+10.20 Supplemental Benefit Plan for Designated Employees of Bowater Incorporated and Affiliated Companies, as
amended and restated effective as of November 1, 1995 (incorporated by reference to Exhibit 10.20 to the
1995 10-K).
+10.20.1 First Amendment, dated as of March 18, 1996, to the Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies (incorporated by reference to Exhibit 10.20.1 to the 1995
10-K).
+10.21 Executive Deferred Compensation Plan of the Company, effective as of July 1, 1994, and as amended as of
January 1, 1995 (incorporated by reference to Exhibit 10.29.1 to the 1994 10-K).
+10.21.1 Amendment to Executive Deferred Compensation Plan, dated as of November 14, 1995 (incorporated by
reference to Exhibit 10.21.1 to the 1995 10-K).
+10.22 Equity Participation Rights Plan, effective as of January 17, 1996 (incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1996, File No.
1-8712 (the "September 1996 10-Q")).
+10.22.1 First Amendment to Equity Participation Rights Plan, effective as of March 1, 1996 (incorporated by
reference to Exhibit 10.1.1 to the September 1996 10-Q).
+10.23 1988 Stock Incentive Plan of the Company (incorporated by reference to the Company's Proxy Statement for
1988, File No. 1-8712).
+10.23.1 Amendment to 1988 Stock Incentive Plan of the Company, dated as of August 23, 1989 (incorporated by
reference to Exhibit 10.16A to the 1989 10-K).
+10.24 Benefit Plan Grantor Trust of the Company, dated as of May 20, 1988 (incorporated by reference to Exhibit
10.17 to the 1989 10-K).
+10.24.1 Amendment to Benefit Plan Grantor Trust, dated as of August 23, 1989 (incorporated by reference to Exhibit
10.17A to the 1989 10-K).
+10.24.2* Amendment Number 2 to Benefit Plan Grantor Trust, dated as of November 20, 1996.
+10.24.3 Supplemental Agreement to Benefit Plan Grantor Trust, dated as of May 20, 1988 (incorporated by reference
to Exhibit 10.28.2 to the 1995 10-K).
+10.25 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 (incorporated by reference to Exhibit 10.1 to the June 1996
10-Q).
+10.26 Executive Severance Grantor Trust of the Company, dated as of September 1, 1989 (incorporated by reference
to Exhibit 10.18 to the 1989 10-K).
+10.26.1 Supplemental Agreement to Executive Severance Grantor Trust of the Company, dated as of September 1, 1989
(incorporated by reference to Exhibit 10.29.1 to the 1995 10-K).
+10.27 Outside Directors Benefit Plan Grantor Trust of the Company, dated as of September 5, 1989 (incorporated
by reference to Exhibit 10.19 to the 1989 10-K).
+10.27.1 Supplemental Agreement to Outside Directors Benefit Plan Grantor Trust of the Company, dated as of
September 5, 1989 (incorporated by reference to Exhibit 10.30.1 to the 1995 10-K).
+10.28 Benefits Equalization Plan, dated as of August 22, 1990 (incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the period ending December 31, 1990, File No. 1-8712 (the "1990
10-K")).
+10.28.1* First Amendment to Bowater Incorporated Benefits Equalization Plan, effective as of January 1, 1996.
+10.29 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 to the 1991 10-K).
+10.30 Long-Term Cash Incentive Plan, dated as of January 1, 1994 (incorporated by reference to Exhibit 10.33 to
the 1995 10-K).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
+10.30.1 First Amendment, dated as of March 18, 1996, to the Long-Term Cash Incentive Plan dated as of January 1,
1994 (incorporated by reference to Exhibit 10.33.1 to the 1995 10-K).
+10.30.2 Long-Term Cash Incentive Deferred Compensation Plan, effective as of September 16, 1996 (incorporated by
reference to Exhibit 10.2 to the September 1996 10-Q).
+10.31 * Bowater Incorporated 1997 Stock Option Plan, effective as of January 1, 1997, as amended and restated.
+10.32 * Bowater Incorporated 1997-1999 Long-Term Incentive Plan, effective as of January 1, 1997, as amended and
restated.
10.33 Restated Agreement, dated as of January 1, 1991, by and among the Company, Advance Publications, Inc. and
Calhoun Newsprint Company (incorporated by reference to Exhibit 10.11 to the 1990 10-K).
10.34 Recycle Agreement, dated as of January 1, 1991, by and among the Company, Advance Publications, Inc., and
Calhoun Newsprint Company (incorporated by reference to Exhibit 10.19.1 to the 1993
10-K).
10.35 Agreement, dated as of February 21, 1963, by and between Bowater Canadian Limited and The Washington Post
Company (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement No. 2-90172).
10.36 Licensing Agreement, dated as of December 30, 1976, as amended, between the Company and Bowater Industries
plc (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement No. 2-90172).
10.37 Trademark Agreement, dated May 8, 1984, between the Company and Bowater Corporation plc (incorporated by
reference to Exhibit 10.17 to the Company's Registration Statement No. 2-90172).
10.38 Credit Agreement, dated as of September 29, 1995, among the Company, each of the banks signatory thereto
(the "Banks"), and The Chase Manhattan Bank (National Association), as administrative agent for the Banks
(incorporated by reference to Exhibit 10.1 to the September 1995 10-Q).
13.1 * Copy of the Company's 1996 Annual Report to Stockholders (except for those portions that are expressly
incorporated by reference in this Report on Form 10-K, this exhibit is furnished for the information of
the Commission and is not deemed to be filed as part hereof).
21.1 * Subsidiaries of the registrant.
23.1 * Consent of Independent Auditors.
27.1 * Financial Data Schedule (electronic filing only).
</TABLE>
* Filed herewith
+ This is a management contract or compensatory plan or arrangement.
(b) None.
(c) The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOWATER INCORPORATED
By: /s/ ARNOLD M. NEMIROW
ARNOLD M. NEMIROW
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated, on March 26, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C> <C>
/S/ ARNOLD M. NEMIROW Director, Chairman, President and Chief
ARNOLD M. NEMIROW Executive Officer
/S/ DAVID G. MAFFUCCI Senior Vice President -- Chief Financial
DAVID G. MAFFUCCI Officer
/S/ MICHAEL F. NOCITO Vice President -- Controller
MICHAEL F. NOCITO
/S/ FRANCIS J. AGUILAR Director
FRANCIS J. AGUILAR
/S/ H. DAVID AYCOCK Director
H. DAVID AYCOCK
/S/ RICHARD BARTH Director
RICHARD BARTH
/S/ KENNETH M. CURTIS Director
KENNETH M. CURTIS
/S/ H. GORDON MACNEILL Director
H. GORDON MACNEILL
/S/ DONALD R. MELVILLE Director
DONALD R. MELVILLE
/S/ JAMES L. PATE Director
JAMES L. PATE
/S/ JOHN A. ROLLS Director
JOHN A. ROLLS
</TABLE>
13
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B Convertible Preferred Stock of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 1, 1994, File No. 1-8712 (the
"February 1994 8-K")).
3.3 Certificate of Designations of the 8.40% Series C Cumulative Preferred Stock of the Company (incorporated by
reference to Exhibit 4.2 to the February 1994 8-K).
3.4 Bylaws of the Company amended and restated as of July 26, 1995 (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1995, File No. 1-8712 (the
"September 1995 10-Q")).
4.1 Agreement pursuant to S-K Item 601(b)(4)(iii)(A) to provide the Commission upon request copies of certain other
instruments with respect to long-term debt not being registered where the amount of securities authorized under
each such instrument does not exceed 10% of the total assets of the registrant and its subsidiaries on a
consolidated basis (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement No. 2-93455).
4.2 Indenture, dated as of August 1, 1989, by and between the Company and Manufacturers Hanover Trust Company, as
Trustee, with respect to the 9% Debentures Due 2009 (incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement No. 33-61219).
4.3 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank, N.A., as Trustee,
with respect to the 9 3/8% Debentures Due 2021 (incorporated by reference to Exhibit 4.8 to the Company's Annual
Report on Form 10-K for the period ending December 31, 1991, File No. 1-8712 (the "1991 10-K")).
4.4 Indenture, dated as of December 1, 1991, by and between the Company and Marine Midland Bank, N.A., as Trustee,
with respect to the 8 1/2% Notes Due 2001 (incorporated by reference to Exhibit 4.9 to the 1991 10-K).
4.5 Indenture, dated as of October 15, 1992, by and between the Company and The Chase Manhattan Bank (N.A.) as
Trustee, with respect to the 8 1/4% Notes Due 1999 (incorporated by reference to Exhibit 4.10 to the Company's
Annual Report on Form 10-K for the period ending December 31, 1992, File No. 1-8712 (the "1992 10-K")).
4.6 Indenture, dated as of October 15, 1992, between the Company and The Chase Manhattan Bank (N.A.) as Trustee, with
respect to the 9 1/2% Debentures Due 2012 (incorporated by reference to Exhibit 4.11 to the 1992 10-K).
4.7 Deposit Agreement, dated as of February 1, 1994, by and among the Company, Trust Company Bank, as Depositary, and
the holders from time to time of the Depositary Receipts relating to the Company's 8.40% Series C Cumulative
Preferred Stock, together with form of Depositary Receipt (incorporated by reference to Exhibit 4.4 to the
February 1994 8-K).
4.8 See Exhibits 3.1, 3.3 and 3.4.
+10.1 Employment Agreement, dated as of July 20, 1994, by and between the Company and Arnold M. Nemirow (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the period ending December 31, 1994,
File No. 1-8712 (the "1994 10-K")).
+10.2 * Employment Agreement, dated as of October 21, 1996, by and between the Company and Steven G. Lanzl.
+10.3 Employment Agreement, dated as of April 1, 1995, by and between the Company and E. Patrick Duffy (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ending March 31, 1995,
File No. 1-8712 (the "March 1995 10-Q")).
+10.4 Form of Employment Agreement by and between the Company and each of Robert D. Leahy, Robert A. Moran, Michael F.
Nocito, Aubrey S. Rogers, and Wendy C. Shiba (incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the period ending December 31, 1993, File No. 1-8712 (the "1993 10-K")).
+10.4.1 * Modification of Employment Agreement, dated as of January 1, 1997, by and between the Company and Aubrey S.
Rogers.
+10.5 Form of Change in Control Agreement, by and between the Company and each of Donald J. D'Antuono, Edward Patrick
Duffy, Richard F. Frisch, Arthur D. Fuller, Robert D. Leahy, David G. Maffucci, Donald G. McNeil, Robert A. Moran,
Arnold M. Nemirow, Michael F. Nocito, Robert J. Pascal, Aubrey S. Rogers and Wendy C. Shiba (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the period ending December 31, 1995,
File No. 1-8712 (the "1995 10-K")).
+10.6 * Form of Change in Control Agreement by and between the Company and each of Anthony H. Barash, James H. Dorton and
Steven G. Lanzl.
+10.7 Employment Agreement, dated May 20, 1993, by and between the Company and Robert J. Pascal (incorporated by
reference to Exhibit 10.6 to the 1993 10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
+10.7.1 Modification of Employment Agreement and Other Covenants, dated as of February 16, 1996, by and between the
Company and Robert J. Pascal (incorporated by reference to Exhibit 10.7.1 to the 1995 10-K).
+10.8 Employment Agreement, dated August 25, 1988, by and between the Company and Donald J. D'Antuono (incorporated by
reference to Exhibit 10.7 to the 1993 10-K).
+10.8.1 Amendment to Employment Agreement, dated August 23, 1989, by and between the Company and Donald J. D'Antuono
(incorporated by reference to Exhibit 10.7.1 to the 1993 10-K).
+10.9 Employment Agreement, dated as of June 1, 1995, by and between the Company and Richard F. Frisch (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ending June 30,
1995, File No. 1-8712).
+10.10 Employment Agreement, dated as of August 6, 1996, by and between the Company and James H. Dorton (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 1996, File
No. 1-8712 (the "June 1996 10-Q")).
+10.11 Employment Agreement, dated as of January 12, 1995, by and between the Company and Arthur D. Fuller (incorporated
by reference to Exhibit 10.10 to the 1994 10-K).
+10.12 Employment Agreement, dated as of November 1, 1995, by and between the Company and David G. Maffucci (incorporated
by reference to Exhibit 10.12 to the 1995 10-K).
+10.13 Employment Agreement, dated as of March 1, 1995, by and between the Company and Donald G. McNeil (incorporated by
reference to Exhibit 10.12 to the 1994 10-K).
+10.14 Employment Agreement, dated as of April 1, 1996, by and between the Company and Anthony H. Barash (incorporated by
reference to Exhibit 10.14 to the 1995 10-K).
+10.15 Compensatory Benefits Plan of the Company, as amended and restated as of April 30, 1991 (incorporated by reference
to Exhibit 10.8 to the 1991 10-K).
+10.15.1* Amendment, effective as of January 1, 1996, to the Compensatory Benefits Plan of the Company.
+10.16 Annual Bonus Plan of the Company (incorporated by reference to Exhibit 10.16 to the 1994 10-K).
+10.16.1* Administrative Guide to Annual Bonus Plan of the Company.
+10.17 1984 Stock Option Plan of the Company (incorporated by reference to Exhibit 10.10 to the Company's Registration
Statement No. 2-90172).
+10.17.1 Amendment, effective as of January 1, 1987, to the 1984 Stock Option Plan of the Company (incorporated by
reference to Exhibit 10.10A to the Company's Registration Statement No. 33-11228).
+10.17.2 Amendment to 1984 Stock Option Plan of the Company, dated as of July 22, 1987 (incorporated by reference to
Exhibit 10.17.2 to the 1995 10-K).
+10.17.3 Amendment to 1984 Stock Option Plan of the Company, dated as of August 23, 1989 (incorporated by reference to
Exhibit 10.1B to the Company's Annual Report on Form 10-K for the period ending December 31, 1989, File No. 1-8712
(the "1989 10-K")).
+10.17.4 Amendment No. 4 to 1984 Stock Option Plan of the Company, dated as of August 15, 1995 (incorporated by reference
to Exhibit 10.17.4 to the 1995 10-K).
+10.18 Deferred Compensation Plan for Outside Directors of the Company, as amended and restated effective as of January
1, 1996 (incorporated by reference to Exhibit 10.18 to the 1995 10-K).
+10.18.1* Deferred Compensation Plan for Outside Directors of the Company, as amended and restated effective January 1,
1997.
+10.19 Retirement Plan for Outside Directors of the Company, effective as of July 1, 1988 (incorporated by reference to
Exhibit 10.19 to the 1995 10-K).
+10.19.1 First Amendment to Retirement Plan for Outside Directors (incorporated by reference to Exhibit 10.19.1 to the 1995
10-K).
+10.20 Supplemental Benefit Plan for Designated Employees of Bowater Incorporated and Affiliated Companies, as amended
and restated effective as of November 1, 1995 (incorporated by reference to Exhibit 10.20 to the 1995 10-K).
+10.20.1 First Amendment, dated as of March 18, 1996, to the Supplemental Benefit Plan for Designated Employees of Bowater
Incorporated and Affiliated Companies (incorporated by reference to Exhibit 10.20.1 to the 1995 10-K).
+10.21 Executive Deferred Compensation Plan of the Company, effective as of July 1, 1994, and as amended as of January 1,
1995 (incorporated by reference to Exhibit 10.29.1 to the 1994 10-K).
+10.21.1 Amendment to Executive Deferred Compensation Plan, dated as of November 14, 1995 (incorporated by reference to
Exhibit 10.21.1 to the 1995 10-K).
+10.22 Equity Participation Rights Plan, effective as of January 17, 1996 (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the period ending September 30, 1996, File No. 1-8712 (the
"September 1996 10-Q")).
+10.22.1 First Amendment to Equity Participation Rights Plan, effective as of March 1, 1996 (incorporated by reference to
Exhibit 10.1.1 to the September 1996 10-Q).
+10.23 1988 Stock Incentive Plan of the Company (incorporated by reference to the Company's Proxy Statement for 1988,
File No. 1-8712).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
+10.23.1 Amendment to 1988 Stock Incentive Plan of the Company, dated as of August 23, 1989 (incorporated by reference to
Exhibit 10.16A to the 1989 10-K).
+10.24 Benefit Plan Grantor Trust of the Company, dated as of May 20, 1988 (incorporated by reference to Exhibit 10.17 to
the 1989 10-K).
+10.24.1 Amendment to Benefit Plan Grantor Trust, dated as of August 23, 1989 (incorporated by reference to Exhibit 10.17A
to the 1989 10-K).
+10.24.2* Amendment Number 2 to Benefit Plan Grantor Trust, dated as of November 20, 1996.
+10.24.3 Supplemental Agreement to Benefit Plan Grantor Trust, dated as of May 20, 1988 (incorporated by reference to
Exhibit 10.28.2 to the 1995 10-K).
+10.25 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 (incorporated by reference to Exhibit 10.1 to the June 1996 10-Q).
+10.26 Executive Severance Grantor Trust of the Company, dated as of September 1, 1989 (incorporated by reference to
Exhibit 10.18 to the 1989 10-K).
+10.26.1 Supplemental Agreement to Executive Severance Grantor Trust of the Company, dated as of September 1, 1989
(incorporated by reference to Exhibit 10.29.1 to the 1995 10-K).
+10.27 Outside Directors Benefit Plan Grantor Trust of the Company, dated as of September 5, 1989 (incorporated by
reference to Exhibit 10.19 to the 1989 10-K).
+10.27.1 Supplemental Agreement to Outside Directors Benefit Plan Grantor Trust of the Company, dated as of September 5,
1989 (incorporated by reference to Exhibit 10.30.1 to the 1995 10-K).
+10.28 Benefits Equalization Plan, dated as of August 22, 1990 (incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the period ending December 31, 1990, File No. 1-8712 (the "1990 10-K")).
+10.28.1* First Amendment to Bowater Incorporated Benefits Equalization Plan, effective as of January 1, 1996.
+10.29 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.23 to the 1991 10-K).
+10.30 Long-Term Cash Incentive Plan, dated as of January 1, 1994 (incorporated by reference to Exhibit 10.33 to the 1995
10-K).
+10.30.1 First Amendment, dated as of March 18, 1996, to the Long-Term Cash Incentive Plan dated as of January 1, 1994
(incorporated by reference to Exhibit 10.33.1 to the 1995 10-K).
+10.30.2 Long-Term Cash Incentive Deferred Compensation Plan, effective as of September 16, 1996 (incorporated by reference
to Exhibit 10.2 to the September 1996 10-Q).
+10.31 * Bowater Incorporated 1997 Stock Option Plan, effective as of January 1, 1997, as amended and restated.
+10.32 * Bowater Incorporated 1997-1999 Long-Term Incentive Plan, effective as of January 1, 1997, as amended and restated.
10.33 Restated Agreement, dated as of January 1, 1991, by and among the Company, Advance Publications, Inc. and Calhoun
Newsprint Company (incorporated by reference to Exhibit 10.11 to the 1990 10-K).
10.34 Recycle Agreement, dated as of January 1, 1991, by and among the Company, Advance Publications, Inc., and Calhoun
Newsprint Company (incorporated by reference to Exhibit 10.19.1 to the 1993
10-K).
10.35 Agreement, dated as of February 21, 1963, by and between Bowater Canadian Limited and The Washington Post Company
(incorporated by reference to Exhibit 10.12 to the Company's Registration Statement No. 2-90172).
10.36 Licensing Agreement, dated as of December 30, 1976, as amended, between the Company and Bowater Industries plc
(incorporated by reference to Exhibit 10.13 to the Company's Registration Statement No. 2-90172).
10.37 Trademark Agreement, dated May 8, 1984, between the Company and Bowater Corporation plc (incorporated by reference
to Exhibit 10.17 to the Company's Registration Statement No. 2-90172).
10.38 Credit Agreement, dated as of September 29, 1995, among the Company, each of the banks signatory thereto (the
"Banks"), and The Chase Manhattan Bank (National Association), as administrative agent for the Banks (incorporated
by reference to Exhibit 10.1 to the September 1995 10-Q).
13.1 * Copy of the Company's 1996 Annual Report to Stockholders (except for those portions that are expressly
incorporated by reference in this Report on Form 10-K, this exhibit is furnished for the information of the
Commission and is not deemed to be filed as part hereof).
21.1 * Subsidiaries of the registrant.
23.1 * Consent of Independent Auditors.
27.1 * Financial Data Schedule (electronic filing only).
</TABLE>
* Filed herewith
+ This is a management contract or compensatory plan or arrangement.
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 21st day of October, 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 Steven
G. Lanzl, of 44 Greenhill Lane, Wynnewood, PA 19096 (the "Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice President
- - Information Technology; 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 hereof 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.
<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 - Information Technology, 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 Corporation's
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
2
<PAGE>
the terms of the Corporation's current relocation policy, except that he shall
be entitled to a "buy-out" option in the event that he does not sell his home
within the time limits provided in the relocation policy. The "buy-out" price
shall equal the greater of (1) the appraised valued of his home as determined
pursuant to the relocation policy, or (2) the purchase price he paid for his
home plus qualifying capital improvements as defined under the Internal Revenue
Code. The "buy-out" price shall be paid to the Executive in exchange for the
conveyance of good, marketable title to his home and provided that as of the
date of such conveyance, his home is in the same condition as it is as of the
date of the appraisal, ordinary wear and care excepted.
5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the Executive a
base salary of $165,000.00 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. For calendar year 1996, the
Executive shall be entitled to receive a one-time payment
in an amount equal to 71/365s of the amount he would have
received under the Annual Bonus Plan if he had been
employed in the capacity described herein by the
Corporation, for the entire calendar year 1996. Any such
amount shall be paid at the same time and in the same
manner as the Annual Bonuses for 1996 are paid to other
employees of the Corporation.
(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.
(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.
3
<PAGE>
(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.
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
4
<PAGE>
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.
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.
5
<PAGE>
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/ Steven G. Lanzl
Richard F. Frisch, Steven G. Lanzl
Vice President - Human Resources
6
<PAGE>
EXHIBIT 10.4.1
MODIFICATION OF EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of January,
1997, by and between Bowater Incorporated, a Delaware corporation having a
mailing address of 55 East Camperdown Way, Greenville, South Carolina 29602 (the
"Corporation"), and Aubrey S. Rogers, of 3 West Red Fox Trail, Greenville, SC
29615 (the "Executive").
WHEREAS, the Corporation now employs the Executive pursuant to an
Employment Agreement dated as of February 1, 1990 (the "Employment Agreement")
and a Change in Control Agreement dated as of November 1, 1995 (the "Change in
Control Agreement"); and
WHEREAS, the Executive and the Corporation wish to continue the
Executive's employment until a specified and agreed upon date, whereupon the
Executive may retire from the employment of the Corporation and be entitled to
receive certain benefits;
NOW, THEREFORE, the parties hereto agree to the following:
1. Change in Control Agreement. The Change in Control
Agreement will terminate as of January 31, 1997, unless sooner
terminated by your death or disability.
2. Employment Agreement. The Employment Agreement is hereby
modified as follows:
(a) Term. Section 2 of the Employment Agreement is
amended in its entirety to read as follows:
"2. Term. The term of this Agreement will end on
January 31, 1999, unless terminated earlier by the
Executive's death."
(b) Position and Duties. Section 3 of the Employment
Agreement is amended in its entirety to read as follows:
"3. Position and Duties. Throughout the term hereof,
the Executive will have the employment status of an
exempt employee. The Executive is relieved as of the
date hereof of the obligation to devote his full
working time to the performance of duties under his
Employment Agreement."
<PAGE>
(c) Compensation and Benefits. Section 5 of the
Employment Agreement is amended in its entirety to read as
follows:
"5. Compensation and Benefits.
(a) Base Salary. The Corporation will pay to
the Executive a base salary at his current
annual rate in substantially equal periodic
installments on the Corporation's regular
pay dates. All applicable taxes and other
authorized deductions will be deducted from
each paycheck.
(b) Bonus Plan. In addition to the base salary,
the Executive will be entitled to a bonus
equal to 25/12 times the bonus amount paid
in 1997 for the calendar year 1996, to be
paid on March 1, 1997, and subject to all
applicable withholding requirements. This
bonus is in lieu of any bonus for which the
Executive may have been eligible under the
Corporation's 1997, 1998, or 1999 Annual
Incentive Plans (or any other bonus plans).
The Executive will not be eligible to
receive an award under the Long Term Cash
Incentive Plan (or any similar plan)
applicable to any period of time after
December 31, 1996.
(c) Benefit Plans. The Corporation will make
contributions on the Executive's behalf to
the Corporation's various benefit plans and
programs (except for long-term disability
and business travel accident insurance) in
which the Executive is eligible to
participate in accordance with the
provisions thereof as in effect from time
to time and in accordance with the
provisions hereof. The Executive will
continue to be responsible for all required
employee contributions. From and after the
date hereof, the Executive will not be
eligible to receive any stock option or
equity participation right awards.
(d) Vacations. The Executive will be entitled
to be paid for all vacation accrued as of
January 31, 1997, but will no longer accrue
2
<PAGE>
vacation from and after January 31, 1997.
(e) Perquisites. The Executive will be entitled
to outplacement assistance for up to twelve
months as determined by Corporation, and
will continue to be entitled to all other
perquisites to which he is currently
entitled (including, without limitation,
membership in the Commerce Club, the
Institute of Chartered Accountants of
Newfoundland, and the Institute of
Management Accountants), until January 31,
1999."
(d) Noncompetition. Section 7 of the Employment Agreement
is hereby deleted.
(e) Severance Pay. Section 8 of the Employment Agreement
is amended in its entirety to read as follows:
"8. Terminal Leave of Absence. The Executive will be
on a terminal paid leave of absence from the date
hereof through January 31, 1999. This terminal
paid leave of absence is in lieu of any severance
pay the Executive would otherwise be entitled to.
The Executive's entitlement to benefits under
the Corporation's health, life insurance,
retirement, stock option, and savings (but not
long-term disability or business travel accident
insurance) plans, policies or arrangements will
not, except as otherwise required by law or
regulation or provided in this Agreement, be
affected by the Executive's leave of absence
status and will continue to be governed by the
applicable provisions of such plans as though the
Executive had continued to render services in the
active employment of the Corporation to the end
of the terminal paid leave of absence."
(f) Governing Law. Section 11 is hereby amended in its
entirety to read as follows:
"11. Governing Law. The Employment Agreement and this
Modification of Employment Agreement shall be
governed by and interpreted in accordance with
the substantive laws of the State of Delaware."
3
<PAGE>
(g) Ratification. In all respects, except as herein provided,
the Employment Agreement is hereby ratified and confirmed.
3. Supplemental Retirement Plan.
(a) Retirement Benefit. The period of the terminal leave of absence
is hereby designated as a "leave of absence with the consent of the
Participant's employer" which is intended to be counted toward "Years of
Service" as defined in the Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies as Amended and Restated Effective
November 1, 1995 (the "Supplemental Benefit Plan"), and compensation paid during
the terminal leave of absence is intended to be included within the definition
of "Compensation" in the Supplemental Benefit Plan. This instrument further
confirms that if the Executive's Employment Agreement as amended hereunder is
terminated at any time by his death, then (1) the Executive's surviving Spouse
(as defined in the Supplemental Benefit Plan), or the Executive's estate if
there is no surviving Spouse, will be entitled to receive the balance of the
compensation payable herein pursuant to Sections 5(a) and(b) of the Employment
Agreement as amended hereunder; and (2) the Executive's surviving Spouse (as
defined in the Supplemental Benefit Plan) will be entitled to the sixty (60%)
percent Spouse's Pre-Retirement Death Benefit as provided in the Supplemental
Benefit Plan, determined by reference to the benefit projected to January 31,
1999, at the compensation levels herein provided. The determination of the
Corporation's Human Resources and Compensation Committee of the Board of
Directors (the "HRCC") of the Executive's eligibility upon retirement at any
time after the expiration of the term of this Agreement (as well as his Spouse's
eligibility upon his death) to receive benefits from the Supplemental Benefit
Plan is hereby confirmed.
(b) Waiver. The Corporation (as authorized to act on behalf of the
HRCC) hereby waives the provisions of Sections 6.01 and 6.02(b) of the
Supplemental Benefit Plan.
4. Stock Options. The HRCC has affirmed by their approval of this Modification
that the terminal leave of absence will not interrupt or terminate employment
for purposes of determining the Executive's continued eligibility to become
vested in, and to exercise, options awarded pursuant to the Corporation's 1984,
1988 and 1992 Stock Option and Stock Incentive Plans. Notwithstanding the
foregoing, however, in no circumstances shall the original term of any stock
option grant be deemed to be extended beyond its original term by the terms of
this paragraph.
4
<PAGE>
Upon the Executive's retirement at the completion of his terminal
leave of absence, the Executive, his heirs, executors and administrators will be
granted the longest period permissible within which to exercise the rights
granted to the Executive pursuant to the Corporation's 1984, 1988 and 1992 Stock
Incentive Plans consistent with applicable law, regulation, Corporation policy
and practice, and provisions of the relevant plans and awards.
5. Effectiveness Contingent Upon Release. This Modification shall not be
effective unless and until the Executive has executed a certain Waiver and
Release Agreement (the "Release Agreement") by no later than January 15, 1997,
and the applicable seven-day revocation period provided for therein has expired.
If the Executive should breach the terms of the Release Agreements in the
future, this Modification, the Employment Agreement (except for Sections 6 and
7, which Sections shall continue in full force and effect) and the Change in
Control Agreement shall immediately become null and void, and be deemed
canceled.
6. Binding Agreement. Except as provided in Section 5 above, this Modification
and the Employment Agreement shall inure to the benefit of and be enforceable by
the Executive, his heirs, executors, administrators, successors and assigns.
This Modification and the Employment Agreement shall be binding upon the
Corporation, its successors and assigns.
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/Aubrey S. Rogers
------------------------- --------------------
Name: Richard F. Frisch Aubrey S. Rogers
Title: Vice President - Human
Resources
5
<PAGE>
EXHIBIT 10.6
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the ______ day of ________, 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
_______________________ (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
<PAGE>
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.
(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
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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.
(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
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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
(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
4
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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.
(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
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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 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
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<PAGE>
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.
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
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<PAGE>
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 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
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(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
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.
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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.
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
10
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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".
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
By ____________________________
Its _______________________
-------------------------------
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SCHEDULE TO EXHIBIT 10.6
CHANGE IN CONTROL AGREEMENTS
NAME DATE OF AGREEMENT
Anthony H. Barash April 1, 1996
James H. Dorton August 6, 1996
Steven G. Lanzl October 21, 1996
12
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EXHIBIT 10.15.1
FIRST AMENDMENT TO THE BOWATER INCORPORATED
COMPENSATORY BENEFITS PLAN
AS AMENDED AND RESTATED EFFECTIVE APRIL 30, 1991
The Bowater Incorporated Compensatory Benefits Plan, as Amended and
Restated Effective April 30, 1991 (the "Plan"), is hereby amended, effective
January 1, 1996, by deleting the last two sentences of the first paragraph of
Section 7(c) of the Plan and replacing them with the following:
"Anything in this Plan to the contrary notwithstanding, upon and
following a Change in Control, the vested value of an Eligible
Employee's Book Account shall be the value of the Eligible Employee's
Book Account. The following definitions apply for purposes of this
Section 7(c):
(i) "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
Company representing twenty percent (20%) or more of
the combined voting power of the Company'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.
(ii) "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.
(iii) "Change in Control" of the Company shall be deemed to
have occurred if:
(A) any Person is or becomes an Acquiring
Person;
(B) less than two-thirds (2/3) of the total
membership of the Board shall
be Continuing Directors; or
(C) the stockholders of the Company shall
approve a merger or consolidation of the
Company or a plan of complete liquidation of
the Company or an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets.
<PAGE>
(iv) "Continuing Director" shall mean any member of the
Board who was a member of the Board as of January 1,
1996, 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.
(v) "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.
The provisions of this Section 7(c) related to a Change in Control shall not be
amended upon or following a Change in Control in any manner that might have the
effect of reducing the vested value of an Eligible Employee's Book Account under
the Plan. Nothing in this Section 7(c) shall be construed to prohibit, prior to
a Change in Control, any amendment to the Plan, including to this Section 7(c),
or any termination of the Plan pursuant to its terms."
IN WITNESS WHEREOF, Bowater Incorporated has caused this Amendment to be
executed by its duly authorized officer on the 26 day of April, 1996.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
Richard F. Frisch
Its: Vice President-Human Resources
2
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EXHIBIT 10.16.1
BOWATER INCORPORATED
1997 ANNUAL INCENTIVE PLAN
ADMINISTRATIVE GUIDE
<PAGE>
1. PURPOSE:
The Bowater Annual Incentive Plan (the "Plan") is designed to provide incentive
compensation to individuals who make an important contribution to the Company's
performance. Specific Plan objectives are to:
o Reward for creation of shareholder value
o Provide the ability to reward individuals for their contributions to
the strategic repositioning of the Company which may not be immediately
reflected in the Company's financial performance
o Provide significant award potential for achieving outstanding
performance
o Motivate and retain highly talented and competent individuals
2. GENERAL PLAN DESCRIPTION
The Plan provides the opportunity for key employees to receive cash awards based
on Company performance.
The award earned in 1997 will be based on three key factors:
- Return on Capital Spending
- Return on Net Assets (RONA)
- Mill Performance
At the beginning of, or during, the Plan year, certain key employees will be
selected to participate in the Plan. Each participant will be informed of
his/her target incentive award (as a percent of salary) and the percentage
weighting each of the factors will have in determining the participant's award.
3. PLAN PARTICIPANTS
Plan participation is extended to certain selected employees who, in the opinion
of the Chief Executive Officer (CEO) and the Human Resources and Compensation
Committee (HRCC) of the Board of Directors, have the opportunity to have a
significant impact on the annual operating success of the Company. These
employees will be notified in writing of their selection to participate in the
Plan. This notification letter will be signed by the CEO.
A participating employee will be eligible for awards if he or she has been
employed by the Company or one of its subsidiaries for at least 6 months, has
been in eligibility status for 4 months and is an active employee as of December
31 of the plan year (unless termination before December 31 is caused by death,
disability or retirement - in which case the employee will be eligible for a
prorated award if the three other conditions are satisfied). Employees who
receive bonus-equivalent payments pursuant to the severance terms of an
employment agreement will not be eligible for an award under this Plan.
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4. TARGET AWARDS
Target awards as a percentage of salary are established for each salary grade.
The targets are as follows:
Target Award
Salary Grade % Salary
40 60%
34 - 36 40%
32 - 33 35%
30 - 31 30%
29 - 28 25%
26 - 27 20%
5. PERFORMANCE FACTOR WEIGHTINGS
The award will be determined in accordance with the organization to which the
participant reports and the performance factors listed below:
Corporate - 50% Consolidated RONA
- 25% Consolidated Return on Capital Spending
- 25% Consolidated Mill Performance
Division - 25% Consolidated RONA
- 25% Division RONA
- 25% Division Return on Capital Spending
- 25% Division/Mill Performance
See attachments for specific performance targets.
6. CALCULATION OF THE AWARD
The total award will be calculated based on the weighted average of each
performance factor. An example, for a newsprint participant:
Factor % Payout % Weight % Average
- ------ -------- -------- ---------
Consolidated RONA 140 25 35
Division RONA 120 25 30
Division Return on Capital Spending 180 25 45
Division Mill Performance 180 25 45
---
155%
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The weighted average percentage (155%, is this example) would then be multiplied
by the Target Award which, in turn, would be multiplied by the participant's
December 31, 1997 base salary. The result would be the 1997 Annual Incentive
Plan payout.
7. PAYMENTS
Payments will be made in a lump sum case amount prorated to the number of months
the employee was a participant and/or actively at work if less than a full plan
year. The payments will be made as soon as possible after the computation of
results.
8. HRCC APPROVAL OF AWARDS
The Human Resources and Compensation Committee of the Board will approve all
awards before payments are made. The Committee reserves the right to adjust any
or all awards; this includes the right to eliminate any or all awards for a year
if, in the Committee's judgment, they are not warranted.
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Exhibit 10.18.1
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS OF
BOWATER INCORPORATED
(AS AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1997)
Adopted by the Officer Committee as of December 2, 1996.
<PAGE>
TABLE OF CONTENTS
Page
PREAMBLE ....................................................................1
ARTICLE I.
DEFINITIONS ...............................................2
Section 1.01. "Account"...................................2
Section 1.02. "Administrator" ............................2
Section 1.03. "Beneficiary" or "Beneficiaries"............2
Section 1.04. "Board of Directors" .......................2
Section 1.05. "Cash Account" .............................2
Section 1.06. "Company" ..................................2
Section 1.07. "Compensation" .............................3
Section 1.08. "Effective Date" ...........................3
Section 1.09. "Officer Committee".........................3
Section 1.10. "Outside Director" .........................3
Section 1.11. "Participant" ..............................3
Section 1.12. "Plan" .....................................3
Section 1.13. "Plan Year" ................................3
Section 1.14. "Rule 16b-3"................................3
Section 1.15. "Stock".....................................3
Section 1.16. "Stock Account".............................3
ARTICLE II.
PARTICIPATION .............................................4
Section 2.01. Participation is Voluntary..................4
Section 2.02. Application to Participate .................4
Section 2.03. Designation of Beneficiary .................5
Section 2.04. Allocation of Deferrals.....................5
ARTICLE III.
ACCRUAL OF BENEFITS .......................................6
Section 3.01. Deferred Compensation ......................6
Section 3.02. Earnings and Adjustments....................7
Section 3.03. Reallocations...............................8
Section 3.04. Vesting ....................................9
<PAGE>
ARTICLE IV.
DISTRIBUTION OF BENEFITS ..................................9
Section 4.01. Type and Form of Payment....................9
Section 4.02. Time of Distribution........................10
Section 4.03. Payment Upon Death..........................11
ARTICLE V
THE ADMINISTRATOR .........................................12
Section 5.01. Appointment ................................12
Section 5.02. Rights and Duties...........................12
Section 5.03. Quarterly Reports...........................13
Section 5.04. Information.................................13
Section 5.05. Compensation, Indemnity and Liability.......13
ARTICLE VI
AMENDMENT AND DISCONTINUANCE...............................14
Section 6.01. Amendments..................................14
Section 6.02. Discontinuance of Plan......................14
ARTICLE VII.
MISCELLANEOUS..............................................15
Section 7.01. No Interest in Assets.......................15
Section 7.02. Restriction Against Assignment .............15
Section 7.03. Receipt or Release..........................15
Section 7.04. Payment on Behalf of Minor..................16
Section 7.05. Forfeiture..................................16
Section 7.06. Withholding.................................17
Section 7.07. Delaware Law Governs........................17
Section 7.08. Headings Not Part of Agreement .............17
Section 7.09. Successors and Assigns......................17
<PAGE>
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS OF
BOWATER INCORPORATED
(AS AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1997)
PREAMBLE
HISTORY OF PLAN
The Deferred Compensation Plan for Outside Directors of Bowater
Incorporated was established effective March 1, 1989, for the benefit of
Directors of Bowater Incorporated who are not employees of the Company.
Effective January 1, 1996, the Plan was amended and restated to provide
Participants greater flexibility with regard to the allocation of deferred
amounts between investment alternatives and the time at and manner in which
those amounts are distributed. Effective January 1, 1997, the Plan is hereby
further amended and restated to increase that flexibility and to make other
changes deemed to be appropriate by the Officer Committee.
OBJECTIVES OF THE PLAN
The Company has adopted this Plan to provide Outside Directors with (i)
a vehicle through which they may accumulate funds for retirement, and (ii) an
opportunity to acquire Company stock and, with it, a direct and personal stake
in the performance of the Company.
<PAGE>
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS OF
BOWATER INCORPORATED
(AS AMENDED AND RESTATED
EFFECTIVE JANUARY 1, 1997)
ARTICLE I.
DEFINITIONS
This Plan shall be known as the "Deferred Compensation Plan for Outside
Directors of Bowater Incorporated," as now adopted or hereafter amended.
Whenever the following terms are used herein, with the first letter
capitalized, they shall, unless the context clearly indicates otherwise, have
the meanings specified below. Whenever applicable, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
Section 1.01. "Account" shall mean the account maintained by the
Administrator for each Participant, which shall consist of the Participant's
Cash Account and the Participant's Stock Account.
Section 1.02. "Administrator" shall mean the individual (who shall not
be a Participant) appointed by the Officer Committee to administer the Plan.
Section 1.03. "Beneficiary" or "Beneficiaries" shall mean the person or
persons (including, without limitation, any trustee) last designated by a
Participant to receive the benefits specified hereunder, in the event of the
Participant's death, or if there is no designated Beneficiary or surviving
Beneficiary, the Participant's estate.
Section 1.04. "Board of Directors" means the Board of Directors of the
Company.
Section 1.05. "Cash Account" shall mean the record of (i) deferrals
made hereunder and designated by the Participant for allocation to the Cash
Account; (ii) deferrals made hereunder and designated by the Participant for
transfer to the Cash Account pursuant to Section 3.03; and (iii) earnings on the
amounts described in clauses (i) or (ii) pursuant to Section 3.02(a).
Section 1.06. "Company" shall mean Bowater Incorporated.
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Section 1.07. "Compensation" shall mean for any Plan Year all retainer,
meeting and committee fees payable to an Outside Director for service on the
Board of Directors, before any reduction pursuant to this Plan.
Section 1.08. "Effective Date" shall mean January 1, 1997.
Section 1.09. "Officer Committee" shall mean a committee comprising the
following officers of the Company: Chief Executive Officer, Chief Financial
Officer and Vice President, Human Resources. Notwithstanding the foregoing, if
the Officer Committee or the Board of Directors believes that an action to be
taken by the Officer Committee hereunder should instead be taken by the Board of
Directors or a committee thereof composed solely of two or more Non-Employee
Directors (as such term is defined in Rule 16b-3(b)), because of the
implications of such action under Section 16 of the Securities Exchange Act of
1934 or the Rules adopted thereunder, then the applicable reference to the
Officer Committee shall be deemed to refer to the Board of Directors or such
committee.
Section 1.10. "Outside Director" shall mean a member of the Board of
Directors who is not an employee of the Company or its subsidiaries or
affiliates.
Section 1.11. "Participant" shall mean any Outside Director who
actually participates in this Plan in any Plan Year and who is entitled to a
benefit hereunder.
Section 1.12. "Plan" shall mean this Deferred Compensation Plan for
Outside Directors of Bowater Incorporated (As Amended and Restated Effective
January 1, 1997), as the same shall from time to time be amended.
Section 1.13. "Plan Year" shall mean each year beginning on the first
day of January and ending on the 31st day of December, commencing with the year
beginning on January 1, 1990. The first Plan Year shall be the period from March
1, 1989, through December 31, 1989.
Section 1.14. "Rule 16b-3" shall mean Rule 16b-3 adopted pursuant to
the Securities Exchange Act of 1934, as amended, or any successor provision.
Section 1.15. "Stock" shall mean Company Common Stock, $1.00 par value
per share.
Section 1.16. "Stock Account" shall mean the record of (i) deferrals
made hereunder and designated by the Participant for allocation to the Stock
Account; and (ii) deferrals made hereunder and designated by the Participant for
transfer to the Stock Account pursuant to Section 3.03 and (iii) credits on and
adjustments of the amounts described in clauses (i) or (ii) pursuant to Section
3.02(b) and (c).
3
<PAGE>
ARTICLE II.
PARTICIPATION
Section 2.01. Participation is Voluntary
Participation in the Plan is voluntary.
Section 2.02. Application to Participate
An Outside Director who wishes to participate in the Plan for any Plan
Year must deliver a written application to the Administrator no later than the
last day of the month immediately preceding such Plan Year. The Administrator
shall notify each Outside Director of his prospective eligibility to participate
in the Plan at least fifteen (15) days prior to the time he must deliver his
application for participation. Notwithstanding the foregoing, the Administrator
may accept such an application delivered after such last day of such month if it
is an application of an Outside Director who was not an Outside Director as of
such last day of such month, in which case the application (i) must be delivered
within thirty (30) days of the date the individual becomes an Outside Director,
and (ii) will be effective with respect to Compensation earned after the date
the application is delivered. The application for participation shall constitute
the Outside Director's acceptance of the benefits and terms of the Plan, shall
be implemented with respect to compensation allocable to the period to which the
election relates, and shall state the portion of his Compensation that he elects
to defer and the time at and manner in which the Outside Director desires a
distribution of his benefits under the Plan, as hereinafter specified. An
election to defer Compensation shall remain in effect (and be irrevocable) with
respect to the Plan Year in which it first becomes effective. The election shall
apply also to each subsequent
4
<PAGE>
Plan Year unless the election expressly provides otherwise or it is revoked or
changed. An election to defer Compensation may be revoked or changed for future
Plan Years if such revocation or change is made prior to the beginning of the
Plan Year to which it relates.
Section 2.03. Designation of Beneficiary
Each Participant shall designate on forms provided by the
Administrator, signed by the Participant and delivered to the Administrator, the
Beneficiary or Beneficiaries to receive the amounts distributable in the event
of such Participant's death. A Participant may from time to time change the
designated Beneficiary or Beneficiaries, without the consent of such Beneficiary
or Beneficiaries, by delivering to the Administrator a new written designation
of Beneficiary signed by the Participant. The spouse of a Participant shall not
be required to consent in writing to any designation of a primary Beneficiary or
Beneficiaries other than such spouse. The Company and the Administrator may rely
upon the Beneficiary designation last delivered in accordance with the terms of
the Plan.
Section 2.04. Allocation of Deferrals
An election to defer Compensation shall specify whether deferrals are
to be allocated to the Cash Account or the Stock Account (or both Accounts in
increments of ten percent).
5
<PAGE>
ARTICLE III.
ACCRUAL OF BENEFITS
Section 3.01. Deferred Compensation
Each Outside Director who elects to participate in this Plan for any
Plan Year must irrevocably elect to defer the receipt of all or a specified
percentage of his Compensation for at least one Plan Year in accordance with the
terms of Section 2.02. The amount deferred shall be credited to the electing
Outside Director's Account in the following manner: (i) amounts allocated to the
Cash Account shall be credited as of the first day of the calendar quarter
following the quarter for which the related Compensation was earned by the
Participant (the "Credit Date"), and (ii) amounts allocated to the Stock Account
shall be converted to a number of shares of Stock by dividing the amount of the
Compensation to be deferred by that amount which is 95% of the "Stock Price" on
the Credit Date, and the resulting number of shares shall be credited to the
Participant's Stock Account as of the Credit Date. The "Stock Price" shall be
the closing market price of one share of Stock as reported for the New York
Stock Exchange Composite Transactions on the Credit Date (or, if Stock is not
traded on the Credit Date, on the next succeeding trading date), in the Eastern
Edition of the Wall Street Journal.
The quotient shall be expressed in whole or fractional shares of Stock
to the nearest one/one hundredth of a share. The credits to a Participant's
Account shall be paid in accordance with Section 3.02.
6
<PAGE>
Section 3.02. Earnings and Adjustments
(a) As of the last day of each month, the Cash Account of each Director
shall be credited with interest, on the average balance of such Account during
such month, at a rate equal to the rate earned by the Fixed Income Fund offered
as an investment under the Bowater Incorporated Salaried Employees' Savings
Plan, or, in the absence of such fund, by a comparable fund designated by the
Administrator, for such month.
(b) Whenever cash dividends are paid with respect to shares of Stock,
each Participant's Stock Account shall be credited with an additional number of
shares of Stock (including fractions to the nearest one/one hundredth) equal in
value to the amount of the dividend paid on a single share of Stock multiplied
by the number of shares of Stock (including fractions) credited to a
Participant's Account as of the date of record for dividend purposes. For
purposes of crediting cash dividends, the value of Stock shall be the Stock
Price as of the day dividends are actually paid on Stock.
(c) The number of shares of Stock in each Participant's Stock Account
shall be appropriately adjusted and modified upon the occurrence of any stock
split, reverse stock split, stock dividend or stock consolidation. In the event
of a merger, consolidation or an acquisition of more than 50% of the issued and
outstanding shares of the Stock, the Officer Committee shall have the authority
to amend the Plan to provide for the conversion of Stock credited to
Participants' Stock Accounts into equivalent stock of the resulting or acquiring
company (or a related company), as appropriate, if such stock is publicly traded
or, if not, into cash of equal value on the date of merger, consolidation or
acquisition. If cash is credited pursuant to the foregoing, it shall be
allocated to Participants' Cash Accounts. If publicly traded stock of the
resulting or acquiring company (or a related company) is credited to
Participants' Stock
7
<PAGE>
Accounts, dividends shall be credited thereto in the same manner as dividends
are credited on Stock credited to Stock Accounts.
Section 3.03. Reallocations
Pursuant to procedures established by the Administrator, a Participant
may elect to transfer to his Stock Account amounts (either by percentage or
dollar amount) credited to his Cash Account, and visa versa. For purposes of the
foregoing, the conversion will be effected at the Stock Price as of the date on
which the election to transfer amounts is received and approved by the Company.
Once received and approved by the Company, a Participant's election to transfer
amounts between his Cash Account and Stock Account shall be irrevocable.
Notwithstanding the foregoing, if (A) a Participant has initially allocated a
deferred amount to his Stock Account, and (B) such allocation was not approved
by the Board of Directors, a committee thereof composed solely of two or more
Non-Employee Directors (as such term is defined in Rule 16b-3(b)), or the
stockholders of the Company, in accordance with Rule 16b- 3(d)(1) or (2), then
the Participant may not elect to transfer such amount to his Cash Account or
otherwise dispose of such amount until it has been held in his Stock Account for
a period of at least six months. In addition, a Participant may not (A) make any
election to transfer any amount to his Cash Account from his Stock Account (a
"Cash Election") within six months of any election by him to transfer to his
Stock Account from his Cash Account (a "Stock Election"); or (B) make a Stock
Election within six months of any Cash Election.
8
<PAGE>
Section 3.04. Vesting
The interest of each Participant in any benefit accrued hereunder shall
be fully vested and nonforfeitable at all times. Notwithstanding the foregoing,
the Company is not obligated to acquire, issue or hold any Stock, cash or
other asset by reason of the crediting to Accounts of shares of Stock or cash
required by this Plan, and no Participant shall have any right to compel the
Company to acquire, issue or hold Stock, cash or other asset in any amount by
reason of the provisions of this Plan.
ARTICLE IV.
DISTRIBUTION OF BENEFITS
Section 4.01. Type and Form of Payment
All distributions under the Plan shall be in the form of a single
installment, or in five or ten annual installments, as elected by the
Participant. Such an election shall be made on the first application filed
pursuant to Section 2.02. A Participant may change any election made pursuant to
this Section 4.01 from time to time (subject to such limitations as the
Administrator may reasonably impose); provided that any such change shall be
applicable to all amounts deferred, and provided further that, (i) subject to
clause (ii), a change will only be effective if it is made prior to the January
1 that is at least one year before the date on which the Participant ceases to
be an Outside Director, and (ii) with respect to a Participant who ceases to be
an Outside Director within one year after the Effective Date, an election will
be effective if it is made prior to the Effective Date. If an election is not
effective by virtue of the foregoing proviso, the immediately preceding election
of the Participant that satisfies the proviso shall be given effect. A single
installment distribution will be made in cash or in shares of Stock, as elected
by the
9
<PAGE>
Participant by no later than the December 31 immediately preceding the year of
distribution. A distribution made in annual installments will be made in
cash, and, in such event, the balance of the Participant's Stock Account, if
any, will be transferred to his Cash Account as of the date as of which the
first installment is paid. A cash distribution attributable to a Participant's
Stock Account, or a Stock distribution attributable to a Participant's Cash
Account, will be valued on the basis of the Stock Price on the date as of
which such distribution occurs.
Section 4.02. Time of Distribution
The Account of a Participant who elected to receive installment
distributions will commence to be paid to him as of the Credit Date following
the date that he ceases to be an Outside Director, with subsequent installments
paid each January 1 thereafter, and with each installment equal to a fraction of
his Account equal to one divided by the number of remaining installments
(including the installment being distributed). The Account of a Participant who
elected to receive a single installment will be paid, as elected by the
Participant, (i) as of the Credit Date following the date that he ceased to be
an Outside Director, or (ii) on the January 1 first following a stated number of
years (not in excess of ten) after the Participant ceases to be an Outside
Director (subject to such limitations as the Administrator may reasonably
impose.) Such an election shall be made on the application filed pursuant to
Section 2.02. A Participant may change any election made pursuant to this
Section 4.02 from time to time; provided that (y) subject to clause (z), an
election will only be effective if it is made prior to the January 1 that is at
least one year before the date on which the Participant ceases to be an Outside
Director, and (z) with respect to a Participant who ceases to be an Outside
Director within one year after the Effective Date, an election will be effective
if it is made prior to the Effective Date. If an election is not effective by
virtue of the foregoing proviso, the immediately preceding election of the
10
<PAGE>
Participant that satisfies the proviso shall be given effect. Notwithstanding
any provision of the Plan to the contrary, no distribution from the Plan
will be made to or on account of a Participant (I) within six months of
any allocation to the Participant's Stock Account under Section 3.01 or 3.03, or
(II) in the case of a cash distribution attributable to the Stock Account,
within six months of the last day on which the Participant (while an Outside
Director) had a transaction effecting an acquisition of Stock within the meaning
of Section 16 of the Securities Exchange Act of 1934, as amended (or any
successor provision) unless the acquisition was exempt under a Rule promulgated
pursuant to such Section or the distribution is approved by the Board of
Directors, a committee thereof composed solely of two or more Non-Employee
Directors (as such term is defined in Rule 16b-3(b)), or the stockholders of the
Company, in accordance with Rule 16b-3(d)(1) or (2). Any distribution that would
otherwise be made within the periods described in the preceding sentence will be
made as soon as possible after the end of such periods, and (in the case of an
installment distribution) without affecting the timing of any succeeding
installment.
Section 4.03. Payment Upon Death
Notwithstanding any election under Section 4.01 or 4.02, if a
Participant dies prior to distribution of his Account, the balance credited to
the Participant's Account shall be paid, as soon as reasonably possible
thereafter (but subject to the last two sentences of Section 4.02), to the
Participant's Beneficiary or Beneficiaries, in a single installment. The
Participant's Beneficiary or Beneficiaries may elect, subject to procedures
established by the Plan Administrator, to receive the distribution in either
cash or Stock.
11
<PAGE>
ARTICLE V.
THE ADMINISTRATOR
Section 5.01. Appointment
An Administrator shall be appointed by the Officer Committee to
administer the Plan as provided herein.
Section 5.02. Rights and Duties
The Administrator, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan, in accordance with its terms, shall be
charged with the general administration of the Plan and shall have all powers
necessary to accomplish those purposes, including, but not by way of limitation,
the following:
(a) to compute and certify the amount and kind of benefits payable
to Participants and their Beneficiaries;
(b) to maintain or to designate any person or entity to maintain
all the necessary records for the administration of the Plan;
(c) to make and publish such rules for the regulation of the Plan
as are not inconsistent with the terms hereof; and
(d) to provide for disclosure of such information and filing or
provision of such reports and statements to Participants or
Beneficiaries under this Plan as the Administrator deems
appropriate.
All actions of the Administrator shall be conclusive on all persons interested
in the Plan except to the extent otherwise specifically indicated herein. The
Administrator may appoint agents, and delegate thereto such powers and duties in
connection with the administration of the Plan as the Administrator may from
time to time prescribe.
12
<PAGE>
Section 5.03. Quarterly Reports
The Administrator shall, on a quarterly basis, furnish each Participant
with a written report indicating the number of shares of Stock and the amount of
cash credited to his Account as of the end of the preceding calendar quarter.
Section 5.04. Information
To enable the Administrator to perform his functions, the Company shall
supply full and timely information to the Administrator on all matters relating
to the Compensation of all Participants, their status as Outside Directors,
their deferral elections and such other pertinent facts as the Administrator may
require.
Section 5.05. Compensation, Indemnity and Liability
The Administrator shall serve without bond, except as otherwise required by
law, and without additional compensation for his services hereunder. All
expenses of the Administrator shall be paid by the Company and the Company shall
furnish the Administrator with such clerical and other assistance as is
necessary in the performance of his duties.
The Administrator shall not be liable for any act or omission on his part,
excepting only his own willful misconduct or gross negligence. The Company shall
indemnify and save harmless the Administrator against any and all expenses and
liabilities arising out of his administration of the Plan, excepting only
expenses and liabilities arising out of his own willful misconduct or gross
negligence.
13
<PAGE>
ARTICLE VI.
AMENDMENT AND DISCONTINUANCE
Section 6.01. Amendments
The Officer Committee shall have the right to amend the Plan from time to
time, and to amend or cancel any amendments, provided, however, that no
amendment shall reduce any amount already credited to a Participant's Account as
of the effective date of such amendment.
Section 6.02. Discontinuance of Plan
It is the expectation of the Company that the Plan will be continued
indefinitely, but continuance of the Plan is not assumed as a contractual
obligation of the Company, and the right is reserved to the Officer Committee at
any time to reduce, suspend or discontinue the Plan, provided, however, the
Officer Committee shall in no event have the power to reduce the amount already
credited to a Participant's Account as of the effective date of any such
reduction, suspension or discontinuance nor to discontinue the crediting of
earnings on such amounts subsequent to said date. In the event of a reduction,
suspension or discontinuance of the Plan, the payment of benefits accrued
hereunder shall continue to be made in accordance with the provisions of the
Plan.
14
<PAGE>
ARTICLE VII.
MISCELLANEOUS
Section 7.01. No Interest in Assets
No Participant or any other person shall have any interest in any shares of
Stock credited to his Account or in any specific asset of the Company by reason
of any amount credited to him hereunder, nor any right to receive any
distribution under the Plan except as and to the extent expressly provided in
the Plan. This Plan shall not impose an obligation on the Company to fund any
benefits which may become payable hereunder. No trust shall be created by the
execution or adoption of this Plan or be required to be created in connection
herewith. Any benefits which become payable hereunder shall be paid from the
general assets of the Company, except to the extent actually paid from other
sources. Nothing in the Plan shall be deemed to give any Outside Director any
right to participate in the Plan, except in accordance with the provisions of
the Plan.
Section 7.02. Restriction Against Assignment
Subject to Section 7.04, the Company shall pay all amounts payable
hereunder only to the person or persons designated by the Plan as Participant or
Beneficiary, as appropriate, and not to any other person or corporation. No part
of a Participant's Account shall be liable for the debts, contracts or
engagements of any Participant, his Beneficiaries or successors in interest, nor
shall it be subject to execution by levy, attachment or garnishment or by any
other legal or equitable proceeding, nor shall any such person have any right to
alienate, anticipate, commute, pledge, encumber or assign any benefits or
payments hereunder in any manner whatsoever.
Section 7.03. Receipt or Release
Any payment to any Participant or his Beneficiary in accordance with the
provisions of the
15
<PAGE>
Plan shall, to the extent thereof, be made in full satisfaction of all claims
against the Administrator and the Company, and the Administrator may require
such Participant or Beneficiary, as a condition precedent to such payment, to
execute a receipt, release and indemnification to such effect.
Section 7.04. Payment on Behalf of Minor
In the event any amount becomes payable under the Plan to a minor or a
person who, in the sole judgment of the Administrator, is considered by reason
of physical or mental condition to be unable to give a valid receipt therefor,
the Administrator may direct that such payment be made to any person found by
the Administrator, in his sole judgment, to have assumed the care of such minor
or other person. Any payment made pursuant to such determination shall
constitute a full release and discharge of the Administrator and the Company.
Section 7.05. Forfeiture
Any payment or distribution to a Participant under the Plan which is not
claimed by the Participant, Beneficiary or other person entitled thereto within
three (3) years after becoming payable shall be forfeited and canceled and shall
remain with the Company and no other person shall have any right thereto or
interest therein. The Company shall not have any duty to give notice that
amounts are payable under the Plan to any person other than the Participant and
the applicable Beneficiary or Beneficiaries.
16
<PAGE>
Section 7.06. Withholding
The Company may deduct from the amount of all distributions under the Plan
any taxes required to be withheld by the Federal or any State or local
government.
Section 7.07. Delaware Law Governs
This Plan shall be construed, regulated and administered under the laws of
the State of Delaware.
Section 7.08. Headings Not Part of Agreement
Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the provision
hereto.
Section 7.09. Successors and Assigns
This Plan shall inure to the benefit of, and be binding upon, the parties
hereto and their successors and assigns.
12/3/96
17
<PAGE>
EXHIBIT 10.24.2
AMENDMENT NUMBER TWO TO THE
AGREEMENT AND DECLARATION OF TRUST OF THE
BOWATER INCORPORATED BENEFIT PLAN GRANTOR TRUST
Effective November 20th, 1996, the Agreement and Declaration of Trust of
the Bowater Incorporated Benefit Plan Grantor Trust, made as of May 20, 1988
between Bowater Incorporated and Wachovia Bank of North Carolina, N.A. (formerly
known as Wachovia Bank and Trust Company, N.A.)(the "Agreement") is hereby
amended pursuant to Section 10.1 of the Agreement as follows:
1. Section 1.2(q) is amended by adding the following sentence to the
end thereof: "Notwithstanding the foregoing, "Participant Data" shall
not include any information regarding the participants and
beneficiaries under a Plan who are residents, for income tax purposes,
of Canada."
2. The first sentence of Section 1.3 is amended to read as
follows:
"The Trust is established as a grantor trust within the meaning of
Sections 671 through 677 of the Code to hold the interests of
participants and their beneficiaries in the Plans, other than those
participants and beneficiaries who are residents, for income tax
purposes, of Canada."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of this 20th day of November 1996.
BOWATER INCORPORATED WACHOVIA BANK OF NORTH
CAROLINA, N.A.
By: /s/ Richard F. Frisch By: /s/ Beverley H. Wood
Name: Richard F. Frisch Name: Beverley H. Wood
Title: Vice President-Human Resources Title: Senior Vice President
Date Signed: December 5, 1996 Date Signed: December 20, 1996
<PAGE>
EXHIBIT 10.28.1
FIRST AMENDMENT TO THE BOWATER INCORPORATED
BENEFITS EQUALIZATION PLAN
The Bowater Incorporated Benefits Equalization Plan is hereby amended,
effective January 1, 1996, by adding the following to the end of Section 6:
"Anything in this Plan to the contrary notwithstanding, upon and
following a Change in Control, an Eligible Employee shall have a
non-forfeitable interest in benefits payable under the Plan. The
following definitions apply for purposes of this Section 6:
(i) "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
Company representing twenty percent (20%) or more of
the combined voting power of the Company'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.
(ii) "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.
(iii) "Change in Control" of the Company shall be deemed to
have occurred if:
(A) any Person is or becomes an Acquiring
Person;
(B) less than two-thirds (2/3) of the total
membership of the Board shall be Continuing
Directors; or
(C) the stockholders of the Company shall
approve a merger or consolidation of the
Company or a plan of complete liquidation of
the Company or an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets.
(iv) "Continuing Director" shall mean any member of the
Board who was a member of the Board as of January 1,
1996, and any
<PAGE>
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.
(v) "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.
The provisions of this Section 6 related to a Change in Control shall not be
amended upon or following a Change in Control in any manner that might have the
effect of reducing the non-forfeitable interest of an Eligible Employee in
benefits payable under the Plan. Nothing in this Section 6 shall be construed to
prohibit, prior to a Change in Control, any amendment to the Plan, including to
this Section 6, or any termination of the Plan pursuant to its terms."
IN WITNESS WHEREOF, Bowater Incorporated has caused this Amendment to be
executed by its duly authorized officer on the 29th day of April, 1996.
BOWATER INCORPORATED
By: /s/ Wendy C. Shiba
Its: Secretary & Assistant General Counsel
2
<PAGE>
EXHIBIT 10.31
AMENDED AND RESTATED
BOWATER INCORPORATED
1997 STOCK OPTION PLAN
EFFECTIVE AS OF JANUARY 1, 1997
<PAGE>
TABLE OF CONTENTS
Page No.
1. Definitions.................................................1
2. Purpose. ..................................................4
3. Administration..............................................5
4. Participation...............................................5
5. Shares Subject to the Plan..................................6
6. Restricted or Nonrestricted Stock Awards....................6
7. Stock Options...............................................7
8. Stock Appreciation Rights...................................7
9. Special Provisions Under Code Section 162(m)................8
10. Exercise of Options and SARs................................9
11. Death, Retirement, and Termination of Employment............9
12. Compliance with Applicable Laws. .........................10
13. Transferability............................................10
14. Employment, Stockholder and Board Status. ................11
15. Adjustments to Number of Shares and Terms..................11
16. Change in Control .........................................11
17. Withholding. ..............................................11
18. Term of Plan...............................................12
19. Amendment and Termination of Plan..........................12
20. Applicable Law.............................................12
<PAGE>
AMENDED AND RESTATED
BOWATER INCORPORATED
1997 STOCK OPTION PLAN
Effective January 1, 1997, Bowater Incorporated, a Delaware corporation
(the "Company"), established an equity based incentive compensation plan to be
known as the "Bowater Incorporated 1997 Stock Option Plan" (the "Plan").
Effective January 1, 1997, the Plan is hereby amended and restated, as set forth
in this document. This amended and restated Plan document shall supercede the
Plan document as originally adopted.
1. DEFINITIONS.
For purposes of this Plan, the following terms shall have the
meanings indicated, unless the context clearly indicates otherwise:
(a) "Acceleration Price" means (i) in the case of a Restricted
Stock Award, the highest of (A) through (D); and (ii) in the case of an Option
or SAR, the excess over the exercise or base price thereof of the highest of (A)
through (D), on the date of a Change in Control:
(A) The highest reported sales price of the
Common Stock within the sixty (60) days
preceding the date of the Change in Control,
as reported on any securities exchange upon
which the Common Stock is listed,
(B) The highest price of the Common Stock as
reported in a Schedule 13D or an amendment
thereto that is paid within the sixty (60)
days preceding the date of the Change in
Control,
(C) The highest tender offer price paid for the
Common Stock, and
(D) Any cash merger or similar price.
(b) "Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Acquiring Person" means any Person who is or becomes a
"beneficial owner" (as defined in Rule 13d-3 of the Act) of securities of the
Company representing twenty percent (20%) or more of the combined voting power
of the Company'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
(d) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Act, as in effect on the date hereof.
(e) "Award" means a Restricted or Non-Restricted Stock Award,
Option or SAR granted to a Grantee pursuant to the Plan.
(f) "Board" means the Board of Directors of the Company.
(g) "Change in Control" shall be deemed to occur 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 Company shall
approve a merger or consolidation of the
Company or a plan of complete liquidation of
the Company or an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets.
(h) "Code" means the Internal Revenue Code of 1986, as
amended. Reference to a section of the Code shall also include a reference to
any Temporary or Final Regulation promulgated under such Section, and to any
successor to such Section or Regulation.
(i) "Committee" means a committee consisting of two (2) or
more members of the Board; provided that, (i) with respect to any Grantee of an
Award that constitutes an "equity security" under the Act who is subject to
Section 16 of the Act, (A) the members of the Committee shall all be
"non-employees" as defined in Section 240.16b-3 of the General Rules and
Regulations promulgated under the Act, or (B) the full Board shall act in lieu
of the Committee hereunder; and (ii) with respect to any Grantee of an Award
that is intended by the Committee to constitute "qualified performance-based
compensation," within the contemplation of Treasury Regulation Section
1.162-27(e)(2), who is a "covered employee," within the contemplation of
Treasury Regulation Section 1.162-27(c)(2), the members of the Committee shall
all be "outside directors" as defined in Treasury Regulation Section
1.162-27(e)(3) to the extent required by Section 162 of the Code.
Notwithstanding the foregoing, in the case of an Award granted to a member of
the Board who is not also a key employee or officer of the Company or a
Subsidiary, "Committee" means the Board.
(j) "Common Stock" means the common stock of the Company,
par value $1.00 per share.
<PAGE>
3
(k) "Company" means Bowater Incorporated, a Delaware
corporation, and any successor thereto by merger or other acquisition.
(l) "Continuing Directors" means any member of the Board who
was a member of the Board immediately prior to the Effective Date, 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.
(m) "Date of Grant" means the date an Award is granted to a
Grantee under the Plan.
(n) "Disability" shall have the meaning contained in the
Company's long-term disability plan, except that, in the case of an ISO, it
shall mean total and permanent disability within the contemplation of Section
22(e)(3) of the Code.
(o) "Effective Date" means January 1, 1997.
(p) "Fair Market Value" for a particular date means the simple
arithmetic mean between the highest and lowest prices per share at which the
Common Stock is traded as reported for the New York Stock Exchange Composite
Transactions as reported in the Eastern Edition of the Wall Street Journal for
that date, or if not so traded, the simple arithmetic mean between the closing
bid-and-asked prices thereof as reported for such Exchange on that date.
(q) "Grantee" means a key employee or officer of the Company
or a Subsidiary, or a member of the Board, to whom an Award has been granted;
provided that a member of the Board who is not also such a key employee or
officer may not become a Grantee of an ISO.
(r) "ISO" means an incentive stock option within the
contemplation of Section 422 of the Code.
(s) "Non-Tandem SAR" means an SAR granted to a Grantee that is
not a Tandem SAR.
(t) "Nonrestricted Stock Award" means a Stock Award granted
without any risk of forfeiture.
(u) "NQO" means an Option that is not an ISO.
(v) "Option" means an option to purchase Shares granted to a
Grantee pursuant to Section 7 of the Plan, which may be an ISO or an NQO.
<PAGE>
4
(w) "Person" means any individual, company, partnership,
group, association or other "person" as such term is used in Section 13(d) and
14(d) of the Act.
(x) "Plan" means the Bowater Incorporated 1997 Stock Option
Plan as provided herein and as it may be amended from time to time.
(y) "Restricted Stock Award" means a Stock Award granted
subject to a risk or risks of forfeiture.
(z) "Retirement" means (i) with respect to a key employee or
officer of the Company or a Subsidiary, the status of having terminated
employment and being immediately eligible for the payment of normal or early
retirement benefits under the qualified pension plan of the Company or
Subsidiary applicable to the Grantee or (ii) with respect to a member of the
Board not described in clause (i), the status of having terminated service on
the Board and being immediately eligible for the payment of retirement benefits
under the Company's retirement plan for the Directors.
(aa) "SAR" means a Stock Appreciation Right granted to a
Grantee pursuant to Section 8 of the Plan, which may be a Tandem SAR or a
Non-Tandem SAR.
(bb) "Share" means a share of Common Stock.
(cc) "Stock Award" means a Share awarded to a Grantee pursuant
to Section 6 of the Plan, which may be a Restricted or Nonrestricted Stock
Award.
(dd) "Subsidiary" means each entity with respect to which the
Company owns directly or indirectly interests embodying more than 50% of the
voting power, provided that for purposes of an ISO, such term shall have the
meaning given in Section 424 of the Code.
(ee) "Tandem SAR" means an SAR granted in connection with an
Option either at the Date of Grant of the Option or at a later date.
Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
2. PURPOSE. The Plan has been established by the Company to secure for
the Company and its stockholders the benefits arising from (i) providing
long-term incentive compensation opportunities to those key employees and
officers of the Company and its Subsidiaries who are and will be responsible for
its future growth and continued success and (ii) aligning the interests of
Company stockholders and members of the Board. The Plan provides a means whereby
such individuals: (a) may be awarded Restricted or Nonrestricted
<PAGE>
5
Stock Awards; (b) may acquire Shares pursuant to Options; or (c) may be awarded
SARs; provided that a member of the Board who is not also a key employee or
officer of the Company or a Subsidiary may not be awarded an ISO.
3. ADMINISTRATION. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee. The Committee
shall have full power and authority to administer and interpret the Plan and to
adopt such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Committee
deems necessary or advisable. The Committee's interpretation of the Plan and all
actions taken and determinations made by the Committee pursuant to the powers
vested in it hereunder shall be conclusive and binding on all parties concerned,
including the Company, its stockholders, any Grantees and any other employee of
the Company or any of its subsidiaries (including their beneficiaries,
transferees and other successors in interest). No member of the Committee shall
be liable for any action or determination made with respect to the Plan.
4. PARTICIPATION.
(a) Subject to the terms and conditions of the Plan, the
Committee shall determine and designate from time to time the Grantees to whom
Awards are to be granted and the type, size and terms, conditions, restrictions
and limitations applicable to each Award; provided, however that the Committee
shall not have the power to reduce the exercise price of an outstanding Option
or the base price of an outstanding SAR, other than as provided in Section 15.
Such terms, conditions, restrictions and limitations may include, but are not
limited to terms, conditions, restrictions and limitations related to: (i) the
exercisability of an Award (subject to Sections 7(c), 8(b) and 11, and provided
that the Committee shall at all times have the authority to accelerate such
exercisability), (ii) the forfeiture of an Award (and/or the Shares subject
thereto) and the lapse of the forfeiture condition (subject to Sections 6(b) and
11, and provided that the Committee shall at all times have the authority to
declare such forfeiture condition to be lapsed), (iii) the transferability of an
Award and/or such Shares, (iv) the form of payments (if any) in respect of an
Award, (v) the consequences of a Grantee's termination of employment with the
Company and its Subsidiaries or termination of service on the Board (as provided
in Section 11(b)), (vi) restrictions on the sale, resale or other disposition of
the Award and/or such Shares, (vii) restrictions related to the payment of
dividends with respect to such Shares, (viii) restrictions with respect to the
right to vote such Shares, (ix) put or call rights with respect to such Shares,
(x) provisions to comply with federal and/or state securities laws, and (xi)
such other matters not inconsistent with the specific provisions of the Plan as
deemed appropriate by the Committee. Notwithstanding the foregoing, (I) the
maximum number of Shares with respect to which Awards may be granted during any
calendar year to any Grantee is 200,000 Shares; and (II) no Grantee may be
granted an Award if immediately after such grant, were it made, he would be the
owner or would be deemed in accordance with Section 424 of the Code to be the
owner of more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries.
<PAGE>
6
(b) The terms, conditions, restrictions and limitations
related to each Award shall be reflected in an Agreement between the Company and
the Grantee. Each Award under the Plan shall be made subject to the condition
that the Grantee execute and return such Agreement within sixty (60) days of the
date he receives the Agreement from the Company. An Agreement may only be
modified by a writing signed by both the Company and the Grantee.
Each Agreement shall be subject to all of the terms of the Plan.
5. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 15,
the aggregate number of Shares for which Stock Awards, Options and SARs may be
granted under the Plan shall not exceed 1,000,000 Shares, and no more than 5% of
such Shares may be used for Restricted and Nonrestricted Stock Awards. If any
Option or SAR granted pursuant to the Plan shall expire or terminate for any
reason (including without limitation its settlement in cash in lieu of exercise
of the Option) or any Restricted Stock Award shall be forfeited pursuant to
conditions or restrictions applicable thereto, the number of Shares then subject
to the Option, SAR or Restricted Stock Award shall again be available for grant
under the Plan unless the Plan shall have terminated.
6. RESTRICTED OR NONRESTRICTED STOCK AWARDS.
(a) The Committee may grant Restricted or Nonrestricted Stock
Awards under the Plan. Shares awarded under this Section 6 shall be transferred
in consideration of the services of the Grantee with or without other payment
therefor as determined by the Committee and shall be issued in the Grantee's
name. The Grantee will have all of the rights of ownership of such shares,
subject to the terms, conditions, restrictions and limitations established
pursuant to Section 4(a). Notwithstanding any provision of Section 4(a), if a
Restricted Stock Award is granted subject to a risk of forfeiture that will
lapse solely based on whether the Grantee remains in employment with the Company
or a Subsidiary, or as a member of the Board, for a minimum period, the period
selected by the Committee may not be less than one year.
(b) Any condition providing for the forfeiture of a Restricted
Stock Award upon the occurrence or non-occurrence of a specified event or events
shall immediately lapse in the event of a Change in Control of the Company.
(c) Certificates for a Nonrestricted Stock Award shall be
issued to the Grantee as soon as practicable after the Grantee satisfies any
applicable tax withholding requirements. Certificates for a Restricted Stock
Award shall be issued in the Grantee's name and shall be held in escrow by the
Company (along with stock powers executed by the Grantee) until all conditions
that may cause a forfeiture of the Shares lapse or such Shares are forfeited as
provided therein. A certificate or certificates representing a Restricted Stock
Award as to which such conditions have lapsed shall be delivered to the Grantee
upon such lapse as soon as practicable after the Grantee has satisfied any
applicable tax withholding requirements.
<PAGE>
7
7. STOCK OPTIONS.
(a) The Committee may grant Options under the Plan with an
exercise price at or above the Fair Market Value of the Shares as of the Date of
Grant. Any Option that satisfies all of the requirements of Section 422 of the
Code may be designated by the Committee as an ISO. An Option (or portion
thereof) that is not so designated, or that does not satisfy the requirements of
Section 422 of the Code, and any Option that is granted to a member of the Board
who is not also a key employee or officer of the Company or a Subsidiary, shall
not constitute an ISO and shall be an NQO.
(b) An ISO must expire no later than ten years after the Date
of Grant. The aggregate fair market value, determined on the Date of Grant, of
the Shares with respect to which ISOs granted to a Grantee under all plans of
the Company and its Subsidiaries may become exercisable during a calendar year
may not exceed $100,000. To the extent the foregoing limitation is exceeded, the
excess Shares shall be deemed to be subject to NQOs.
(c) An Option shall become immediately exercisable in full in
the event of a Change in Control of the Company.
(d) A Grantee may exercise an Option to the extent it has
become exercisable by complying with the notification procedures provided by the
Company's Human Resources Department at its corporate headquarters.
Contemporaneously with the delivery of notice with respect to exercise of an
Option, the full purchase price of the Shares purchased pursuant to the exercise
of the Option shall be paid in cash, or, if approved by the Committee, by tender
of Share certificates in proper form for transfer to the Company valued at the
Fair Market Value of the Shares on the preceding day, or by any combination of
the foregoing or with any other consideration acceptable to the Committee.
Payment upon the exercise of such Option may also be made by means of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the portion of the sale or loan proceeds
sufficient to pay such purchase price.
8. STOCK APPRECIATION RIGHTS.
(a) The Committee may grant Tandem SARs or Non-Tandem SARs
under the Plan. The base price of a Non-Tandem SAR must be set by the Committee
at or above the Fair Market Value of a Share as of the Date of Grant. The base
price of a Tandem SAR must equal the exercise price of the related Option. A
Grantee who is awarded an SAR shall be entitled to receive from the Company, at
the time the SAR is exercised, that number of Shares having an aggregate Fair
Market Value as of the date of exercise equal to the product of (i) the number
of Shares as to which the Grantee is exercising the SAR, and (ii) the excess of
the Fair Market Value (at the date of exercise) of a Share over the base price
of the SAR. The Committee, in its sole discretion, may elect to settle all or a
portion of the Company's obligation arising out of the exercise of an SAR by the
payment of cash in an amount equal to the Fair Market Value as of the date of
exercise of the Shares it would otherwise be obligated to deliver. Tandem SARs
shall be exercisable only to the extent that the related Option is exercisable.
Non-Tandem SARs shall be
<PAGE>
8
exercisable as determined by the Committee at the Date of Grant. A Tandem
SAR shall be canceled to the extent that the related Option is exercised and the
Option shall be canceled to the extent that the related Tandem SAR is exercised.
(b) An SAR shall become immediately exercisable in full in the
event of a Change in Control of the Company.
(c) A Grantee may exercise an SAR to the extent it has become
exercisable by complying with the notification procedures provided by the
Company's Human Resources Department at its corporate headquarters.
9. SPECIAL PROVISIONS UNDER CODE SECTION 162(M).
(a) The provisions of this Section 9 shall apply only to
persons designated by the Committee as individuals who are or who are likely to
become "covered employees," within the contemplation of Section 162(m) of the
Code; provided that, if an individual is so designated and the Committee
determines that such individual is not a covered employee for the year in which
the Company is entitled to a deduction with respect to income he recognizes for
Federal income tax purposes in connection with an Award, the provisions of this
Section 9 shall not apply to such Award. The provisions of this Section 9 shall
only apply to conditions, restrictions and limitations applicable to Awards that
are related to the performance of the Company and if the provisions of this
Section 9 are necessary so that the Award qualifies as "qualified
performance-based compensation" as defined in Treasury Regulation Section 1.162-
27(e)(2). In the event of any inconsistencies between this Section 9 and the
other Plan provisions within the scope of the foregoing, the provisions of this
Section 9 shall control with respect to covered employees.
(b) With respect to each Award described in paragraph (a),
as soon as practicable following the grant of an Award subject to
this Section 9 (but in no event more than ninety (90) days after the
Date of Grant), the Committee shall establish the performance-related goals to
be used in connection with conditions, restrictions and limitations applicable
to such Award. The performance-related goals shall be chosen from among the
following factors, or any combination of the following, as the Committee deems
appropriate: total stockholder return; growth in revenues, sales, net income,
stock price, and/or earnings per share; return on assets, net assets, and/or
capital; return on stockholders' equity; debt/equity ratio; working capital;
safety; quality; the Company's financial performance versus peers; cost
reduction; productivity; market mix; or economic value added. The Committee may
select among the goals specified from Award to Award which need not be the same
for each Grantee.
(c) With respect to each Award described in paragraph (a), the
Committee shall (at the same time it is making the determinations under
paragraph (b)) determine the relationship between the performance-related goals
and the conditions, restrictions and limitations applicable to the Award.
<PAGE>
9
(d) In connection with the Awards described in paragraph (a),
no performance-related goal will be considered to be satisfied until the
Committee has certified the extent to which the performance-related goals and
any other material terms were satisfied.
(e) Once established, performance-related goals shall not be
changed, except to the extent that the Committee has specified adjustments as
part of the determinations made under paragraphs (b) and (c). Except as provided
in the preceding sentence, no performance-related goal applicable to a
condition, restriction or limitation shall be considered to be satisfied if the
minimum performance-related goals applicable thereto are not achieved.
(f) Individual performance shall not be reflected in a
performance-related goal under this Section 9. However, the Committee may retain
the discretion to treat a performance-related goal as not having been satisfied
due to the failure of a Participant to meet individual performance goals.
(g) If, on advice of the Company's tax counsel, the Committee
determines that Code Section 162(m) and the regulations thereunder will not
adversely affect the deductibility for federal income tax purposes of any amount
paid under the Plan by applying provisions of this Plan (including this Section
9(g)) that conflict with this Section 9 to a covered employee, then the
Committee may, in its sole discretion, apply such Section or Sections to the
covered employee without regard to the exceptions to such Section or Sections
that are contained in this Section 9.
10. EXERCISE OF OPTIONS AND SARS. No Option or SAR may at any time be
exercised with respect to a fractional share or exercised in part with respect
to fewer than 100 shares (unless it is being exercised in full). In the event
that Shares are issued pursuant to the exercise of an SAR, no fractional shares
shall be issued; payment shall be made in cash for any such fractional shares.
Certificates for whole shares shall be delivered as soon as practicable after
the Grantee satisfies any applicable tax withholding requirements.
11. DEATH, RETIREMENT, AND TERMINATION OF EMPLOYMENT. (a) If a
Grantee's employment with the Company and all of its Subsidiaries terminates:
(i) If such employment terminates involuntarily and for good
cause (as determined by the Company), all Options and SARs held by the Grantee
will expire and the Grantee's Restricted Stock Awards as to which any condition
providing for the forfeiture thereof exists ("Unvested Restricted Stock Awards")
will be forfeited immediately.
(ii) If such employment terminates involuntarily without cause
or voluntarily for any reason, except in the case of the Grantee's Disability,
Retirement or death, (A) all unexercisable Options and SARs held by the Grantee
will expire immediately; (B) all exercisable options and SARs held by the
Grantee will expire three months after termination (unless their
<PAGE>
10
expiration date is earlier); and (C) Unvested Restricted Stock Awards held by
the Grantee will be forfeited.
(iii) If such employment terminates because of Disability or
Retirement, the Grantee will be treated under all Awards as if employment with
the Company or Subsidiary continued for five years.
(iv) If a Grantee dies while employed or during the five-year
period described in paragraph (iii), all Options and SARs held by the Grantee
will become exercisable (and remain exercisable for two years unless their
expiration date is earlier) and all conditions providing for forfeiture of the
Grantee's Unvested Restricted Stock Awards will lapse.
(b) The Committee may provide (i) that an Award will not terminate or
be forfeited as a result of the termination of the Grantee's employment; and
(ii) for additional opportunities for the exercise of an Option or SAR after a
Grantee's termination of employment, in addition to (a), above.
(c) For all purposes of the Plan, the employment of a Grantee will not
be considered to be terminated if the Grantee is receiving periodic severance
payments from the Company or a Subsidiary. Leaves of absence for periods and
purposes conforming to the policy of the Company shall not be deemed
terminations or interruptions of employment.
(d) In the case of a Grantee who is a member of the Board and not an
employee of the Company or a Subsidiary, the provisions of this Section 11 shall
be applied by treating the Grantee's service on the Board as if it were
employment with the Company.
12. COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other
provision in the Plan, the Company shall have no liability to issue any Shares
under the Plan unless such issuance would comply with all applicable laws and
applicable requirements of any securities exchange or similar entity. Prior to
the issuance of any Shares under the Plan, the Company may require a written
statement that the recipient is acquiring the Shares for investment and not for
the purpose or with the intention of distributing the Shares.
13. TRANSFERABILITY.
(a) Except to the extent specifically provided by the
Committee, an Award (including the Shares subject to a Restricted Stock Award
until all conditions providing for forfeiture have lapsed) shall not be sold,
assigned, pledged or otherwise transferred, voluntarily or involuntarily, by the
Grantee.
(b) Incentive Stock Options granted under the Plan are not
transferable except by will or by the laws of descent and distribution or, to
the extent not inconsistent with the applicable provisions of the Code, pursuant
to a qualified domestic relations order (as that term
<PAGE>
11
is defined in the Code). Incentive Stock Options may be exercised during the
lifetime of the Grantee only by the Grantee, and after the death of the Grantee,
only as provided in Section 11.
14. EMPLOYMENT, STOCKHOLDER AND BOARD STATUS. The Plan does not
constitute a contract of employment or continued service, and selection as a
Grantee will not give any employee or Grantee the right to be retained in the
employ of the Company or any Subsidiary or as a member of the Board. No person
entitled to exercise any Option or SAR granted under the Plan shall have any of
the rights or privileges of a stockholder of record with respect to any Shares
issuable upon exercise of such Option or SAR until certificates representing
such Shares have been issued and delivered. Certificates representing Shares
issued under the Plan may bear a legend referring to any conditions,
restrictions and limitations deemed appropriate by the Committee.
15. ADJUSTMENTS TO NUMBER OF SHARES AND TERMS. Subject to the following
provisions of this Section 15, in the event of any change in the outstanding
Shares by reason of any share dividend, split, recapitalization, merger,
consolidation, combination, exchange of shares or other similar corporate
change, the aggregate number and kind of Shares reserved for issuance under the
Plan or subject to Awards outstanding or to be granted under the Plan shall be
proportionately adjusted so that the value of each Award shall not be changed,
and the terms of any outstanding Award may be adjusted by the Committee in such
manner as it deems equitable, provided that, in no event shall the Option price
for a Share be adjusted below the par value of such Share, nor shall any
fraction of a Share be issued upon the exercise of an Option or SAR. Shares
subject to a Restricted Stock Award shall be treated in the same manner as other
outstanding Shares; provided that any conditions and restrictions applicable to
a Restricted Stock Award shall continue to apply to any Shares, other security
or other consideration received in connection with the foregoing.
16. CHANGE IN CONTROL. Upon the occurrence of a Change in Control, all
outstanding Options and SARs, and all outstanding Restricted Stock Awards as to
which any conditions providing for forfeiture have not lapsed, shall be
automatically purchased by the Company at the Acceleration Price with payment to
be made within thirty days of such Change in Control, irrespective of whether
the stockholders of the Company have approved the Plan as contemplated by
Section 18.
17. WITHHOLDING. Whenever a Grantee recognizes income with respect to
an Award (and as a condition to the exercise of any Option or SAR or the receipt
of a Stock Award), the Grantee will have the obligation to pay all federal,
state, and local income or other taxes due and the Company shall have the right
to withhold from amounts payable to the Grantee in any manner, as necessary to
satisfy all federal, state and local payroll tax withholding requirements.
Alternatively, the Committee may approve the Grantee's election to have Shares
withheld by the Company from the Shares otherwise to be delivered to the Grantee
or the Grantee's election to tender to the Company Shares previously acquired by
the Grantee. The number of Shares so withheld or tendered for payment of tax
withholding shall have an aggregate Fair Market Value as of the later of the
date the Committee approves the foregoing election or the date as of which
<PAGE>
12
income is recognized by the Grantee with respect to such Shares sufficient to
satisfy the applicable withholding taxes.
18. TERM OF PLAN. The Plan is effective January 1, 1997, and will be
submitted to the stockholders of the Company for approval on or before the first
anniversary of its adoption by the Committee. Awards may be granted prior to
stockholder approval, with all rights thereunder (other than the right to
receive payment of the Acceleration Price under Section 16) conditioned upon
such approval; provided that, if stockholder approval is not secured by such
anniversary, all such Awards shall expire and the Plan shall terminate. No ISO
may be granted under the Plan after December 31, 2006. No Award may be granted
under the Plan after the date on which the Plan is terminated pursuant to
Section 19.
19. AMENDMENT AND TERMINATION OF PLAN. Subject to any approval of the
stockholders of the Company that may be required (or, in the opinion of the
Committee, appropriate) under law or the rules of any securities exchange on
which the Shares are listed or similar entity, the Committee may at any time
amend, suspend or terminate the Plan. No amendment, suspension or termination of
the Plan shall materially and adversely alter or impair any Award previously
granted under the Plan without the consent of the holder thereof. No amendment
requiring stockholder approval under Treasury Regulation Section 1.162-27 or
Section 422 of the Code shall be valid unless such stockholder approval is
secured as provided therein.
20. APPLICABLE LAW. All questions under the Plan shall be governed by
the internal laws of the State of Delaware, without giving effect to the choice
of law provisions thereof.
Executed on behalf of the Company as of January 1, 1997, on this 17th
day of March, 1997.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
Richard F. Frisch
Vice President -- Human Resources
As adopted by the Board of Directors at its January 22, 1997, meeting
and as amended and restated by the Board of Directors at its February 28, 1997,
meeting.
<PAGE>
EXHIBIT 10.32
AMENDED AND RESTATED
BOWATER INCORPORATED
1997-1999 LONG-TERM INCENTIVE PLAN
(Effective January 1, 1997)
<PAGE>
TABLE OF CONTENTS
Page No.
Section 1. Establishment of Plan..................................1
Section 2. Definitions............................................1
Section 3. Administration.........................................6
Section 4. Eligibility and Participation..........................6
Section 5. Award Determination....................................7
Section 6. Payment of Final Awards................................8
Section 7. Termination of Employment..............................9
Section 8. Covered Officers.......................................9
Section 9. Change in Control.....................................10
Section 10. Amendment and Modification...........................10
Section 11. Miscellaneous........................................10
<PAGE>
SECTION 1. ESTABLISHMENT OF PLAN
Effective January 1, 1997, Bowater Incorporated, a Delaware corporation
(the "Company"), hereby establishes an incentive compensation plan to be known
as the "Bowater Incorporated 1997-1999 Long-Term Incentive Plan" (the "Plan"),
as set forth in this document. Effective January 1, 1997, the Plan is hereby
amended and restated, as set forth in this document. This amended and restated
Plan document shall supersede the Plan document as originally adopted.
SECTION 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
indicated:
"Acquiring Person" means any Person who is or becomes a "beneficial
owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act of securities of the Company representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding voting
securities, unless such Person has filed Schedule 13G and all required
amendments thereto with respect to its holdings and holds and continues to hold
such securities for investment in a manner qualifying such Person to utilize
Schedule 13G for reporting of ownership.
"Acceleration Price" means the highest of:
(A) The highest reported sales price of the Common Stock
within the sixty (60) days preceding the date of the
Change in Control, as reported on any securities
exchange upon which the Common Stock is listed,
(B) The highest price of the Common Stock as reported in
a Schedule 13D or an amendment thereto that is paid
within the sixty (60) days preceding the date of the
Change in Control,
(C) The highest tender offer price paid for the Common
Stock, and
(D) Any cash merger or similar price.
"Active Employee" means an Employee who is providing services to the
Company or a subsidiary and does not include an individual who is receiving
periodic severance payments.
"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 Effective Date.
"Aggregate Unit Value" means the sum of the Unit Values for the Fiscal
Years in the Plan Cycle. For a Participant described in Section 4.2 or 7,
Aggregate Unit Value will only include the Unit Values for the portion of the
Plan Cycle during which the Participant participated hereunder (with the Unit
Value for any partial Fiscal Years of participation calculated only on the basis
of the portion during which participation occurred).
<PAGE>
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"Average RONA" means the quotient of (i) the sum of Operating Earnings
for Fiscal Years 1997-1999, divided by (ii) the quotient of (A) the sum of Net
Assets as of the end of Fiscal Years 1996, 1997, 1998 and 1999 divided by (B)
four (4).
"Board" means the Board of Directors of the Company.
"Cause" means the Participant's gross negligence, willful misconduct or
conviction of a felony, which negligence, misconduct or conviction has a
demonstrable and material adverse effect upon the Company, provided that the
Company shall have given the Participant written notice of the alleged
negligence or misconduct and the Participant shall have failed to cure such
negligence or misconduct within thirty (30) days after his receipt of such
notice. The Participant 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 Company to the Participant 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 Participant and an opportunity for the Participant, with his
counsel present, to be heard before the Board) finding that, in the good faith
opinion of the Board, the Participant was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and circumstances
claimed to provide the basis for the Participant's termination, provided that
the effective date shall not be less than thirty (30) days from the date such
notice is given.
"Change in Control" means that:
(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 Company shall
approve a merger or consolidation of the
Company or a plan of complete liquidation of
the Company or an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets.
"Code" means the Internal Revenue Code of 1986, as amended. References
to a Section of the Code shall include references to any Temporary or Final
Regulations related to such Section, and to any successor to such Section or
Regulations.
"Committee" means the Human Resources and Compensation Committee of the
Board, or such other committee of two (2) or more "outside directors" within the
meaning of section 162(m) of the Code, who are appointed by the Board to
administer the Plan.
"Common Stock" means the common stock of the Company, par value $1.00
per share.
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"Company" means Bowater Incorporated, a Delaware corporation, and any
successor thereto.
"Continuing Director" means any member of the Board who was a member of
the Board as of the Effective Date, 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.
"Covered Officer" means any individual designated by the Committee as
such, because, in the Committee's judgment, he is or may become a "covered
employee" within the meaning of section 162(m) of the Code. Notwithstanding the
foregoing, if at the time of payment of a Final Award to a Participant, the
Committee has concluded that such Participant is not a covered employee for the
year in which the Final Award would be deductible by the Company for tax
purposes, then such Participant shall not be a Covered Officer.
"Disability" shall have the meaning contained in the Company's
long-term disability plan.
"Effective Date" means January 1, 1997.
"Employee" means a full-time, salaried employee of the Company or a
subsidiary that, directly or indirectly, is at least 50% owned by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing price per share of the Common
Stock as reported for the New York Stock Exchange Composite Transactions in the
Wall Street Journal for that date.
"Final Award" means the amount for each Participant calculated pursuant
to Section 5.3.
"Fiscal Year" means (i) for the Company, the referenced year ended
December 31; and (ii) for any Peer Company, its fiscal year ending with or
within such Fiscal Year of the Company.
"Good Reason" means:
(i) an adverse change in the Participant's status, duties
or responsibilities as an executive of the Company as
in effect immediately prior to the Change in Control;
<PAGE>
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(ii) failure of the Company to pay or provide the
Participant in a timely fashion the salary or
benefits to which he is entitled under any Employment
Agreement between the Company and the Participant in
effect on the date of the Change in Control, or under
any benefit plans or policies in which the
Participant 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 Participant's salary as in
effect on the date of the Change in Control;
(iv) the taking of any action by the Company (including
the elimination of a plan without providing
substitutes therefor, the reduction of the
Participant's awards thereunder or failure to
continue the Participant's participation therein)
that would substantially diminish the aggregate
projected value of the Participant's awards or
benefits under the Company's benefit plans or
policies in which the Participant was participating
at the time of the Change in Control;
(v) a failure by the Company to obtain from any successor
the assent to the Participant's Change in Control
Agreement contemplated by Section 5 thereof; or
(vi) the relocation of the principal office at which the
Participant is to perform his services on behalf of
the Company 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
Participant's business travel obligations subsequent
to the Change in Control.
Any circumstance described above shall constitute Good Reason even if
such circumstance would not constitute a breach by the Company of the terms of
the Employment Agreement between the Company and the Participant in effect on
the date of the Change in Control. The Participant 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 Company
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 Participant's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.
<PAGE>
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"Net Assets" means total assets less nonfinancial current liabilities
as recorded on the Company's or a Peer Company's balance sheet.
"Normal Retirement Date" shall have the meaning given to such term in
the Company's basic qualified pension plan in which the Participant is a
participant as in effect on the Effective Date or any successor or substitute
plan adopted prior to a Change in Control.
"Operating Earnings" means operating income, after depreciation, but
before interest and taxes, as recorded on the Company's or on a Peer Company's
statement of operations for the applicable Fiscal Year.
"Participant" means an Active Employee who is eligible to participate
in the Plan.
"Peer Companies" mean the following companies in the paper and wood
products industry designated by the Committee:
Abitibi-Price Inc. Avenor Inc.
Champion International Corporation Donohue Inc.
Fletcher Challenge Canada Limited International Paper Company
The Mead Corporation Stone-Consolidated Corporation
Westvaco Corporation Weyerhaeuser Company
"Peer Group Average" means the arithmetic mean of the Average RONAs of
the Peer Companies for the Plan Cycle. If one or more of the Peer Companies is
eliminated during the Plan Cycle either through acquisition or dissolution, or
because of any other reason, then the Peer Group Average shall be based on the
Average RONAs of the remaining Peer Companies. If one or more Peer Companies are
combined during the Plan Cycle, either through merger, consolidation, purchase
and sale of assets, or because of any other reason, then (i) for periods before
they are combined, "Peer Group Average" shall be based on the Average RONAs of
all such Peer Companies; and (ii) for periods after they are combined, "Peer
Group Average" shall include the Average RONA of the combined entity.
"Performance Goal Formula" means the formula established by the
Committee and described in Section 5.3 to be used to determine the percentage,
if any, of a Participant's Aggregate Unit Value that becomes a Final Award.
"Person" means any individual, corporation, partnership, group,
association or other "person" as such term is used in sections 13(d) and 14(d)
of the Exchange Act.
"Plan" means the Bowater Incorporated 1997-1999 Long-Term Incentive
Plan.
<PAGE>
- 6 -
"Plan Cycle" means the period over which performance will be measured
for purposes of determining the amount, if any, of a Participant's Aggregate
Unit Values that will be paid as a Final Award. The Plan Cycle will commence on
January 1, 1997, and will end December 31, 1999.
"Retirement" means a Participant's termination of employment in a
retirement status under the qualified pension plan of the Participant's employer
in which he is participating.
"Section" means the indicated provision of the Plan.
"Unit" refers to units granted to Participants pursuant to the Plan,
each of which corresponds to one share of the Company's common stock.
"Unit Value" refers to the dollar value of a Participant's Units as
determined for each Fiscal Year of the Plan Cycle pursuant to Section 5.2.
Except where otherwise indicated by the context, any masculine term
used herein also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee has
delegated to the Vice President -- Human Resources of the Company, and other
appropriate officers and employees of the Company, responsibility for
administering the Plan, other than the Committee's powers with respect to
Covered Officers under Section 8.
Subject to the limitations of the Plan, the Committee shall: (i)
correct any defect or omission or reconcile any inconsistency in this Plan or in
any award granted hereunder, and (ii) make all other necessary determinations
and take all other actions necessary or advisable for the implementation and
administration of the Plan. The Committee's determinations on matters within its
authority shall be conclusive and binding upon all parties; provided that the
Committee may not exercise discretion with respect to a Covered Officer in a
manner that is inconsistent with Treasury Regulation Section
1.162-27(e)(2)(iii).
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 GENERAL. Active Employees who are in salary grades 31 and above
shall be Participants in the Plan for the Plan Cycle, subject to the limitations
of Section 7 herein. An Employee who is eligible to participate in the Plan
shall be so notified in writing, and shall be apprised of his Units, the manner
of determining Unit Values and the Performance Goal Formula for the Plan Cycle
within the first 90 days of the Plan Cycle.
<PAGE>
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4.2 PARTIAL PLAN CYCLE PARTICIPATION. In the event that an Employee
becomes eligible to participate in the Plan subsequent to the commencement of
the Plan Cycle, such Employee shall be granted the number of Units he would have
received if he had entered the Plan at the beginning of the Plan Cycle based on
his salary grade and shall be notified of his Units, the manner of determining
Unit Values and the Performance Goal Formula for the Plan Cycle as soon as
practicable and in any event before the earlier of (i) the ninetieth day after
the Employee becomes eligible to participate or (ii) the day as of which 25% of
the portion of the Plan Cycle during which such Employee participates has
lapsed. The Participant's Aggregate Unit Values will include only Unit Values
for the portion of the Plan Cycle during which the Participant participates.
4.3 CHANGE IN SALARY GRADE. Subject to the last sentence of Section
8.3, if a Participant is promoted to a higher salary grade during the Plan
Cycle, his Units shall be increased to a number of Units applicable to the new
salary grade for the Fiscal Year. The Unit Value for the Fiscal Year the change
occurs will equal (i) the sum of the Units he was first granted under Section
5.1 times the number of days he was in that salary grade for that Fiscal Year,
plus the number of Units he received under the new salary grade times the number
of days he was in the new salary grade for that Fiscal Year, divided by (ii) the
total number of days he participated in the Plan for that year. Any subsequent
promotions will be factored in by making additional computations in the same
manner to take account of the new salary grade for the remainder of any Fiscal
Year. If a Participant is demoted during the Plan Cycle, such demotion will have
no effect on the Participant's participation hereunder; provided that the
Committee may elect to reduce or eliminate his Final Award in any fashion it
deems appropriate on account of such demotion.
4.4 NO RIGHT TO PARTICIPATE. Except as specifically provided in
Sections 4.1 and 4.2, no Participant or other Employee shall at any time have a
right to be selected for participation in the Plan, despite having previously
participated in an incentive plan of the Company.
SECTION 5. AWARD DETERMINATION
5.1 INITIAL UNITS. As of the beginning of the Plan Cycle, each
Participant shall receive the number of Units assigned to his salary grade. The
Units assigned to each salary grade are equal to (i) the product of (A) the
bonus percentage assigned for the 1997 Fiscal Year of the Company to that salary
grade, times (B) the midpoint of that salary grade for the 1997 Fiscal Year,
divided by (ii) the average daily closing price of the Company's Common Stock
for the 1996 calendar year.
1997 1997
Salary Grade Salary Grade
Units for each Bonus Percentage X Midpoint
---------------------------------------------
Salary Grade = Company's 1996 Average Common Stock Price
<PAGE>
- 8 -
5.2 UNIT VALUES. Except as may be provided in Sections 4.2 and 4.3 or
Section 7, for each Fiscal Year of the Company during the Plan Cycle, the
Committee will determine a Unit Value for each Participant by multiplying each
Participant's Units by the average daily closing price of the Common Stock for
such Year. If a Participant is only entitled to a pro rated Award for a Fiscal
Year pursuant to Sections 4.2 or 7, then the Unit Value for such Participant
shall be multiplied by a fraction equal to the number of days the Participant
participated in the Plan divided by 365.
5.3 PERFORMANCE GOAL FORMULA AND FINAL AWARDS. At the end of the Plan
Cycle, the Committee will determine the Final Award for each Participant by
multiplying the Aggregate Unit Value for such Participant by a percentage
determined based on the Company's Average RONA as a multiple of the Peer Group
Average. Such percentage shall equal zero if the Company's Average RONA is not
more than one (1) times the Peer Group Average. If the Company's Average RONA is
more than one (1) times the Peer Group Average, such percentage shall equal the
product of (i) 250% times (ii) a fraction, the numerator of which is the lesser
of (A) the Company's Average RONA divided by the Peer Group Average, minus 1,
or (B) .5, and the denominator of which is .5.
5.4 ADJUSTMENTS. In the event of any change in the outstanding shares
of Common Stock by reason of any share dividend, split recapitalization, merger,
consolidation, combination, exchange of shares or other similar corporate
change, each Participant's Units shall be proportionately adjusted so that the
value of the Units shall not thereby be changed.
SECTION 6. PAYMENT OF FINAL AWARDS
6.1 FORM AND TIMING OF PAYMENT. (a) Except as may be otherwise provided
in Section 6.2 or Section 9, the Company shall pay to each Participant (i) a
number of shares of Common Stock equal to one-half of the Participant's Final
Award divided by the Stock Price, and (ii) cash equal to one-half of the Final
Award. The Stock Price shall be the Fair Market Value of one share of Common
Stock as of the date on which the Committee approves the Final Award. Except in
the case of a Participant who is a Covered Officer, the Board may change the
allocation between stock and cash in its discretion.
(b) Shares and cash described in paragraph (a) shall be
distributed as soon as practicable after the amounts thereof have been
determined. Notwithstanding the foregoing, except in the case of a Covered
Officer, the Committee may authorize the payment of part or all of an estimated
Final Award for a Participant prior to the determination thereof pursuant to
Section 5.3, subject to such conditions and limitations deemed appropriate by
the Committee.
<PAGE>
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6.2 LIMITATIONS. Notwithstanding the provisions of Section 6.1, if the
form of payment described therein would cause the number of shares of Common
Stock issued hereunder to exceed five percent (5%) of the outstanding shares of
Common Stock on the record date of the 1997 Annual Meeting of Stockholders of
the Company, less 1,000,000 (the number of shares reserved for issuance under
the Bowater Incorporated 1997 Stock Option Plan as of such record date), then
the number of shares distributable to each Participant hereunder shall be
proportionately reduced so that such limit is not exceeded and cash shall be
paid in lieu thereof to each Participant.
SECTION 7. TERMINATION OF EMPLOYMENT
7.1 TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT OR
SALE OF BUSINESS UNIT. In the event a Participant's employment is terminated by
reason of death, Disability, Retirement, or sale by the Company of the
subsidiary or unit employing the Participant, the Final Award determined in
accordance with Section 5.3 herein shall be pro rated based solely upon the
Aggregate Unit Values computed for the portion of the Plan Cycle occurring prior
to termination during which the Participant was an Active Employee. In the case
of a Participant's Disability, the employment termination shall be deemed to
have occurred on the date the disability commences as determined by the
Committee.
Payments under this Section 7.1 shall be made after the end of the Plan
Cycle in accordance with the provisions of Section 6.
7.2 TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event a
Participant's employment is terminated prior to the payment of the Final Award
for any reason other than death, Disability, or Retirement, or sale by the
Company of the subsidiary or unit employing the Participant, all of the
Participant's rights to a Final Award for the Plan Cycle shall be forfeited.
However, except as provided under Section 8, the Committee, in its sole
discretion, may pay an award (or a portion of an award) for the portion of the
Plan Cycle that the Participant was a Participant, computed as determined by the
Committee and payable after the end of this Plan Cycle in accordance with the
provisions of Section 6.
SECTION 8. COVERED OFFICERS
8.1 APPLICABILITY OF SECTION 8. The provisions of this Section 8 shall
apply only to Covered Officers. In the event of any inconsistencies between this
Section 8 and the other Plan provisions (other than Section 9), the provisions
of this Section 8 shall control.
8.2 COMMITTEE CERTIFICATION. At the end of the Plan Cycle and prior to
payment, the Committee shall certify (i) the extent to which the performance
goals reflected in the Performance Goal Formula were satisfied, and (ii) the
Final Awards for each Covered Officer as computed in accordance with Sections 5
and 6.
<PAGE>
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8.3 NON-ADJUSTMENT OF PERFORMANCE GOALS AND MAXIMUM AWARD. Subject to
Sections 4.3, 5.3 and 5.4, once established for a Participant, the number of
Units received by the Participant, the method of computing Aggregate Unit Value
and the Performance Goal Formula shall not be changed during the Plan Cycle.
Notwithstanding any provision herein, the maximum Final Award for each Covered
Officer is $6,000,000.
SECTION 9. CHANGE IN CONTROL
Notwithstanding any other provision of the Plan, if a Change in Control
of the Company shall have occurred and, prior to payment of Final Awards, if
any, under the Plan, a Participant's employment by the Company is terminated
for any reason other than his death, his Disability, his retirement on his
Normal Retirement Date, by the Company for Cause, or by the Participant
without Good Reason, the Company shall pay the Participant a Final Award equal
to three times the Participant's Units multiplied by 250%, times the
Acceleration Price. All Final Awards paid pursuant to this Section 9
shall be paid entirely in cash within thirty (30) days of termination of
employment.
SECTION 10. AMENDMENT AND MODIFICATION
Subject to Section 8.3, the Committee, in its sole discretion, with
notice to all Participants, at any time and from time to time, may modify or
amend, in whole or in part, any or all of the provisions of the Plan, or suspend
or terminate it entirely; provided, however, that no such modification,
amendment, suspension, or termination may affect Participants' rights under
Section 9, and in the event of any such modification, amendment, suspension or
termination, any Participant (or his beneficiary, as the case may be) who is an
Active Employee on the effective date thereof shall be entitled to no less of a
payment or distribution hereunder than the amount he would have otherwise
received, based upon the Participant's Units, the Aggregate Unit Value and the
percentage determined under the Performance Goal Formula, all computed as of the
end of the Fiscal Year prior to or following the date of the change or
termination, whichever is greater.
SECTION 11. MISCELLANEOUS
11.1 GOVERNING LAW. The Plan, and all agreements hereunder, shall be
governed by and construed in accordance with the laws of the State of Delaware.
11.2 WITHHOLDING TAXES. The Company shall have the right to deduct from
all payments under the Plan any Federal, state, or local taxes required by law
to be withheld with respect to such payments.
11.3 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
<PAGE>
- 11 -
11.4 COSTS OF THE PLAN. All costs of implementing and administering the
Plan shall be borne by the Company.
11.5 SUCCESSORS. All obligations of the Company under the Plan shall be
binding upon and inure to the benefit of any successor to the Company, whether
the existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
11.6 STOCKHOLDER APPROVAL. This Plan is adopted and all Awards and any
payouts hereunder (other than pursuant to Section 9) are made subject to the
condition that the Plan be approved by the stockholders of the Company at the
1997 Annual Meeting of the Stockholders of the Company. If the Plan is not so
approved, it and such Awards shall be null and void and without effect except to
the extent that payouts have previously been made pursuant to Section 9.
11.7 EMPLOYMENT STATUS. The Plan does not constitute a contract of
employment or continued service, and selection as a Participant will not give
any Employee the right to be retained in the employ of the Company or any
subsidiary.
11.8 UNSECURED GENERAL CREDITOR. Participants and their heirs,
successors and assigns shall have no legal or equitable rights, interest or
claims in any property or assets of the Company by virtue of participation in
the Plan. The Company's obligation under the Plan shall be that of an unfunded
and unsecured promise of the Company to pay money in the future.
11.9 NONASSIGNABILITY. No Participant or any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in advance of actual receipt
of the amounts, if any, payable hereunder, or any part thereof, which are, and
all rights to which are, expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure or sequestration for the payment of any debts, judgment,
alimony or separate maintenance owed by a Participant or any other person, nor
be
<PAGE>
12
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
EXECUTED on behalf of the Company as of January 1, 1997, on the 17th
day of March, 1997.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
Richard F. Frisch
Vice President - Human Resources
As adopted by the Human Resources and Compensation Committee and the Board of
Directors at their January 22, 1997, meetings, and as subsequently amended and
restated by the Human Resources and Compensation Committee at its February 28,
1997, meeting.
<PAGE>
<PAGE>
Annual Report 1996
Bowater
Incorporated
(Full page background photo appears--see next page for caption)
<PAGE>
Financial Highlights
(In millions, except per-share amounts) 1996 1995
Net sales $1,718.3 $2,001.1
Operating income 301.2 549.3
Net income 200.2 246.9
Fully diluted income per common share $ 4.55 $ 5.22
Average common and common equivalent shares outstanding 42.9 43.4
Dividends declared per common share $.80 $ .60
Total assets 2,865.5 2,908.2
Total shareholders' equity 1,171.1 1,095.4
Percent return on average common equity 18.6% 27.5%
Total debt $ 760.6 $ 818.1
Total debt as a percentage of total capitalization 36.5% 38.7%
Current ratio 2.97x 2.36x
Capital expenditures, including timberlands 107.0 96.0
Registered shareholders 5,600 5,900
Employees 5,025 5,500
Common stock price range 31 3/4-41 1/4 26 1/2-53 1/2
Contents:
At A Glance 1
To Our Shareholders 2
Newsprint 6
Coated Paper and Pulp 10
Great Northern Paper 14
Environment,
Health and Safety 18
Financial Report 20
Front cover: In the foreground is a portion of Great Northern Paper's (GNP)
timberlands in Maine adjacent to Mt. Katahdin and Baxter State Park. At 5,267
feet, Mt. Katahdin is the tallest mountain in the state and marks the northern
terminus of the Appalachian Trail.
(Full page background photo appears with the following caption.)
Pictured: Compass Pond on
GNP's Golden Road located in Maine's unorganized territory.
<PAGE>
At A Glance
(Photo appears here)
Newsprint
Bowater's Newsprint Division is responsible for paper mills at Calhoun, Tenn.,
and Liverpool, Nova Scotia, as well as the sales of production from one machine
in Catawba, S.C., and East Millinocket, Maine; a recycle facility at Calhoun and
shared use of one at East Millinocket; two lumber mills; 1.1 million acres of
timberlands; and 2,100 employees. It is the largest manufacturer of newsprint in
the U.S., producing 1.5 million short tons per year, or 8% of North American
production capacity and 10% of U.S. market share.
Products and Services: Division production includes 25-32 lb. virgin and
recycled fiber content newsprint (letterpress, offset, flexography) in white and
colors, as well as other uncoated groundwood papers. Customers include leading
newspapers throughout the world.
Export Markets: Argentina, Brazil, China, Colombia, Ecuador, Egypt, France,
Germany, Guatemala, Hong Kong, India, Israel, Malaysia, Saudi Arabia, Taiwan,
the United Kingdom, Uruguay, Venezuela.
Percent of
Total Revenues
(Percentages for Star Forms,
sold 11/96, not shown.)
(Bar graph appears here with the following plot points.)
1996 1995
38 34
Coated Paper and Pulp
(Photo appears here)
The Coated Paper and Pulp Division is responsible for a paper mill in Catawba,
S.C., and the sales of production from three coated paper machines in
Millinocket, Maine; pulp operations at Catawba S.C., and sales of market pulp
from Calhoun, Tenn.; 420,000 acres of timberlands; and over 1,100 employees.
Bowater is the fifth largest North American manufacturer of coated groundwood
paper, producing approximately 450,000 short tons, or 10% of U.S. capacity. The
Division's market pulp output is roughly 380,000 short tons, or around 6% and 2%
of U.S. softwood and hardwood capacity, respectively.
Products and Services: Division paper sales include 34-55 lb. virgin and
recycled fiber content coated groundwood No. 5 paper (offset, flexography,
rotogravure) in matte and glossy furnishes, as well as a range of coated
groundwood No. 4 papers. Customers include some of the largest
magazine/catalog/coupon publishers and printers in the world. Division pulp
sales include fully bleached softwood and hardwood market pulp for a variety of
end uses. Customers include some of the largest paper and board manufacturers in
the world.
Export Markets:
Coated Paper: Argentina, Australia, Belgium, Brazil, Canada, France, Japan,
Korea, Mexico, the Netherlands.
Pulp: Belgium, Brazil, Canada, China, Colombia, Ecuador, Egypt, France, Germany,
Indonesia, Italy, Japan, Jordan, Korea, the Netherlands, Spain, Taiwan,
Thailand, Tunisia, Turkey, the United Kingdom, Venezuela.
Percent of
Total Revenues
(Percentages for Star Forms,
sold 11/96, not shown.)
(Bar graph appears here with the following plot points.)
1996 1995
29 32
Great Northern Paper
(Photo appears here)
Bowater's Great Northern Paper, Inc., (GNP) Division consists of two paper mills
in Millinocket and East Millinocket, Maine; a recycle facility at East
Millinocket; Pinkham Lumber; 2.1 million acres of timberland; a hydroelectric
system; and approximately 1,700 employees. The Division is the largest
manufacturer of directory paper in the U.S., producing over 221,000 short tons,
or approximately 28% of U.S. market share.
Products and Services: GNP's paper mills manufacture directory paper and
newsprint as well as coated and uncoated groundwood specialty papers. Recycled
fiber is produced for use in uncoated groundwood papers to meet customer needs.
Pinkham Lumber produces softwood dimension lumber and mill-used wood chips. The
Division is responsible for the sale of directory and specialties paper.
Export Markets:
Directory: Australia, Brazil, Colombia, France, Germany, Great Britain, India,
Italy, Japan, Korea, Mexico, Panama, Saudi Arabia, Uruguay.
Specialties: Australia, India.
Percent of
Total Revenues
(Percentages for Star Forms,
sold 11/96, not shown.)
(Bar graph appears here with the following plot points.)
1996 1995
25 22
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To Our Shareholders
(Photo appears here with the following caption.)
Company officers seated (l to r): E.P. Duffy, A.D. Fuller, A.M. Nemirow,
D.G. McNeil, R.J. Pascal.
Standing (l to r): S.G. Lanzl, R.F. Frisch, A.H. Barash, R.A. Moran,
R.D. Leahy, D.J. D'Antuono, D.G. Maffucci, J.H. Dorton, M.F. Nocito,
W.C. Shiba
Bowater recorded a solid operating performance in 1996, one of the most
profitable years in our history. We accomplished this despite a significant
decline in pricing for three of our primary products -- newsprint, coated
groundwood papers and pulp. Our balance sheet is strong, our debt to capital
ratio ended the year at 36.5%, and operating costs and efficiencies improved by
nearly $150 million since the inception of our cost reduction program two years
ago. In 1996, almost $200 million of non-strategic assets were sold, consisting
of timberland and the company's Communication Papers (business forms) Division,
Star Forms. All five of our pulp and paper mills now have been certified under
the ISO 9002 International Quality Standards program. Most importantly,
Bowater's annual return to shareholders for the past two years, including
dividends, has exceeded 21%, on a compounded basis. Forbes ranked Bowater first
in return on both capital and equity in comparison with 18 other pulp and paper
companies during 1996 and The Wall Street Journal ranked Bowater first among
pulp and paper companies in five year average shareholder return. With much hard
work behind us, we are now poised for new challenges and growth opportunities.
Financial Results
Sales in 1996 were $1.7 billion, the second highest in Bowater's history,
compared to $2.0 billion the previous year. Net income for the year was $204.1
million, or $4.64 per fully diluted share, before charges relating to the
retirement of debt, but including a $40.4 million after tax gain, or $.94 per
fully diluted share, on the sale of timberlands and a $17 million after tax
gain, or $.40 per fully diluted share, on the sale of Star Forms. Net income,
after charges, was $200.2 million, or $4.55 per share, compared to $246.9
million, or $5.22 per share in 1995.
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Bowater's balance sheet improved significantly in 1996, as we further
enhanced shareholder value by:
o Increasing our cash and marketable securities balance at year end by $166
million over the previous year to $431 million, or $10 per share.
o Reducing indebtedness by $58 million ($358 million reduction since December
1994).
o Repurchasing 2.6 million shares of our common stock, part of a 4 million
share program completed this February.
o Redeeming all $115 million of our Series B Convertible Preferred Stock
(PRIDES), which had the effect of permanently lowering our fully diluted
outstanding shares by approximately 880,000 shares and saving $4.8 million
in cash dividends in 1997.
o Redeeming $25 million of our Series A LIBOR Preferred Stock.
The company's financial condition is excellent, providing substantial
flexibility to capitalize on strategic opportunities as they arise.
Operating Results
After several straight quarters of improving markets, newsprint prices peaked at
record levels in early 1996. In response to increasing prices, customers reduced
consumption and built inventories worldwide. As a result, demand weakened and
prices began to decline in the second quarter. Despite these weak market
conditions, Bowater's strong customer ties and efficient operations allowed us
to avoid market downtime. In fact, Bowater's newsprint shipments increased over
1995. U.S. customer inventories, which peaked at 57 days of supply in the first
quarter, were reduced to a more normal level of 36 days as the year ended, and
consumption of newsprint began to show improvement by midyear. Most new capacity
coming into production is in Asia, where the demand growth is the highest in the
world. No significant new capacity in North America is expected to come on
stream before the year 2000. Based on these changes in fundamentals, Bowater
recently announced a $75 per metric tonne domestic newsprint price increase
effective March 1, 1997.
Large inventories and weaker demand also characterized the coated groundwood
papers market in 1996. With strong customer loyalties, however, we experienced
no market downtime during the year. Our pricing declined over 15%, with
shipments down approximately 9% by the fourth quarter. The coated groundwood
market began to show signs of strengthening late in the year. U.S. mill
inventories continue to drop from their May 1996 peak, but they remain higher
than historical averages. Our customers entered 1997 with more optimism than
last year, as early indicators of magazine ad page growth are favorable. With
market conditions recently improved, our orderbook is strong for the first
quarter of 1997.
Our directory business was good. Prices for directory papers rose early in the
year but leveled off in the second half. With approximately 28% of U.S. market
share, Bowater has a significant presence in the domestic market. As the global
telecommunications industry expands, we expect to become an important supplier
to these markets as well.
Market pulp conditions deteriorated quickly in the first half of 1996 as
customers worked off very large inventories around the world. In the second half
of the year, demand improved, and inventory levels declined. Reflecting this
trend, our market pulp pricing gradually improved late in the year.
After many years of effort, in October 1996, our Great Northern Paper Division
in Maine received the renewal of its 30-year license from the Federal Energy
Regulatory Commission to operate its hydroelectric
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Return on Equity
(percent)
(Bar graph appears here with the following plot points.)
92 93 94 95 96
(9.6) (8.6) (3.0) 27.5 18.6
Net Sales
($ billions)
(Bar graph appears here with the following plot points.)
92 93 94 95 96
1.36 1.35 1.36 2.00 1.72
Net Income (Loss)
($ millions)
(Bar graph appears here with the following plot points.)
92 93 94 95 96
(82.0) (64.5) (4.8) 246.9 200.2
Total Debt as a Percentage of Total Capitalization
(percent)
(Bar graph appears here with the following plot points.)
92 93 94 95 96
51.9 54.1 50.3 38.7 36.5
dam facilities along the West Branch of the Penobscot River. Although appeals
are pending by several parties, we are optimistic that our relicensing
objectives will be achieved. Secondly, the voters of Maine rejected a referendum
proposal in November that would have unduly burdened GNP's ability to harvest
timber from our vast timberland holdings in the state. An alternative "Forestry
Compact," which was forged among Maine's government leaders, the paper industry,
organized labor and environmentalists, received a significant affirmative vote
and, although not binding, has provided the foundation for securing public
support of the industry's forestry practices in Maine. The Forestry Compact will
again go before the voters of Maine later in 1997, but GNP has already
unilaterally implemented many of its provisions as we continually seek to
improve and enhance our forest management practices.
Our emphasis on improving mill operations will continue. We are now establishing
"gainsharing" plans at each of our operating locations, as well as at corporate
headquarters, to reward employees for achieving new goals in safety, cost
reduction, productivity and quality performance. Our management group is
strongly motivated, through annual and long-term incentive plans, to achieve not
only the foregoing goals, but other objectives which are very closely tied to
enhanced shareholder value: return on net assets at both the division and
corporate levels and return on new capital investment.
Not only are our markets firming, but Bowater's methods of doing business also
continue to improve. Two years ago, we embarked upon an intensive
"activity-based" cost assessment program at every company facility. In addition
to the $150 million annual cost and efficiency improvements resulting from these
efforts, our management team has implemented new capital budgeting disciplines,
which focus on returns on new investment, without jeopardizing necessary
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capital requirements for projects driven by obsolescence and government
compliance. Rigorous review of capital projects enabled us to hold capital
expenditures in 1996 to $107 million.
Strategic Direction
Bowater's ultimate goal is to enhance shareholder value, through improved
financial performance on a sustained basis. With our balance sheet now one of
the strongest in the industry, we hope to achieve superior financial results by:
o Continuously improving operations.
o Increasing market share in one or more of our primary product lines, most
likely through acquisition.
o Optimizing the values of our vast timberland and energy resources.
Acquisition efforts have intensified in the past several months.
Nevertheless, proper valuation and timing are essential to success, so we are
proceeding cautiously and with focus.
Bowater serves a dynamic, expanding international customer base. We have
confidence that the printed newspaper produced by our customers, the leading
publishers in the industry, will remain a medium of choice for news and
advertising expenditures. Inexpensive, portable and convenient, newspapers will
continue in demand for years to come. We have the same optimism for our coated
and directory papers and pulp businesses.
We intend to capitalize on the strength of our talented employees,
substantial physical assets and excellent customers, to improve and to grow our
core businesses for greater long-term profitability. I am confident that Bowater
now has the management team in place to achieve these objectives for the benefit
of our shareholders.
(Photo of Arnold M. Nemirow appears here)
Finally, I want to acknowledge our appreciation for the dedicated service
of our director of over 10 years, H. Gordon MacNeill, who will be retiring from
the board in May. Gordon's unique contributions have been invaluable and will be
greatly missed by all of us at Bowater. To fill this vacancy, the board elected
Charles J. Howard of Toronto as a director effective April 1. Charles brings to
Bowater a wealth of business experience that will serve the company well.
Sincerely,
(Signature of Arnold M. Nemirow)
Arnold M. Nemirow
Chairman, President and Chief Executive Officer
March 11, 1997
5
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Newsprint
(Logo appears here with the following text: Registered Firm
ISO 9002-1994/Q9002-1994 Certificate QSR-443 Bowater Newsprint Calhoun, TN)
(Logo appears here with the following text: ISO 9002, DNV, DNV
Certification, Inc., REGISTERED FIRM, Bowater Newsprint, Nova Scotia,
Canada)
(Photo appears here with the following caption.)
Spanning the globe, Bowater's customer base includes leading newspapers
providing business, political and general information to roughly 57% of
the world's population.
Bowater's Newsprint Division is the largest newsprint producer in the U.S. and
one of the largest in North America, with annual sales of 1.5 million short
tons, or approximately 8% of North American production capacity and 15% of U.S.
market share east of the Rocky Mountains. Our low-cost facilities are
strategically located to serve the major newsprint markets and provide superior
service to an extensive customer base of leading newspapers in the U.S., Canada
and abroad.
Our Calhoun, Tenn., operation, with five machines, is the largest newsprint
manufacturing facility in North America. These machines and one at the company's
Catawba, S.C., facility are rated among the most efficient in the world. Our
Mersey mill in Liverpool, Nova Scotia, Canada, has two machines and is dedicated
primarily to international markets because of its advantageous deepwater port.
We have one additional machine at our Great Northern Paper Division in East
Millinocket, Maine.
Recycled fiber facilities at Calhoun and Great Northern Paper contribute to
the manufacture of recycled newsprint that is equal in quality to virgin
product.
The company's 3.6 million acres of timberland, the source of 38% of total
company fiber needs, are
Shipments by Mill
(Pie chart appears here with the following plot points.)
Calhoun 55%
Mersey 17%
Catawba 17%
GNP 11%
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(Three photos appear here with the following captions:
Insets (l to r): Final roll inspection and customer designation are
completed prior to wrapping and shipping.
Parent reel checks are performed before slitting and winding.
Vacuum loading of twelve 1.2-ton rolls of newsprint at Mersey mill,
Nova Scotia, destined for Far East venues. Approximately 20% of Bowater's
annual newsprint production is shipped by sea.
managed to meet or exceed industry guidelines for sustainable forestry. We
further provide pocket wilderness areas, forest camps, picnic areas and
recreational trails for public use. The Newsprint Division is directly
responsible for the oversight of approximately 1.1 million acres.
Despite difficult market conditions in 1996, Bowater performed well. In the
U.S., publisher inventories remained high throughout most of the year but
returned to more normal levels by year end. Most export markets held high
inventory levels as well, and prices declined.
Our newsprint orderbook remained strong throughout 1996, and we were able
to run our mills at full capacity. Customers continued to support us because of
our reliability of supply, product quality and exceptional customer service.
Bowater is the preferred sheet in many pressrooms.
In 1996, we continued to focus on our customers' needs. We spent more time
with them at our mills and in their plants than ever before. This was done to
further educate ourselves and our customers by better understanding their
expectations and sharing mutual concerns and interests.
We involved our mill personnel more extensively with customers. At each
mill, we established user groups that brought in customer press and production
personnel for roundtable discussions on operating, printing and runnability
issues. We also created a customer response team, representing all areas of the
Mersey mill, to address quality concerns. Additionally, we sent personnel into
overseas pressrooms to make presentations to operators on papermaking and usage.
We increased our partnership opportunities with customers and
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<PAGE>
(Three photos appear here with the following captions:
Insets (l to r): State-of-the-art winder operations are used for improved
roll quality.
Our $120 million recovery boiler and control room at Calhoun, Tenn.,
incorporate the latest technology for emission control.
30-tons reels of newsprint are positioned prior to winding.
continued to participate in cross-training exercises in which mill and sales
personnel spend time in pressrooms learning even more about how newsprint is
used by the customer.
During 1996, we completed an extensive in-house survey of our customers,
which showed that we rate well in individual pressrooms in relation to our
competition. The results of the survey are the basis of 1997 goals and
objectives to improve performance in every account.
We also developed an on-line customer profile system to provide
comprehensive information on our customer base. The profile enables us to
marshal our entire newsprint organization to accomplish goals and objectives for
each account in 1997.
Gainsharing plans were implemented at our Calhoun mill and in our sales and
administrative organizations. These plans are designed to provide added
incentive for all employees to improve safety, performance and quality while
increasing productivity and reducing costs.
In 1996, we also opened a sales office in Singapore, our first offshore, to
get closer to our customers in a rapidly growing marketplace.
In August 1996, our Calhoun mill was ISO 9002 certified, joining the Mersey
mill, which attained certification the previous year.
The ISO 9002 certification is an internationally recognized quality
standard which provides a competitive advantage, particularly in the offshore
markets.
One priority in 1997 will be an ongoing review of product performance at
our customers' pressrooms. Our goal is to improve runnability and build on our
strengths of service and reliability to surpass our current standing in each
account. Our customer profile database,
8
<PAGE>
(Three photos appear here with the following captions:
Insets (l to r): Approximately half of Bowater's total annual newsprint
production was shipped by rail in 1996.
The Division's Business Process Improvement Order Fulfillment Team has
identified various non-value-added activities for elimination and
enhanced process efficiencies.
Members of Mersey mill's Customer Response Team monitor Bowater newsprint
being run at Quebecor Atlantic Limited's plan in Dartmouth, Nova Scotia.
Bowater is a major supplier to Quebecor, which is one of the region's
fastest growing commercial printers.
Shipments by Market
(Pie graph appears here with the following plot points.)
Export Newsprint 17%
Domestic Newsprint 81%
Canadian Newsprint 2%
teamwork, knowledge and product will combine to enable us to exceed our
customers' expectations. We will continue to improve communication between
customers and Bowater at all levels, so that the appropriate people are
communicating with one another about issues that arise at any stage of the order
fulfillment cycle.
Recycling will continue to be a strategic challenge in 1997. Extensive
discussions with many of our customers during the past year will serve as the
basis for Bowater's future commitment to deliver our newsprint products with the
recycled content specifications necessary to satisfy the changing demands of the
marketplace.
Overall, our strategy for 1997 will stress quality and service, as we
continue our efforts to fulfill our vision of being the best newsprint
organization in the world.
9
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Coated Paper and Pulp (Logo of Lloyd's Register Quality Assurance ISO9002)
(Photo appears with the following caption.)
Over 200 coated paper customers include a large number of internationally
acclaimed publishers and printers.
The Coated Paper and Pulp Division is responsible for the sale of approximately
450,000 short tons of coated paper, representing approximately 8% and 10% of
North American and U.S. capacity, respectively. Roughly 75% of production
originates from two machines at our Catawba, S.C., mill with the remainder from
three machines at Great Northern Paper in Maine. The Division's customer base
includes commercial printers with product applications in a wide range of
business and consumer areas, such as magazines, catalogs, fliers, coupons,
labels, direct mail pieces and sales sheets.
The Division also sells 380,000 short tons of market pulp, constituting
approximately 6% and 2% of U.S. softwood and hardwood capacity, respectively.
Southern softwood pulp is produced at Catawba and southern mixed hardwood pulp
at Bowater's Calhoun, Tenn., mill. Market pulp is sold worldwide and used in the
manufacture of products such as paper, tissue, boxes and filters.
Fiber supply is partially satisfied by 420,000 acres of timberland under
Division control.
1996 market conditions began with a carryover of high coated paper
inventories, primarily at the printer/end user level. This led to a
Shipments by End Use Segments
(Pie chart appears with the following plot points.)
Magazines 35%
Catalogs 33%
Fliers/Coupons 9%
Books 7%
Other 16%
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(Three photos appear here with the following captions:
Insets (l to r): Available twenty-four hours a day, seven days a week,
sales service personnel coordinate production and manage inventory/warehousing,
delivery and quality assurance for a world-wide and world-class clientele.
High-quality bleached southern pine market pulp is prepared for shipment from
Catawba, SC.
Reel cleaning is performed at the finishing end of paper machine No. 2's
coater at Catawba, S.C. The coater has a 4,000 feet-per-minute drying
capacity.
large drop in pricing as supply outstripped shipments. By year end, customer
inventories returned to more traditional levels with mill stocks remaining high.
Division production, however, ran full without market-related downtime, in
contrast to many competitors.
Among business indicators, orders for magazine advertising pages printed
for major publishers were weak in the first part of the year but rebounded
slightly in the second half. Catalog mailings, as measured by third-class mail
weight and pieces, also registered a drop in early 1996 due to conservation
efforts but improved later in the year.
In the first half of 1996, excessive market pulp inventories on a worldwide
scale negatively affected our orderbook as well as pricing levels. As these
inventories were gradually reduced throughout the summer and fall, pricing
levels steadily improved for the company.
In late 1996, a pulp dryer wet end rebuild at Calhoun, Tenn., resulted in
an increase of hardwood market pulp capacity. The benefits of this increase were
realized in the last few weeks of the year and will be fully realized through
increased production and sales in 1997.
During 1996, the Division embarked upon a major organizational change that
has helped it better understand our customers' businesses and offer improved
service. The innovation came in the creation of a "Design Team" as a joint
effort between union and division management to examine our strategy, structure,
systems, competence and culture. The first phase of the "Design" involved
development of descriptions of structural and systemic changes intended to
maximize present and future profitability. A second phase created three
leadership teams from manufactur-
11
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(Three photos appear here with the following captions:
Insets (l to r): The supercalender is used to tailor density, smoothness and
gloss to customer specifications.
Pictured is a representative cluster from 168 control valves on the headbox
of paper machine No. 1 shown below.
The dilution control headbox at our Catawba mill uses advanced technology
to control distribution across the paper machine resulting in more uniform
sheet basis weight.
ing, administrative and woodlands areas. These teams developed action plans used
by employee implementation teams which customized them for their specific areas.
An example is the Paper Area Implementation Team, which started with new ideas
for over 1,400 improvements toward achieving a better-performing organization.
A second major Division objective was the successful completion of the ISO 9002
certification process in December 1996, which will lead to more consistent
quality for the products manufactured at the Catawba site. This is especially
crucial for international customers, many of whom require the registration of
their suppliers.
In 1996, the Division met its goal of 20% controllable cost reduction.
Productivity, as measured by tons per man-hour worked, remains among the highest
in the industry, and the Division continues to seek increased productivity
without jeopardizing product quality or service.
The Division continues to explore new product opportunities to expand the
breadth and depth of its coated paper offerings to customers, as well as
optimize its manufacturing capability. 1997 will see major quality improvement
initiatives, including a $17.5 million investment for a top wire former on paper
machine No. 2 at Catawba. This project will enhance quality and at the same time
improve the throughput of the machine. Specifically, it will improve runability
in our customers' pressrooms and provide a more consistent product with
beneficial printing characteristics. A growing development team continues to
strive for excellence by investigating new papermaking techniques to improve
product characteristics.
The Division is enhancing its cus-
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(Three photos appear here with the following captions:
Insets (l to r): Members of the Coated Paper and Pulp Division Design Team
recommend changes to enhance preferred supplier status, low-cost operations,
training and empowerment of the workforce, continuous improvement and
our standard-setting practices.
Nearly 2.5 million tons of wood chips are used at Catawba each year.
Approximately 2.0 million tons of timber were consumed in Division operations
during 1996. Pictured is a 40-ton capacity hoist in the woodyard at the
Catawba mill.
Sales ($ millions)
(Bar graph appears here with the following plot points.)
94 95 96
Market Pulp 130.6 233.3 154.3
Coated Paper 307.0 463.8 356.3
tomer data base this year to allow all Division employees to easily access and
learn more about our customers' and their customers' businesses.
In addition, a comprehensive customer satisfaction survey and action plan
has begun and will continue throughout 1997 and beyond.
A final priority is the continuation of employee gainsharing within the
Division. This incentive plan, which focuses on safety, quality, productivity
and cost reduction, will permit our employees to benefit financially by
providing enhanced products and services to customers throughout the world.
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Great Northern Paper (Logo of Lloyd's Register Quality Assurance ISO9002)
(Photo appears here with the following caption.)
Bowater supplies directory paper to telephone companies and other customers
worldwide.
Bowater's Great Northern Paper (GNP) Division manages annual production and sale
of over 221,000 short tons of virgin and recycled fiber content directory paper.
We are the largest directory paper manufacturer in North America with
approximately 28% of U.S. market share. The Division also produces and sells
38,000 tons of specialty papers grades, and makes 172,000 tons of newsprint as
well as 106,000 tons of coated papers sold through other divisions.
Manufacturing operations consist of four machines at Millinocket, as well
as two machines and a recycle facility at East Millinocket, Maine.
Directory customers include U.S. regional Bell operating companies,
overseas telecommunications entities, as well as directory and text publishers.
Specialty grades are sold to a variety of converters including textbook
publishers.
The Division's Pinkham Lumber Company produced 66.2 million board feet of
dimension lumber in 1996, down 9% over the previous year. The decline was
attributable to increased use of smaller diameter timber.
GNP is the largest private landowner in the state of Maine, with 2.1
million acres of timberlands
GNP Worldwide Directory Market
(Pie chart appears here with the following plot points.)
U.S. Telephone 75%
U.S. Reference 11%
Export 14%
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(Three photos appear here with the following captions:
Insets (l to r): Computer systems permit continuous monitoring of sheet
moisture and caliper profiles.
Roll stenciling is used for customer order and quality tracking. The roll
number designates the mill where the paper was made, production date,
machine on which it was produced and position on the reel.
Paper machine No. 11, in Millinocket, Maine, produces the widest roll of
directory paper worldwide with a 296-inch trim. Total 1996 output was 108,528
tons.
and the largest private hydroelectric system in the U.S. generating a majority
of required power supply.
Although general market conditions lowered paper product pricing in 1996,
our operating income increased 13% over the previous year due to the impact of
long-term sales contracts. U.S. yellow page volume was down 6-8% compared with
1995, as U.S. regional Bell operating companies implemented conservation
measures in response to 1995 price increases. U.S. directory consumption year
over year remained flat while international consumption grew at about 3%.
Pinkham Lumber benefited from improved efficiencies gained by new equipment
and higher lumber prices.
Key achievements in 1996 included ongoing cost reduction, safety
improvements and relicensing of a portion of the Division's hydroelectric system
by the U.S. Federal Energy Regulatory Commission.
Employees continued to generate and implement ideas which have provided
operating cost and efficiency improvements of $45 million over the past two
years.
Improvements were made on paper machines to enhance both performance and
quality. Fiber recovery cleaner systems were installed on all of GNP's paper
machines to reduce waste. Changes were completed on paper machine No. 11 at
Millinocket that increased efficiency and reduced wet end breaks. The machine
also established a new speed record. Additionally, new equipment is being
installed at the recycle facility in East Millinocket that will assist in
providing both a higher quality pulp and yield.
In June 1996, GNP's mill operations achieved ISO 9002 certification for
maintaining and
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(Three photos appear here with the following captions:
Insets (l to r): GNP papers undergo rigorous scrutiny for various
characteristics including opacity, smoothness and porosity.
Tensile strenth measurement is performed to assure that product meets
customer requirements.
Paper machine No. 6 is the fastest directory machine in the world, averaging
3,500 feet per minute.
documenting a quality program for the paper grades it produces. Bell Atlantic
honored the division with its Continuous Quality Relationship (CQR plus) award
as a "preferred supplier." A survey of newsprint customers receiving GNP product
showed comparable recognition. In fact, the Division now satisfies 100% of
newsprint needs of one Northeast publisher in the third year of a partnership
program.
Great Northern employees made significant strides in 1996 in safety
performance. The OSHA incident rate for the Division was the lowest ever
recorded. GNP's injury/illness rate dropped 32% in 1996 over the previous year.
A true working relationship among the company, its union employees and OSHA
continued. With full support from its 16 unions, GNP will soon apply for OSHA's
Voluntary Protection Program (VPP). Only manufacturing facilities with tested
systems for safety, demonstrating a total commitment by both management and
labor, are eligible for VPP status.
Employees at Great Northern continued to increasingly participate in the
Division's activities under a Vision 2000 program that encourages open
communications and sharing of ideas. A suggested gainsharing program for
employees was instituted in 1996. It is based on the Division's productivity,
safety, quality and cost reduction programs. Additionally, organized labor
formed a chapter of the Pulp and Paperworkers Resources Council (PPRC) to
educate the public and policymakers on issues of vital importance to the
industry.
In October 1996, GNP's Ripogenus and Penobscot hydroelectric facilities
were relicensed for 30 years by FERC. The relicensing assures the
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(Three photos appear here with the following captions:
Insets (l to r): Pulp recycled from wastepaper is continuously evaluated to
assure that quality standards are met.
GNP's Financial Innovation Team's mission is to explore world-class
organizations and make recommendations to ensure that the Division's financial
organization is a peak performer.
In 1996, 131,839 tons of wastepaper were recycled at GNP, producing fiber used
in the manufacture of recycled content directory paper and newsprint.
Major Areas of 1996 Cost Reduction
(Pie chart appears here with the following plot points.)
Coated Papers 21.3%
Pinkham 7.1%
Uncoated Papers 25.9%
Woodlands 11.2%
Pulps 14.9%
Utilities 8.8%
Administration 10.8%
Division a long-term energy source that is both clean and renewable.
In November 1996, Maine's voters defeated a referendum issue proposing
severe restrictions on forestry practices. Another competing proposal called the
Compact for Maine's Forests, which would establish limits on the use of
clearcutting, create a sustainable management audit program and otherwise assure
fair and consistent forest management practices, remains under consideration.
Bowater, through GNP, proudly and successfully assisted in forging a diverse
coalition in support of the competing measure.
Going forward, opportunities to expand our export market for directory
paper are promising, particularly in Europe. Attention is also being given to
development and marketing of new coated specialty grades at the Millinocket
mill. A new thermomechanical pulp plant is under review, which could yield even
greater woodyard efficiency, better product and lower costs. We are also
exploring new opportunities to optimize the value of our vast energy and
timberland assets. Collectively, these steps are intended to assure unsurpassed
product and service quality in our defined markets while maximizing return on
investment.
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Environment, Health and Safety
(Photo appears here with the following caption.)
The West Branch of the Penobscot River below Ripogems Dam at Great Northern
Paper was enjoyed by over 150,000 outdoor enthusiasts in 1996.
Environment
Bowater has a well-established record of exemplary environmental leadership and
sound stewardship of its natural resources. We believe in a "Good Neighbor"
policy as good business and subscribe to it in practice. Continuous improvement
is a requirement involving all employees and associates. 1996 environmental
spending was nearly $14 million or approximately 13% of total 1996 capital
expenditures.
The company supports the American Forest & Paper Association (AF&PA) and
Canadian Pulp and Paper Association (CPPA) environmental, health and safety
principles as well as AF&PA's Sustainable Forestry Initiative and CPPA's
Sustainable Forest Management Standards.
During 1996, Bowater recycled 322,000 tons of old newspapers, magazines,
catalogs and telephone directories. About 110,000 acres of timberlands holdings
were in nature or wildlife habitat preserve set-aside programs, and nearly all
of our remaining 3.5 million acres were available for recreational use by the
public.
In 1996, the company undertook various projects to assure clean air and
water, maintain its woodlands and reduce solid waste. Below is a partial list of
accomplishments.
Newsprint
o Mersey mill commissioned a $21 million (U.S.) effluent treatment plant to
treat water discharges within strict Canadian limits for total suspended solids
and biochemical oxygen demand.
o Calhoun, Tenn., operations received state approval to burn Tire Derived Fuel
in existing bark boilers, eliminating roughly 1.5 million tires per year from
landfills.
Coated Paper and Pulp
o The Catawba, S.C., mill's wastewater treatment system was upgraded through the
addition of aerators and other equipment, resulting in enhanced removal of
biological oxygen demand, increased system efficiency and further purification
of effluent.
o The mill's electrostatic precipitators were rebuilt to improve performance,
resulting in removal of 97% of particles from air returned to the environment.
o Through a joint venture with the South Carolina Department of Natural
Resources and the National Wild Turkey Federation, the Division established two
Wild Turkey Management Demonstration Areas. The first of their kind in the
southeast U.S., the projects improve habitat for wild turkeys as well as deer,
quail, rabbits, song birds and other animals.
Great Northern Paper
o GNP is leading successful industry efforts to forge general public support for
a unique forestry compact to improve sustainable silvicultural activities.
o Under a new 30-year permit for operation of its hydroelectric system, the
Division is planning to establish an additional conservation easement with Maine
stretching 73 miles along the West Branch of the Penobscot River. This will
bring to 150 miles the shoreline protection easements made by GNP to the state
of Maine.
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Environment, Health & Safety
(Three photos appear here with the following captions.)
Insets (l to r): The Hogskin Branch of Chickamauga Creek in Hamilton County,
Tenn., is part of an 1,100-acre-company-owned pocket wilderness of waterfalls,
rock-formations and scenic foliage visited by approximately 35,000 people each
year.
Queens Recreational Boating Association handicapped racing starts in Herring
Cove adjacent to Mersey mill, Nova Scotia, Canada.
Wildlife cohabitation is routine on company timberlands in Chester County, S.C.
Health & Safety
While striving to achieve business success, Bowater believes the safety and
health of all personnel associated with its operations is its most important
responsibility. The well-being of employees, contractors and visitors will not
be compromised for any reason.
We are firmly committed to providing proper training in safety and loss
prevention at all locations. Further, we are taking the actions necessary to
reduce our Occupational Safety and Health Administration (OSHA) incident rate to
1.0 by 2001.
During 1996, Bowater began a safety revitalization program, establishing
safety program coordination at the corporate leadership level. This has resulted
in the creation of a companywide steering committee that researches and
implements best practices both from within and outside the company.
Division 1996-related activities follow.
Newsprint
o A Safety Improvement Council made up of hourly and salaried personnel was
formed at Calhoun to enhance safety systems throughout the mill.
o The Calhoun operation's 1996 OSHA incident rate improved 32% over the previous
year for the mill; 77% for woodlands; and 56% for the sawmill.
o The Mersey operation had 20% fewer recordable incidents in 1996 than in 1995.
o Bowater Mersey received the prestigious Canadian Award of Excellence from the
renowned St. John's Ambulance safety and health training organization for
outstanding commitment to first aid and safety training.
Coated Paper and Pulp
o Behavioral Science Technology, a California-based pioneer of behavioral safety
processes, completed an assessment of Division operations, from which a
comprehensive action plan was developed.
o Training was completed for all hourly production and supervisory personnel who
now participate in a voluntary observation program with critical behavior
checklists from which new safety programs and processes are derived.
Great Northern Paper
o The 1996 safety incident rate improved to 8.5 from 12.5 the previous year.
o The Division reached 500,000 continuous safe employee hours worked on two
separate occasions in 1996 without a lost-time injury.
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Financial Report 1996
Contents:
Business and Financial Review 21
Consolidated Financial Statements 28
Notes to Consolidated Financial Statements 32
Management's and Auditors' Statements 41
Financial and Operating Record 42
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Business and Financial Review Bowater Incorporated and Subsidiaries
Overview
The company's financial performance for 1996 was one of the best in its history.
Net income in 1996 was $200.2 million, or $4.55 per fully diluted share, on net
sales of $1.7 billion. Included in net income were: a gain on the sale of
timberlands of $40.4 million after tax and minority interest, or $.94 per fully
diluted share; a gain on the sale of the company's wholly-owned subsidiary, Star
Forms Incorporated ("Star Forms," formerly Bowater Communication Papers Inc.),
of $17 million after tax, or $.40 per fully diluted share; and extraordinary
charges of $3.9 million after tax, or $.09 per fully diluted share, relating to
the repurchase of outstanding debt. This compares to net income in 1995 of
$246.9 million, or $5.22 per fully diluted share, on net sales of $2 billion.
Results from 1995 include: a gain on the sale of timberlands of $1.4 million
after tax, or $.03 per fully diluted share; an after tax charge of $14.5
million, or $.33 per fully diluted share, relating to salaried personnel
reductions; an after tax charge of $30 million, or $.69 per fully diluted share,
relating to the write-down of the company's investment in Star Forms; and
extraordinary charges of $11.3 million after tax, or $.26 per fully diluted
share, for premiums and expenses related to the repurchase of approximately $300
million of outstanding debt. Also included in the $5.22 per fully diluted share
for 1995 is a $.23 per share charge relating to the partial redemption of the
company's 8.40% Series C Cumulative Preferred Stock.
Fourth Quarter of 1996: Net income for the fourth quarter of 1996 was $18.2
million, or $.41 per fully diluted share, on net sales of $372.2 million. This
includes an after tax gain of $17 million, or $.41 per fully diluted share on
the sale of Star Forms; a gain on the sale of timberlands of $2 million after
tax, or $.05 per fully diluted share; and an extraordinary charge of $.4
million, or $.01 per fully diluted share, relating to the extinguishment of $5
million of outstanding debt. This compares to net income for the same period
last year of $95.3 million or $1.88 per fully diluted share, after a $.22 per
share charge for the redemption of preferred stock, on sales of $543.9 million.
Operating income for the fourth quarter of 1996 was $8.2 million, which was
$171.4 million lower than the prior year, primarily due to significant declines
in selling prices. The company's fourth quarter newsprint transaction price was
29 percent lower than in the fourth quarter of 1995, while coated paper and
market pulp prices were 39 percent lower and 46 percent lower, respectively. The
fourth quarter price for directory paper was 14 percent higher than in the
fourth quarter of 1995. In addition to lower selling prices, the company also
experienced higher operating costs during the quarter due to several
nonrecurring items. These items included expenses related to an incentive
compensation program of $10 million and scheduled maintenance downtime at two of
the company's mills.
Results of Operations: 1996 Compared with 1995
The company's operating income was $301.2 million in 1996 on sales of $1.7
billion, compared with $549.3 million on sales of $2 billion in 1995. Average
transaction prices for all of the company's products, except directory paper and
lumber, were lower in 1996. These lower selling prices accounted for over 90
percent of the operating income decline. Net income for 1996 was $200.2 million,
compared to $246.9 million in 1995.
Product Line Information: Although all company operations are grouped in a
single segment, market and operating trends are discussed by major product. In
general, the company's products are globally traded commodities. Pricing and the
level of shipments of these products will continue to be influenced by the
balance between supply and demand as affected by global economic conditions,
changes in consumption and capacity, the level of customer and producer
inventories as well as fluctuations in exchange rates.
Newsprint The company's newsprint average transaction price for 1996
decreased 3 percent, while its newsprint tonnage shipments increased 3
percent, compared to 1995. The decline in price was largely driven by
market developments, while the increase in shipments was due to changes in
the company's product mix. In response to record-high transaction prices in
1995, U.S. daily newspapers and commercial printers instituted conservation
measures to reduce newsprint usage. This, along with lower circulation,
resulted in a decline in con-
Operating Income (Loss)
($ millions)
(Bar graph appears here with the following plot points.)
92 93 94 95 96
(74) (63) 42 549 301
Newsprint
(Bar graph appears here with the following plot points.)
92 93 94 95 96
Average Transaction Price
(per short ton) 405 423 414 600 585
Sales Tons
(thousands of short tons) 1,064 1,437 1,460 1,402 1,446
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Coated Groundwood
(Bar graph appears here with the following plot points.)
92 93 94 95 96
Average Transaction Price
(per short ton) 663 696 677 975 824
Sales Tons
(thousands of short tons) 447 454 453 476 432
Market Pulp
(Bar graph appears here with the following plot points.)
92 93 94 95 96
Average Transaction Price
(per short ton) 429 317 436 717 393
Sales Tons
(thousands of short tons) 318 312 300 325 393
sumption. In 1996, these conditions continued, causing U.S. daily newspaper
consumption to decrease 2 percent and total U.S. consumption to decline 3
percent compared to 1995. This decline in consumption, coupled with high
consumer and producer inventories, resulted in lower average newsprint prices
during the year. Export market prices were also lower in 1996, caused by an
increase in North American exports and new capacity primarily in Asia.
Inventories held by U.S. daily newspapers at the end of 1996 were at 36 days of
supply, down from 43 days at the end of 1995, and from a high of 57 days at the
end of February 1996. North American producer inventories at the end of 1996
were 512,000 metric tonnes, 80 percent higher than the level at the end of 1995,
but lower than the third quarter of 1996. As a result of these recent inventory
decreases as well as consumption improvements since midyear, several major
newsprint producers, including the company, announced a March 1, 1997, $75 per
metric tonne domestic price increase.
Coated Groundwood The company's coated groundwood paper average transaction
price decreased 15 percent in 1996 compared to the average price in 1995.
Shipments decreased 9 percent comparing the same periods, primarily due to the
conversion of coated book paper production to uncoated grades and lower
production associated with quality enhancements. A decline in coated groundwood
paper demand since the beginning of 1996 caused selling prices to decline and
producer inventory levels to remain above historical averages. There were
several reasons for the shortfall in demand: commercial printers and magazine
and catalog publishers continued to reduce excess inventory levels from 1995;
paper purchases by catalog publishers for holiday catalog printing declined
compared to 1995; and many end users employed conservation measures to reduce
paper costs. U.S. coated groundwood paper shipments for 1996 decreased 13
percent compared to the prior year, while U.S. coated groundwood producer
inventories at the end of December 1996 totaled 242,000 tons compared to 113,000
tons at the end of December 1995. The company's average transaction price has
stabilized during the first two months of 1997.
Market Pulp The company's market pulp average transaction price for 1996
declined 45 percent from 1995's average price, while shipments increased 21
percent. The increase in shipments was due to record market pulp production
by the company, as well as improving market conditions as the year
progressed. The decline in market pulp prices, which was first evident in
late 1995, was a result of lower global paper demand and rising
inventories. During the second quarter of 1996, however, the pulp market
began to strengthen. This allowed producers to increase prices by $60 per
metric tonne on June 1, and by $50 per metric tonne on July 1. A third
price increase scheduled for the fourth quarter of 1996 was not
implemented, as the surge in demand experienced earlier in the year
subsided and NORSCAN (U.S., Canada, Finland, Norway and Sweden) inventories
in the fourth quarter increased from third quarter levels. Although some
market pulp producers attempted a price increase in early 1997, the
strengthening U.S. dollar and continued high NORSCAN inventory levels have
negatively affected the company's average transaction price during the
first two months of the year.
Directory Paper The directory paper market experienced strong demand during
1995 and early 1996, similar to demand in the newsprint market, causing
prices to rise significantly. Higher prices in 1996 caused many U.S.
telephone directory publishers to initiate conservation measures,
decreasing the amount of paper needed and resulting in decreased
consumption compared to 1995. In the export market, however, higher prices
had a lesser impact on consumption. Despite these market conditions, the
company's directory paper average transaction price increased 23 percent
comparing 1996 to 1995, due to the impact of long-term sales contracts.
Lumber The average transaction price for the company's lumber products was
13 percent higher in 1996 versus 1995. During 1995 and the early part of
1996, lumber prices were depressed due to the decreased levels of new
housing starts. During the second quarter of 1996, an increased volume of
new housing starts, lower producer inventories and higher foreign demand
helped to increase prices, trends that continued into the third and fourth
quarters of 1996. For 1996, U.S. housing starts totaled 1.5 million units,
to date the highest in the decade.
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Communication Papers On November 8, 1996, the company sold its Star Forms
converting business to CST Office Products, Inc., for $80 million,
including $60 million in cash and a $20 million 13% Junior Subordinated
Note. The company recorded a gain on the sale of $17 million after tax.
Star Forms' shortened operating results for 1996 were lower than the full
year of 1995, as average transaction prices decreased 21 percent, offset in
part by lower raw material costs.
Cost of Sales and Other Income and Expenses:
Cost of sales decreased 3 percent from 1995 to 1996. In 1996, cost of sales
continued to benefit from cost reduction and operating efficiency programs
initiated over the last three years. In 1995, cost of sales included an $18
million charge related to salaried personnel reductions.
Selling and administrative expenses decreased slightly from 1995 to 1996.
Included in 1996 expenses was a $22.5 million charge, the major portion of
expense associated with a three-year incentive compensation plan established in
1994. The plan compensated senior management based on the company's significant
improvement in financial performance compared with a peer group and a 64 percent
increase in share price, both of which were measures used in determining expense
associated with the plan. A large portion of this expense was offset by savings
and reductions in other areas. In 1995, selling and administrative expenses
included a $6 million charge related to salaried personnel reductions.
Interest expense decreased 11 percent from 1995 to 1996, as the company
reduced its long-term debt by $58 million in 1996, and $300 million in 1995.
Interest income increased over 100 percent, compared to 1995, as a result of
excess cash that was invested in high-grade, short-term securities in 1996.
Other income in 1996 included a $17 million gain from the sale of Star
Forms and an $81.1 million gain from the sale of approximately 121,000 acres of
timberlands located primarily in Alabama, South Carolina and Maine. The 1996
extraordinary charge of $3.9 million, net of taxes of $2.2 million, represents
the fees and expenses incurred to retire long-term debt. Other income and
expense in 1995 included a $2.2 million gain on the sale of 2,300 acres of
timberlands and a charge of $30 million relating to the write-down of the
company's investment in Star Forms. The 1995 extraordinary charge of $11.3
million, net of taxes of $7.1 million, represents the fees and expenses incurred
to retire approximately $300 million of long-term debt.
Liquidity and Capital Resources
Cash and marketable securities balances at December 31, 1996, and December 31,
1995, were $430.7 million and $264.6 million, respectively.
Cash and cash equivalents decreased from December 31, 1995, to December 31,
1996, by $179.3 million. The company's operations generated $336.2 million of
cash during the year while $271.7 million and $243.8 million were used for
investing and financing activities, respectively. Significant transactions for
the year included the purchase of $345.4 million of marketable securities, the
retirement of $58 million of debt and the repurchase of 2.6 million shares of
common stock at a cost of $98.8 million. Long-term debt decreased 7 percent
during 1996, while total shareholders' equity increased 7 percent, compared to
1995. The ratio of total debt to total capital decreased from 38.7 percent in
1995 to 36.5 percent in 1996.
Cash from Operating Activities: The company's operations generated $336.2
million of cash in 1996, $271.5 million less than the cash generated from
operations in 1995. This decrease was largely the result of lower operating
income and higher tax payments, as the company was able to defer approximately
$75 million of tax payments from 1995 into the first quarter of 1996. The
decrease was partially offset by favorable working capital changes.
Cash from Investing Activities: In 1996, the company invested $107 million in
its facilities, $11 million more than in 1995. The most significant project in
1996 involved making $13 million in improvements to market pulp production
facilities at the Calhoun mill. Cash from disposal of fixed assets, timber and
timberlands totaled $126.7 million. The large majority of this inflow was from
the sale of 121,000 acres of timberlands. The company also sold Star Forms,
resulting in net cash proceeds of $53.9 million. Lastly, the company invested
$345.4 million in marketable securities during the year. The net cash outflow
from all of these activities totaled $271.7 million. The company anticipates
capital spending of approximately $150 to $160 million in 1997.
Directory Paper
(Bar graph appears here with the following plot points.)
92 93 94 95 96
Average Transaction Price
(per short ton) 715 685 679 709 871
Sales Tons
(thousands of short tons) 126 202 189 229 211
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Ratio of Debt to Capital
(percent)
(Bar graph appears here with the following plot points.)
92 93 94 95 96
51.9 54.1 50.3 38.7 36.5
Cash from Financing Activities: During 1996, the company reduced fixed charges
from interest expense and preferred stock dividends. In June and July of 1996,
the company repurchased approximately $50 million of its $300 million 9%
Debentures due 2009 at a cost of $55.4 million for payment of principal, premium
and expenses. In December 1996, the company extinguished $5 million of debt
prior to its scheduled maturity at a cost of $5.4 million. Including other
repayments, $63.5 million was used to reduce the company's debt balances in
1996. Also in December 1996, the company made the second of three $25 million
installments to redeem its LIBOR Series A Preferred Stock and called for the
redemption on January 9, 1997, all of its outstanding 7% PRIDES Series B
Convertible Preferred Stock (PRIDES). Approximately 4.9 million outstanding
Series B depositary shares (each representing a one-fourth interest in a share
of PRIDES) would have converted into common stock at a 1 to 1 ratio as of
January 1, 1998, based upon the mandatory conversion provision of the PRIDES.
However, the company was able to reduce the dilution to existing common
shareholders by initiating the optional conversion at a rate of .82 of a share
of common stock for each depositary share outstanding (approximately 4 million
shares of common stock). Based on an annual dividend of $.80 per share, cash
dividends on the newly issued common stock represent $4.8 million in annual
savings versus the previous enhanced dividend on the PRIDES.
In February 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 1996, the company repurchased 2.6 million shares at a
cost of $98.8 million, representing 66 percent of the total shares originally
authorized for repurchase. In January 1997, the company's Board of Directors
extended the repurchase period until June 30, 1997. The share repurchase program
was completed on February 10, 1997.
In January 1996, the Board of Directors of Calhoun Newsprint Company (CNC)
declared a $60 million dividend. As a result, $29.4 million was paid to the
minority shareholder on January 5, 1996. In December 1996, the Board of
Directors of CNC declared a $40 million dividend. As a result, the company paid
$19.6 million to the minority shareholder on January 3, 1997.
The company's ratio of debt to total capital improved from 38.7 percent to
36.5 percent during 1996. The company achieved this reduced leverage despite
repurchasing $98.8 million of common shares, redeeming $25 million of LIBOR
Series A Preferred Stock and declaring aggregate dividends of $49 million
payable to the minority shareholder of CNC. Strong company earnings and $58
million in total debt reductions contributed to the company's success. As a
result of 1996 transactions, interest payments and preferred dividends were
reduced on an annual basis by $5 million and $9.2 million, respectively. During
1997, the company expects that interest on current indebtedness and dividends on
preferred stock will approximate $67 million and $4 million, respectively.
The cash and marketable securities balance at January 31, 1997, was $367.5
million, $63.2 million lower than the 1996 year-end balance of $430.7 million.
This decrease is largely the result of the repurchase of 1.4 million common
shares at a cost of $57.2 million, the $19.6 million dividend payment to the
minority shareholder of CNC and payments associated with the three-year
incentive compensation program. Cash flow from operating activities in 1997 is
not expected to be as high as the level achieved in 1996, based on the current
prices of the company's pulp and paper products. The company will continue to
seek opportunities for appropriate use of its available cash balances. Company
management will consider various opportunities that encompass both internal and
external investment alternatives, including additional debt reduction and common
stock repurchases.
Environmental Items
The company is subject to a variety of federal, state and provincial
environmental laws and regulations in jurisdictions in which it operates. The
company believes its operations are currently in substantial compliance with
applicable environmental laws and regulations.
On November 1, 1993, the U.S. Environmental Protection Agency (EPA)
proposed regulations that would impose new air and water quality standards aimed
at further reductions of pollutants. Final promulgation of these regulations is
expected to occur during 1997. The regulations, if adopted as
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proposed, would require compliance by the year 2000, or three years following
the date of promulgation. If adopted as proposed, these new rules would require
capital expenditures at all of the company's U.S. paper mills, but most
significantly at its Catawba operation.
The company has a number of options available to comply with the proposed
regulations, and the extent of required capital expenditures will depend upon
which of several alternative courses of action, consistent with final
regulations, the company may undertake. Given the uncertainty as to the outcome
of the final regulations, the company currently estimates that these
alternatives could require capital expenditures of approximately $150 million to
$250 million during the proposed three-year compliance period. The ultimate
financial impact to the company will depend on the nature of the final
regulations, the timing of required implementation, the cost of available
technology, the development of new technology and the determination by the
company whether to maintain production levels or operate certain equipment.
Other than the EPA's proposed regulations described above, the company
anticipates approximately $10 million to $15 million of capital expenditures per
year for the foreseeable future to maintain compliance with environmental
regulations.
The company is not involved in any proceeding under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, that
it believes will result in liabilities that will have a material adverse effect
on the company's future cash flow, financial condition or results of operations.
While it is difficult to predict with certainty the nature of future
environmental regulations, the company believes it will not be at a competitive
disadvantage in meeting future U.S. or Canadian standards.
Accounting Standards
In June 1996, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." The implementation of this standard will not have a material
impact on the company's results of operations or financial condition in 1997.
Historical Reference: 1995 Compared with 1994
Sales and net income were at record levels during 1995. Net sales for the year
were $2 billion, a 47 percent increase over net sales of $1.4 billion in 1994.
Operating income was $549.3 million, significantly higher than the $42.1 million
reported in 1994. Net income in 1995 of $246.9 million, or $5.22 per fully
diluted share, was a substantial improvement over 1994's net loss of $4.8
million, or $.59 per fully diluted share.
Product Line Information:
Newsprint Newsprint revenues in 1995 established a new record for the
company. This was attributed to a 45 percent increase in the company's
average transaction price, offset in part by a 4 percent decrease in
shipments, compared to 1994. The decrease in shipments was largely due to a
shift in a portion of the company's newsprint capacity to directory paper and
groundwood specialty paper. Strong market demand and the lack of significant
capacity additions enabled the company to implement price increases during
1995 totaling approximately $200 per metric tonne. These price increases were
implemented despite a 4 percent decline in 1995 newsprint consumption by U.S.
daily newspapers compared to 1994. In 1994, newsprint market conditions were
also favorable. Growth in U.S. newsprint consumption, improving economic
conditions and demand in foreign markets, and the closure or conversion of
North American newsprint capacity all combined to reduce the availability of
newsprint. These favorable conditions enabled the company to implement price
increases in 1994 totaling approximately $140 per metric tonne.
Coated Groundwood Sales of coated groundwood papers were also at record
levels in 1995 as demand remained strong throughout most of the year. U.S.
magazine advertising pages increased in 1995 compared to 1994. The company's
average transaction price increased 48 percent and shipments increased 5
percent, comparing the same periods. Strong demand combined with a lack of
significant new capacity in North America enabled the company to increase
prices four times in 1995. Conditions in the coated groundwood paper market
in 1994 were also favorable for producers. The coated groundwood paper market
improved
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during the second half of the year as magazine advertising pages increased
and imports leveled off due to stronger European demand. These conditions
allowed the company to implement two price increases in the latter part of
1994.
Market Pulp The company's average transaction price for market pulp in 1995
was 64 percent higher than in the prior year, while shipments increased 8
percent. Healthy world economies, especially in the Far East and Europe,
resulted in strong paper demand, enabling the company to increase prices for
market pulp three times during the year. In the fourth quarter of 1995,
however, demand for market pulp began to decline, causing prices to decrease.
Market pulp demand in 1994 benefited from improvements in U.S. and European
economies. Selling prices rose rapidly throughout 1994, and by year end, the
company's average transaction price had doubled.
Directory Paper The company's average directory paper transaction price and
shipments increased in 1995 by 4 percent and 21 percent, respectively, as
compared to 1994. The increase in shipments resulted from a shift in production
from newsprint to directory paper, to take advantage of the strong demand
present in the directory paper market during the year. In 1994, the company's
directory paper prices declined as market pressure was exerted by customers
substituting newsprint for directory paper and as additional competition entered
the market.
Communication Papers The company's 1995 average transaction price for
communication papers sold by Star Forms increased 59 percent over the 1994
average price. Higher prices from uncoated free sheet mills generated by
supply constraints resulted in raw material cost increases which in turn
enabled increased average transaction prices. This price improvement was
partially offset by an 18 percent decline in shipments for 1995, compared to
1994. Prices in 1994 declined for the first half of the year but trended
upward during the latter six months.
During the second quarter of 1995, the company announced its intention
to sell Star Forms and focus on its core pulp and paper making businesses.
Subsequently, in November 1996, the company sold Star Forms to CST Office
Products, Inc.
Cost of Sales and Other Income and Expenses:
In 1995, as part of its cost reduction and operating efficiency programs, the
company eliminated approximately 350 salaried employee positions. This
resulted in a total pretax charge of $24 million or $.33 per fully diluted
share after tax for employee termination costs including severance and
pension related costs. Approximately $18 million of this was recorded as a
charge to cost of sales, while the remaining $6 million was recorded as a
selling and administrative expense. Excluding this charge, cost of sales
increased 9 percent due to higher shipment levels and raw material costs, offset
in part by savings from the cost reduction and operating efficiency programs.
Excluding the $6 million charge for employee terminations, selling and
administrative expenses increased 15 percent compared to 1994. Most of this
increase was due to charges relating to the company's incentive compensation
plans as well as higher commission expenses.
Interest expense decreased 19 percent in 1995 compared to 1994 as a
result of lower debt levels. Other income and expense in 1995 included a $30
million charge relating to the write-down of the company's investment in Star
Forms and a $2.2 million gain on the sale of timberlands, primarily in North
and South Carolina. Included in 1995's net income was an extraordinary charge
of $11.3 million after tax, for premiums and expenses related to the
repurchase of approximately $300 million of outstanding debt.
Other income in 1994 included a gain of $43.1 million from the sale of
221,000 acres of timberlands, primarily in Nova Scotia and Maine.
Liquidity and Capital Resources
Cash from Operating Activities: The company's operations generated $607.7
million of cash in 1995, $526.8 million more than the $80.9 million generated
in 1994. The increase arose primarily from improvements in operating income.
Operating cash flow also benefited from $15.5 million of lower interest
payments and the deferral of approximately $75 million of tax payments to the
first quarter of 1996. These benefits were partially offset by an increase in
working capital.
26
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Cash from Investing Activities: In 1995, the company's capital spending totaled
$96 million, a reduction of $120.1 million from 1994. In 1995, the most
significant expenditure was $12.5 million for the completion of a new effluent
treatment plant at the Mersey mill. Cash from disposals of fixed assets, timber
and timberlands totaled $4.3 million. The majority of this inflow was from the
sale of 2,300 acres of timberlands.
Capital outlays in 1994 totaled $216.1 million, including $104 million for the
completion of a new recovery boiler at the Calhoun operation. Cash from
disposals of fixed assets, timber and timberlands totaled $48.1 million
resulting from the sale of 221,000 acres of timberlands.
Cash from Financing Activities: During 1995, the company undertook several
financial transactions to strengthen the balance sheet and reduce the impact
of fixed charges from interest expense and preferred dividends. In March
1995, the company repurchased $182 million of its $200 million, 8.5% Notes
due December 2001. In July 1995, the company repurchased $117 million of its
$125 million, 8.25% Notes due October 1999, bringing total debt retirements
in 1995 to approximately $300 million and improving the ratio of debt to
total capital from 50.3 percent in 1994 to 38.7 percent in 1995. In June of
1995, the company redeemed at par the remaining $15 million of preferred
stock of CNC held by the minority shareholder. In November 1995, the company
completed a tender offer for $59 million of its $85 million, 8.40% Series C
Cumulative Preferred Stock. Finally, in December 1995, the company made the
first of three mandatory $25 million installments to redeem its LIBOR Series
A Preferred Stock. As a result of these transactions, interest expense and
preferred dividends were lowered on an annual basis by approximately $25
million and $7.5 million, respectively.
In 1995, the company put in place a new five-year credit facility with eight
banks for $150 million expiring in September 2000. Also in 1995, the company
canceled the asset securitization program that allowed it to sell up to $80
million of its receivables. There were no receivables sold under this program
during 1995 and 1994.
In 1994, the company anticipated that cash flow from operations would be
insufficient to meet its requirements and that it faced the potential for a debt
rating downgrade to below investment grade levels. In response, the company
completed the sale of its 7% PRIDES Series B Convertible Preferred Stock and
8.40% Series C Cumulative Preferred Stock. Net proceeds of $193.2 million were
used to finance the recovery boiler at the Calhoun mill and to cover costs
associated with the closure of obsolete facilities at the Millinocket operation.
In addition, the proceeds were used to fund severance costs in connection with
the 1995 companywide personnel reductions and for general corporate purposes.
27
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Consolidated Statement of Operations Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
Years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Net sales $ 1,718,269 $ 2,001,141 $ 1,358,996
Cost of sales 1,149,593 1,183,977 1,072,492
Depreciation, amortization and cost of timber harvested 174,404 174,176 168,352
Gross profit 394,272 642,988 118,152
Selling and administrative expense 93,090 93,737 76,052
Operating income 301,182 549,251 42,100
Other expense (income):
Interest income (21,074) (8,923) (8,255)
Interest expense, net of capitalized interest 71,347 80,513 98,848
Gain on sale of timberlands (81,065) (2,152) (43,100)
Gain/loss on sale of Star Forms (17,019) 30,000 --
Other, net (4,195) (14,757) 1,442
Income (loss) before income taxes, minority interests
and extraordinary charges 353,188 464,570 (6,835)
Provision for income tax expense (benefit) 124,393 183,090 (4,783)
Minority interests in net income of subsidiaries 24,719 23,235 2,772
Income (loss) before extraordinary charge 204,076 258,245 (4,824)
Extraordinary charge from early extinguishment of debt,
net of income tax benefit of $2,234 in 1996 and $7,084 in 1995 (3,922) (11,317) --
Net income (loss) $ 200,154 $ 246,928 $ (4,824)
Earnings (loss) per share:
Net income (loss) $ 200,154 $ 246,928 $ (4,824)
Common stock equivalent adjustments:
Dividends and accretion on preferred stock 4,767 10,042 16,925
Redemption costs of Series C preferred stock -- 9,883 --
Net income (loss) available to common shareholders $ 195,387 $ 227,003 $ (21,749)
Earnings (loss) per common share - primary:
Income (loss) before extraordinary charge $ 4.71 $ 5.60 $ (.59)
Extraordinary charge (.09) (.27) --
Net income (loss) $ 4.62 $ 5.33 $ (.59)
Average common and common equivalent shares outstanding 42,261 42,567 36,566
Earnings (loss) per common share - fully diluted:
Income (loss) before extraordinary charge $ 4.64 $ 5.48 $ (.59)
Extraordinary charge (.09) (.26) --
Net income (loss) $ 4.55 $ 5.22 $ (.59)
Average common and common equivalent shares outstanding 42,934 43,448 36,566
</TABLE>
See accompanying notes to consolidated financial statements
28
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Consolidated Balance Sheet Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
At December 31, 1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 85,259 $ 264,571
Marketable securities 345,398 --
Accounts receivable, net 185,724 241,847
Inventories 123,745 154,662
Other current assets 13,629 12,943
Total current assets 753,755 674,023
Timber and timberlands 395,675 430,400
Fixed assets, net 1,636,705 1,711,003
Intangible assets, net -- 23,733
Other assets 79,409 69,006
Total assets $ 2,865,544 $ 2,908,165
Liabilities and shareholders' equity
Current liabilities:
Current installments of long-term debt $ 1,604 $ 1,600
Accounts payable and accrued liabilities 216,328 189,424
Income taxes payable 6,057 85,472
Dividends payable 29,892 8,826
Total current liabilities 253,881 285,322
Long-term debt, net of current installments 759,029 816,532
Other long-term liabilities 171,651 181,411
Deferred income taxes 358,858 329,101
Minority interests in subsidiaries 126,246 150,768
Commitments and contingencies (See note 10)
Redeemable preferred stock: $1 par value. Issued LIBOR preferred stock,
Series A, 500,000 and 1,000,000 shares at December 31, 1996 and 1995,
respectively (redemption value $25,000) 24,746 49,619
Shareholders' equity:
Convertible preferred stock, $1 par value. Issued, 7% (PRIDES) Series B,
1,223,404 shares at December 31, 1995 -- 111,333
Cumulative preferred stock, $1 par value. Issued, 8.40% Series C, 264,318 shares
(liquidation value $26,432) 25,465 25,465
Common stock, $1 par value. Authorized 100,000,000 shares; issued 43,994,070 and
39,500,555 shares at December 31, 1996 and 1995, respectively 43,994 39,501
Additional paid-in capital 531,598 410,007
Retained earnings 698,301 541,205
Equity adjustments (12,370) (13,128)
Loan to ESOT (6,324) (8,033)
Treasury stock at cost, 2,980,965 and 400,283 shares at December 31, 1996
and 1995, respectively (109,531) (10,938)
Total shareholders' equity 1,171,133 1,095,412
Total liabilities and shareholders' equity $ 2,865,544 $ 2,908,165
</TABLE>
See accompanying notes to consolidated financial statements.
29
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<TABLE>
<CAPTION>
Consolidated Statement of Capital Accounts Bowater Incorporated and Subsidiaries
Series B Series C
LIBOR Convertible Cumulative Additional
Preferred Preferred Preferred Common Paid-in Retained Equity
(In thousands, except per-share amounts) Stock Stock Stock Stock Capital Earnings Adjustments
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 74,368 $ -- $ -- $ 36,913 $ 332,661 $ 388,663 $ (1,351)
Net loss -- -- -- -- -- (4,824) --
Dividends on:
Common ($.60 per share) -- -- -- -- -- (21,841) --
LIBOR ($1.93 per share) -- -- -- -- -- (2,895) --
Series B ($5.90 per share) -- -- -- -- -- (7,222) --
Series C ($7.86 per share) -- -- -- -- -- (6,684) --
Increase in stated value of
LIBOR preferred stock 124 -- -- -- -- (124) --
Reduction in loan to ESOT -- -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- -- (2,059)
Stock options exercised -- -- -- 208 4,329 -- --
Preferred stock issued -- 111,333 81,892 -- -- -- --
Use of treasury stock -- -- -- -- -- (221) --
Balance at December 31, 1994 $ 74,492 $ 111,333 $ 81,892 $ 37,121 $ 336,990 $ 344,852 $ (3,410)
Net income -- -- -- -- -- 246,928 --
Dividends on:
Common ($.60 per share) -- -- -- -- -- (22,600) --
LIBOR ($2.67 per share) -- -- -- -- -- (4,005) --
Series B ($6.58 per share) -- -- -- -- -- (8,050) --
Series C ($8.40 per share) -- -- -- -- -- (5,910) --
Increase in stated value of
LIBOR preferred stock 127 -- -- -- -- (127) --
Reduction in loan to ESOT -- -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- -- 1,071
Stock options exercised -- -- -- 2,380 55,350 -- --
Tax benefit on exercise of
stock options -- -- -- -- 17,602 -- --
Partial redemption of LIBOR and
Series C preferred stock (25,000) -- (56,427) -- -- (9,883) --
Pension plan additional minimum
liability, net of tax benefit
of $6,941 -- -- -- -- -- -- (10,789)
Use of treasury stock -- -- -- -- 65 -- --
Balance at December 31, 1995 $ 49,619 $ 111,333 $ 25,465 $ 39,501 $ 410,007 $ 541,205 $ (13,128)
Net income -- -- -- -- -- 200,154 --
Dividends on:
Common ($.80 per share) -- -- -- -- -- (30,241) --
LIBOR ($2.42 per share) -- -- -- -- -- (2,420) --
Series B ($6.58 per share) -- -- -- -- -- (8,050) --
Series C ($8.40 per share) -- -- -- -- -- (2,220) --
Increase in stated value of
LIBOR preferred stock 127 -- -- -- -- (127) --
Reduction in loan to ESOT -- -- -- -- -- -- --
Foreign currency translation -- -- -- -- -- -- (289)
Stock options exercised -- -- -- 480 11,795 -- --
Tax benefit on exercise of
stock options -- -- -- -- 2,431 -- --
Partial redemption of LIBOR
preferred stock (25,000) -- -- -- -- -- --
Conversion of Series B preferred
into common stock -- (111,333) -- 4,013 107,310 -- --
Pension plan additional minimum
liability, net of taxes
of $670 -- -- -- -- -- -- 1,047
Purchase of common stock -- -- -- -- -- -- --
Use of treasury stock -- -- -- -- 55 -- --
Balance at December 31, 1996 $ 24,746 $ -- $ 25,465 $ 43,994 $ 531,598 $ 698,301 $ (12,370)
<CAPTION>
Loan to Treasury
ESOT Stock
<C> <C>
Balance at December 31, 1993 $ (11,245) $ (13,153)
Net loss -- --
Dividends on:
Common ($.60 per share) -- --
LIBOR ($1.93 per share) -- --
Series B ($5.90 per share) -- --
Series C ($7.86 per share) -- --
Increase in stated value of
LIBOR preferred stock -- --
Reduction in loan to ESOT 1,602 --
Foreign currency translation -- --
Stock options exercised -- --
Preferred stock issued -- --
Use of treasury stock -- 1,443
Balance at December 31, 1994 $ (9,643) $ (11,710)
Net income -- --
Dividends on:
Common ($.60 per share) -- --
LIBOR ($2.67 per share) -- --
Series B ($6.58 per share) -- --
Series C ($8.40 per share) -- --
Increase in stated value of
LIBOR preferred stock -- --
Reduction in loan to ESOT 1,610 --
Foreign currency translation -- --
Stock options exercised -- --
Tax benefit on exercise of
stock options -- --
Partial redemption of LIBOR and
Series C preferred stock -- --
Pension plan additional minimum
liability, net of tax benefit
of $6,941 -- --
Use of treasury stock -- 772
Balance at December 31, 1995 $ (8,033) $ (10,938)
Net income -- --
Dividends on:
Common ($.80 per share) -- --
LIBOR ($2.42 per share) -- --
Series B ($6.58 per share) -- --
Series C ($8.40 per share) -- --
Increase in stated value of
LIBOR preferred stock -- --
Reduction in loan to ESOT 1,709 --
Foreign currency translation -- --
Stock options exercised -- --
Tax benefit on exercise of
stock options -- --
Partial redemption of LIBOR
preferred stock -- --
Conversion of Series B preferred
into common stock -- --
Pension plan additional minimum
liability, net of taxes
of $670 -- --
Purchase of common stock -- (98,762)
Use of treasury stock -- 169
Balance at December 31, 1996 $ (6,324) $(109,531)
</TABLE>
See accompanying notes to consolidated financial statements.
30
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Consolidated Statement of Cash Flows Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
Years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 200,154 $ 246,928 $ (4,824)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and cost of timber harvested 174,404 174,176 168,352
Deferred income taxes 36,979 75,122 (5,388)
Minority interests 24,719 23,235 2,772
Gain on sale of timberlands (81,065) (2,152) (43,100)
Gain/loss on sale of Star Forms (17,019) 30,000 --
Extraordinary charge, net of taxes 3,922 11,317 --
Changes in working capital:
Accounts receivable, net 39,916 (44,374) (26,736)
Inventories 13,884 (3,565) (1,666)
Accounts payable and accrued liabilities 30,931 11,272 4,458
Income taxes payable (78,611) 91,580 (21,916)
Other, net (12,007) (5,858) 8,952
Net cash provided by operating activities 336,207 607,681 80,904
Cash flows from investing activities:
Cash invested in fixed assets, timber and timberlands (106,960) (95,972) (216,052)
Disposition of fixed assets, timber and timberlands 126,714 4,256 48,081
Disposition of Star Forms 53,946 -- --
Cash invested in marketable securities (345,398) -- --
Net cash used for investing activities (271,698) (91,716) (167,971)
Cash flows from financing activities:
Cash dividends, including minority interests (70,528) (41,783) (34,900)
Purchase of common stock (98,762) -- --
Proceeds from sale of Series B and C preferred stock,
net of issuance costs -- -- 193,225
Purchases/payments of long-term debt (63,521) (317,282) (1,795)
Redemption of preferred stock of subsidiary -- (15,000) (2,500)
Stock options exercised 12,275 57,730 4,537
Partial redemption of LIBOR and Series C preferred stock (25,000) (91,309) --
Other 1,715 1,482 1,602
Net cash provided by (used for) financing activities (243,821) (406,162) 160,169
Net increase (decrease) in cash and cash equivalents (179,312) 109,803 73,102
Cash and cash equivalents:
Beginning of year 264,571 154,768 81,666
End of year $ 85,259 $ 264,571 $ 154,768
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest $ (72,623) $ (82,428) $ (97,885)
Income taxes $(166,025) $ (16,388) $ (22,521)
</TABLE>
See accompanying notes to consolidated financial statements.
31
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Notes to Consolidated Financial Statements
Bowater Incorporated and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements include the accounts of Bowater
Incorporated and Subsidiaries (the company). All subsidiaries are wholly owned
except Calhoun Newsprint Company (CNC) and Bowater Mersey Paper Company, Ltd.
(Mersey), which are approximately 51% owned. All material intercompany items are
eliminated.
Cash Equivalents
Cash equivalents generally consist of direct obligations of the U. S. Government
and its agencies, investment-grade commercial paper, auction rate preferred
stock, tax-exempt municipal bonds and other short-term investment-grade
securities with original maturities of less than three months. These investments
are stated at cost, which approximates fair value.
Marketable Securities
Marketable securities generally consist of direct obligations of the U.S.
Government and its agencies, investment-grade commercial paper, tax-exempt
municipal bonds and other short-term investment-grade securities with original
maturities of greater than three months but less than one year. These
investments are considered to be held-to-maturity securities and are therefore
stated at cost which approximates market value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
using the average cost and last-in, first-out (LIFO) methods.
Timber and Timberlands
The acquisition cost of land and timber, real estate taxes, lease payments, site
preparation and other costs related to the planting and growing of timber are
capitalized. Such costs, excluding land, are charged against revenue at the time
the timber is harvested.
Fixed Assets and Depreciation
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
computed generally on the straight-line basis. Repairs and maintenance are
charged to operations as incurred.
Intangible Assets
Goodwill, the excess of purchase price over fair value of net tangible assets
acquired, was amortized by the straight-line method. The company assesses the
recoverability of its goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. In 1996, the company
disposed of a subsidiary to which intangible assets relate (See Note 4).
Income Taxes
Income taxes are recorded under the provisions of SFAS No. 109, "Accounting for
Income Taxes." Deferred taxes are provided for significant temporary
differences. The company has not provided income taxes on the undistributed
earnings of its Canadian subsidiary and, prior to 1993, on CNC's undistributed
earnings, as it has specific plans for reinvestment of such earnings.
The company accounts for Canadian investment tax credits using the flow-through
method, whereby the provision for income taxes is reduced to reflect investment
credits as they are earned.
Foreign Operations
Assets and liabilities of the company's Canadian operations are translated using
the exchange rate in effect at the balance sheet date. Results of operations are
translated using the average exchange rates throughout each year. The effects of
exchange rate fluctuations are accumulated as a separate component of
shareholders' equity, entitled "Equity adjustments." Gains or losses on currency
transactions are included in the Consolidated Statement of Operations.
Revenues and assets of foreign operations do not qualify for separate disclosure
under SFAS No. 14 "Financial Reporting for Segments of a Business Enterprise."
Stock Options
The company records stock option compensation on an intrinsic value basis in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." The company also provides pro forma disclosures
of stock option compensation recorded on a fair value basis in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation."
Pension Plans
The company has contributory and noncontributory pension plans which cover
substantially all employees. The company's cash contributions to the plans are
sufficient to provide pension benefits to participants and meet the funding
requirements of ERISA. All pension related expenses and liabilities are recorded
under the provisions of SFAS No. 87, "Employers' Accounting for Pensions."
Revenue Recognition
The company recognizes revenue from product sales upon shipment to its customers
or when customers assume risk of ownership. Sales are shown net of distribution
costs in the accompanying Consolidated Statement of Operations.
Primary and Fully Diluted Earnings Per Share
Primary and fully diluted earnings per common share are computed using the
weighted average number of common shares outstanding adjusted for the
incremental shares attributed to common share equivalents (exercisable stock
options and, prior to December 1996, Series B Convertible Preferred Stock).
32
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Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities (See Note
10) at the date of the financial statements. In addition, they affect the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates and assumptions.
2. Cost Reductions
In recent years, the company designed and implemented programs to reduce
operating and administrative costs to globally competitive levels. In 1996, the
company focused on improving business processes in addition to cost reductions.
In 1995, approximately 350 salaried employee positions were eliminated. The
company recorded a pretax charge of $24,000,000 or $.33 per fully diluted share
after tax for employee termination costs which included severance and pension
related costs. Approximately $18,000,000 of the charge was included on the line
item "Cost of sales" on the 1995 Consolidated Statement of Operations while the
remaining $6,000,000 was included on the line item "Selling and administrative
expense." As of December 31, 1995, substantially all of the employee termination
costs had been settled.
3. Sales of Real Property
During 1996, the company sold 121,000 acres of timberlands, primarily in
Alabama, South Carolina and Maine. The proceeds from these sales were
$121,755,000, resulting in a pretax gain of $81,065,000, or $.94 per fully
diluted share after tax. In 1995, the company sold 2,300 acres of timberlands,
primarily in North and South Carolina. The proceeds were $2,603,000, resulting
in a pre-tax gain of $2,152,000, or $.03 per share, after tax. During 1994, the
company sold 221,000 acres of timberlands, primarily in Nova Scotia and Maine.
Proceeds totaled $46,500,000, resulting in a pre-tax gain of $43,100,000, or
$.57 per share, after tax.
4. Sale of Subsidiary
In November 1996, the company completed the sale of Star Forms to CST Office
Products, Inc. for $80,000,000, including $60,000,000 in cash and a $20,000,000
13% Junior Subordinated Note. The company recognized a gain on the sale of
$17,019,000, or $.40 per fully diluted share. Net cash proceeds totaled
$53,946,000 after working capital adjustments and fees and expenses relating to
the sale. The $20,000,000 13% Junior Subordinated Note requires semi-annual
interest payments and four $5,000,000 annual principal payments beginning in
2002. The company recorded the note at its fair market value, on the line
entitled "Other assets" in the 1996 Consolidated Balance Sheet.
In the second quarter of 1995, the company announced its intention to sell
Star Forms. In the third quarter of 1995, based on the offers received, the
company recorded an estimated loss on the planned sale of Star Forms of
$30,000,000. The company reflected the loss in the Consolidated Balance Sheet as
a writedown of the purchased goodwill associated with the subsidiary. The
company also reduced the useful life of the remaining goodwill to five years.
5. Inventories
(In thousands) 1996 1995
At lower of cost or market:
Raw materials $ 17,990 $ 39,520
Work in process 3,077 3,014
Finished goods 47,577 48,854
Mill stores and other supplies 66,925 81,301
135,569 172,689
Excess of current cost over
inventory value (11,824) (18,027)
$ 123,745 $ 154,662
Inventories valued using the LIFO method comprised 34.4% and 41.6%,
respectively, of total inventories at December 31, 1996, and December 31, 1995.
6. Fixed Assets
Range of
Estimated
Useful Lives
(In thousands) 1996 1995 in Years
Land and land
improvements $ 33,105 $ 32,523 10-20
Buildings 290,613 290,543 30-40
Machinery
and equipment 2,672,937 2,675,798 5-20
Leasehold
improvements 2,741 3,735 10-20
Construction
in progress 22,405 10,868 --
3,021,801 3,013,467
Less accumulated
depreciation and
amortization 1,385,096 1,302,464
$1,636,705 $1,711,003
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7. Accounts Payable and Accrued Liabilities
(In thousands) 1996 1995
Trade accounts payable $ 95,300 $ 78,607
Accrued interest 16,139 17,921
Property and franchise taxes payable 12,650 13,258
Payroll, bonuses and severance 50,402 39,022
Employee benefits 29,482 24,615
Other 12,355 16,001
$216,328 $189,424
The increase in trade accounts payable from 1995 to 1996 was related to capital
projects and other accruals. The increase in payroll, bonuses and severance was
due to amounts owed related to a three-year incentive compensation plan
established in 1994. The expense related to this plan was $22,531,000 and
$3,400,000 for the years ended December 31, 1996, and December 31, 1995. It is
included in the Consolidated Statement of Operations on the line item "Selling
and administrative expense."
8. Long-term Debt, Net of Current Installments
(In thousands) 1996 1995
Unsecured:
9% Debentures due 2009 $250,017 $300,000
9 3/8% Debentures due 2021, net
of unamortized discount of $1,250
in 1996 and $1,300 in 1995 198,750 198,700
9 1/2% Debentures due in 2012,
net of unamortized discount of
$359 in 1996 and $382 in 1995 124,641 124,618
7 3/4% recycling facilities revenue
bonds due 2022 62,000 62,000
7 4/10% recycling facilities revenue
bonds due 2022 39,500 39,500
7 5/8% recycling facilities revenue
bonds due 2016, net of
unamortized discount of $135
in 1996 and $138 in 1995 29,865 29,862
Pollution control revenue bonds
due at various dates from 2001
to 2010 with interest at varying
rates from 6.85% to 7 5/8% 23,300 23,300
8 1/2% Notes due 2001 18,140 18,140
8 1/4% Notes due 1999, net of
unamortized discount of $4 in
1996 and $5 in 1995 8,024 7,970
ESOT note due 2000 4,724 6,433
Industrial revenue bonds and other
notes due at various dates from
1998 to 2010, with interest at
varying rates from 7 1/8% to 8 1/2% 68 6,009
$759,029 $816,532
Long-term debt maturities for the next five years are as follows:
(In thousands)
1997 $ 1,604
1998 $ 1,604
1999 $ 9,628
2000 $ 1,524
2001 $28,040
During 1996, the company repurchased approximately $50,000,000 of its
$300,000,000 9% Debentures due 2009. This resulted in an extraordinary charge of
$3,531,000 after tax, or $.08 per fully diluted share for premium and expenses
related to the repurchase. In addition, the company repurchased $1,000,000 of
other long-term obligations in the first quarter of 1996 and extinguished
$5,000,000 in the fourth quarter. The second transaction resulted in an
extraordinary charge for fees and expenses of $391,000 after tax or $.01 per
fully diluted share.
In 1995, the company repurchased approximately $182,000,000 of its 8 1/2%
Notes due December 2001. Premium and expenses related to this transaction
resulted in an extraordinary charge of $6,084,000 after tax, or $.14 per fully
diluted share. In addition, the company repurchased approximately $117,000,000
of its 8 1/4% Notes due October 1999. Premium and expenses related to this
transaction resulted in an extraordinary charge of $5,233,000 after tax, or $.12
per fully diluted share.
Also in 1995, the company signed a new $150,000,000 Credit Agreement, which
expires in September 2000. At December 31, 1996 and 1995, there were no amounts
outstanding under the new agreement.
Based on the borrowing rates currently available to the company for debt
with similar terms and maturities as those issues included in the accompanying
Consolidated Balance Sheet, the fair value of the company's long-term debt, net
of current installments, was approximately $881,000,000 and $982,000,000 at
December 31, 1996 and 1995, respectively.
9. Minority Interests in Subsidiaries
In January 1996, the Board of Directors of CNC declared a $60,000,000
dividend. As a result, $29,400,000 was paid to the minority shareholder. In
December 1996, the Board of Directors of CNC declared a $40,000,000 dividend.
The amount to be paid to the minority shareholder, $19,600,000, was included in
the 1996 Consolidated Balance Sheet on the line entitled "Dividends payable."
The dividend was paid in January 1997.
During 1985, CNC sold $25,000,000 principal amount of its Cumulative Serial
preferred stock, par value $100.00 per share, to the minority shareholder. The
stock was recorded as a component of minority interests on the Consolidated
Balance Sheet. As required, CNC redeemed 25,000 shares per year from 1991
through 1994 at a total cost of $10,000,000. At its option during
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1995, CNC redeemed the remaining 150,000 shares, at a total cost of $15,547,500,
including accrued dividends.
10. Commitments and Contingencies
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.
11. Redeemable Preferred Stock
In 1985, the company sold $75,000,000 principal amount of redeemable
preferred stock with cumulative quarterly dividends equal to 85% of the
arithmetic mean of three month LIBOR for United States dollar deposits.
The company is required to redeem 500,000 shares per year in 1996 through
1998 at a redemption price of $50.00 per share plus any accrued and unpaid
dividends. In December 1996, the company redeemed 500,000 shares by irrevocably
placing $25,300,000, including accrued dividends, in trust for the LIBOR
shareholders, satisfying the 1997 payment. In December 1995, the company
redeemed 500,000 shares for $25,325,000, including accrued dividends, satisfying
the 1996 payment. The company may, at its option, redeem any or all of the
remaining LIBOR preferred stock at $50.00 per share plus any accrued and unpaid
dividends.
The company is authorized to issue 10,000,000 shares of Serial Preferred
Stock, $1 par value, of which the LIBOR Preferred Stock constitutes Series A.
See Note 12 for a discussion of Series B and C preferred stock.
12. Convertible and Cumulative Preferred Stock
In 1994, the company completed two public offerings of preferred stock. The
company sold 4,893,616 depositary shares, priced at $23.50 per share, each
representing one-fourth of a share of 7% Series B Convertible Preferred Stock
referred to as Preferred Redeemable Increased Dividend Equity Securities
(PRIDES). The company also sold 3,400,000 depositary shares, priced at $25.00
per share, each representing one-fourth of a share of 8.40% Series C Cumulative
Preferred Stock. The Series C Cumulative Preferred Stock has a liquidation value
of $25.00 per depositary share.
In December 1996, pursuant to an optional redemption provision in the
Certificate of Designations for the PRIDES, the company called for redemption on
January 9, 1997, all of its outstanding depositary shares relating to the
PRIDES. The PRIDES were redeemed using Bowater common stock at a conversion rate
of .82 of a common share for each depositary share, resulting in the issuance of
4,012,765 common shares. The company reflected this transaction in the
Consolidated Balance Sheet at December 31, 1996.
The PRIDES were common stock equivalents for purposes of reporting earnings
per share. At December 31, 1996, both the primary and fully diluted average
common shares outstanding reflected the issuance of 4,012,765 common shares. In
the interim periods of 1996 and during 1995, primary and fully diluted average
common shares outstanding were calculated using a .82 for one and a one for one
conversion factor, respectively. In 1994, the PRIDES were antidilutive.
During 1995, the company commenced an offer to purchase the outstanding
depositary shares of its 8.40% Series C Cumulative Preferred Stock having a face
value of $85,000,000. The purchase price for each depositary share was $27.875.
Upon expiration of the offer, 2,342,727 depositary shares of the outstanding
depositary shares were tendered for an aggregate purchase price, including fees
and expenses, of $66,309,495. The company recorded a charge to retained earnings
of $9,883,000 or $.23 per fully diluted share for the costs associated with this
transaction. As of December 31, 1996, and December 31, 1995, 1,057,273
depositary shares remained outstanding.
13. Treasury Stock
In February 1996, the Board of Directors authorized the repurchase of up to
10% of the company's outstanding common stock during the next twelve months.
Under this program, the company purchased 2,591,700 shares or 6.6% of the
outstanding shares at the beginning of the program at a cost of $98,762,000. In
January 1997, the Board of Directors authorized an extension of the share
repurchase program to June 30, 1997. The program was completed on February 10,
1997.
The company uses shares of such stock to pay employee/director benefits and
to fund the company's Dividend Reinvestment Plan.
14. Stock Option Plans
The company has three stock option plans--1984, 1988 and 1992. The 1988 and
1992 Stock Incentive Plans authorize the grant of up to 2,000,000 and 3,000,000
shares, respectively, of the company's common stock in the form of incentive
stock options (ISOs), non-qualified stock options, stock appreciation rights
(SARs), performance stock and restricted stock awards. No further grants may be
made under the 1984 Stock Option Plan. The option price of all options granted
to date represents the fair market value of the company's common stock on the
date of grant, or the average fair market value of the company's common stock
for the 20 business days immediately preceding the date of grant.
All options granted through December 31,1994, were exer-
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cisable at December 31, 1996. Options granted in 1996 and 1995 generally become
exercisable over a period of two years. Unless terminated earlier in accordance
with their terms, all options expire 10 years from the date of grant. The plans
provide that any outstanding options will become immediately exercisable upon a
change in control of the company. In such event, grantees of options (except for
grantees of ISO options under the 1984 plan) have the right to require the
company to purchase such options for cash in lieu of the issuance of common
stock and to exercise fully for cash all SARs. The company received $12,275,000
and $57,730,000 from the exercise of stock options in 1996 and 1995,
respectively. The exercise of stock options also generated $2,431,000 and
$17,602,000 of tax benefits for the company in 1996 and 1995, respectively.
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for
employee stock options and similar employer sponsored stock compensation
programs. The statement gives entities a choice of adopting the fair value based
approach or continuing to recognize compensation expense based on the intrinsic
value as defined by APB Opinion No. 25. The company intends to continue using
the intrinsic value method and is required by SFAS No. 123 to provide
supplemental pro forma disclosures showing the effects on income had the fair
value based method been chosen. These disclosures are shown below for 1996 and
1995, and accordingly, have no impact on the company's reported financial
position or results of operations.
(In thousands, except per-share amounts) 1996 1995
Net income As reported $200,154 $246,928
Pro forma 196,256 244,157
Earnings per share, As reported 4.62 5.33
primary Pro forma 4.53 5.27
Earnings per share, As reported 4.55 5.22
fully diluted Pro forma $ 4.46 $ 5.16
The pro forma net income effects of SFAS No.123 in 1996 and 1995 may not be
representative of the pro forma net income effects in future years due to
changes in assumptions and the number of options granted in future years.
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for 1996 and 1995, respectively: dividend yield of 2.3% and
2.8%; expected volatility of 30.9% and 28.4%; risk free interest rate of 5.4%
and 7.8%; and expected option lives of 5.6 years for both 1996 and 1995. The
weighted-average fair value of options granted during 1996 and 1995 was $10.67
and $9.46, respectively. Information with respect to options granted under the
stock option plans is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Number of Weighted Average Number of Weighted Average Number of Weighted Average
Shares (000) Exercise Price Shares (000) Exercise Price Shares (000) Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,576 $ 26 4,273 $ 24 3,792 $ 24
Granted during the year 398 $ 35 769 $ 28 813 $ 24
Exercised during the year (481) $ 25 (2,380) $ 24 (207) $ 22
Canceled during the year (16) $ 28 (86) $ 27 (125) $ 25
Outstanding at end of year 2,477 $ 27 2,576 $ 26 4,273 $ 24
Exercisable at end of year 1,805 -- 1,486 -- 3,120 --
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
at December 31, 1996 at December 31, 1996
Range of Number of Weighted Average Weighted Average Remaining Number of Weighted Average
Exercise Prices Shares (000) Exercise Price Contractual Life (years) Shares (000) Exercise Price
<C> <C> <C> <C> <C> <C> <C>
$21 to $26 989 $ 23 5.2 980 $ 23
$26 to $31 991 $ 28 6.7 743 $ 28
$31 to $36 421 $ 35 8.9 12 $ 32
$36 to $39 76 $ 38 1.3 70 $ 38
2,477 $ 27 6.3 1,805 $ 25
</TABLE>
36
<PAGE>
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15. Employee Stock Ownership Plan
The company has an Employee Stock Ownership Plan (ESOP) as a component of
the company's Salaried Employees' Savings Plan. The ESOP was funded by a
$17,500,000 loan, the proceeds of which were then lent to an Employee Stock
Ownership Trust (ESOT). The ESOT purchased 574,160 shares of the company's
common stock at an average purchase price of $30.59. As of December 31, 1996,
approximately 400,000 shares have been distributed to participants' accounts.
The remaining shares serve as security for the balance of the loan.
16. Income Taxes
The components of income (loss) before income taxes, minority interests and
extraordinary charges consist of U. S. income (loss) of $331,211,000,
$427,768,000, and $(12,955,000), and Canadian income of $21,977,000, $36,802,000
and $6,120,000 in 1996, 1995 and 1994, respectively.
The provision for income tax expense (benefit) consists of:
(In thousands) 1996 1995 1994
Federal:
Current $ 73,679 $ 96,853 $ 240
Deferred 30,701 52,628 (3,993)
104,380 149,481 (3,753)
State:
Current 13,058 8,590 --
Deferred (945) 14,860 (588)
12,113 23,450 (588)
Canadian:
Current 677 2,525 365
Deferred 7,223 7,634 (807)
7,900 10,159 (442)
Total:
Current 87,414 107,968 605
Deferred 36,979 75,122 (5,388)
$ 124,393 $ 183,090 $ (4,783)
The components of deferred income taxes at December 31, 1996 and 1995, in
the accompanying Consolidated Balance Sheet are as follows:
(In thousands) 1996 1995
Timber and timberlands1,2 $ (38,228) $ (68,541)
Fixed assets2 (406,065) (428,725)
Other assets (20,659) (18,012)
Deferred tax liabilities (464,952) (515,278)
Accounts receivable3 18 281
Inventories3 1,043 1,446
Other current assets3 1,151 872
Current liabilities3 6,361 5,538
Other long-term liabilities2 37,823 74,079
U.S. tax credit carryforwards 42,555 83,344
Canadian investment tax
credit carryforwards 29,437 29,001
Net operating loss carryforwards -- 3,473
Valuation allowance (3,720) (3,720)
Deferred tax assets 114,668 194,314
Net deferred tax liability $(350,284) $(320,964)
1. Includes the deferred tax impact of the capitalization of lease payments,
management fees and property taxes of approximately $121,680,000 and
$139,751,000 at December 31, 1996 and 1995, respectively.
2. 1996 amounts adjusted due to completion of IRS audits.
3. Included in "Other current assets" in the accompanying Consolidated Balance
Sheet.
The following is a reconciliation of the U.S. federal statutory and
effective tax rates as a percentage of income (loss) before income taxes,
minority interests and extraordinary charges:
1996 1995 1994
U.S federal statutory
income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
income tax benefit 2.2 3.3 5.6
Canadian taxes 0.1 (0.6) 37.8
Other, net (2.1) 1.7 (8.4)
Effective income tax rate 35.2% 39.4% 70.0%
At December 31, 1996, $29,437,000 of Canadian investment credit
carryforwards and $42,555,000 of U. S. tax credit carryforwards were available
to reduce future income taxes. The company believes that such deferred tax
assets will be ultimately realized, net of the existing valuation allowance of
$3,720,000 at December 31, 1996. There was no net increase in the valuation
allowance for the year ended December 31, 1996. The Canadian investment credit
carryforwards expire at various dates between 1997 and 2006. The majority of the
U. S. tax credit carryforwards have no expiration.
In 1996, CNC declared dividends of $100,000,000. This reduced the company's
cumulative amount of CNC's undistributed earnings through 1992 to $68,406,000.
The company has not provided deferred income taxes on this amount and
distribution of these earnings would qualify for the 80% dividend exclusion. The
company has also not provided deferred income
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taxes on the cumulative amount of undistributed earnings related to its 51%
investment in its Canadian subsidiary since that investment is considered
permanent in duration and determination of such liability is not practicable.
17. Pension Plans
The company has defined benefit pension plans covering substantially all
employees. Benefits are based upon years of service and, depending on the plan,
average compensation earned by employees either during their last years of
employment or over their career. Pension expense for 1996, 1995 and 1994
included the following components:
(In thousands) 1996 1995 1994
Service cost $ 12,908 $ 11,425 $ 13,743
Interest cost 32,525 31,423 29,631
Actual return
on plan assets (39,822) (81,371) (3,208)
Net amortization
and deferral 4,990 42,975 (33,064)
Net pension expense $ 10,601 $ 4,452 $ 7,102
The following table sets forth the funded status of the Plans at December
31, 1996:
Plan Assets Plan Liabilities
Exceed Plan Exceed Plan
(In thousands) Liabilities Assets
Actuarial present value of
accumulated benefit obligation:
Vested $ 297,246 $ 82,595
Non-vested 10,693 16,262
307,939 98,857
Benefits attributable to
future salaries 50,082 4,065
Projected benefit obligation 358,021 102,922
Plan assets at fair value 411,208 60,068
Excess (deficit) of plan assets over
projected benefit obligation 53,187 (42,854)
Unrecognized prior service cost 902 5,522
Unrecognized net loss 9,344 16,690
Unrecognized transition
liability (asset) (16,012) 648
Additional minimum liability
recognized as an intangible other asset -- (4,290)
Additional minimum liability
recognized as a reduction of
shareholders' equity -- (16,013)
Prepaid pension cost
(pension liability) $ 47,421 $ (40,297)
The following table sets forth the funded status of the Plans at December
31, 1995:
Plan Assets Plan Liabilities
Exceed Plan Exceed Plan
(In thousands) Liabilities Assets
Actuarial present value of
accumulated benefit obligation:
Vested $ 311,317 $ 67,952
Non-vested 8,508 27,474
319,825 95,426
Benefits attributable to
future salaries 54,329 3,748
Projected benefit obligation 374,154 99,174
Plan assets at fair value 395,756 49,834
Excess (deficit) of plan assets over
projected benefit obligation 21,602 (49,340)
Unrecognized prior service cost 833 5,512
Unrecognized net loss 44,903 19,985
Unrecognized transition
liability (asset) (19,829) 969
Additional minimum liability
recognized as an intangible other asset -- (6,481)
Additional minimum liability
recognized as a reduction of
shareholders' equity -- (17,730)
Prepaid pension cost
(pension liability) $ 47,509 $ (47,085)
As of December 31, 1996, the company increased the Plans' discount rate
assumption used to determine the Plans' projected benefit obligation from 7.0%
to 7.75%, which approximates more closely current interest rates on high-quality
long-term obligations. The assumed rate of compensation increase was also
increased from 4% to 4.75%. The long-term rate of return on Plan assets
assumption remained at 9.5%. Plan assets consist principally of common stocks
and fixed income securities.
The provisions of SFAS No. 87, "Employers Accounting for Pensions,"
required the company to record an additional minimum liability of $20,303,000
and $24,211,000 at December 31, 1996 and 1995, respectively. This liability
represents the amount by which the accumulated benefit obligation exceeds the
sum of the fair market value of plan assets and accrued amounts previously
recorded. The additional liability may be offset by an intangible asset to the
extent of previously unrecognized prior service cost. The remaining amount is
recorded as a reduction to a separate component of shareholders' equity on the
Consolidated Balance Sheet entitled "Equity adjustments," net of related tax
benefits.
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18. Retiree Health Care Plans
The company provides certain health care and life insurance benefits to
retired employees. Substantially all of the company's employees may become
eligible for these benefits upon reaching retirement age while working for the
company. Retirees are required to contribute a portion of the cost of such
benefits.
The accumulated postretirement benefit obligation at December 31, 1996, and
December 31, 1995, was comprised of the following:
(In thousands) 1996 1995
Retirees $ 46,947 $ 43,473
Fully eligible active plan participants 19,524 17,213
Other active plan participants 52,258 52,773
Unrecognized net loss (6,052) (14,837)
Unrecognized prior service cost (5,599) --
$ 107,078 $ 98,622
Unlike the company's retirement plans, there are no assets dedicated to
fund retiree benefits. Net periodic cost for 1996, 1995 and 1994 included the
following:
(In thousands) 1996 1995 1994
Service cost $ 2,841 $ 2,434 $ 2,832
Interest cost on
accumulated obligation 8,220 7,617 6,886
Net amortization 814 (203) 189
$11,875 $ 9,848 $ 9,907
As of December 31, 1996, the company increased the Plans' discount rate
assumption used to determine the Plans' accumulated postretirement benefit
obligation from 7.0% to 7.75%, which approximates more closely current interest
rates on high-quality long-term obligations. During the next six years, the
Plans assume that the annual cost of postretirement benefits will increase at an
annual rate starting at 8.5% and decreasing to 5.5%. Variations in this health
care cost trend rate can have a significant effect on the amounts reported. An
increase of 1% in this assumption would increase the accumulated postretirement
benefit obligation by approximately 19% and would increase the annual cost by
approximately 14%.
19. Timberland Leases and Operating Leases
The company controls timberlands under long-term leases expiring 2001 to
2059, for which aggregate lease payments were $594,000, $943,000 and $862,000
for 1996, 1995 and 1994, respectively. In addition, the company leases certain
office premises, office equipment and transportation equipment under operating
leases. Total rental expense for these operating leases was $8,024,000,
$9,036,000 and $9,786,000 in 1996, 1995 and 1994, respectively.
At December 31, 1996, the future minimum rental payments under timberland
leases and operating leases are:
Timberland Operating
Lease Leases,
(In thousands) Payments net
1997 $ 719 $ 4,862
1998 719 3,778
1999 719 3,003
2000 718 2,049
2001 718 1,801
Thereafter 21,122 9,575
$24,715 $25,068
20. Net Export Sales
The breakdown of total net export sales by geographic area was:
(In thousands) 1996 1995 1994
Europe $ 66,935 $ 67,393 $ 50,536
Latin America 72,324 91,591 51,080
Asia 143,578 138,378 106,219
Canada 20,190 24,345 13,372
Other 10,147 -- 562
Sub-total 313,174 321,707 221,769
Less: distribution costs (53,847) (37,203) (41,732)
Net export sales $ 259,327 $ 284,504 $ 180,037
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21. Quarterly Information (unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
Year ended December 31, 1996 First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Net sales $ 468,883 $ 453,951 $ 423,188 $ 372,247 $ 1,718,269
Gross profit 163,672 114,042 83,516 33,042 394,272
Operating income 142,721 90,339 59,887 8,235 301,182
Net income 112,905 42,412 26,667 18,170 200,154
Fully diluted earnings per common share $ 2.53 $ .96 $ .60 $ .41 $ 4.55
Year ended December 31, 1995 First Second Third Fourth Year
Net sales $ 449,478 $ 486,836 $ 520,907 $ 543,920 $ 2,001,141
Gross profit 120,063 146,267 178,278 198,380 642,988
Operating income 97,253 117,680 154,636 179,682 549,251
Net income 38,969 59,831 52,870 95,258 246,928
Fully diluted earnings per common share $ .85 $ 1.31 $ 1.13 $ 1.88 $ 5.22
Year ended December 31, 1994 First Second Third Fourth Year
Net sales $ 308,892 $ 320,066 $ 348,151 $ 381,887 $ 1,358,996
Gross profit 3,823 13,284 38,064 62,981 118,152
Operating income (loss) (14,740) (5,676) 20,823 41,693 42,100
Net income (loss) (21,440) (14,881) 10,526 20,971 (4,824)
Fully diluted earnings (loss) per common share $ (.67) $ (.53) $ .16 $ .44 $ (.59)
</TABLE>
Nominal Annual Capacity and Production by Product Line and Mill
<TABLE>
<CAPTION>
Annual 1996
<S> <C> <C>
(In short tons) Capacity Production
Newsprint, directory and uncoated groundwood specialties
Calhoun, Tennessee 853,500 845,134(1)
Catawba, South Carolina 260,500 247,132
Liverpool, Nova Scotia 265,500 261,963
Millinocket, Maine 154,000 146,493
East Millinocket, Maine 292,500 284,270
Coated groundwood paper
Catawba, South Carolina 348,000 328,468
Millinocket, Maine 106,500 106,098
Market pulp
Catawba, South Carolina 268,500 261,015
Calhoun, Tennessee 123,000(2) 118,198
Lumber(3) 200,000 194,918
</TABLE>
1. Includes tonnage produced for Star Forms.
2. As a result of the December 1996 pulp dryer rebuild, annual capacity will
increase to approximately 146,000 tons in 1997.
3. Figures are in MBF (thousands of board feet).
40
<PAGE>
Management's Statement of Responsibility Bowater Incorporated and Subsidiaries
(Full Page background photo of trees)
The management of the company is responsible for the information contained
in the financial statements and in the other parts of this report. The
accompanying consolidated financial statements of Bowater Incorporated and
Subsidiaries have been prepared in accordance with generally accepted accounting
principles. In preparing these statements, management has made judgments based
upon available information. To ensure that this information will be as accurate
and factual as possible, management has communicated to all appropriate
employees requirements for accurate recordkeeping and accounting.
The company maintains a system of internal accounting controls designed to
provide reasonable assurances for the safeguarding of assets and the reliability
of financial records. The system is subject to continuous review through a
corporatewide internal audit program with appropriate management follow-up
action. Management believes that through the careful selection of employees, the
division of responsibilities and the application of formal policies and
procedures, the company has an effective and responsive system of internal
accounting controls.
The company's independent auditors, KPMG Peat Marwick LLP, are responsible
for conducting an audit of the company's consolidated financial statements in
accordance with generally accepted auditing standards and for expressing their
opinion as to whether these consolidated financial statements present fairly, in
all material respects, the financial position, results of operations and cash
flows of the company and its subsidiaries in conformity with generally accepted
accounting principles. Their report appears on this page.
There is an Audit Committee of the Board of Directors composed of three
nonemployee directors who meet regularly with management, the internal auditors
and KPMG Peat Marwick LLP to discuss specific accounting, reporting and internal
control matters. Both the independent auditors and internal auditors have full
and free access to the Audit Committee.
Independent Auditors' Report
The Board of Directors and Shareholders
Bowater Incorporated:
We have audited the accompanying consolidated balance sheet of Bowater
Incorporated and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, capital accounts and cash flows for each
of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bowater
Incorporated and Subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greenville, South Carolina
February 7, 1997
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Financial and Operating Record*
<TABLE>
<CAPTION>
Dollars in millions, except per-share amounts 1996 1995 1994
<S> <C> <C> <C>
Income Statement Data
Net sales $ 1,718.3 $ 2,001.1 $ 1,359.0
Operating income (loss) 301.2 549.3 42.1
Income (loss) from continuing operations before cumulative effect
of changes in accounting principles and extraordinary charge1 204.1 258.2 (4.8)
Net income (loss) 200.2 246.9 (4.8)
Fully diluted earnings (loss) per common share 4.55 5.22 (.59)
Dividends declared per common share2 .80 .60 .60
Product Sales Information
Newsprint $ 845.3 $ 841.6 $ 604.0
Directory and uncoated groundwood specialties3 221.9 203.6 165.9
Coated groundwood 356.3 463.8 307.0
Market pulp 154.3 233.3 130.6
Lumber and other wood products 108.0 116.8 87.9
Communication papers3 153.3 248.9 190.7
Distribution costs (120.8) (106.9) (127.1)
$ 1,718.3 $ 2,001.1 $ 1,359.0
Financial Position3
Timber and timberlands $ 395.7 $ 430.4 $ 426.4
Fixed assets, net 1,636.7 1,711.0 1,785.0
Total assets 2,865.5 2,908.2 2,851.4
Total debt 760.6 818.1 1,118.5
Total debt and redeemable preferred stock 785.4 867.8 1,193.0
Total capitalization4 2,082.8 2,113.9 2,222.5
Additional Information
Percent return on average common equity 18.6% 27.5% (3.0)%
Income from continuing operations as a percentage of net sales 11.9% 12.9% (0.4)%
Total debt as a percentage of total capitalization 36.5% 38.7% 50.3%
Total debt and redeemable preferred stock as
a percentage of shareholders' equity 67.1% 79.2% 134.4%
Effective tax rate 35.2% 39.4% 70.0%
Cash flow from (used for) operations $ 336.2 $ 607.7 $ 80.9
Capital expenditures, including timberlands $ 107.0 $ 96.0 $ 216.1
Common shareholders' equity per common share $ 27.97 $ 24.52 $ 18.92
Common stock price range $31 3/4-41 1/4 $26 1/2-53 1/2 $201/2-293/8
Sales (thousands of short tons)
Newsprint 1,446 1,402 1,460
Directory and uncoated groundwood specialties 275 289 265
Coated groundwood 432 476 453
Market pulp 393 325 300
Registered shareholders 5,600 5,900 6,600
Employees3 5,025 5,500 6,000
</TABLE>
* This table should be used in conjunction with the financial statements and
notes to the financial statements.
1. Extraordinary charges relate to debt retirements in 1996, 1995 and 1990.
The change in accounting principle relates to the adoption of SFAS #106 and
SFAS #109 in 1992.
2. Dividends are declared quarterly.
3. In 1996, the company sold Star Forms. 1991 and subsequent year amounts
include GNP, acquired December 31,1991.
4. Total capitalization includes total debt, minority interests in
subsidiaries, redeemable preferred stock and shareholders' equity.
42
<PAGE>
(Full Page background photo of trees)
Bowater Incorporated and Subsidiaries
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0 $ 1,330.8 $1,154.5 $ 846.7
(63.3) (74.1) 103.7 174.9 280.5 334.1 218.5 124.0
(64.5) (92.9) 45.6 87.4 144.6 164.3 81.1 49.4
(64.5) (82.0) 45.6 78.4 144.6 164.3 81.1 49.4
(1.84) (2.34) 1.15 2.05 3.86 4.37 2.12 1.49
.60 1.20 1.20 1.20 1.14 .97 .83 .72
$ 607.6 $ 649.6 $ 601.4 $ 617.2 $ 645.3 $ 671.3 $ 607.1 $ 556.1
178.5 124.7 -- -- -- -- -- --
316.2 296.1 259.9 279.0 279.2 269.7 203.7 126.4
98.9 136.4 138.0 170.7 182.6 153.2 125.1 98.3
103.1 79.5 34.3 32.6 32.7 37.2 37.7 36.0
191.8 207.5 254.9 280.9 310.2 279.0 257.4 102.9
(142.4) (133.0) (98.1) (91.3) (89.0) (79.6) (76.5) (73.0)
$ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0 $ 1,330.8 $ 1,154.5 $ 846.7
$ 422.5 $ 432.6 $ 414.1 $ 297.9 $ 285.7 $ 273.5 $ 256.6 $ 243.6
1,750.7 1,821.7 1,858.8 1,604.7 1,529.5 1,223.8 1,079.8 1,021.6
2,726.2 2,881.6 2,780.0 2,297.9 2,284.2 1,880.5 1,699.8 1,600.7
1,120.2 1,134.3 864.5 498.2 532.4 293.2 367.6 631.8
1,194.6 1,208.5 938.6 572.2 606.4 367.1 441.4 705.6
2,071.8 2,186.4 2,061.7 1,694.5 1,700.5 1,368.0 1,301.7 1,288.7
(8.6)% (9.6)% 4.4% 7.9% 16.0% 20.7% 13.1% 10.2%
(4.8)% (6.8)% 3.8% 6.8% 10.6% 12.4% 7.0% 5.8%
54.1% 51.9% 41.9% 29.4% 31.3% 21.4% 28.2% 49.0%
163.1% 147.7% 99.6% 61.2% 66.9% 44.4% 61.9% 156.1%
32.0% 37.0% 37.0% 37.0% 36.0% 36.5% 43.0% 30.2%
$ (30.6) $ 109.5 $ 156.6 $ 238.4 $ 327.3 $ 324.3 $ 247.3 $ 123.7
$ 121.8 $ 139.5 $ 159.7 $ 214.1 $ 423.4 $ 214.3 $ 88.1 $ 308.5
$ 20.10 $ 22.55 $ 26.21 $ 26.24 $ 25.37 $ 23.07 $ 19.60 $ 15.33
$ 18-24 5/8 $17 5/8-27 1/4 $18 5/8-30 3/8 $16 1/8-28 1/2 $25 3/4-34 1/8 $25 1/4-36 7/8 $ 22-4 41/2 $23 3/8-33 1/8
1,437 1,604 1,244 1,266 1,278 1,233 1,246 1,237
278 191 -- -- -- -- -- --
454 447 346 352 343 337 316 188
312 318 317 300 261 250 253 260
7,300 8,200 9,500 14,000 15,600 17,000 18,000 21,000
6,600 6,900 7,200 5,100 5,100 5,000 5,000 4,800
</TABLE>
43
<PAGE>
(Full Page background photo of trees)
Directors and Officers Bowater Incorporated and Subsidiaries
Board of Directors
Francis J. Aguilar
Professor Emeritus
Harvard University
Graduate School of Business
H. David Aycock
Retired President,
Chief Operating Officer
and Director
Nucor Corporation
(steel and steel products)
Richard Barth
Retired Chairman, President
and Chief Executive Officer
Ciba-Geigy Corporation
(diversified chemical
products)
Kenneth M. Curtis
Attorney At Law
Curtis, Thaxter, Stevens,
Broder & Micoleau
Limited Liability Company, P.A.
H. Gordon MacNeill
Chairman
Wajax Limited
(distribution of heavy
industrial equipment)
Donald R. Melville
Retired Chairman and
Chief Executive Officer
Norton Company
(diversified manufacturing)
Arnold M. Nemirow
Chairman, President
and Chief Executive Officer
Bowater Incorporated
James L. Pate
Chairman, President
and Chief Executive Officer
Pennzoil Company
(petroleum and petroleum
products)
John A. Rolls
President and
Chief Executive Officer
Thermion Systems
International
(aerospace and industrial
heating systems)
Board Committees
Executive Committee
A. M. Nemirow (Chairman)
H. D. Aycock
H. G. MacNeill
Audit Committee
K. M. Curtis (Chairman)
R. Barth
J. L. Pate
Human Resources and
Compensation Committee
D. R. Melville (Chairman)
F. J. Aguilar
H. D. Aycock
Nominating and Governance Committee
F. J. Aguilar (Chairman)
K. M. Curtis
J. A. Rolls
Finance Committee
R. Barth (Chairman)
H. G. MacNeill
J. A. Rolls
Officers
Arnold M. Nemirow
Chairman, President and
Chief Executive Officer
Anthony H. Barash
Senior Vice President-
Corporate Affairs
and General Counsel
E. Patrick Duffy
Senior Vice President and
President-Coated Paper
and Pulp Division
Arthur D. Fuller
Senior Vice President and
President-Newsprint Division
David G. Maffucci
Senior Vice President and
Chief Financial Officer
Donald G. McNeil
Senior Vice President and
President-Great Northern
Paper, Inc.
Robert J. Pascal
Senior Vice President
Donald J. D'Antuono
Vice President-Corporate Development
James H. Dorton
Vice President-Treasurer
Richard F. Frisch
Vice President-Human Resources
Steven G. Lanzl
Vice President-Information Technology
Robert D. Leahy
Vice President-Corporate
Relations
Robert A. Moran
Vice President-
Manufacturing Services
Michael F. Nocito
Vice President-Controller
Wendy C. Shiba
Secretary and Assistant
General Counsel
44
<PAGE>
(Full Page background photo of trees)
Shareholder Information Bowater Incorporated and Subsidiaries
Annual Meeting
The company's annual meeting of shareholders will be held on Wednesday, May 21,
1997, at 10:30 a.m. at The Westin Hotel, Charlotte, N.C.
Stock Listings
Bowater Incorporated common stock is listed on the New York Stock Exchange
(stock symbol BOW), U.S. regional exchanges, the London Stock Exchange and the
Swiss Stock Exchanges.
Depositary shares, each representing a one-fourth interest in a share of
the company's 8.40% Series C Cumulative Preferred Stock, are listed on the New
York Stock Exchange (stock symbol BOW Pr C).
Common Stock Registrars and Transfer Agents
The Bank of New York
101 Barclay Street
Stock Transfer Administration-22W
New York, NY 10286
800/524-4458
The R-M Trust Co.
Balfour House
390 High Road
Ilford, Essex 1G1 1NQ, England
081-478-1888
LIBOR Preferred Stock,
Series A Registrar and Transfer Agent
ChaseMellon Shareholder Services
120 Broadway
New York, NY 10271
800/205-8301
Series C Cumulative Preferred Stock Depositary,
Registrar and Transfer Agent
SunTrust Bank, Atlanta
P.O. Box 4625
Atlanta, GA 30302
800/568-3476
Investor Information
Investor inquiries about Bowater should be directed to the Investor Relations
Department at Bowater's headquarters.
10-K Report
Bowater files an annual report on Form 10-K with the Securities and Exchange
Commission. A free copy may be obtained by writing to the Investor Relations
Department at Bowater's headquarters.
Dividend Reinvestment and Stock Purchase Plan
The company has a Dividend Reinvestment and Stock Purchase Plan. Information is
available from the Investor Relations Department at Bowater's headquarters.
Auditors
KPMG Peat Marwick LLP
One Insignia Financial Plaza, Suite 600
P.O. Box 10529
Greenville, SC 29603
864/250-2600
Common Stock Prices
Price ranges of the company's common stock during 1996 and 1995 as reported on
the New York Stock Exchange were:
1996 1995
High Low High Low
First quarter $41 1/4 $33 1/2 $37 5/8 $26 1/2
Second quarter 41 1/8 35 1/2 44 7/8 33 1/8
Third quarter 38 5/8 31 3/4 53 1/2 44 5/8
Fourth quarter 39 3/8 33 1/8 47 7/8 32 3/8
45
<PAGE>
Corporate Headquarters and Divisions Bowater Incorporated and Subsidiaries
Headquarters
Bowater Incorporated
55 East Camperdown Way
P.O. Box 1028
Greenville, SC 29602
864/271-7733
864/282-9482 (Fax)
www.bowater.com
Divisions
Bowater Newsprint
Manufacturing Facilities
Calhoun Operations
Calhoun Newsprint Company
5020 Highway 11 South
Calhoun, TN 37309
423/336-2211
Mersey Operations
134 Brooklyn Road
P.O. Box 1150
Liverpool, NS
B0T 1K0 Canada
902/354-3411
Bowater Lumber
660 Industrial Boulevard
Albertville, AL 35959
205/878-7987
Mersey Sawmill at Oakhill
P.O. Box 499
Bridgewater, NS
B4V 2X6 Canada
902/543-4637
Sales Offices
15310 Amberly Drive
Suite 250-50
Tampa, FL 33647
813/977-4945
Point West Place
111 Speen Street
Suite 305
Framingham, MA 01701
508/872-5828
426 Fox Hollow Lane
Annapolis, MD 21403
410/280-0249
2000 Regency Parkway
Suite 380
Cary, NC 27511
919/467-6422
100 Merchant Street
Suite 195
Cincinnati, OH 45246
513/772-2744
55 East Camperdown Way
P.O. Box 1028
Greenville, SC 29602
864/271-7733
624 Crofton Park Lane
Franklin, TN 37069-6514
615/591-4377
Asian Sales
Paper Traders
International Pte Ltd
260 Orchard Road, #08-09
The Heeren
Singapore 238855
65/835-0488
Bowater
Coated Paper and Pulp
Manufacturing Facility
Carolina Operations
5300 Cureton Ferry Road
P.O. Box 7
Catawba, SC 29704
803/981-8000
Sales Offices
1025 Oakvale Rise
Alpharetta, GA 30201
770/772-4148
650 Warrenville Road
Suite 410
Lisle, IL 60532
630/960-9797
Park 80 West, Plaza 1,
3rd Floor
Saddle Brook, NJ 07663
201/368-3611
5300 Cureton Ferry Road
P.O. Box 7
Catawba, SC 29704
803/981-8000
Great Northern Paper
Manufacturing Facilities
Millinocket Operations
One Katahdin Avenue
Millinocket, ME 04462
207/723-5131
East Operations
Main Street
East Millinocket, ME 04430
207/746-9912
Pinkham Lumber
P.O. Box 0
Ashland, ME 04732
207/435-3281
Directory and
Specialties Sales Office
55 East Camperdown Way
P.O. Box 1028
Greenville, SC 29602
864/271-7733
Produced by
Corporate Relations,
Bowater Incorporated
(C) 1997 Bowater Incorporated,
Printed in U.S.A.
Bowater Incorporated is an
equal opportunity employer.
(Recycled logo)Printed on recycled content paper.
Exhibit 21.1
Bowater Incorporated
Subsidiaries
As of March 24, 1997
Jurisdiction of
Name Incorporation
Bowater Canadian Limited Canada
Bowater Foreign Sales Corporation U.S. Virgin Islands
Bowater Mersey Paper Co., Ltd. Nova Scotia
Calhoun Newsprint Company Delaware
Calhoun Energy, Inc. Delaware
Carolina Export Corporation Delaware
Great Northern Paper, Inc. Delaware
Paper Traders International Pte Ltd Singapore
NOTE: Each of the above entities is a wholly-owned direct subsidiary of Bowater
Incorporated (the "Company"), except for Calhoun Newsprint Company, which is
approximately 51% owned by the Company, and Bowater Mersey Paper Co., Ltd.,
which is 51% owned by Bowater Canadian Limited.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
_______________________________
The Board of Directors
Bowater Incorporated:
We consent to incorporation by reference in the following Registration
Statements, of our report dated February 7, 1997, relating to the consolidated
balance sheet of Bowater Incorporated and Subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, capital
accounts, and cash flows for each of the years in the three-year period ended
December 31, 1996, which report is incorporated by reference in the December 31,
1996, annual report on Form 10-K of Bowater Incorporated:
Form S-1 Filing
Date
________ ______
No. 33-2444 - Dividend Reinvestment and Stock Purchase Plan
of Bowater Incorporated 12/27/85
Form S-8
________
No. 2-92899 - Bowater Incorporated 1984 Stock Option Plan 8/23/84
No. 33-16277 - Bowater Southern Hourly Employees' Profit-Sharing
Plan 8/25/87
No. 33-25166 - Bowater Incorporated 1988 Stock Incentive Plan 10/27/88
No. 33-50152 - Bowater Incorporated 1992 Stock Incentive Plan 7/28/92
No. 33-61219 - The Deferred Compensation Plan for Outside
Directors of Bowater Incorporated 7/21/95
No. 33-64371 - Great Northern Paper, Inc. Hourly 401(k) Savings
Plan 11/17/95
No. 33-64373 - Bowater Communication Papers Inc. Employees'
Savings Plan 11/17/95
No. 333-00555 - Bowater Incorporated Salaried Employees' Savings
Plan 1/30/96
No. 333-00587 - Great Northern Paper, Inc. Savings and Capital
Growth Plan for Salaried Employees 1/31/96
No. 333-02989 - Bowater Incorporated/Carolina Division Hourly
Employees' Savings Plan 4/30/96
No. 333-16941 - Great Northern Paper, Inc. Savings and Capital
Growth Plan for Salaried Employees 11/27/96
No. 333-16943 - Great Northern Paper, Inc. Hourly 401(k) Savings
Plan 11/27/96
/s/ KPMG Peat Marwick LLP
Greenville, South Carolina
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This is where the Legend will appear.
</LEGEND>
<RESTATED>
<CIK> 0000743368
<NAME> BOWATER INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 85,259
<SECURITIES> 345,398
<RECEIVABLES> 185,724
<ALLOWANCES> 0
<INVENTORY> 123,745
<CURRENT-ASSETS> 753,755
<PP&E> 2,994,206
<DEPRECIATION> 1,357,501
<TOTAL-ASSETS> 2,865,544
<CURRENT-LIABILITIES> 253,881
<BONDS> 759,029
<COMMON> 43,994
24,746
25,465
<OTHER-SE> 1,101,674
<TOTAL-LIABILITY-AND-EQUITY> 2,865,544
<SALES> 1,718,269
<TOTAL-REVENUES> 1,718,269
<CGS> 1,149,593
<TOTAL-COSTS> 1,323,997
<OTHER-EXPENSES> (123,353)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,347
<INCOME-PRETAX> 353,188
<INCOME-TAX> 124,393
<INCOME-CONTINUING> 204,076
<DISCONTINUED> 0
<EXTRAORDINARY> (3,922)
<CHANGES> 0
<NET-INCOME> 200,154
<EPS-PRIMARY> $ 4.62
<EPS-DILUTED> $ 4.55
</TABLE>
