UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8712
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 62-0721803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 East Camperdown Way, P.O. Box 1028, Greenville, SC 29602
(Address of principal executive offices) (Zip Code)
(864) 271-7733
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 7, 1997.
Class Outstanding at August 7, 1997
Common Stock, $1.00 Par Value 40,374,910 Shares
<PAGE>
BOWATER INCORPORATED
I N D E X
Page
Number
PART I FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheet at June 30, 1997,
and December 31, 1996 3
Consolidated Statement of Operations for the Three
and Six Months Ended June 30, 1997, and
June 30, 1996 4
Consolidated Statement of Capital Accounts
for the Six Months Ended June 30, 1997 5
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 1997, and June
30, 1996 6
Notes to Consolidated Financial Statements 7-8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders 15
6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
(2)
<PAGE>
PART I
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 95,103 $ 85,259
Marketable securities 258,283 345,398
Accounts receivable, net 177,273 185,724
Inventories (Note 2) 103,264 123,745
Other current assets 14,655 13,629
----------- -----------
Total current assets 648,578 753,755
----------- -----------
Timber and timberlands 396,334 395,675
Fixed assets, net 1,589,112 1,636,705
Other assets 79,362 79,409
=========== ===========
$ 2,713,386 $ 2,865,544
=========== ===========
LIABILITIES AND CAPITAL
Current liabilities:
Current installments of long-term debt $ 1,604 $ 1,604
Accounts payable and accrued liabilities (Note 3) 182,396 216,328
Income taxes payable 1,583 6,057
Dividends payable (Note 4) 8,557 29,892
----------- -----------
Total current liabilities 194,140 253,881
----------- -----------
Long-term debt, net of current installments 758,178 759,029
Other long-term liabilities 169,757 171,651
Deferred income taxes 345,845 358,858
Minority interests in subsidiaries 125,608 126,246
Commitments and contingencies (Note 5) -- --
Redeemable LIBOR preferred stock (Note 6) -- 24,746
Shareholders' equity:
Series C cumulative preferred stock 25,465 25,465
Common stock (Note 7) 44,478 43,994
Additional paid-in capital 547,448 531,598
Retained earnings 687,360 698,301
Equity adjustments (12,762) (12,370)
Loan to ESOT (5,440) (6,324)
Treasury stock, at cost (Note 8) (166,691) (109,531)
----------- -----------
Total shareholders' equity 1,119,858 1,171,133
=========== ===========
$ 2,713,386 $ 2,865,544
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
(3)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ----------------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 356,342 $ 453,951 $ 704,849 $ 922,834
Cost of sales 272,259 297,432 552,773 557,438
Depreciation, amortization and cost of
timber harvested 41,069 42,477 83,718 87,682
-------------- -------------- -------------- --------------
Gross profit 43,014 114,042 68,358 277,714
Selling and administrative expense 19,824 23,703 35,045 44,654
-------------- -------------- -------------- --------------
Operating income 23,190 90,339 33,313 233,060
Other expense / (income):
Interest income (4,853) (5,191) (10,146) (10,043)
Interest expense, net of capitalized interest 16,761 18,223 33,579 36,570
Gain on sale of timberlands (12) (1,838) (23) (76,701)
Other, net (770) (1,919) (495) (2,353)
-------------- -------------- -------------- --------------
11,126 9,275 22,915 (52,527)
-------------- -------------- -------------- --------------
Income before income taxes and minority interests 12,064 81,064 10,398 285,587
Provision for income taxes (Note 9) 4,465 29,994 3,848 105,668
Minority interests in net income of subsidiaries 503 6,727 (232) 22,671
-------------- -------------- -------------- --------------
Income before extraordinary charge 7,096 44,343 6,782 157,248
Extraordinary charge, net of taxes of $1,222 - (1,931) - (1,931)
-------------- -------------- -------------- --------------
Net income $ 7,096 $ 42,412 $ 6,782 $ 155,317
============== ============== ============== ==============
Earnings per common share - primary (Note 10):
Income before extraordinary charge $ 0.16 $ 1.03 $ 0.12 $ 3.63
Extraordinary charge - (0.05) - (0.05)
============== ============== ============== ==============
Net income $ 0.16 $ 0.98 $ 0.12 $ 3.58
============== ============== ============== ==============
Average common and common equivalent shares outstanding 40,677 42,273 40,497 42,781
============== ============== ============== ==============
Earnings per common share - fully diluted (Note 10):
Income before extraordinary charge $ 0.16 $ 1.00 $ 0.12 $ 3.54
Extraordinary charge - (0.04) - (0.04)
============== ============== ============== ==============
Net income $ 0.16 $ 0.96 $ 0.12 $ 3.50
============== ============== ============== ==============
Average common and common equivalent shares outstanding 40,707 43,154 40,551 43,662
============== ============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
(4)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
Six Months Ended June 30, 1997
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Redeemable Series C
LIBOR Cumulative Additional
Preferred Preferred Common Paid in Retained Equity Loan to Treasury
Stock Stock Stock Capital Earnings Adjustments ESOT Stock
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 24,746 $ 25,465 $ 43,994 $ 531,598 $ 698,301 $ (12,370) $ (6,324) $(109,531)
Net income -- -- -- -- 6,782 -- -- --
Dividends on common stock ($.40
per share) -- -- -- -- (15,966) -- -- --
Dividends on preferred stock:
LIBOR ($.79 per share) -- -- -- -- (393) -- -- --
Series C ($4.20 per share) -- -- -- -- (1,110) -- -- --
Increase in stated value of LIBOR
preferred stock 254 -- -- -- (254) -- -- --
Redemption of LIBOR preferred stock
(Note 6 ) (25,000)
Common stock issued for exercise
of stock options -- -- 484 12,547 -- -- -- --
Tax benefit on exercise of stock
options 3,302
Reduction in loan to ESOT -- -- -- -- -- -- 884 --
Purchase of common stock (Note 8) -- -- -- -- -- -- -- (57,244)
Treasury stock used for employee
benefit and dividend reinvestment
plans -- -- -- 1 -- -- -- 84
Foreign currency translation -- -- -- -- -- (392) -- --
-------- --------- --------- --------- --------- ---------- --------- ---------
Balance at June 30, 1997 $ -- $ 25,465 $ 44,478 $ 547,448 $ 687,360 $ (12,762) $ (5,440) $(166,691)
========= ========= ========= ======== ========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,782 $ 155,317
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and cost of timber harvested 83,718 87,682
Deferred income taxes (319) 30,187
Minority interests (232) 22,671
Gain from sale of timberlands (23) (76,701)
Extraordinary charge, net of taxes -- 1,931
Change in working capital:
Accounts receivable, net 8,451 348
Inventories 20,481 (13,070)
Accounts payable and accrued liabilities (Note 3) (28,426) (5,203)
Income taxes payable (13,717) (68,436)
Other, net (2,482) 5,458
--------- ---------
Net cash from operating activities 74,233 140,184
--------- ---------
Cash flows from investing activities:
Cash invested in fixed assets, timber and timberlands (45,829) (34,893)
Disposition of fixed assets, timber and timberlands 2,342 116,999
Cash from sale of (invested in ) marketable securities 87,115 (191,016)
--------- ---------
Net cash provided by (used for) investing activities 43,628 (108,910)
--------- ---------
Cash flows from financing activities:
Cash dividends, including minority interests (38,805) (49,037)
Purchase of common stock (Note 8) (57,244) (81,433)
Purchases/payments of long-term debt (884) (32,599)
Stock options exercised 13,032 9,267
Redemption of LIBOR preferred stock ( Note 6) (25,000) --
Other 884 851
--------- ---------
Net cash used for financing activities (108,017) (152,951)
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,844 (121,677)
Cash and cash equivalents at beginning of year 85,259 264,571
--------- ---------
Cash and cash equivalents at end of period $ 95,103 $ 142,894
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest $ (33,087) $ (37,447)
Income taxes $ (17,883) $(143,918)
</TABLE>
See accompanying notes to consolidated financial statements.
(6)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements include the accounts of
Bowater Incorporated and Subsidiaries (the Company). The consolidated
balance sheets, statements of operations, capital accounts and cash flows
are unaudited. However, in the opinion of Company management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation of the interim financial statements have been made. The
results of the interim period ended June 30, 1997, are not necessarily
indicative of the results to be expected for the full year.
2. The composition of inventories at June 30, 1997, and December 31, 1996, was
as follows (in thousands):
June 30, 1997 December 31, 1996
-------------- ----------------
(Unaudited)
At lower of cost or market:
Raw materials $ 11,686 $ 17,990
Work in process 2,324 3,077
Finished goods 35,244 47,577
Mill stores and other supplies 65,834 66,925
-------- --------
115,088 135,569
-------- --------
Excess of current cost over
LIFO inventory value (11,824) (11,824)
======== ========
$103,264 $123,745
======== ========
3. During the first six months of 1997, the Company paid $25.4 million
pursuant to a long-term incentive compensation plan accrued for the three
year period ending December 31, 1996.
4. In December 1996, the Board of Directors of Calhoun Newsprint Company (CNC)
declared a $40.0 million dividend. As a result, $19.6 million was paid to
the minority shareholder in January 1997. In the first quarter of 1996, a
$29.4 million dividend was paid to the minority shareholder.
5. The Company is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims, and other matters. The Company's management believes
that the ultimate disposition of these matters will not have a material
adverse effect on the Company's operations or its financial condition taken
as a whole.
6. On May 12, 1997, the company redeemed for cash all of the remaining
outstanding shares of LIBOR Preferred Stock, Series A, at its par value of
$50 per share.
7. On January 9, 1997, the Company converted all of the outstanding depositary
shares of its 7% PRIDES Series B Convertible Preferred Stock using Bowater
common stock at a conversion ratio 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.
(7)
BOWATER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. During the first quarter of 1997, the Company purchased 1.4 million shares
of common stock at a cost of $57.2 million, completing the stock repurchase
program authorized in February 1996. Since the beginning of the program, 4
million shares were purchased at a total cost of $156 million. In the first
six months of 1996, 2.1 million shares were purchased at a cost of $81.4
million.
9. The effective tax rate for the second quarter of 1997 and 1996, and the
first six months of 1997 and 1996, was 37.0 percent.
10. The calculation of earnings per share for the three and six months ended
June 30, 1997, includes a deduction of $.8 million and $1.8 million ,
respectively, for the dividend requirements of the Company's LIBOR and
Series C preferred stock and the amortization of the difference between the
net proceeds from the LIBOR preferred stock and its mandatory redemption
value. For the three and six months ended June 30, 1996, the calculation of
earnings per share included a deduction of $ 1.2 million and $2.4 million,
respectively, for the same items.
(8)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
The Company reported 1997 second quarter earnings of $7.1 million, or
$.16 per fully diluted share. This compares to net income of $42.4 million or
$.96 per fully diluted share in the second quarter of 1996 and a net loss of
$0.3 million, or $.03 per fully diluted share in the first quarter of 1997.
Included in net income for the second quarter of 1996 was an extraordinary
charge of $1.9 million, or $.04 per fully diluted share, resulting from the open
market purchase of outstanding debt. Second quarter 1997 net sales were $356.3
million, compared to $454.0 million for the second quarter of 1996 and $348.5
million for the first quarter of this year. Selling prices for most of the
Company's products, while rising, are still below the levels of a year ago. This
accounts for the majority of the lower sales and profitability compared to 1996
results.
PRODUCT LINE INFORMATION:
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Three Month Ended Six Months Ended
-------------------------------- ---------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C>
Net sales:
Newsprint $ 178,153 $ 225,189 $ 345,264 $ 460,872
Coated groundwood 83,193 93,091 156,508 191,846
Directory paper 38,529 45,907 88,145 94,959
Market pulp 47,123 50,197 91,308 68,773
Uncoated groundwood specialties 11,647 8,135 23,167 18,866
Lumber and other wood products 26,687 21,050 60,645 49,432
Communication papers (1) -- 44,290 -- 95,263
Distribution costs (28,990) (33,908) (60,188) (57,177)
========= ========= ========= =========
$ 356,342 $ 453,951 $ 704,849 $ 922,834
========= ========= ========= =========
Operating income $ 23,190 $ 90,339 $ 33,313 $ 233,060
========= ========= ========= =========
</TABLE>
(1) Star Forms Incorporated was sold in November 1996.
(9)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997, VERSUS JUNE 30, 1996
For the second quarter of 1997, the Company's operating income of $23.2
million decreased $67.1 million compared to the second quarter of 1996. Lower
average transaction prices for all of the Company's products except market pulp
and lumber caused operating income to decline significantly. The effect of the
lower transaction prices was partially offset by higher tonnage shipments and
lower operating costs.
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 in the second
quarter of 1997 was 22 percent lower than the same period last year and 6
percent higher than the prior quarter. The significant decrease in prices versus
prior year was a result of lower consumption and higher consumer and producer
inventories during 1996, as newsprint consumers initiated conservation measures
in reaction to record high prices experienced in 1995. By the end of 1996,
however, market conditions began to improve as consumption increased and
inventories held by U. S. daily newspapers and North American producers declined
compared to levels earlier in the year. In the first quarter of 1997, the
Company announced a $75 per metric ton domestic price increase. This price
increase continues to be implemented in the third quarter. Favorable market
conditions continue. Ad lineage for U. S. daily newspapers increased in the
second quarter of 1997 compared to the second quarter of 1996, helping to
increase U. S. daily newspaper consumption by 5 percent comparing the same
periods.(1) Total U. S. consumption also increased by 5 percent comparing the
second quarter of 1997 to the second quarter of 1996 and to the first quarter of
1997.(2) Inventory levels at the end of the second quarter also improved. U. S.
daily newspaper publishers inventory decreased to a 37-day supply compared to a
44-day supply at the end of the second quarter of 1996;(3) North American mill
inventory levels, though still higher than normal, decreased 17 percent compared
to the second quarter of 1996 and decreased 10 percent compared to the first
quarter of 1997.(4) As a result of these improving market conditions, the
Company informed its customers of a price increase of $35 per metric ton
effective October 1, 1997.
COATED GROUNDWOOD - The Company's coated groundwood average transaction price
declined 26 percent comparing the second quarter of 1997 to the same period last
year, but increased 3 percent versus the prior quarter. The Company's shipments
during the second quarter increased 20 percent over the second quarter of last
year and 10 percent over the first quarter of this year. Throughout 1996, coated
groundwood selling prices declined while producer inventory levels surpassed
historical levels, as customers reduced their inventories which were built up
during 1995. Market conditions improved in the first quarter allowing the
Company to implement a price increase of up to $60 per ton for certain market
segments effective April 1. Improved market conditions continued in the second
quarter of 1997. Magazine advertising pages increased 6 percent(5) and catalog
mailing pieces increased 7 percent(6) in the second quarter compared to the same
period last year, while U. S. coated groundwood shipments increased 30
percent(7) comparing the same periods.
- -----------------
(1) Canadian Pulp and Paper Association (CPPA)
(2) CPPA
(3) Newspaper Association of America (NAA)
(4) CPPA
(5) Magazine Publishers Association
(6) U.S. Postal Service
(7) American Forest and Paper Association (AF&PA)
(10)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U. S. producer inventory levels also improved in the second quarter, decreasing
50 percent from the second quarter of 1996.(8) On July 1, 1997, the Company
announced another price increase between $50 and $80 per ton, depending upon
market segment, for all domestic and export customers.
DIRECTORY PAPER - The Company's average transaction price for directory paper
decreased 13 percent in the second quarter of 1997 compared to the second
quarter of 1996, and decreased 6 percent compared to the first quarter of 1997.
During 1996, demand in the directory paper market declined and prices decreased,
similar to the conditions and pricing in the newsprint market. Lower prices
continued through the second quarter of 1997, since a large portion of the
Company's directory sales were based on contracts, the pricing of which was
determined in the latter part of 1996. In addition, the Company sold lower
priced, higher basis weight directory paper in the second quarter of 1997
compared to the prior quarter. The Company's shipments during the second quarter
were similar to the second quarter of 1996; however, they were 17 percent lower
than shipments in the first quarter of 1997.
MARKET PULP - The Company's market pulp average transaction price for the second
quarter of 1997 increased 18 percent compared to the second quarter of last
year; however, the Company's shipments decreased 21 percent comparing the same
periods, which more than offset the price gains. The Company's shipments in the
second quarter of 1996 were higher than normal as pulp inventories were reduced
from abnormally high levels. NORSCAN (U.S., Canada, Finland, Norway and Sweden
producers) shipments of bleached softwood market pulp were relatively unchanged
in the second quarter of 1997 compared to the year ago period, while increasing
6 percent compared to the prior quarter.(9) NORSCAN inventory levels of
bleached softwood market pulp at the end of the second quarter were also
unchanged at 1.1 million metric tons compared to the end of the second quarter
of 1996; however, levels decreased from 1.4 million metric tons at the end of
the first quarter of 1997.(10) Based on the favorable market conditions, the
Company implemented price increases during the first seven months of 1997
causing its average transaction price to rise approximately $30 per metric ton,
since the end of 1996.
LUMBER - The average transaction price for the Company's lumber products
increased 20 percent in the second quarter of 1997 compared to the year ago
period and 4 percent over the prior quarter. The Company's shipment levels were
relatively unchanged in the second quarter compared to the same periods. Lumber
prices increased significantly during 1996 due primarily to record high housing
starts of 1.5 million. In 1997, prices continue to rise, but at a slower rate.
As of the end of the second quarter, the government estimate of U. S. housing
starts for the full year of 1997 stands at 1.4 million.
COST OF SALES AND OTHER INCOME AND EXPENSES
Cost of sales decreased 8 percent in the second quarter of 1997
compared to the second quarter of last year. The majority of this decrease was
due to the absence of product costs relating to the Company's subsidiary, Star
Forms Incorporated (Star Forms), which was sold in November of 1996. Comparing
the same periods, selling and administrative expenses decreased approximately
$3.9 million or 16 percent. The majority of this savings was also due to the
sale of Star Forms. Interest expense for the second quarter of 1997 was $1.5
million or 8 percent lower than the same period last year due to lower average
debt balances in 1997. Other income and expenses in the second quarter of 1997
were relatively unchanged from the year ago period.
- ---------------
(8) AF&PA
(9) AF&PA
(10) AF&PA
(11)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997, VERSUS JUNE 30, 1996
For the first six months of 1997, the Company's operating income was
$33.3 million, a decrease of $199.7 million compared to the first six months of
1996. This significant decrease is attributed to substantially lower average
transaction prices for all of the Company's products except market pulp and
lumber, partially offset by higher tonnage shipments.
PRODUCT LINE INFORMATION
NEWSPRINT - For the first six months of 1997, the Company's newsprint average
transaction price decreased 28 percent while shipments increased 4 percent
compared to the same period last year. During the second half of 1996, prices
decreased due to lower demand brought on by conservation measures taken by users
in reaction to the record high prices experienced in 1995. In 1997, however,
consumption increased as U. S. daily newspapers consumed more newsprint in each
of the first six months compared to the same months in 1996.(11) Both U. S.
daily newspaper inventory levels and North American mill inventory levels at the
end of June 1997 are lower than June 1996 levels.(12) In reaction to the
favorable market conditions, the Company announced a $75 per metric ton domestic
price increase in March of 1997. This price increase continues to be implemented
in the third quarter. The Company has also informed its customers of a price
increase of $35 per metric ton effective October 1, 1997.
COATED GROUNDWOOD - The Company's coated groundwood average transaction price
also decreased during the first half of 1997 compared to the year ago period by
31 percent, offset by higher shipments of 18 percent comparing the same periods.
In 1996, coated groundwood prices declined as customers reduced their excessive
inventory levels from 1995. In 1997, demand is increasing. U. S. coated
groundwood shipments increased 27 percent during the first six months of 1997
compared to the prior year period and U. S. producer inventory levels have
declined.(13) The Company implemented a price increase of up to $60 per ton for
certain market segments during the first half of 1997 and announced an
additional increase between $50 and $80 per ton, depending upon market segment,
for all domestic and export customers on July 1, 1997.
DIRECTORY PAPER - The Company's average transaction price for directory paper
decreased 12 percent in the first six months of 1997 compared to the first half
of 1996. A large portion of the Company's current directory paper sales were
based on contracts completed in the latter part of 1996, when prices had
decreased from the high levels of 1995.
MARKET PULP - The average transaction price for the Company's market pulp
increased in the first half of 1997 compared to the first half of 1996 by 9
percent. Like newsprint, the pulp market began to show signs of recovery during
the first six months of 1997. NORSCAN shipment levels increased during this
period compared to the same period last year, while inventory levels
dropped.(14) June 1997 marked the fourth month in a row in which NORSCAN
inventory levels declined.(15) As of July 31, 1997, the Company's average
transaction price increased approximmately $30 per metric ton, since the end
of 1996.
LUMBER - The Company's average transaction price for its lumber products
increased 29 percent comparing the first six months of 1997 to the first six
months of last year. The lumber market continued its healthy pace in the first
half of 1997 due to the high level of housing starts.
- ------------------
(11) Pulp and Paper Week
(12) NAA and CPPA
(13) AF&PA
(14) AF&PA
(15) AF&PA
(12)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COST OF SALES AND OTHER INCOME AND EXPENSES
Cost of sales for the first six months of 1997 was slightly lower when
compared to the same period last year. The absence of product costs from the
sale of Star Forms was almost completely offset by additional costs associated
with selling approximately 45,000 more tons of product in 1997 than 1996.
Selling and administrative expenses decreased 22 percent comparing the first
half of 1997 to the first half of 1996. The majority of this decrease was also
due to the sale of Star Forms. Interest expense decreased comparing the same
periods due to lower average debt balances in 1997 versus 1996. In the first six
months of 1996, the Company sold timberlands resulting in a $76.7 million
pre-tax gain. Other income and expenses in the first six months of 1997 were
relatively the same compared to the year ago period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and marketable securities balance
at June 30, 1997, totaled $353.4 million compared to $430.7 million at December
31, 1996, and $333.9 million at June 30, 1996. Aside from cash flow from
operations and capital expenditures, significant cash outflows since December
31, 1996, included the repurchase of 1.4 million common shares for $57.2
million, a $19.6 million dividend payment to the minority shareholder of CNC,
and the redemption of $25 million of the Company's remaining outstanding LIBOR
preferred stock.
During the first six months of 1997, the Company's operations generated
$74.2 million of cash compared to $140.2 million of cash during the first six
months of 1996, a decrease of $66 million. This decrease was primarily the
result of a decrease in operating income of $199.7 million, offset in part by a
decrease in tax payments of $126 million. Tax payments were higher in 1996 due
to the higher level of income and the payment of the Company's 1995 tax
liability in the first quarter of 1996.
Cash flow from investing activities in the first six months of 1997 of
$43.6 million was $152.5 million higher than the first six months of last year.
Capital expenditures for the first six months of 1997 were $10.9 million higher
compared to the first six months of 1996. The Company expects total capital
expenditures for 1997 to approximate $120 to $130 million, slightly higher than
1996 capital expenditures of $107 million. In the first six months of 1997,
$87.1 million of net cash flow was from the maturity of marketable securities
versus a net investment of $191 million in the first six months of 1996. Also in
the first six months of 1996, the Company sold timberlands resulting in proceeds
of $117 million.
Cash flow used for financing activities was $44.9 million lower in the
first six months of 1997 compared to the year ago period. Cash dividends for the
first six months of 1997 and 1996 included payments to the minority shareholder
of CNC totaling $19.6 million and $29.4 million, respectively. Also included in
the first six months of 1996 were cash dividends of $4 million on the Company's
7% PRIDES Series B Convertible Preferred Stock (PRIDES). On January 9, 1997, the
Company converted all of the outstanding depositary shares of the PRIDES using
Bowater common stock at a conversion ratio of .82 of a common share for each
depositary share, resulting in the issuance of 4,012,765 common shares.
(13)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On May 12, 1997, the Company redeemed for cash the remaining 500,000
outstanding shares of LIBOR Preferred Stock, Series A, at its par value of $50
per share, plus accrued and unpaid dividends. The LIBOR stock was subject to
mandatory redemption in 1998.
On February 10, 1997, the Company completed the repurchase of
approximately 10 percent of its outstanding common stock as part of a previously
announced stock repurchase program. In total, the Company purchased 4 million
shares at a cost of $156 million. During the first quarter of 1997, the Company
repurchased 1.4 million common shares at a cost of $57.2 million. In the first
six months of 1996, 2.1 million shares were purchased at a cost of $81.4
million. The Company continues to consider both internal and external investment
opportunities as well as additional debt reduction and common stock repurchases.
ORGANIZATION
On July 23, 1997, the Company announced the reorganization of its U. S.
and Canadian forest and wood products operations into a new division to be
called the Forest Products Division. The consolidation of these assets will
enable the Company to explore new opportunities to improve returns on its forest
products assets. In addition, the Company announced the consolidation of its
newsprint and directory paper businesses into one division to be called the
Newsprint and Directory Division. The combination of these businesses will
enhance the Company's opportunities to better serve its groundwood based
customers while developing strategies for improving financial returns.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share." The
implementation of this standard in the fourth quarter of 1997 will not impact
the Company's results of operations, but will result in a different calculation
of basic earnings per share versus primary. Fully diluted earnings per share
will remain the same.
(14)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 21, 1997, at the Company's Annual Meeting of Shareholders, the
following matters were submitted to a vote of the shareholders:
A resolution electing the following class of directors for a term of
three years: Richard Barth (36,112,227 votes in favor; 202,314 votes withheld);
James L. Pate (36,112,780 votes in favor; 201,701 votes withheld); and Charles
J. Howard (36,089,212 votes in favor; 225,329 votes withheld). The names of each
other director whose term of office as a director continued after the meeting
are: Francis J. Aguilar, H. David Aycock, Kenneth M. Curtis, Donald R. Melville,
Arnold M. Nemirow, and John A. Rolls.
A proposal to approve the Bowater Incorporated 1997-1999 Long-Term
Incentive Plan under which the Company has granted and will grant units to key
employees of the Company and its subsidiaries. The proposal was approved by a
vote of 34,697,416 votes in favor; 1,503,575 votes against; and 113,550
abstentions.
A proposal to approve the Bowater Incorporated 1997 Stock Option Plan
which provides for the awards to key employees, officers and nonemployee
directors of stock options, restricted or nonrestricted stock awards, and stock
appreciation rights. The proposal was approved by a vote of 33,653,141 votes in
favor; 2,562,362 votes against; and 99,038 abstentions.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation
S-K):
Exhibit No. Description
10.1 Employment Agreement, dated as of May 21, 1997, by and between
the Company and Wendy C. Shiba.
10.2 Change in Control Agreement, dated as of May 21, 1997, by and
between the Company and Wendy C. Shiba.
27.1 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K:
None
(15)
<PAGE>
BOWATER INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOWATER INCORPORATED
By /s/ David G. Maffucci
David G. Maffucci
Senior Vice President and
Chief Financial Officer
By /s/ Michael F. Nocito
Michael F. Nocito
Vice President and Controller
Dated: August 14, 1997
(16)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
10.1 Employment Agreement, dated as of May 21, 1997, by and between
the Company and Wendy C. Shiba.
10.2 Change in Control Agreement, dated as of May 21, 1997, by and
between the Company and Wendy C. Shiba.
27.1 Financial Data Schedule (electronic filing only).
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 21st day of May, 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 Wendy C. Shiba, of 65 Latour Way, Greer, South Carolina 29650 (the
"Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President, Secretary and Assistant General Counsel; 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.
(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
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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
her 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 her early or
normal retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President, Secretary and Assistant General Counsel, 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 her 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 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 her residence, the Executive shall be entitled to financial assistance
in accordance with the terms of the Corporation's relocation policy then in
effect.
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5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the
Executive a base salary of $149,188.00 (Salary Grade
31) payable in substantially equal periodic
installments on the Corporation's regular payroll
dates. The Executive's base salary shall be reviewed
at least annually and from time to time may be
increased (or reduced, if such reduction is effected
pursuant to across-the-board salary reductions
similarly affecting all management personnel of the
Corporation).
(b) Bonus Plan. In addition to her 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.
(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.
(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 she is
entitled by virtue of her 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
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<PAGE>
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 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
4
<PAGE>
the applicable provisions of such plans; and further provided that in lieu
hereof, at her 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 Change in
Control 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 her employment hereunder or which has a
material adverse effect on the Corporation or the Executive's ability to perform
adequately and effectively her 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 which has been signed as of the date of
this Agreement and the Indemnification Agreement dated as of July 24, 1996).
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.
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<PAGE>
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/ Wendy C. Shiba
---------------------------------- ------------------
Richard F. Frisch, Wendy C. Shiba
Vice President - Human Resources
6
Exhibit 10.2
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 21st day of May, 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 Wendy
C. Shiba of 65 Latour Way, Greer, South Carolina 29650 (the "Executive").
WHEREAS, the Corporation considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(a) "Acquiring Person" shall mean any Person who is or becomes a
"beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of
securities of the Corporation representing twenty percent
(20%) or more of the combined voting power of the
Corporation's then outstanding voting securities, unless such
Person has filed Schedule 13G and all required amendments
<PAGE>
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 disposition by the Corporation of all
or substantially all of the Corporation's assets
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(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
Executive's awards or benefits under the Corporation's
benefit
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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 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
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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 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;
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(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 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
6
<PAGE>
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 ADeferred Payment Election@). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
(c) The Corporation shall pay or provide to the Executive or
his surviving spouse or children, as the case may be, such
amounts and benefits as may be required so that the pension
and other post-retirement benefits paid or made available to
the Executive, his surviving spouse, and his children are
equal to those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
in effect immediately prior to the Change in Control, assuming
the Executive continued in the employ of the Corporation at
the same compensation until the third anniversary of the
effective date of the termination of the Executive's
employment or until his Normal Retirement Date, whichever is
earlier. Notwithstanding any conflicting restrictions in the
Plans or the fact of the termination of the Executive's
employment, until the Executive's Normal Retirement Date, the
Executive or his surviving spouse and his children shall
maintain a continuing right to receive the pension and other
benefits under the above Plans with payments to begin upon
retirement and to elect an imputed retirement on the
Executive's 50th birthdate or any of his birthdates thereafter
until his Normal Retirement Date, such election to be made by
so notifying the Corporation within one (1) year after
termination of his employment.
7
<PAGE>
(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
(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
8
<PAGE>
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.
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
9
<PAGE>
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 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.
10
<PAGE>
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 /s/ Richard F. Frisch
Richard F. Frisch
Vice President - Human Resources
/s/ Wendy C. Shiba
Wendy C. Shiba
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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0
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