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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-57839
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BOWATER INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 62-072180
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
55 EAST CAMPERDOWN WAY
POST OFFICE BOX 1028
GREENVILLE, S.C. 29602
(864) 271-7733
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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WENDY C. SHIBA, ESQ.
VICE PRESIDENT, SECRETARY AND ASSISTANT GENERAL COUNSEL
BOWATER INCORPORATED
55 EAST CAMPERDOWN WAY
POST OFFICE BOX 1028
GREENVILLE, SC 29602
(864) 271-7733
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPY TO:
ALLEN FINKELSON, ESQ.
CRAVATH, SWAINE & MOORE
825 EIGHTH AVENUE
NEW YORK, NY 10019
(212) 474-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
BOWATER INCORPORATED
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
This prospectus relates to shares of common stock, par value $1.00 per
share (the "Bowater Common Stock"), of Bowater Incorporated, a Delaware
corporation ("Bowater"), to be issued upon exchange (by way of redemption or
purchase) of exchangeable shares (the "Exchangeable Shares") of Bowater Canada
Inc., an indirectly owned subsidiary of Bowater organized under the laws of
Canada ("Bowater Canada"). The Exchangeable Shares are being issued by Bowater
Canada in exchange for certain of the common shares (the "Avenor Common Shares")
of Avenor Inc. ("Avenor") pursuant to the terms of an Amended and Restated
Arrangement Agreement dated as of March 9, 1998 (the "Arrangement Agreement")
and the terms of a plan of arrangement (the "Plan of Arrangement") providing for
an arrangement (the "Arrangement") involving Avenor and its shareholders under
Section 192 of the Canadian Business Corporations Act (the "CBCA"). Shares of
Bowater Common Stock are being offered on a continuous basis pursuant to Rule
415 under the Securities Act of 1933, as amended (the "Securities Act"), during
the period of time that the Registration Statement to which this prospectus
relates remains effective. Bowater, Bowater Canadian Holdings Incorporated, a
subsidiary of Bowater organized under the laws of the province of Nova Scotia
("Bowater Holdings") and Bowater Canada will offer shares of Bowater Common
Stock in exchange for Exchangeable Shares from time to time. Upon such exchange,
holders of Exchangeable Shares will be entitled to receive for each Exchangeable
Share one share of Bowater Common Stock. See "Plan of Distribution". All
expenses of registration incurred in connection with this offering are being
paid by Bowater. Bowater, Bowater Holdings and Bowater Canada will receive the
Exchangeable Shares exchanged for the shares of Bowater Common Stock offered
hereby. The Bowater Common Stock is currently traded on the New York Stock
Exchange (the "NYSE"), U.S. regional exchanges, the London Stock Exchange and
the Swiss Stock Exchange. Bowater is in the process of delisting the Bowater
Common Stock from the Swiss Stock Exchange. On July 23, 1998, the closing price
of the Bowater Common Stock on the NYSE was $45.50 per share. All dollar
references in this Prospectus are to United States dollars ("$") unless
otherwise indicated by reference to Canadian dollars ("C$").
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SEE "RISK FACTORS" BEGINNING AT PAGE 3 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH ANY INVESTMENT IN THE
BOWATER COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is July 24, 1998.
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AVAILABLE INFORMATION
Bowater is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"), which can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549; and
at the regional offices of the Commission at Citicorp Center, 13th Floor, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates or on the Internet
at http://www.sec.gov. Such reports, proxy statements and other information
concerning Bowater also may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
Bowater has filed with the Commission a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the shares of
Bowater Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
Bowater and such Bowater Common Stock, reference is made to such Registration
Statement and to the exhibits and schedules thereto. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be obtained at the
public reference facilities maintained by the Commission as provided in the
preceding paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by Bowater with the
Commission pursuant to the Exchange Act (File No. 1-8712), are incorporated in
this Prospectus by reference and shall be deemed to be a part hereof:
(a) Bowater's Annual Report on Form 10-K for the year ended December
31, 1997;
(b) Bowater's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(c) Bowater's Current Report on Form 8-K filed March 19, 1998;
(d) The Joint Management Information Circular and Proxy Statement on
Schedule 14A for Bowater filed on June 18, 1998;
(e) The description of the Bowater Common Stock contained in the
Registration Statement of Bowater on Form S-3, File No. 33-51569.
All documents filed by Bowater pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Prospectus, in a
supplement to this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed supplement to this Prospectus or in any
subsequently filed document that is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
Bowater hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents). Written
or telephone requests for such copies should be directed to Bowater at its
principal executive offices located at 55 East Camperdown Way, Post Office Box
1028, Greenville, South Carolina 29602, Attention: Investor Relations Department
(telephone number: (864) 271-7733).
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RISK FACTORS
Investors should consider carefully the following factors, in addition to
the other information contained in this Prospectus, before exchanging their
Exchangeable Shares for the shares of Bowater Common Stock offered hereby.
RISKS RELATED TO THE EXCHANGE OF EXCHANGEABLE SHARES
Taxability of the Exchange
The exchange of Exchangeable Shares for shares of Bowater Common Stock is
generally a taxable event in Canada and the United States. A holder's tax
consequences can vary depending on a number of factors, including the residency
of the holder, the method of the exchange (redemption or purchase) and the
length of time that the Exchangeable Shares were held prior to an exchange. See
"Income Tax Considerations".
Differences in Canada and U.S. Trading Markets
The Toronto Stock Exchange (the "TSE") and the Montreal Exchange (the "ME")
have both conditionally approved the listing of the Exchangeable Shares on the
effective date of the Arrangement, subject to Bowater Canada fulfilling all of
the requirements of the TSE and the ME, including distribution of Exchangeable
Shares to a minimum number of public shareholders. The Bowater Common Stock is
listed on the NYSE, U.S. regional exchanges, the London Stock Exchange and the
Swiss Stock Exchange. Bowater is in the process of delisting the Bowater Common
Stock from the Swiss Stock Exchange. Bowater has agreed that the shares of
Bowater Common Stock issued pursuant to the Arrangement and issuable from time
to time in exchange for the Exchangeable Shares will be listed on the NYSE and
the Pacific Exchange, Inc. There is no current intention to list the
Exchangeable Shares or Bowater Common Stock on any other stock exchange in
Canada or the United States. As a result of the foregoing, the price at which
the Exchangeable Shares will trade will be based upon the market for such shares
on the TSE and ME and the price at which the shares of Bowater Common Stock will
trade will be based upon the market for such shares on the NYSE and the other
exchanges upon which they trade. Although Bowater believes that the market price
of the Exchangeable Shares on the TSE and ME and the market price of the Bowater
Common Stock on the NYSE and such other exchanges will reflect essentially
equivalent values, there can be no assurances that the market price of the
Bowater Common Stock will be identical, or even similar, to the market price of
the Exchangeable Shares.
Foreign Property
Provided the Exchangeable Shares are listed on a prescribed stock exchange
in Canada (which currently includes the TSE and ME), the Exchangeable Shares
will not be foreign property under the Income Tax Act (Canada), as amended (the
"Canadian Tax Act"), for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans, for
registered pension plans or for certain other persons to whom Part XI of the
Canadian Tax Act is applicable. Shares of Bowater Common Stock will, however, be
foreign property for such plans or persons.
RISKS RELATED TO OPERATIONS
Uncertainties in Integrating Business Operations and Achieving Cost Reductions
The value of shares of Bowater Common Stock may be affected by the ability
of the management of Bowater to achieve the cost reductions from operating and
administrative efficiencies and other synergies expected to result from the
transaction with Avenor. The consolidation of functions and the integration of
departments, systems and procedures present significant management challenges.
Although Bowater's management is experienced in achieving cost reductions and
operating efficiencies, there can be no assurance that any specified level of
cost savings or other synergies will be fully achieved or will be achieved
within the time periods contemplated, nor can there be any assurance as to the
effect of the transaction with Avenor on Bowater's results of operations.
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Industry Conditions and Competition
Bowater's operating results reflect the general cyclical pattern of the
pulp and paper industry. Most of Bowater's products are world-traded commodity
products. Consequently, Bowater, like other participants in this industry, has
little direct influence over the timing and extent of price changes. Product
pricing is significantly affected by the relationship between industry supply
and demand, with the former influenced primarily by fluctuations in available
manufacturing capacity and the latter by the health of the economy in general
and the strength of print media in particular.
The markets for Bowater's products are highly competitive, with a number of
major companies competing in each market. Certain of Bowater's competitors may
have greater financial resources than Bowater. In addition, some of Bowater's
competitors are currently lower cost producers in some of the businesses in
which Bowater operates, including newsprint. Bowater competes with North
American, European, and Asian producers in most of its product lines. Variations
in the exchange rate between the United States dollar and other currencies,
particularly those of Sweden, Finland, and certain Asian countries,
significantly affect the relative competitive position of Bowater as compared to
many of its competitors.
A significant portion of Bowater's revenues are represented by newsprint
sales. Any material decline in newsprint prices or any other adverse development
in the market for newsprint could have a material adverse effect on Bowater.
Sales of market pulp constitute the second largest source of revenues of
Bowater. Market pulp prices historically have been volatile. Significant
declines in market pulp prices or any other adverse development in the market
for market pulp could have a material adverse effect on Bowater.
Trends in electronic data transmission and storage could adversely affect
traditional print media, including products of Bowater's customers; however,
neither the timing nor extent of these trends can be predicted with certainty.
Industry reports indicate that Bowater's newspaper publishing customers in North
America have experienced some loss in 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 Bowater's products), cable television and the Internet.
Some of these customers are also facing a decline in newspaper readership,
circulation and advertising lineage. Bowater does not believe that this is the
case in most overseas markets. Bowater's magazine and catalog publishing
customers have also been affected by the use of electronic media for
merchandising products, while benefiting from the increase in magazine and
catalog publications dealing with electronic media, especially computer hardware
and software.
Environmental Regulation and Significant Environmental Expenditures
Bowater is subject to a variety of federal, state and provincial
environmental laws and regulations in the jurisdictions in which it operates.
Bowater believes its operations are currently in substantial compliance with
applicable environmental laws and regulations.
In late 1993, the U.S. Environmental Protection Agency (the "EPA") proposed
regulations that would impose new air and water quality standards aimed at
further reductions of pollutants. Known as the "Cluster Rule", these regulations
were issued in final form by the EPA in November 1997. Bowater's compliance
period begins in the first quarter of 1998 and extends until the year 2006;
however, the majority of the compliance requirements must be met by 2001. These
new rules will require capital expenditures at all of Bowater's U.S. paper
mills.
Bowater anticipates spending approximately $60 million to $75 million to
enable its present facilities (without giving effect to the Arrangement) to
comply with the new effluent guidelines, with the majority to be spent at
Bowater's Catawba, South Carolina location. Additional capital expenditures will
also be required to meet the new air quality standards. Engineering studies are
currently under way to define this additional cost, which is expected (without
giving effect to the Arrangement) to be in the same range as the requirement for
the effluent guideline expenditure. Bowater's capital spending plan for 1998
(without giving effect to the Arrangement) includes amounts relating to this
study and implementation of the new effluent quality regulations. Other than the
Cluster Rule regulations described above, Bowater anticipates approximately
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$10 million to $15 million of capital expenditures per year for the foreseeable
future to maintain the compliance of its existing operations (without giving
effect to the Arrangement) with environmental regulations. In addition to these
capital expenditures, Bowater will take on environmental capital expenditures
that Avenor has currently projected to be C$20 million over the period 1998 to
2000 to allow Avenor's facilities to meet the requirements of current
environmental laws and regulations applicable to Avenor.
Regulations adopted in British Columbia have an additional objective to be
met before the end of 2002 with respect to the reduction of adsorbable organic
halogens (AOX) to non-detectable levels, which could require Bowater to
undertake significant further capital expenditures. Currently, it is unclear
what action would be required to meet this objective in its present form and,
therefore, the cost of additional capital expenditures cannot be estimated.
Unforeseen expenditures required to allow Bowater to remain in compliance
with laws and regulations governing air emissions, wastewater discharge, waste
management and landfill sites, including site or other remediation costs, or
unforeseen environmental liabilities, could have an adverse effect on Bowater's
business and financial condition. There can be no assurance that internally
generated funds or other sources of liquidity will be sufficient for Bowater's
requirements with respect to unforeseen environmental compliance expenditures.
Additionally, there can be no assurance that changes in the substance or
enforcement of environmental laws and regulations or their application will not
require further significant expenditures.
Increased Exposure to Currency Fluctuations
Most of Bowater's sales and costs are denominated in U.S. dollars. Most of
Avenor's sales are also denominated in U.S. dollars, but many of its costs are
denominated in Canadian dollars. After giving effect to the transaction with
Avenor, Bowater will have increased exposure to fluctuations in the Canadian
dollar. As a result, Bowater's earnings will be affected to a greater extent
than in the past by increases or decreases in the value of the Canadian dollar.
Increases in the value of the Canadian dollar versus the U.S. dollar would tend
to reduce reported earnings in U.S. dollar terms, and decreases in the value of
the Canadian dollar would tend to increase reported earnings.
Increased Leverage
Bowater is financing the cash consideration to be paid in connection with
the Arrangement and related fees and expenses through the use of existing cash
and marketable securities and borrowings under a committed $1 billion unsecured
credit facility, a substantial portion of which is unused. As a result of the
new borrowings and addition of Avenor's existing debt, Bowater's indebtedness as
a percentage of total capitalization will be higher than in recent years.
Bowater anticipates repaying a substantial portion of indebtedness through the
planned sale of Avenor's Dryden, Ontario mill. However, there can be no
assurance as to the timing of any such sale or the amount of the proceeds to be
received therefrom. If Bowater is unsuccessful in completing the sale of the
Dryden, Ontario mill, Bowater's leverage will remain at a higher than normal
level for a longer period than if the sale were completed. While such higher
leverage would not be above reasonable levels within the forest products
industry, such leverage would increase Bowater's financial risk by: (i)
increasing the cost of additional financing for working capital, capital
expenditures, and other purposes and (ii) increasing the amount of cash flow
dedicated to the payment of interest and principal.
Effect of Weak Asian Markets
On July 15, 1998, Bowater acquired the Daebul Newsprint Mill, located on
the southwest coast of South Korea. Neither Bowater nor Avenor currently has any
other production facilities located in Asia. Asian demand for paper and pulp
products has declined as a result of weak economic conditions and financial
market turmoil, leading to downward pricing pressure and a reduction of
shipments into the region. In addition, producers for the Asian markets have
redirected their tonnage to other regions, thereby creating a downward pressure
on prices elsewhere.
In 1997, Bowater and Avenor had export sales to Asia totaling 6% and 21%,
respectively, of total net revenues, compared with 8% and 22% in 1996. Since
late 1997, tonnage that Bowater and Avenor otherwise
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would have shipped to Asia has in general been shifted to markets that are
experiencing stronger demand such as the United States, Latin America and
Europe. This stronger demand has substantially offset the effect of the Asian
weakness on the total volume of shipments by Bowater and Avenor. There can be no
assurance that non-Asian markets will continue to absorb reduced Asian demand.
Weak market conditions in Asia may continue to have an adverse effect on
the level of worldwide demand for pulp and paper products as producers for the
Asian markets may continue to redirect their tonnage to other regions.
Significant future weakness in Asian markets could erode world-wide pricing for
Bowater's and Avenor's products, thereby adversely affecting Bowater's financial
results. In addition, Asian producers may use their depreciated currencies to
increase exports. Any significant destabilization of one or more major Asian
trading currencies could further erode prices for commodity-grade products such
as those produced by Bowater and Avenor.
BOWATER
Bowater is engaged in the manufacture, sale and distribution of newsprint,
directory paper, uncoated groundwood specialties, coated groundwood paper,
market pulp and lumber. Bowater markets and distributes its various products in
North America, Latin America, Europe, Asia and the Pacific Rim. Bowater's
principal executive offices are located at 55 East Camperdown Way, Post Office
Box 1028, Greenville, South Carolina 29602, and its telephone number is (864)
271-7733.
USE OF PROCEEDS
Because the shares of Bowater Common Stock offered hereby will be issued
upon the exchange (by way of redemption or purchase) of Exchangeable Shares,
Bowater will receive no cash proceeds therefrom.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, Bowater is authorized to issue
100,000,000 shares of Bowater Common Stock and 10,000,000 shares of preferred
stock, par value $1.00 per share, issuable in series (the "Bowater Preferred
Stock"). The Board of Directors of Bowater (the "Bowater Board"), without
further shareholder action, is authorized to provide for the issuance of shares
of Bowater Preferred Stock in one or more series, and to establish from time to
time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. As of July 22,
1998, which was prior to the effective date of the Arrangement, there were
40,562,727 shares of Bowater Common Stock issued and outstanding and 264,318
shares of 8.4% Series C Cumulative Preferred Stock, par value $1.00 per share
(the "Bowater Series C Preferred Stock") issued and outstanding. As of the date
hereof, there is one share of Special Voting Stock, par value $1.00 per share
(the "Special Voting Stock"), issued and outstanding. After giving effect to the
Arrangement, there will be approximately 52,864,086 shares of Bowater Common
Stock issued and outstanding. Approximately 6,504,086 additional shares of
Bowater Common Stock may be issued in the future in exchange for Exchangeable
Shares.
BOWATER COMMON STOCK
Shares of Bowater Common Stock have a par value of $1.00 per share. The
holders of Bowater Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the holders of Bowater Common
Stock. Cumulative voting for the election of directors is not authorized by
Bowater's Restated Certificate of Incorporation, as amended (the "Bowater
Certificate"). Subject to the rights of the holders of any class of capital
stock of Bowater having any preference or priority over the Bowater Common Stock
(such as the Bowater Series C Preferred Stock), the holders of shares of Bowater
Common Stock are entitled to receive such dividends as may be declared by the
Bowater Board out of funds legally available therefor and are entitled upon any
liquidation, dissolution or winding-up of Bowater to receive ratably the net
assets of Bowater available for distribution. The Support Agreement dated July
24, 1998, among Bowater, Bowater Holdings and Bowater Canada (the "Support
Agreement"), prohibits Bowater from declaring or
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paying any dividend on the Bowater Common Stock unless (a) Bowater Canada
immediately thereafter declares or pays, as the case may be, an equivalent
dividend on the Exchangeable Shares and (b) Bowater Canada has sufficient money
or other assets or authorized but unissued securities available to enable the
due declaration and the due and punctual payment, in accordance with applicable
law, of an equivalent dividend on the Exchangeable Shares. No preemptive rights,
conversion rights, redemption rights or sinking fund provisions are applicable
to the Bowater Common Stock, and there are no dividends in arrears or default.
BOWATER SERIES C PREFERRED STOCK
The Bowater Board has designated 850,000 authorized shares of Bowater
Preferred Stock as Bowater Series C Preferred Stock. All of the shares of
Bowater Series C Preferred Stock are held by Sun Trust Bank, as depositary for
the holders of Depositary Shares of Bowater (the "Bowater Depositary Shares").
Each of the Bowater Depositary Shares represents a one-fourth interest in a
share of Bowater Series C Preferred Stock and entitles the holder to that
proportion of the rights and preferences of the Bowater Series C Preferred Stock
(including dividend, voting and liquidation rights) represented thereby. The
Bowater Depositary Shares are evidenced by depositary receipts ("Depositary
Receipts") issued pursuant to a Deposit Agreement, dated as of February 1, 1994,
by and among Bowater, the Sun Trust Bank and the holders from time to time of
the Depositary Receipts. Dividends on the Bowater Series C Preferred Stock are
cumulative from the date of initial issuance and are payable quarterly on
January 15, April 15, July 15 and October 15 of each year in the amount of $2.10
per quarter. Each Bowater Series C Preferred Stock has a liquidation preference
over the Special Voting Stock and Bowater Common Stock of $100 plus an amount
equal to accrued and unpaid dividends thereon (whether or not declared). The
Bowater Series C Preferred Stock is not redeemable prior to February 8, 1999. On
or after that date, the Bowater Series C Preferred Stock is redeemable at the
option of Bowater, in whole or in part, at $100 per share (equivalent to $25 per
Depositary Share) plus accrued and unpaid dividends (whether or not declared) to
the redemption date. The Bowater Series C Preferred Stock has no stated maturity
and is not subject to any sinking fund or mandatory redemption and is not
convertible into any other securities of Bowater. The Depositary Shares are
listed on the NYSE. The Bowater Series C Preferred Stock is not so listed, and
there is no trading market for the Series C Preferred Stock except as
represented by the Depositary Shares.
BOWATER SPECIAL VOTING STOCK
The Bowater Board has designated one authorized share of Bowater Preferred
Stock as Special Voting Stock, par value $1.00 per share (the "Special Voting
Stock"). The holder of the share of Special Voting Stock is entitled to cast a
number of votes equal to the number of outstanding Exchangeable Shares from time
to time not owned by Bowater or its affiliates as to which the holder of the
share of Special Voting Stock has timely received voting instructions from the
holders of such Exchangeable Shares in accordance with the Voting and Exchange
Trust Agreement (as defined below). The holders of Bowater Common Stock and the
holder of the share of Special Voting Stock vote together as a single class on
all matters. The Special Voting Stock, with respect to rights on liquidation,
dissolution and winding-up, ranks senior to all classes of common stock of
Bowater and junior to any other class or series of Bowater Preferred Stock. In
the event of any liquidation, dissolution or winding-up of Bowater, the holder
of the share of Special Voting Stock will be entitled to receive, prior to any
distributions to holders of the shares of Bowater Common Stock, $10.00 out of
the assets of Bowater available for distribution to its shareholders. No
dividends are payable on the share of Special Voting Stock. The Special Voting
Stock has been issued to Montreal Trust Company of Canada, as trustee (together
with its successors, the "Trustee") under the Voting and Exchange Trust
Agreement dated July 24, 1998, among Bowater, Bowater Holdings, Bowater Canada
and the Trustee (the "Voting and Exchange Trust Agreement"). The share of
Special Voting Stock is not subject to redemption except that, at such time as
there are no Exchangeable Shares outstanding not owned by Bowater or its
affiliates, the share of Special Voting Stock will be automatically redeemed and
canceled, with an amount equal to $10.00 due and payable upon such redemption.
CERTAIN CERTIFICATE, BYLAW AND CONTRACT PROVISIONS
Certain provisions of the Bowater Certificate or the Bylaws of Bowater (the
"Bowater Bylaws") may have the effect of delaying, deferring or preventing a
change in control of Bowater. These provisions include:
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those regarding a classified board of directors; the supermajority shareholder
or special director voting requirements for approval of certain business
combinations and for filling vacancies on the Bowater Board under certain
circumstances; the requirement that the shareholders may act only through a
shareholders meeting, coupled with the provision that only the Bowater Board or
certain executive officers can call a special meeting of the shareholders; the
requirements under the Bowater Bylaws for submitting proposals at shareholder
meetings; the ability of the Bowater Board to issue preferred stock issued
serially without prior approval of the shareholders and which may have various
voting rights designated by the directors, including a separate right to approve
a merger or sale of substantially all of the assets of Bowater; and the
supermajority voting requirements to amend certain provisions of the Bowater
Certificate or, in certain circumstances, various provisions (including the
notice provisions) of the Bowater Bylaws. Certain provisions in Bowater's
employment contracts, change-in-control agreements, stock option plans,
severance pay plans, and qualified and nonqualified benefit plans, in Bowater's
credit agreements, and in the indentures relating to Bowater's outstanding debt
securities may also have the effect of inhibiting a change of control of
Bowater.
PLAN OF DISTRIBUTION
Pursuant to the Plan of Arrangement, Bowater Holdings and Bowater Canada
acquired all outstanding Avenor Common Shares and each holder of an Avenor
Common Share is receiving for each such share, at such holder's election,
subject to proration, (i) C$35 in cash, without interest thereon, (ii) a number
of shares of Bowater Common Stock equal to the Exchange Ratio (described below),
(iii) a number of Exchangeable Shares equal to the Exchange Ratio or (iv) a
combination of the foregoing. The "Exchange Ratio" equals 0.482053, which is
C$35 divided by the product of the weighted average trading price of shares of
Bowater Common Stock on the NYSE for the 20 trading days ending on the third
business day prior to the effective date of the Arrangement (but not more than
$55.6187 or less than $45.5062), which weighted average trading price was
$48.6636, and the noon spot rate of exchange for one U.S. dollar (expressed in
Canadian dollars) on the last of such trading days based on information provided
by the Bank of Canada, which noon spot rate of exchange was 1.492. The proration
provisions in the Plan of Arrangement operated to reduce the number of Avenor
Common Shares that are being exchanged for shares of Bowater Common Stock and/or
Exchangeable Shares to approximately 82 percent of the Avenor Common Shares with
respect to which elections for shares of Bowater Common Stock and/or
Exchangeable Shares were originally made or deemed to be made. Pursuant to a
supplemental indenture dated July 24, 1998, among Bowater, Bowater Canada,
Avenor and Montreal Trust Company, as trustee, holders of the 7.5% Convertible
Debentures due 2004 of Avenor (the "Avenor Convertible Debentures") who did not
convert their Avenor Convertible Debentures prior to the Arrangement, are
entitled to convert their Avenor Convertible Debentures into either (i) 2.191
Exchangeable Shares per C$100 principal amount of Avenor Convertible Debentures
or (ii) C$79.54 plus 1.0955 Exchangeable Shares per C$100 principal amount of
Avenor Convertible Debentures.
Bowater Common Stock may be issued to holders of Exchangeable Shares as
follows: (i) holders of Exchangeable Shares may require at any time that such
shares be exchanged for an equivalent number of shares of Bowater Common Stock
(see "-- Procedures for Issuance of Bowater Common Stock -- Retraction of
Exchangeable Shares by Holders"); (ii) Bowater Holdings or Bowater Canada may,
under certain circumstances, purchase or redeem such Exchangeable Shares by
exchanging therefor an equal number of shares of Bowater Common Stock (see
"-- Procedures for Issuance of Bowater Common Stock -- Redemption of
Exchangeable Shares"), and (iii) upon liquidation of Bowater or Bowater Canada,
holders of Exchangeable Shares may be required to, or may elect to, exchange
such Exchangeable Shares for shares of Bowater Common Stock (see "-- Procedures
for Issuance of Bowater Common Stock -- Liquidation of Bowater Canada",
"-- Insolvency of Bowater Canada" and "-- Liquidation of Bowater"). No broker,
dealer or underwriter has been engaged in connection with the offering of the
Bowater Common Stock made hereby.
The following is a description of the terms on which Bowater Common Stock
may be issued in exchange for the Exchangeable Shares. Such terms are set forth
in the provisions attaching to the Exchangeable Shares (the "Exchangeable Share
Provisions") as set forth in Exhibit 1 to the Plan of Arrangement, the Plan of
Arrangement and certain provisions of the Voting and Exchange Trust Agreement.
The Arrangement
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Agreement, in which the Plan of Arrangement (including the Exchangeable Share
Provisions) is included as Schedule A, and the form of Voting and Exchange Trust
Agreement are included as exhibits to the Registration Statement of which this
Prospectus constitutes a part, and the following description is qualified in its
entirety by reference to the Plan of Arrangement (including the Exchangeable
Share Provisions) and the Voting and Exchange Trust Agreement.
PROCEDURES FOR ISSUANCE OF BOWATER COMMON STOCK
Retraction of Exchangeable Shares by Holders
Holders of the Exchangeable Shares are entitled at any time to retract
(i.e., to require Bowater Canada to redeem) any or all Exchangeable Shares owned
by them and to receive an amount per Exchangeable Share to be satisfied by the
delivery of one share of Bowater Common Stock (the "Retraction Price") in
exchange therefor, subject to the right (the "Retraction Call Right") of Bowater
Holdings described below. Holders of Exchangeable Shares may effect such
retraction by presenting to Bowater Canada or its transfer agent a certificate
or certificates representing the Exchangeable Shares the holder desires to have
Bowater Canada redeem, together with such other documents and instruments as may
be required under the CBCA or the by-laws of Bowater Canada or by the transfer
agent, and a duly executed retraction request (the "Retraction Request") (i)
specifying that the holder desires to have all or any number specified therein
of the Exchangeable Shares represented by such certificate or certificates (the
"Retracted Shares") redeemed by Bowater Canada, (ii) stating the business day on
which the holder desires to have Bowater Canada redeem such Retracted Shares
(the "Retraction Date"), provided that the Retraction Date is not less than 10
business days nor more than 15 business days after the date on which the
Retraction Request is received by Bowater Canada and further provided that, in
the event that no such business day is specified by the holder in the Retraction
Request, the Retraction Date will be deemed to be the fifteenth business day
after the date on which the Retraction Request is received by Bowater Canada,
and (iii) acknowledging the Retraction Call Right of Bowater Holdings to
purchase all but not less than all the Retracted Shares directly from the holder
and that the Retraction Request will be deemed to be a revocable offer by the
holder to sell the Retracted Shares to Bowater Holdings in accordance with the
Retraction Call Right on the terms and conditions described below.
Upon receipt by Bowater Canada of a Retraction Request, Bowater Canada will
promptly notify Bowater and Bowater Holdings of the Retraction Request. In order
to exercise its Retraction Call Right, Bowater Holdings must notify Bowater
Canada of its determination to do so (the "Bowater Holdings Call Notice") within
five business days of notification to Bowater Holdings by Bowater Canada of the
receipt by Bowater Canada of the Retraction Request. If Bowater Holdings
delivers the Bowater Holdings Call Notice within such five business days time
period, and provided that the Retraction Request is not revoked by the holder in
the manner described below, Bowater Canada will not redeem the Retracted Shares
and Bowater Holdings will purchase from such holder and such holder will sell to
Bowater Holdings on the Retraction Date the Retracted Shares for the Retraction
Price. In the event that Bowater Holdings does not deliver a Bowater Holdings
Call Notice within such five business day period, and provided that the
Retraction Request is not revoked by the holder in the manner described below,
Bowater Canada will redeem the Retracted Shares on the Retraction Date for the
Retraction Price.
A holder of Retracted Shares may, by notice in writing given by the holder
to Bowater Canada before the close of business on the business day immediately
preceding the Retraction Date, withdraw its Retraction Request, in which event
such Retraction Request will be null and void and the revocable offer
constituted by the Retraction Request to sell the Retracted Shares to Bowater
Holdings will be deemed to have been revoked.
If, as a result of solvency provisions of applicable law, Bowater Canada is
not permitted to redeem all Exchangeable Shares tendered by a retracting holder,
Bowater Canada will redeem only those Exchangeable Shares tendered by the holder
(rounded down to a whole number of shares) as would not be contrary to such
provisions of applicable law. The holder of any Exchangeable Shares not redeemed
by Bowater Canada as a
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consequence of such applicable law or purchased by Bowater Holdings will be
deemed to have required Bowater to purchase such unretracted shares in exchange
for Bowater Common Stock on the Retraction Date pursuant to the exchange right
provided for in the Voting and Exchange Trust Agreement described below. See
"-- Insolvency of Bowater Canada".
Redemption of Exchangeable Shares
Subject to applicable law and the exercise by Bowater Holdings of its right
(the "Redemption Call Right") described below, on the date (the "Redemption
Date"), if any, established by the Board of Directors of Bowater Canada, which
date will not be earlier than June 30, 2008 (except as described in the
following sentence), Bowater Canada may, at its option and (except in the case
of an acquisition of Control of Bowater (as described in Plan of Arrangement),
in which case, in the event the Board of Directors of Bowater Canada elects to
redeem the Exchangeable Shares, the notice will be provided the number of days
prior to the Redemption Date as the Board of Directors of Bowater Canada
determines to be reasonably practicable under the circumstances), upon at least
60 days prior notice to the holders of the Exchangeable Shares, redeem the whole
of the then outstanding Exchangeable Shares for an amount per Exchangeable Share
to be satisfied by the delivery of one share of Bowater Common Stock (the
"Redemption Price"). The Redemption Date may be earlier than June 30, 2008, if
earlier than such date there are fewer than 500,000 Exchangeable Shares
outstanding (other than Exchangeable Shares held by Bowater or its affiliates
and subject to necessary adjustments to such number of shares to reflect
permitted changes to Exchangeable Shares) or a transaction is proposed that will
result in an acquisition of Control of Bowater. In the event that a transaction
is proposed that will result in Control of Bowater being acquired by any person
and the Board of Directors of Bowater Canada elects to redeem the Exchangeable
Shares, the Redemption Date will be the date immediately prior to the date the
acquisition of Control of Bowater occurs pursuant to such transaction. On or
after the Redemption Date, upon the holder's presentation and surrender of the
certificates representing the Exchangeable Shares and such other documents as
may be required at the office of the transfer agent or the registered office of
Bowater Canada, Bowater Canada will deliver the Redemption Price to the holder
at the address of the holder recorded in the securities register or hold the
Redemption Price for pick up by the holder at the registered office of Bowater
Canada or the office of the transfer agent as specified in the written notice.
Notwithstanding a proposed redemption of the Exchangeable Shares by Bowater
Canada on the Redemption Date, pursuant to the Exchangeable Share Provisions,
Bowater Holdings is entitled to exercise the Redemption Call Right to purchase
on such Redemption Date all but not less than all of the Exchangeable Shares
then outstanding in exchange for the Redemption Price and, upon the exercise of
the Redemption Call Right, the holders thereof will be obligated to sell such
shares to Bowater Holdings. If Bowater Holdings exercises the Redemption Call
Right, Bowater Canada's right to redeem the Exchangeable Shares on the
Redemption Date will terminate.
Liquidation of Bowater Canada
In the event of the liquidation, dissolution or winding-up of Bowater
Canada or any other proposed distribution of the assets of Bowater Canada among
its shareholders for the purpose of winding up its affairs, a holder of
Exchangeable Shares will be entitled, subject to applicable law, to receive an
amount per Exchangeable Share to be satisfied by the delivery of one share of
Bowater Common Stock (the "Liquidation Amount") from the assets of Bowater
Canada for each Exchangeable Share on the effective date of any liquidation,
dissolution or winding up of Bowater Canada or any other distribution of assets
of Bowater Canada among its shareholders for the purpose of winding up its
affairs (the "Liquidation Date").
On or after the Liquidation Date, a holder of Exchangeable Shares may
surrender certificates representing such Exchangeable Shares, together with such
other documents as may be required to effect the transfer of Exchangeable Shares
under the CBCA or the by-laws of Bowater Canada or by the transfer agent, at
Bowater Canada's registered office or the office of the transfer agent. Upon
receipt of the certificates and other documents and subject to the exercise by
Bowater Holdings of its right described below (the "Liquidation Call Right"),
Bowater Canada will deliver the Liquidation Amount to such holder at the address
recorded in the securities register or hold the Liquidation Amount for pick up
by the holder at Bowater
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Canada's registered office or the office of the transfer agent, as specified by
Bowater Canada in a notice to such holders.
Upon occurrence of a liquidation, dissolution or winding-up of Bowater
Canada or other distribution of assets of Bowater Canada among its shareholders
for the purpose of winding up its affairs, Bowater Holdings will have the
Liquidation Call Right to purchase all but not less than all of the Exchangeable
Shares then outstanding at a purchase price per share equal to the Liquidation
Amount and, upon the exercise of the Liquidation Call Right, the holders of the
Exchangeable Shares will be obligated to sell such shares to Bowater Holdings.
The purchase by Bowater Holdings of all of the outstanding Exchangeable Shares
upon the exercise of the Liquidation Call Right will occur on the Liquidation
Date.
Insolvency of Bowater Canada
Upon occurrence of a Bowater Canada Insolvency Event (as defined below),
the Trustee under the Voting and Exchange Trust Agreement on behalf of the
holders of Exchangeable Shares will have the right to require Bowater to
purchase any or all of the Exchangeable Shares then outstanding (other than
Exchangeable Shares held by Bowater or its affiliates) for an amount per share
to be satisfied by the delivery of one share of Bowater Common Stock. As used
herein, a "Bowater Canada Insolvency Event" means the institution by Bowater
Canada of any proceeding to be adjudicated a bankrupt or insolvent or to be
wound up, or the consent of Bowater Canada to the institution of bankruptcy,
insolvency or winding-up proceedings against it, or the filing of a petition,
answer or consent seeking dissolution or winding-up under any bankruptcy,
insolvency or analogous laws, including without limitation the Companies
Creditors' Arrangement Act (Canada) and the Bankruptcy and Insolvency Act
(Canada), and the failure by Bowater Canada to contest in good faith any such
proceedings commenced in respect of Bowater Canada within 30 days of becoming
aware thereof, or the consent by Bowater Canada to the filing of any such
petition or to the appointment of a receiver, or the making by Bowater Canada of
a general assignment for the benefit of creditors, or the admission in writing
by Bowater Canada of its inability to pay its debts generally as they become
due, or Bowater Canada not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Exchangeable Shares in connection with a
Retraction Request.
Upon the occurrence and during the continuance of a Bowater Canada
Insolvency Event, a holder of Exchangeable Shares will be entitled, subject to
the provisions of the Voting and Exchange Trust Agreement, to instruct the
Trustee to exercise the exchange right with respect to any or all of the
Exchangeable Shares held by such holder, thereby requiring Bowater to purchase
such Exchangeable Shares from the holder. As soon as practicable following the
occurrence of a Bowater Canada Insolvency Event or any event that may, with the
passage of time or the giving of notice, become a Bowater Canada Insolvency
Event, Bowater Canada and Bowater will give written notice thereof to the
Trustee. As soon as practicable after receiving such notice, the Trustee will
then notify each holder of Exchangeable Shares of such event or potential event
and will advise the holder of its rights with respect to the exchange right.
Liquidation of Bowater
In the event of a Bowater Liquidation Event (as defined below), Bowater
will be required to purchase each outstanding Exchangeable Share (other than
Exchangeable Shares held by Bowater or its affiliates) on the fifth business day
prior to the effective date of a Bowater Liquidation Event for a purchase price
to be satisfied by the delivery of one share of Bowater Common Stock for each
Exchangeable Share purchased. As used herein, a "Bowater Liquidation Event'
means any determination by the Bowater Board to institute voluntary liquidation,
dissolution or winding-up proceedings with respect to Bowater or to effect any
other distribution of assets of Bowater among its shareholders for the purpose
of winding up its affairs or the receipt by Bowater of notice of, or Bowater
otherwise becoming aware of, any threatened or instituted claim, suit, petition
or other proceedings with respect to the involuntary liquidation, dissolution or
winding-up of Bowater or to effect any other distribution of assets of Bowater
among its shareholders for the purpose of winding up its affairs, where Bowater
has failed to contest in good faith any such proceeding within 30 days of
becoming aware thereof. Upon a holder's request and surrender of Exchangeable
Share certificates, duly endorsed in
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blank and accompanied by such instrument of transfer as Bowater may reasonably
require, Bowater will deliver to such holder the Liquidation Amount.
Support Agreement
The Support Agreement provides, among other things, that Bowater will take
all actions and do all things necessary or desirable to enable and permit
Bowater Canada, in accordance with applicable law, to pay the Liquidation
Amount, the Retraction Price or the Redemption Price to holders of Exchangeable
Shares as set out above. The form of Support Agreement is included as an exhibit
to the Registration Statement of which this Prospectus constitutes a part, and
its description is qualified in its entirety by reference thereto.
INCOME TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
Subject to the qualifications and assumptions contained herein, the
following discussion is the opinion of Davies, Ward & Beck, Canadian counsel to
Avenor, and Fraser & Beatty, Canadian counsel to Bowater, as to the principal
Canadian federal income tax considerations, as of the date hereof, generally
applicable to holders of Exchangeable Shares who at all relevant times, for
purposes of the Canadian Tax Act, hold their Exchangeable Shares and will hold
their shares of Bowater Common Stock as capital property and deal at arm's
length with, and are not affiliated with, Bowater Canada or Bowater ("Holders").
This discussion does not apply to a Holder with respect to whom Bowater is a
foreign affiliate within the meaning of the Canadian Tax Act.
All Holders should consult with their own tax advisors as to whether, as a
matter of fact, they hold their Exchangeable Shares and will hold their shares
of Bowater Common Stock as capital property for purposes of the Canadian Tax
Act. Certain provisions in the Canadian Tax Act (the "mark-to-market rules")
relating to financial institutions (including certain financial institutions,
registered securities dealers and corporations controlled by one or more of the
foregoing) will preclude such financial institutions from treating their
Exchangeable Shares and shares of Bowater Common Stock as capital property for
purposes of the Canadian Tax Act. This discussion does not take into account the
mark-to-market rules, and Holders that are financial institutions for purposes
of these rules should consult their own tax advisors.
This discussion is based on the current provisions of the Canadian Tax Act
and the regulations thereunder, the current provisions of the Canada-United
States Income Tax Convention (the "Tax Treaty"), and counsel's understanding of
the current published administrative practices of Revenue Canada. This
discussion takes into account the proposals to amend the Canadian Tax Act and
the regulations thereunder publicly announced by or on behalf of the Minister of
Finance (Canada) prior to the date hereof (the "Proposed Amendments") and
assumes that all such Proposed Amendments will be enacted in their present form.
No assurances can be given that the Proposed Amendments will be enacted in the
form proposed, if at all; however, the Canadian federal income tax
considerations generally applicable to Holders will not be different in a
material adverse way if the Proposed Amendments are not enacted.
Except for the foregoing, this discussion does not take into account or
anticipate any change in law, whether by legislative, administrative or judicial
decision or action, nor does it take into account provincial, territorial or
foreign income tax legislation or considerations, which may differ from the
Canadian federal income tax considerations described herein.
WHILE THIS DISCUSSION IS INTENDED TO ADDRESS ALL PRINCIPAL CANADIAN FEDERAL
INCOME TAX CONSIDERATIONS, IT IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY
PARTICULAR HOLDER. THEREFORE, HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of shares of Bowater Common Stock, including
dividends, adjusted cost base and proceeds of disposition, must be converted
into Canadian dollars based on the prevailing United States dollar exchange rate
at the time such
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amounts arise. In computing a Holder's liability for tax under the Canadian Tax
Act, any cash amounts received by a shareholder in United States dollars must be
converted into the Canadian dollar equivalent, and the amount of any non-cash
consideration received by a shareholder must be expressed in Canadian dollars at
the time such consideration is received.
HOLDERS RESIDENT IN CANADA
The following portion of this discussion is applicable to Holders who, for
purposes of the Canadian Tax Act and any applicable tax treaty or convention,
are resident or deemed to be resident in Canada at all relevant times. Certain
of such persons to whom the Exchangeable Shares might not constitute capital
property may elect, in certain circumstances, to have such property treated as
capital property by making the irrevocable election permitted by subsection
39(4) of the Canadian Tax Act.
Redemption of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable Share by
Bowater Canada, the Holder will be deemed to have received a dividend equal to
the amount, if any, by which the redemption proceeds exceed the paid-up capital
at that time of the Exchangeable Share so redeemed. For these purposes, the
redemption proceeds will be the fair market value, at the time of the
redemption, of the shares of Bowater Common Stock received from Bowater Canada
plus the amount, if any, of all accrued but unpaid dividends on the Exchangeable
Share paid on the redemption. The amount of such deemed dividend generally will
be subject to the same tax treatment accorded to dividends on the Exchangeable
Shares as described below. On the redemption, the Holder will also be considered
to have disposed of the Exchangeable Share, but the amount of such deemed
dividend will be excluded in computing the Holder's proceeds of disposition for
purposes of computing any capital gain or capital loss arising on the
disposition. See "-- Taxation of Capital Gains and Capital Losses" below. In the
case of a Holder that is a corporation, in some circumstances, the amount of any
such deemed dividend may be treated as proceeds of disposition and not as a
dividend.
In the case of a Holder who is an individual, dividends received or deemed
to be received on the Exchangeable Shares will be included in computing the
Holder's income, and will be subject to the gross-up and dividend tax credit
rules normally applicable to taxable dividends received from taxable Canadian
corporations.
Subject to the discussion below, in the case of a Holder that is a
corporation other than a "specified financial institution" (as defined in the
Canadian Tax Act), dividends received or deemed to be received on the
Exchangeable Shares normally will be included in the corporation's income and
deductible in computing its taxable income.
A Holder that is a "private corporation" (as defined in the Canadian Tax
Act) or any other corporation resident in Canada and controlled or deemed to be
controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3% of dividends received or deemed to be received on the
Exchangeable Shares to the extent that such dividends are deductible in
computing the Holder's taxable income.
If Bowater or any person with whom Bowater does not deal at arm's length is
a "specified financial institution" for the purposes of the Canadian Tax Act at
the time a dividend is paid on an Exchangeable Share, then, subject to the
exemption described in the next paragraph, dividends received or deemed to be
received by a Holder that is a corporation will be fully includible in income
and will not be deductible in computing taxable income under Part I of the
Canadian Tax Act. A corporation will generally be a specified financial
institution for these purposes if it is a bank, a trust company, a credit union,
an insurance corporation or a corporation whose principal business is the
lending of money to persons with whom the corporation is dealing at arm's length
or the purchasing of debt obligations issued by such persons or a combination
thereof, or a corporation controlled by one or more such entities, or related to
such entities. Bowater has informed counsel that it is of the view that neither
it nor any person with whom it does not deal at arm's length is a specified
financial institution at the current time. However, there can be no assurances
that this status will not
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change prior to any dividend on the Exchangeable Shares being received or deemed
to be received by a corporate Holder.
This denial of the dividend deduction to a corporate Holder will not apply
if at the time a dividend is received or deemed to be received, the Exchangeable
Shares are listed on a prescribed stock exchange (which currently includes the
TSE and the ME), Bowater controls Bowater Holdings and Bowater Canada, and the
recipient (together with persons with whom the recipient does not deal at arm's
length and any partnership or trust of which the recipient or such person is a
member or beneficiary, respectively) does not receive dividends on more than 10%
of the issued and outstanding Exchangeable Shares.
The Exchangeable Shares will be "term preferred shares" as defined in the
Canadian Tax Act. Consequently, in the case of a shareholder that is a specified
financial institution, such a dividend will be deductible in computing its
taxable income only if:
(i) where neither Bowater nor any person with whom Bowater does not
deal at arm's length is a specified financial institution at the time the
dividend is received, the specified financial institution did not acquire
the Exchangeable Shares in the ordinary course of the business carried on
by such institution; or
(ii) in any case, at the time the dividend is received by the
specified financial institution, the Exchangeable Shares are listed on a
prescribed stock exchange in Canada (which currently includes the TSE and
the ME) and the specified financial institution, either alone or together
with persons with whom it does not deal at arm's length, does not receive
(or is not deemed to receive) dividends in respect of more than 10% of the
issued and outstanding Exchangeable Shares.
In addition, to the extent that a deemed dividend arises on the redemption of
the Exchangeable Shares by Bowater Canada, a portion of the dividend may not be
subject to the denial of dividend deduction applicable in respect of term
preferred shares. Specified financial institutions should consult their own tax
advisors.
A Holder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include dividends or deemed dividends
that are not deductible in computing taxable income.
The Exchangeable Shares will be "taxable preferred shares" and "short-term
preferred shares" for purposes of the Canadian Tax Act. Accordingly, Bowater
Canada will be subject to a 66 2/3% tax under Part VI.1 of the Canadian Tax Act
on dividends (other than "excluded dividends" as defined in the Canadian Tax
Act) paid or deemed to be paid on the Exchangeable Shares and will be entitled
to deduct an amount equal to 9/4 of the tax so payable in computing its taxable
income for purposes of the Canadian Tax Act. Dividends received or deemed to be
received on the Exchangeable Shares will not be subject to the 10% tax under
Part IV.1 of the Canadian Tax Act applicable to certain corporations.
Exchange of Exchangeable Shares with Bowater Holdings or Bowater
On the exchange of an Exchangeable Share with Bowater Holdings or Bowater
for shares of Bowater Common Stock, the Holder will generally realize a capital
gain (or a capital loss) equal to the amount by which the proceeds of
disposition of the Exchangeable Share, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the Holder of
the Exchangeable Share immediately before the exchange. For these purposes, the
proceeds of disposition will be the fair market value at the time of exchange of
the shares of Bowater Common Stock plus any other amount received by the Holder
from Bowater Holdings or Bowater as part of the exchange consideration. See
"-- Taxation of Capital Gains and Capital Losses" below.
BECAUSE OF THE EXISTENCE OF THE RETRACTION CALL RIGHT, THE REDEMPTION CALL
RIGHT AND THE LIQUIDATION CALL RIGHT, A HOLDER OF AN EXCHANGEABLE SHARE CANNOT
CONTROL WHETHER SUCH HOLDER WILL RECEIVE BOWATER COMMON STOCK BY WAY OF
REDEMPTION OF THE EXCHANGEABLE SHARE BY BOWATER CANADA OR BY WAY OF PURCHASE OF
THE EXCHANGEABLE SHARE BY BOWATER HOLDINGS OR BOWATER. AS DESCRIBED ABOVE, THE
CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF A REDEMPTION DIFFER FROM THOSE OF A
PURCHASE.
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Disposition of Shares of Bowater Common Stock
The cost of a share of Bowater Common Stock received on a retraction,
redemption or exchange of an Exchangeable Share will be equal to the fair market
value of such share at the time of such event. A disposition or deemed
disposition of a share of Bowater Common Stock by a Holder will generally result
in a capital gain (or a capital loss) equal to the amount by which the proceeds
of disposition, net of any reasonable costs of disposition, exceed (or are less
than) the adjusted cost base to the holder of such share immediately before the
disposition. The adjusted cost base to a Holder of shares of Bowater Common
Stock acquired on a retraction, redemption or exchange of an Exchangeable Share
will be determined by averaging the cost of such share with the adjusted cost
base of all other shares of Bowater Common Stock held by such Holder as capital
property immediately before the retraction, redemption or exchange, as the case
may be. See "-- Taxation of Capital Gains and Capital Losses" below.
Dividends on Bowater Common Stock
Dividends on shares of Bowater Common Stock will be included in the
recipient's income for the purposes of the Canadian Tax Act. Such dividends
received by an individual Holder will not be subject to the gross-up and
dividend tax credit rules in the Canadian Tax Act. A Holder that is a
corporation will include such dividends in computing its income and generally
will not be entitled to deduct the amount of such dividends in computing its
taxable income. A Holder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include such dividends. United States
non-resident withholding tax on such dividends will be eligible for foreign tax
credit or deduction treatment, where applicable, under the Canadian Tax Act.
Taxation of Capital Gains and Capital Losses
Three-quarters of any capital gain ("taxable capital gain") must be
included in a Holder's income for the year of disposition. Three-quarters of any
capital loss ("allowable capital loss") generally must be deducted by the Holder
from taxable capital gains for the year of disposition. Any allowable capital
losses in excess of taxable capital gains for the year of disposition generally
may be carried back up to three taxation years or forward indefinitely and
deducted against net taxable capital gains in such other years to the extent and
under the circumstances described in the Canadian Tax Act.
Capital gains realized by an individual or trust, other than other certain
specified trusts, may give rise to alternative minimum tax under the Canadian
Tax Act.
A Holder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year, which is defined to include an amount in
respect of taxable capital gains.
If the Holder is a corporation, the amount of any capital loss arising from
a disposition or deemed disposition of an Exchangeable Share may be reduced by
the amount of dividends received or deemed to have been received by it on such
share to the extent and under circumstances prescribed by the Canadian Tax Act.
Similar rules may apply where a corporation is a member of a partnership or a
beneficiary of a trust that owns Exchangeable Shares or where a trust or
partnership of which the corporation is a beneficiary or a member is a member of
a partnership or a beneficiary of a trust that owns Exchangeable Shares. Holders
to whom these rules may be relevant should consult their own tax advisors.
Eligibility for Investment
Shares of Bowater Common Stock will be foreign property under the Canadian
Tax Act for trusts governed by registered retirement savings plans, registered
retirement income funds and deferred profit sharing plans, for registered
pension plans or for certain other persons to whom Part XI of the Canadian Tax
Act applies.
15
<PAGE> 17
Shares of Bowater Common Stock will be a qualified investment under the
Canadian Tax Act for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans provided
such shares remain listed on the NYSE (or are listed on another prescribed stock
exchange).
Foreign Property Information Reporting
A holder of shares of Bowater Common Stock who is a "specified Canadian
entity" for a taxation year or fiscal period and whose total cost amount of
"specified foreign property", including such shares, at any time in the year or
fiscal period exceeds Canadian $100,000 will be required to file an information
return for the year or period disclosing prescribed information, including the
shareholder's cost amount, any dividends received in the year, and any gains or
losses realized in the year, in respect of such property. With some exceptions,
a taxpayer resident in Canada in the year will be a specified Canadian entity. A
holder of Bowater Common Stock should consult its own advisors about whether it
must comply with these rules. On October 2, 1997, the Minister of Finance
(Canada) and the Minister of National Revenue announced that this requirement to
report such specified foreign property is suspended pending a review and that
the first filing date has been delayed until April 1999.
HOLDERS NOT RESIDENT IN CANADA
The following portion of the discussion is applicable to Holders who, for
purposes of the Canadian Tax Act and any applicable tax treaty or convention,
have not been and will not be resident or deemed to be resident in Canada at any
time while they have held Exchangeable Shares or will hold shares of Bowater
Common Stock and, except as specifically discussed below, to whom such shares
are not "taxable Canadian property" (as defined in the Canadian Tax Act) and, in
the case of a non-resident of Canada who carries on an insurance business in
Canada and elsewhere, such shares are not "designated insurance property" as
defined in the Canadian Tax Act.
Generally, Exchangeable Shares and shares of Bowater Common Stock will not
be taxable Canadian property at a particular time provided that such shares are
listed on a prescribed stock exchange (which currently include the NYSE, the TSE
and the ME), the Holder does not use or hold, and is not deemed to use or hold,
the Exchangeable Shares or the shares of Bowater Common Stock, as applicable, in
connection with carrying on a business in Canada and the Holder, persons with
whom such Holder does not deal at arm's length, or the Holder and such persons,
has not owned (or had under option) 25% or more of the issued shares of any
class or series of the capital stock of Bowater Canada or Bowater, as
applicable, at any time within five years preceding the particular time.
Exchangeable Shares will be deemed to be taxable Canadian property to a Holder
who made a joint tax election under Section 85 of the Canadian Tax Act on the
acquisition of the Exchangeable Shares. In the case of Bowater, even if the
Holder exceeds the 25% threshold referred to in the preceding sentence with
respect to shares of Bowater Common Stock, such shares of Bowater Common Stock
may not be taxable Canadian property. At the time of disposition such a Holder
should consult its own tax advisors to determine whether its shares of Bowater
Common Stock constitute taxable Canadian property at that time. The TSE and the
ME have conditionally approved the listing of the Exchangeable Shares, subject
to Bowater Canada fulfilling all of the requirements of the TSE and the ME,
including distribution of the Exchangeable Shares to a minimum number of public
shareholders.
A Holder of Exchangeable Shares or shares of Bowater Common Stock that are
not taxable Canadian property will not be subject to tax under the Canadian Tax
Act on the exchange of an Exchangeable Share for shares of Bowater Common Stock
(except to the extent the exchange gives rise to a deemed dividend discussed
below), or on the sale or other disposition of an Exchangeable Share or share of
Bowater Common Stock.
Dividends paid or deemed to be paid on the Exchangeable Shares are subject
to non-resident withholding tax under the Canadian Tax Act at the rate of 25%,
although such rate may be reduced under the provisions of an applicable income
tax treaty or convention. For example, under the Tax Treaty, the rate is
generally reduced to 15% in respect of dividends paid to a person who is the
beneficial owner thereof and who is resident
16
<PAGE> 18
in the United States for purposes of the Tax Treaty. See "-- United States
Federal Income Tax Considerations".
A Holder whose Exchangeable Shares are redeemed by Bowater Canada (either
under Bowater Canada's redemption right or pursuant to the Holder's retraction
rights) will be deemed to receive a dividend as described above under
"-- Holders Resident in Canada -- Redemption of Exchangeable Shares". Any such
deemed dividend will be subject to withholding tax as described in the preceding
paragraph. Holders cannot control whether they will realize a deemed dividend or
proceeds of disposition on an exchange of the Exchangeable Shares for shares of
Bowater Common Stock.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the principal United States federal income tax
consequences generally applicable to a United States Holder (as defined below)
of Exchangeable Shares arising from and relating to the receipt and ownership of
shares of Bowater Common Stock, is the opinion of Fried, Frank, Harris, Shriver
& Jacobson (a partnership including professional corporations), who acted as
United States counsel to Avenor ("Fried Frank") in connection with the
Arrangement, insofar as it relates to matters of United States federal income
tax law and legal conclusions with respect thereto. This discussion is based, in
part, on certain representations and agreements made by Bowater and Bowater
Canada, and the assumption that such representations were, as of the date made
and as of the effective time of the Arrangement, true and correct, that such
agreements will be complied with and that the Plan of Arrangement will be
consummated in accordance with its terms.
As used herein, a "United States Holder" includes a holder of Exchangeable
Shares or shares of Bowater Common Stock, as the case may be, who is a citizen
or individual resident of the United States, a corporation created or organized
in or under the laws of the United States, or of any political subdivision
thereof, an estate or other entity the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source or a trust if a court within the United States is able to exercise
primary supervision over the administration of such trust and one or more United
States persons have the authority to control all substantial decisions of the
trust, but excludes persons subject to special provisions of United States
federal income tax law, such as tax-exempt organizations, financial
institutions, insurance companies, broker-dealers, persons having a "functional
currency" other than the United States dollar, holders who hold Exchangeable
Shares or shares of Bowater Common Stock, as the case may be, as part of a
hedge, straddle, wash sale, synthetic security, conversion transaction or other
integrated investment comprised of Exchangeable Shares or shares of Bowater
Common Stock, as the case may be, and one or more other investments (other than
by virtue of their participation in the Arrangement) and holders of Exchangeable
Shares or shares of Bowater Common Stock, as the case may be, who acquired their
Exchangeable Shares or shares of Bowater Common Stock, as the case may be,
through the exercise of employee stock options or otherwise as compensation for
services. This discussion is limited to United States Holders who hold
Exchangeable Shares or shares of Bowater Common Stock, as the case may be, as
capital assets.
This discussion is based on United States federal income tax law in effect
as of the date of this Prospectus. No statutory, judicial or administrative
authority exists which directly addresses certain of the United States federal
income tax consequences of the issuance and ownership of instruments comparable
to the Exchangeable Shares. Consequently, some aspects of the United States
federal income tax treatment of an exchange of Exchangeable Shares for shares of
Bowater Common Stock are not certain. No advance income tax ruling has been
sought or obtained from the United States Internal Revenue Service (the
"Service") regarding the tax consequence of any of the transactions described
herein. There can be no assurance that the Service would not challenge the
conclusions contained in the discussion below, or that, if challenged, a court
would not agree with the Service.
This discussion does not address aspects of United States taxation other
than United States federal income taxation under the U.S. Code, nor does it
address all aspects of United States federal income taxation that may be
applicable to a particular United States Holder in light of the United States
Holder's particular circumstances. Accordingly, all United States Holders are
urged to consult their own tax advisors with respect
17
<PAGE> 19
to the United States federal income tax consequences to them for an exchange of
Exchangeable Shares for Bowater Common Stock and the ownership and disposition
of shares of Bowater Common Stock in light of their particular circumstances. In
addition, this discussion does not address the United States state or local tax
consequences or the foreign tax consequences of the Arrangement or the receipt
and ownership of the Exchangeable Shares or shares of Bowater Common Stock.
UNITED STATES HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO THE UNITED STATES FEDERAL, STATE AND LOCAL TAX CONSEQUENCES AND THE FOREIGN
TAX CONSEQUENCES OF THE RECEIPT AND OWNERSHIP OF BOWATER COMMON STOCK.
Exchange of Exchangeable Shares
Assuming the Exchangeable Shares are treated as issued by Bowater Canada
for United States federal income tax purposes, it is anticipated that a United
States Holder who exchanges its Exchangeable Shares for shares of Bowater Common
Stock generally will recognize gain and should recognize loss on such exchange.
Such gain or loss will be equal to the difference between the fair market value
of the shares of Bowater Common Stock at the time of the exchange and the United
States Holder's tax basis in the Exchangeable Shares surrendered. The gain or
loss will generally be capital gain or loss, except that, with respect to any
declared but unpaid dividends on the Exchangeable Shares, ordinary income may be
recognized. Capital gain or loss will generally be long-term capital gain or
loss if the United States Holder's holding period for the Exchangeable Shares is
more than one year at the time of the exchange. With respect to non-corporate
United States Holders, long-term capital gains will be subject to United States
federal income tax at a maximum rate of 28 percent if at the time of the
exchange the Exchangeable Shares have been held for more than twelve months, and
a maximum rate of 20 percent if at the time of the exchange the Exchangeable
Shares have been held for more than eighteen months. A United States Holder will
have a tax basis in the shares of Bowater Common Stock received equal to the
fair market value of such shares at the time of the exchange. The holding period
for such shares will begin on the day after the exchange. The Service could
assert, however, that the Exchangeable Shares and certain of the rights
associated therewith constitute "offsetting positions" for purposes of the
straddle rules set forth in Section 1092 of the U.S. Code. In such case, the
holding period of the Exchangeable Shares would not increase while held by a
United States Holder (and interest incurred in carrying the Exchangeable Shares
would not be deductible by a United States Holder). Under certain limited
circumstances, the exchange by a United States Holder of Exchangeable Shares for
shares of Bowater Common Stock may be characterized as a tax-free exchange.
Whether an exchange would be tax-free will depend upon the facts and
circumstances existing at the time of the exchange and cannot be accurately
predicted at the time of this Prospectus.
For United States federal income tax purposes, gain recognized on the
exchange of Exchangeable Shares for shares of Bowater Common Stock generally
will be treated as United States source gain, except that, under the terms of
the Tax Treaty, such gain may be treated as sourced in Canada. Any Canadian tax
imposed on the exchange may be available as a credit against United States
federal income taxes, subject to applicable limitations. A United States Holder
that is ineligible for a foreign tax credit with respect to any Canadian tax
paid may be entitled to a deduction therefor in computing United States taxable
income.
The foregoing discussion and the discussion under "-- Passive Foreign
Investment Company Considerations" would apply only if the Exchangeable Shares
are treated as issued by Bowater Canada, rather than by Bowater, for United
States federal income tax purposes. There is some possibility, however, that the
Service would assert that the Exchangeable Shares should be treated as issued by
Bowater for United States federal income tax purposes. If the Service were to
make such assertion successfully, an exchange of Exchangeable Shares for shares
of Bowater Common Stock would likely not give rise to taxable gain or loss.
Passive Foreign Investment Company Considerations
Assuming that the Exchangeable Shares are treated as issued by Bowater
Canada for United States federal income tax purposes, a United States Holder of
Exchangeable Shares would be subject to a special adverse tax regime upon its
exchange of Exchangeable Shares for Bowater Common Stock if Bowater Canada
18
<PAGE> 20
were, or were to become, a "passive foreign investment company" for United
States federal income tax purposes (a "PFIC") during the holder's holding period
for its Exchangeable Shares. Bowater Canada generally would be classified as a
PFIC for United States federal income tax purposes for any taxable year during
which either (i) 75 percent or more of its gross income is passive income (as
defined for United States federal income tax purposes) or (ii) on average for
such taxable year, 50 percent or more of its assets (by value) produce or are
held for the production of passive income. For purposes of applying the
foregoing, the assets and gross income of Bowater Canada's significant
subsidiaries (including, after the consummation of the Arrangement, Avenor) will
be proportionately attributed to Bowater Canada.
While there can be no assurance with respect to the classification of
Bowater Canada as a PFIC, Bowater Canada believes that it is not and has not
been a PFIC, and Bowater Canada and Bowater intend to endeavor to cause Bowater
Canada to avoid PFIC status, although there can be no assurance that they will
be able to do so or that their intent will not change. Promptly following the
end of each taxable year, Bowater Canada will endeavor to notify United States
Holders of Exchangeable Shares if it believes that it was a PFIC for that
taxable year and will provide such holders with information sufficient to allow
such holders to make certain potentially beneficial elections under the U.S.
Code.
UNITED STATES HOLDERS OF EXCHANGEABLE SHARES ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF OWNING AND
DISPOSING OF STOCK IN A PFIC AND OF MAKING CERTAIN ELECTIONS IN ORDER TO LESSEN
THE ADVERSE NATURE OF THOSE CONSEQUENCES.
Shareholders Not Resident in or Citizens of the United States
The following discussion is applicable to a non-United States Holder that
acquires Bowater Common Stock in exchange for Exchangeable Shares. As used
herein, a "non-United States Holder" is a holder of Exchangeable Shares who, for
United States federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust, but
excludes persons subject to special provisions of United States federal income
tax law, such as tax-exempt organizations, financial institutions, insurance
companies, broker-dealers, holders who hold Exchangeable Shares as part of a
hedge, straddle, wash sale, synthetic security, conversion transaction or other
integrated investment comprised of Exchangeable Shares and one or more other
investments (other than by virtue of their participation in the Arrangement) and
holders who acquired their Exchangeable Shares through the exercise of employee
stock options or otherwise as compensation for services. A non-United States
Holder seeking benefits under an applicable tax treaty or an exemption from
United States withholding tax for "effectively connected" income, as described
below, may be required to comply with additional certification and other
requirements in order to establish the holder's entitlement to such benefits or
exemption. This discussion is limited to non-United States Holders who hold
Exchangeable Shares as capital assets and who will hold Bowater Common Stock as
capital assets.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to tax as if they were United States citizens.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular non-United States Holder's tax position, including
whether such non-United States Holder is a United States expatriate.
Dividends received by a non-United States Holder with respect to Bowater
Common Stock that are not effectively connected with the conduct by such holder
of a trade or business in the United States will generally be subject to United
States withholding tax at a rate of 30 percent, which rate may be reduced by an
applicable income tax treaty in effect between the United States and the
non-United States Holder's country of residence (currently 15 percent,
generally, on dividends paid to residents of Canada under the Tax Treaty).
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<PAGE> 21
Subject to the discussion below, a non-United States Holder generally will
not be subject to United States federal income tax on gain (if any) recognized
on the exchange of Exchangeable Shares for Bowater Common Stock, or on the sale
or exchange of Bowater Common Stock, unless (i) such gain is effectively
connected with a trade or business of the non-United States Holder in the United
States, or, if a tax treaty applies, is attributable to a permanent
establishment maintained by the non-United States Holder in the United States or
(ii) the non-United States Holder is an individual who holds Exchangeable Shares
or the Bowater Common Stock, as the case may be, as capital assets and is
present in the United States for 183 days or more in the taxable year of
disposition, and certain other conditions are satisfied.
Notwithstanding the general rule set forth in the preceding paragraph,
under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), gain
or loss recognized by a non-United States Holder on the sale or exchange of
Exchangeable Shares, or on the sale or exchange of Bowater Common Stock, will be
subject to regular United States federal income tax as if such gain or loss were
effectively connected with a United States trade or business if (a) shares of
Bowater Common Stock are "United States real property interests" ("USRPIs") (as
defined below) with respect to the non-United States Holder and (b) the non-
United States Holder is a "greater than 5 percent shareholder" (as defined
below) at some time during the shorter of (x) the five-year period ending on the
date of the exchange of the Exchangeable Shares or Bowater Common Stock (as the
case may be) or (y) the period during which such non-United States Holder held
the Exchangeable Shares or Bowater Common Stock (as the case may be) (such
period the "FIRPTA holding period").
Shares of Bowater Common Stock will be USRPIs with respect to a non-United
States Holder unless it is established that Bowater was at no time a United
States real property holding corporation (a "USRPHC") during the non-United
States Holder's FIRPTA holding period. A corporation is a USRPHC if the fair
market value of its interests in United States real property equals or exceeds
50 percent of the sum of the fair market value of all of its interests in real
property and all of its other assets used or held for use in a trade or business
(as defined in applicable regulations). Bowater does not believe that it is
presently a USRPHC. Moreover, Bowater considers it unlikely that it will become
a USRPHC in the future unless its interests in United States real property
increase significantly as a result of one or more acquisitions, but there can be
no assurance that Bowater is not, or will not in any event become, a USRPHC in
the future. After the Arrangement, Bowater intends to monitor its USRPHC status
regularly, and will endeavor to notify non-United States Holders of Exchangeable
Shares and Bowater Common Stock if it believes that it may become a USRPHC in
any taxable year.
The definition of a "greater than 5 percent shareholder" is complex and
subject to some uncertainty. In the case of a non-United States Holder who owns
only Bowater Common Stock (actually and constructively), such non-United States
Holder will be a greater than 5 percent shareholder if such non-United States
Holder holds more than 5 percent of the total fair market value of the Bowater
Common Stock outstanding (on a non-diluted basis). In the case of a non-United
States Holder who owns only Exchangeable Shares (actually and constructively),
disregarding for this purpose any Bowater Common Stock constructively owned by
reason of ownership of Exchangeable Shares, such non-United States Holder will
be a greater than 5 percent shareholder if such holder holds Exchangeable Shares
with a fair market value on the relevant date of determination greater than 5
percent of the total fair market value of the Bowater Common Stock outstanding
(on a non-diluted basis) on such date and the Exchangeable Shares are not
treated as "regularly traded on an established securities market". It is not
anticipated that the Exchangeable Shares will be considered regularly traded on
an established securities market for this purpose as neither Bowater nor Bowater
Canada anticipates making certain filings which would be required for the
Exchangeable Shares to be so considered. If the Exchangeable Shares were so
treated, a non-United States Holder who holds more than 5 percent of the total
fair market value of the Exchangeable Shares outstanding could be treated as a
greater than 5 percent shareholder. If, at any time, shares of Bowater Common
Stock were not regularly traded on an established securities market, or the
Exchangeable Shares were traded on an established securities market located in
the United States, different rules, not described herein, may apply. Non-United
States Holders who believe they may be greater than 5 percent shareholders are
particularly urged to consult their own tax advisors to determine the possible
application of FIRPTA to them.
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<PAGE> 22
A non-United States Holder that is a greater than 5 percent shareholder at
any time during the FIRPTA holding period may be subject to withholding on the
sale or exchange of Exchangeable Shares, if, at the time of such sale or
exchange, such Exchangeable Shares are not treated as regularly traded on an
established securities market. Upon the sale or exchange of Exchangeable Shares,
the transferee of such Exchangeable Shares would be required to withhold 10
percent of the amount realized in the sale or exchange, unless, in general, the
non-United States Holder obtains from Bowater and provides to the transferee a
statement signed under penalties of perjury to the effect that Bowater is not a
USRPHC and was not a USRPHC at any time during the FIRPTA holding period. Any
tax withheld may be credited against the United States federal income tax owed
by the non-United States Holder for the year in which the sale or exchange
occurs.
The foregoing discussion of the possible application of the FIRPTA rules to
non-United States Holders is only a discussion of certain material aspects of
these rules. Because the United States federal income tax consequences to a
non-United States Holder under FIRPTA may be significant and are complex,
non-United States Holders are urged to discuss those consequences with their tax
advisors.
LEGAL OPINIONS
Certain legal matters in connection with the Common Stock offered hereby
have been passed upon for Bowater by Anthony H. Barash, Senior Vice President
- -- Corporate Affairs and General Counsel. Certain Canadian federal income tax
consequences have been passed upon by Davies, Ward & Beck and Fraser & Beatty,
and certain U.S. federal income tax consequences have been passed upon by Fried,
Frank, Harris, Shriver & Jacobson, as set forth under "Income Tax
Considerations".
EXPERTS
The consolidated financial statements of Bowater, as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, have been incorporated by reference in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of Avenor, incorporated by reference
herein as of December 31, 1997, 1996 and 1995, and for each of the three years
in the period ended December 31, 1997, have been audited by Price Waterhouse,
Chartered Accountants, as set forth in their report thereon incorporated by
reference herein, and are incorporated by reference herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. Effective July 1, 1998, Price Waterhouse and Coopers & Lybrand merged
to become PricewaterhouseCoopers.
21
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN A PROSPECTUS
SUPPLEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BOWATER OR ANY OTHER PERSON. NEITHER
THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH THE OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE THE OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY INFORMATION CONTAINED HEREIN
OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Risk Factors.......................... 3
Bowater............................... 6
Use of Proceeds....................... 6
Description of Capital Stock.......... 6
Plan of Distribution.................. 8
Income Tax Considerations............. 12
Legal Opinions........................ 21
Experts............................... 21
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
BOWATER
INCORPORATED
COMMON STOCK
------------------------
PROSPECTUS
July 24, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be paid by Bowater in connection with this
offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 0
Printing expenses........................................... 15,000
Accounting fees and expenses................................ 3,500
Legal fees and expenses..................................... 25,000
Miscellaneous............................................... 6,500
-------
Total............................................. $50,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
empowers a corporation to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect of any claim, issue or manner as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
The Restated Certificate of Incorporation of Bowater provides, in effect,
that, to the extent and under the circumstances permitted by Section 145 of the
General Corporation Law of the State of Delaware, Bowater shall indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding of the type described above by reason of the fact that he or
she is or was a director or officer of Bowater or is or was serving at the
request of Bowater as a director or officer of another enterprise.
Under insurance policies maintained by Bowater, directors and officers of
Bowater may be indemnified against certain losses arising from certain claims,
including claims under the Securities Act, which may be made against such
persons by reason for their being such directors or officers.
II-1
<PAGE> 25
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
2.1 Amended and Restated Arrangement Agreement dated as of March
9, 1998 by and between Bowater and Avenor (incorporated by
reference to Exhibit 2.1 to Annex D of the Joint Management
Information Circular and Proxy Statement filed on June 18,
1998 on Schedule 14A for Bowater).
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 Bowater'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 Bowater'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 Bowater'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
Bowater 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
Bowater 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 Bowater's Annual Report on
Form-10K 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 Bowater 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 First Supplemental Indenture dated as of July 24, 1998,
among Avenor, Bowater, Bowater Canada and Montreal Trust
Company, as trustee, with respect to the 7.5% Convertible
Unsecured Subordinated Debentures Due 2004 of Avenor.
4.8 Deposit Agreement, dated as of February 1, 1994, by and
among Bowater, Trust Company Bank, as Depositary, and the
holders from time to time of the Depositary Receipts
relating to Bowater'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).
4.9 Restated Certificate of Incorporation of Bowater, as amended
(incorporated by reference to Exhibit 4.2 to the Bowater's
Registration Statement No. 33-51569).
4.10 Certificate of Designations of the 8.40% Series C Cumulative
Preferred Stock of Bowater (incorporated by reference to
Exhibit 4.2 to the February 1994 8-K).
4.11 Certificate of Designation of the Special Voting Stock of
Bowater.
4.12 Bylaws of Bowater amended and restated as of May 20, 1998.*
5 Opinion of Anthony H. Barash regarding the legality of the
securities being issued.*
8.1 Opinion of Davies, Ward & Beck regarding tax matters.*
8.2 Opinion of Fraser & Beatty regarding tax matters.*
8.3 Opinion of Fried, Frank, Harris, Shriver & Jacobson
regarding tax matters.*
</TABLE>
II-2
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP, independent accountants.
23.2 Consent of PricewaterhouseCoopers, Chartered Accountants.
23.5 Consent of Anthony H. Barash (included in Exhibit 5).
23.6 Consent of Davies, Ward & Beck (included in Exhibit 8.1).
23.7 Consent of Fraser & Beatty (included in Exhibit 8.2).
23.8 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 8.3).
24 Powers of Attorney.*
99.1 Form of Voting and Exchange Trust Agreement among Bowater,
Bowater Holdings, Bowater Canada and Montreal Trust Company
of Canada (incorporated by reference to Annex F of the Joint
Management Information Circular and Proxy Statement filed on
June 18, 1998 on Schedule 14A for Bowater).
99.2 Form of Support Agreement among Bowater, Bowater Holdings
and Bowater Canada (incorporated by reference to Annex G of
the Joint Management Information Circular and Proxy
Statement filed on June 18, 1998 on Schedule 14A for
Bowater).
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
(a) Bowater hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
Provided, However, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by Bowater pursuant to
section 13 or section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 27
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Bowater
pursuant to the provisions described under Item 15 above, or otherwise, Bowater
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Bowater of expenses incurred or paid by a
director, officer or controlling person of Bowater in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, Bowater
will, unless, in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bowater
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Greenville, the state of South Carolina, on July 24,
1998.
BOWATER INCORPORATED
By: /s/ ARNOLD M. NEMIROW
------------------------------------
(Arnold M. Nemirow
Chairman of the Board, President and
Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD M. NEMIROW Director, Chairman of the Board, July 24, 1998
- --------------------------------------------------- President and Chief Executive
Arnold M. Nemirow Officer
/s/ DAVID G. MAFFUCCI Senior Vice President and Chief July 24, 1998
- --------------------------------------------------- Financial Officer
David G. Maffucci
/s/ MICHAEL F. NOCITO Vice President and Controller July 24, 1998
- ---------------------------------------------------
Michael F. Nocito
* Director July 24, 1998
- ---------------------------------------------------
Francis J. Aguilar
* Director July 24, 1998
- ---------------------------------------------------
H. David Aycock
* Director July 24, 1998
- ---------------------------------------------------
Richard Barth
* Director July 24, 1998
- ---------------------------------------------------
Kenneth M. Curtis
* Director July 24, 1998
- ---------------------------------------------------
Charles J. Howard
* Director July 24, 1998
- ---------------------------------------------------
Donald R. Melville
</TABLE>
II-5
<PAGE> 29
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director July 24, 1998
- ---------------------------------------------------
James L. Pate
* Director July 24, 1998
- ---------------------------------------------------
John A. Rolls
*By: /s/ WENDY C. SHIBA July 24, 1998
---------------------------------------------
(Wendy C. Shiba, Attorney-in-Fact)
</TABLE>
II-6
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Amended and Restated Arrangement Agreement dated as of March
9, 1998 by and between Bowater and Avenor (incorporated by
reference to Exhibit 2.1 to Annex D of the Joint Management
Information Circular and Proxy Statement filed on June 18,
1998 on Schedule 14A for Bowater).
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 Bowater'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 Bowater'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 Bowater'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
Bowater 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
Bowater 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 Bowater's Annual Report on
Form-10K 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 Bowater 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 First Supplemental Indenture dated as of July 24, 1998,
among Avenor, Bowater, Bowater Canada and Montreal Trust
Company, as trustee, with respect to the 7.5% Convertible
Unsecured Subordinated Debentures Due 2004 of Avenor.
4.8 Deposit Agreement, dated as of February 1, 1994, by and
among Bowater, Trust Company Bank, as Depositary, and the
holders from time to time of the Depositary Receipts
relating to Bowater'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).
4.9 Restated Certificate of Incorporation of Bowater, as amended
(incorporated by reference to Exhibit 4.2 to the Bowater's
Registration Statement No. 33-51569).
4.10 Certificate of Designations of the 8.40% Series C Cumulative
Preferred Stock of Bowater (incorporated by reference to
Exhibit 4.2 to the February 1994 8-K).
4.11 Certificate of Designation of the Special Voting Stock of
Bowater.
4.12 Bylaws of Bowater amended and restated as of May 20, 1998.*
5 Opinion of Anthony H. Barash regarding the legality of the
securities being issued.*
8.1 Opinion of Davies, Ward & Beck regarding tax matters.*
8.2 Opinion of Fraser & Beatty regarding tax matters.*
8.3 Opinion of Fried, Frank, Harris, Shriver & Jacobson
regarding tax matters.*
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of KPMG Peat Marwick LLP, independent accountants.
23.2 Consent of PricewaterhouseCoopers, Chartered Accountants.
23.5 Consent of Anthony H. Barash (included in Exhibit 5).
23.6 Consent of Davies, Ward & Beck (included in Exhibit 8.1).
23.7 Consent of Fraser & Beatty (included in Exhibit 8.2).
23.8 Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 8.3).
24 Powers of Attorney.*
99.1 Form of Voting and Exchange Trust Agreement among Bowater,
Bowater Holdings, Bowater Canada and Montreal Trust Company
of Canada (incorporated by reference to Annex F of the Joint
Management Information Circular and Proxy Statement filed on
June 18, 1998 on Schedule 14A for Bowater).
99.2 Form of Support Agreement among Bowater, Bowater Holdings
and Bowater Canada (incorporated by reference to Annex G of
the Joint Management Information Circular and Proxy
Statement filed on June 18, 1998 on Schedule 14A for
Bowater).
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 4.7
DATED AS OF JULY 24, 1998
AVENOR INC.
- AND -
BOWATER CANADA INC.
- AND -
BOWATER INCORPORATED
- AND -
MONTREAL TRUST COMPANY, AS TRUSTEE
- --------------------------------------------------------------------------------
FIRST SUPPLEMENTAL INDENTURE
TO
TRUST INDENTURE DATED AS OF FEBRUARY 8, 1994
PROVIDING FOR THE ISSUE OF UP TO $125,400,000 AGGREGATE PRINCIPAL
AMOUNT OF 7.50% CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES
DUE FEBRUARY 8, 2004
- --------------------------------------------------------------------------------
FRASER & BEATTY
<PAGE> 2
TABLE OF CONTENTS
ARTICLE ONE
SUPPLEMENTAL NATURE OF INDENTURE AND RELATED MATTERS
SECTION 1.01 DEFINITIONS..................................................3
SECTION 1.02 SUPPLEMENTAL NATURE OF INDENTURE.............................3
SECTION 1.03 SUPPLEMENTAL TO PRINCIPAL INDENTURE..........................3
SECTION 1.04 SUPPLEMENTAL INDENTURE.......................................3
SECTION 1.05 CONFIRMATION.................................................4
ARTICLE TWO
AMENDMENTS TO PRINCIPAL INDENTURE
SECTION 2.01 AMENDMENTS TO SECTION 1.1....................................4
SECTION 2.02 FORM OF DEBENTURES...........................................6
SECTION 2.03 OUTSTANDING DEBENTURES.......................................7
SECTION 2.04 ARTICLE 4 - CONVERSION.......................................7
SECTION 2.05 EVENTS OF DEFAULT............................................18
SECTION 2.06 NOTICE OF EVENTS OF DEFAULT..................................20
SECTION 2.07 ACCELERATION ON DEFAULT......................................20
SECTION 2.08 IMMUNITY OF SHAREHOLDERS, DIRECTORS AND OTHERS...............20
SECTION 2.09 DISCHARGE....................................................21
SECTION 2.10 ARTICLE 9 - SUCCESSOR CORPORATION............................21
SECTION 2.11 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION...............22
SECTION 2.12 NOTICE TO THE CORPORATION AND BOWATER CANADA.................23
SECTION 2.13 NOTICE TO THE TRUSTEE........................................24
SECTION 2.14 MAIL SERVICE INTERRUPTION....................................24
SECTION 2.15 NO CONFLICT OF INTEREST......................................25
SECTION 2.16 EVIDENCE, EXPERTS AND ADVISERS...............................25
SECTION 2.17 TRUSTEE MAY DEAL IN DEBENTURES...............................25
SECTION 2.18 PROTECTION OF TRUSTEE........................................26
SECTION 2.19 INVESTMENT OF TRUST MONEYS...................................26
SECTION 2.20 ACTION BY THE TRUSTEE TO PROTECT INTERESTS...................26
SECTION 2.21 FONDE DE POUVOIR.............................................27
SECTION 2.22 SUPPLEMENTAL INDENTURES......................................27
ARTICLE THREE
CONFIRMATION
SECTION 3.01 GENERAL CONFIRMATION.........................................28
ARTICLE FOUR
COVENANTS OF BOWATER CANADA
SECTION 4.01 COVENANTS OF BOWATER CANADA..................................28
<PAGE> 3
ARTICLE FIVE
COVENANTS OF BOWATER
SECTION 5.01 COVENANTS OF BOWATER.........................................29
ARTICLE SIX
GUARANTEE OF BOWATER CANADA
SECTION 6.01 GUARANTEE FOR BENEFIT OF ALL DEBENTURE HOLDERS...............30
SECTION 6.02 GUARANTEE OF PRINCIPAL AND INTEREST..........................30
SECTION 6.03 BOWATER CANADA'S LIABILITY ON DISCHARGE OF THE CORPORATION...30
SECTION 6.04 LIABILITY OF BOWATER CANADA..................................31
SECTION 6.05 CONTINUING OBLIGATIONS.......................................32
SECTION 6.06 SUBROGATION..................................................32
SECTION 6.07 WAIVER.......................................................33
SECTION 6.08 WAIVER OF DEFAULT............................................33
SECTION 6.09 ADDITIONAL OBLIGATIONS.......................................33
SECTION 6.10 ACKNOWLEDGEMENT..............................................33
ARTICLE SEVEN
GUARANTEE OF BOWATER
SECTION 7.01 GUARANTEE FOR BENEFIT OF ALL DEBENTURE HOLDERS...............34
SECTION 7.02 GUARANTEE OF PRINCIPAL AND INTEREST..........................34
SECTION 7.03 BOWATER'S LIABILITY ON DISCHARGE OF THE CORPORATION..........34
SECTION 7.04 LIABILITY OF BOWATER.........................................35
SECTION 7.05 CONTINUING OBLIGATIONS.......................................36
SECTION 7.06 SUBROGATION..................................................36
SECTION 7.07 WAIVER.......................................................37
SECTION 7.08 WAIVER OF DEFAULT............................................37
SECTION 7.09 ADDITIONAL OBLIGATIONS.......................................37
SECTION 7.10 ACKNOWLEDGEMENT..............................................37
ARTICLE EIGHT
ACKNOWLEDGEMENT AND AGREEMENTS OF TRUSTEE
SECTION 8.01 ACKNOWLEDGEMENT AND AGREEMENTS...............................38
SECTION 8.02 ACCEPTANCE BY TRUSTEE........................................38
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01 CONFIRMATION OF PRINCIPAL INDENTURE..........................38
SECTION 9.02 FURTHER ASSURANCES...........................................38
SECTION 9.03 COUNTERPARTS AND FORMAL DATE.................................38
SECTION 9.04 ENUREMENT....................................................39
<PAGE> 4
THIS SUPPLEMENTAL INDENTURE made as of the 24th day of July, 1998
B E T W E E N:
AVENOR INC., a corporation existing under the laws of Canada
(hereinafter called the "Corporation"),
OF THE FIRST PART
- and -
BOWATER CANADA INC., a corporation existing under the laws
of Canada
(hereinafter called "Bowater Canada"),
OF THE SECOND PART
- and -
BOWATER INCORPORATED, a corporation existing under the laws
of the State of Delaware
(hereinafter called "Bowater"),
OF THE THIRD PART
- and -
MONTREAL TRUST COMPANY, a trust company incorporated under
the laws of Quebec
(hereinafter called the "Trustee")
OF THE FOURTH PART
WHEREAS by way of a trust indenture dated as of February 8, 1994
(the "Principal Indenture") between the Corporation, at that time having the
legal name "Produits Forestiers Canadien Pacifique Limitee/Canadian Pacific
Forest Products Limited", and the Trustee, as trustee, the Corporation created
and issued $125,400,000 aggregate principal amount of 7.5% convertible unsecured
subordinated debentures due February 8, 2004;
AND WHEREAS by a Certificate of Amendment dated March 21, 1994
issued under the Canada Business Corporations Act, the Corporation changed its
legal name to its now current legal name;
<PAGE> 5
2.
AND WHEREAS the Corporation and Bowater have completed a transaction
by way of an arrangement under the provisions of the Canada Business
Corporations Act (the "Transaction") pursuant to which, among other things,
Bowater, through Bowater Canadian Holdings Incorporated and Bowater Canada, has
acquired all of the common shares of the Corporation (the "Common
Shares");
AND WHEREAS prior to the effective date of the Transaction each
holder of Common Shares was able to submit an election to receive for each such
share either:
(i) $35.00 in cash, without interest thereon; or
(ii) 0.482053 shares of common stock of Bowater, having a par value
of $1.00 in the lawful money of the United States per share;
or
(iii) 0.482053 Exchangeable Shares (as defined in section 2.01
hereof); or
(iv) a combination of the foregoing;
AND WHEREAS on the effective date of the Transaction the Common
Shares in respect of which an effective election as aforesaid was not made
(other than the Common Shares of holders who exercise and perfect their dissent
rights) were deemed to be Common Shares for which an effective election to
receive Exchangeable Shares was made and were exchanged for and converted into
Exchangeable Shares (subject to proration as contemplated in the Transaction);
AND WHEREAS the Transaction constitutes a "Capital Reorganization"
within the meaning of subsection 4.3.5 of the Principal Indenture;
AND WHEREAS each of the Corporation, Bowater Canada and Bowater have
requested the Trustee to enter into this Supplemental Indenture, pursuant to
section 4.3.5 and Article 13 of the Principal Indenture, for the purpose of
evidencing the appropriate adjustments and modifications, to be made as a result
of the Capital Reorganization contemplated by the Transaction, to the applicable
provisions of Article 4 of the Principal Indenture with respect to the rights
and interests of the holder of Debentures thereafter, which adjustments and
modifications are of a formal nature;
AND WHEREAS in addition to the requirements of section 4.3.5 of the
Principal Indenture, each of the Corporation, Bowater Canada and Bowater have
requested the Trustee to enter into this Supplemental Indenture, pursuant to
Article 13 of the Principal Indenture, for the purposes of adding to the
provisions to the Principal Indenture additional provisions for the protection
of the Holders of the Debentures, and making such other provisions and
modifications not inconsistent with the Principal Indenture as are necessary or
desirable as a consequence of the Transaction with respect to the matters
arising under the Principal Indenture, which other provisions and modifications
are not prejudicial to the interests of the Debentureholders;
AND WHEREAS the appropriate adjustments and modifications to be made
to the applicable provisions of Article 4 of the Principal Indenture and other
applicable provisions of the Principal Indenture set forth herein with respect
to the rights and interests of the holder of Debentures have been approved by
all necessary action of the board of directors of the
<PAGE> 6
3.
Corporation, the board of directors of Bowater Canada and the board of directors
of Bowater and by the Trustee;
AND WHEREAS all things necessary have been done and performed
to authorize the execution of this Supplemental Indenture and to make the same
effective and binding upon the Corporation, Bowater Canada and Bowater;
AND WHEREAS the foregoing recitals are made as representations
and statements of fact by the Corporation, Bowater Canada and Bowater and not by
the Trustee;
NOW THEREFORE THIS SUPPLEMENTAL INDENTURE WITNESSES and it is
hereby covenanted, agreed and declared as follows:
ARTICLE ONE
SUPPLEMENTAL NATURE OF INDENTURE
AND RELATED MATTERS
SECTION 1.01 DEFINITIONS
Unless defined herein or the context otherwise requires or
specifies, all expressions and terms used in this Supplemental Indenture
(including recitals) shall, for all purposes hereof, have the same meaning as
ascribed to such expressions and terms in the Principal Indenture.
SECTION 1.02 SUPPLEMENTAL NATURE OF INDENTURE
This Supplemental Indenture is an indenture supplemental to
the Principal Indenture within the meaning of the Principal Indenture, and the
Principal Indenture and this Supplemental Indenture shall be read together and
have effect so far as practicable as though all the provisions thereof and
hereof were contained in one instrument.
SECTION 1.03 SUPPLEMENTAL TO PRINCIPAL INDENTURE
The Principal Indenture is hereby amended and supplemented by
the provisions hereof and, as so amended and supplemented, is herein referred to
as the "amended indenture" or the "Indenture".
SECTION 1.04 SUPPLEMENTAL INDENTURE
The terms "this Supplemental Indenture" and similar
expressions, unless the context otherwise specifies or requires, refer to this
Supplemental Indenture and not to any particular article, section, subsection or
other portion thereof, and include any and every instrument supplementary or
ancillary hereto or in implement hereof. The terms "Indenture", "hereto",
"herein", "hereof", "hereby", "hereunder" and similar expressions refer to the
Principal Indenture and every instrument supplemental or ancillary thereto or in
implement thereof, including this Supplemental Indenture. The division of this
Supplemental Indenture into articles, sections, subsections and other portions
thereof and the insertion of headings and the provision
<PAGE> 7
4.
of a table of contents are for convenience of reference only and shall not
affect the construction or interpretation of this Supplemental Indenture or the
Indenture. Unless the context otherwise requires or is inconsistent herewith,
references herein to articles, sections or subsections are to articles, sections
and subsections of this Supplemental Indenture.
SECTION 1.05 CONFIRMATION
The parties to this Supplemental Indenture hereby acknowledge
and confirm that, except as specifically amended by the provisions of this
Supplemental Indenture, all the terms and conditions contained in the Principal
Indenture are and remain in full force and effect, unamended, in accordance with
the provisions thereof.
ARTICLE TWO
AMENDMENTS TO PRINCIPAL INDENTURE
SECTION 2.01 AMENDMENTS TO SECTION 1.1
The Principal Indenture is hereby amended by:
(i) adding in section 1.1 thereof the following definitions:
""AFFILIATES" shall have the meaning ascribed thereto in the
Canada Business Corporations Act;";
""BOWATER" means the party of the third part and includes any
successor corporation to or of the party of the third part
which shall have complied with the provisions of Article 9;";
""BOWATER CANADA" means the party of the second part and
includes any successor corporation to or of the party of the
second part that shall have complied with the provisions of
Article 9;";
""CERTIFICATE OF BOWATER" means a certificate signed in the
name of Bowater by the President or any Vice-President of
Bowater, and may consist of one or more instruments so
executed;";
""CERTIFICATE OF BOWATER CANADA" means a certificate signed in
the name of Bowater Canada by the President or any
Vice-President of Bowater Canada, and may consist of one or
more instruments so executed;";
""COMMISSION" has the meaning attributed thereto in subsection
4.01(c);";
""DIRECTOR OF BOWATER" means a director of Bowater at the time
of enquiry and "DIRECTORS OF BOWATER" means the board of
directors of Bowater or, whenever duly empowered, the
executive committee (if any) of the board of directors of
Bowater at the time of enquiry, and reference to action by the
Directors of
<PAGE> 8
5.
Bowater means action by the Directors of Bowater as a board or
action by the executive committee of the Directors of Bowater
as a committee;";
""DIRECTOR OF BOWATER CANADA" means a director of Bowater
Canada at the time of enquiry and "DIRECTORS OF BOWATER
CANADA" means the board of directors of Bowater Canada or,
whenever duly empowered, the executive committee (if any) of
the board of directors of Bowater Canada at the time of
enquiry, and reference to action by the Directors of Bowater
Canada means action by the Directors of Bowater Canada as a
board or action by the executive committee of the Directors of
Bowater Canada as a committee;";
""EXCHANGEABLE SHARES" means the non-voting exchangeable
shares in the capital of Bowater Canada having the rights,
privileges, restrictions and conditions set forth in Schedule
"A" attached hereto and incorporated herein by reference;
provided that, in the event of a subdivision, redivision,
reduction, combination or consolidation thereof, or successive
such subdivisions, redivisions, reductions, combinations or
consolidations, then subject to adjustments, if any, having
been made in accordance with section 4.3, "EXCHANGEABLE
SHARES" shall thereafter mean the shares resulting from such
subdivision, redivision, reduction, combination or
consolidation;";
""OFFICER'S CERTIFICATE OF BOWATER" means a certificate signed
in the name of Bowater by the President or any Vice-President
of Bowater, and may consist of one or more instruments so
executed;";
""OFFICER'S CERTIFICATE OF BOWATER CANADA" means a certificate
signed in the name of Bowater Canada by the President or any
Vice-President of Bowater Canada, and may consist of one or
more instruments so executed;";
""WRITTEN ORDER OF BOWATER", "WRITTEN REQUEST OF BOWATER" and
"WRITTEN DIRECTION OF BOWATER" mean, respectively, an order, a
request or a direction signed in the name of Bowater by the
President or any Vice-President of Bowater, and may consist of
one or more instruments so executed;";
""WRITTEN ORDER OF BOWATER CANADA", "WRITTEN REQUEST OF
BOWATER CANADA" and "WRITTEN DIRECTION OF BOWATER CANADA"
mean, respectively, an order, a request or a direction signed
in the name of Bowater Canada by the President or any
Vice-President of Bowater Canada, and may consist of one or
more instruments so executed;";
(ii) deleting from section 1.1 thereof the definition "COMMON SHARE
REORGANIZATION" and substituting therefor the following:
""EXCHANGEABLE SHARE REORGANIZATION" has the meaning
attributed thereto in subsection 4.3.2;";
(iii) deleting from section 1.1 thereof the definition "COUNSEL" and
substituting therefor the following:
<PAGE> 9
6.
""COUNSEL" means a lawyer or a firm of lawyers retained by the
Trustee or retained by the Corporation, Bowater Canada or
Bowater, as the case may be, in each case acceptable to the
Trustee;";
(iv) deleting from section 1.1 thereof the definition "CURRENT
MARKET PRICE" and substituting therefor the following:
""CURRENT MARKET PRICE" at any date means the weighted average
closing price per share for Common Shares or Exchangeable
Shares, as the case may be, for the 20 consecutive trading
days ending on the fifth trading day before such date on the
Montreal Exchange and on The Toronto Stock Exchange;"; and
(v) deleting from section 1.1 thereof the definition "DIVIDENDS
PAID IN THE ORDINARY COURSE" and substituting therefor the
following:
""DIVIDENDS PAID IN THE ORDINARY COURSE" means dividends paid
on the Exchangeable Shares in any financial year of Bowater
Canada, whether in (1) cash, (2) shares of Bowater Canada or
any of its Affiliates, (3) rights, options or warrants to
purchase any shares, property or other assets of Bowater
Canada, or (4) property or other assets of Bowater Canada, in
each case to the extent that the amount or value of such
dividends in the aggregate does not exceed the greater of:
(i) 150% of the aggregate amount or value of dividends
paid by Bowater Canada on the Exchangeable Shares in
its immediately preceding financial year; or
(ii) 100% of the consolidated net income (before
extraordinary items but after dividends payable on
all shares ranking prior to or on a parity with the
Exchangeable Shares with respect to the payment of
dividends) of Bowater Canada for its immediately
preceding financial year, determined in accordance
with Generally Accepted Accounting Principles;
and shall include any such dividends paid by way of a
distribution of Exchangeable Shares (or securities convertible
into or exchangeable for Exchangeable Shares) to the holders
of Exchangeable Shares where said holders may elect to receive
such dividends in the form of Exchangeable Shares (or
securities convertible into or exchangeable for Exchangeable
Shares) instead of by way of cash dividends, and for the
purpose of the foregoing, where any dividend is paid,
otherwise than in cash, any shares, any rights, options or
warrants to purchase any shares, property or other assets or
any property or other assets so distributed by way of dividend
shall be valued at the fair market value of such securities,
property or other assets, as the case may be, as determined by
the Directors of Bowater Canada, which determination shall be
conclusive;".
SECTION 2.02 FORM OF DEBENTURES
The Principal Indenture is hereby further amended by amending
section 2.3 thereof, and the form of Debentures representing the Debentures, to
conform to the changes contained in this Supplemental Indenture.
<PAGE> 10
7.
SECTION 2.03 OUTSTANDING DEBENTURES
Debentures heretofore issued and certified by the Trustee
shall be deemed to be in the form set out in section 2.3 of the Principal
Indenture as hereby amended. Each such Debenture shall, nevertheless, before or
contemporaneously with any transfer thereof, be surrendered to the Trustee for
exchange for a debenture in the form set out in section 2.3 of the Principal
Indenture as hereby amended.
SECTION 2.04 ARTICLE 4 - CONVERSION
The Principal Indenture is hereby amended by deleting Article
4 thereof in its entirety and substituting therefor the following:
"ARTICLE 4
CONVERSION
4.1 CONVERSION PRIVILEGE
Subject to and upon compliance with the provisions of
this Article 4, the Holder of each Debenture shall have the
right, at his option, at any time up to and including the
close of business on the last Business Day immediately
preceding the Maturity Date, or if such Debenture shall have
been called for redemption prior to such date, then up to, but
not after, the close of business on the last Business Day
immediately preceding the date fixed for redemption (such time
and date being referred to as the "TIME OF EXPIRY"), to
convert such Debenture or any portion of the principal amount
thereof which is $100 or an integral multiple of $100 into
either, and for greater certainty not both:
4.1.1 fully paid and non-assessable Exchangeable Shares at
the conversion price of $45.638 (the "CONVERSION
PRICE") per Exchangeable Share, being a rate of 2.191
Exchangeable Shares for each $100 principal amount of
Debentures; or
4.1.2 for each $100 principal amount of Debentures, $79.54
in lawful money of Canada together with 1.0955 fully
paid and non-assessable Exchangeable Shares.
4.2 MANNER OF EXERCISE OF RIGHT TO CONVERT
4.2.1 The Holder of a Debenture wishing to convert such
Debenture in whole or in part into Exchangeable
Shares shall surrender such Debenture, prior to the
Time of Expiry, to the Trustee, at its principal
offices in any of the cities of Montreal, Toronto,
Calgary, Vancouver or Halifax with the conversion
form attached hereto as Schedule "B", in either case
duly executed by the Holder or his executors or
administrators or other legal representatives or his
or their attorney duly appointed by an instrument in
form and substance satisfactory to the Trustee,
irrevocably exercising his right to convert such
Debenture in accordance with the provisions of this
<PAGE> 11
8.
Article 4. Thereupon such Debentureholder or, subject
to payment of all applicable stamp taxes, transfer
taxes or other governmental charges and compliance
with all reasonable requirements of the Trustee, his
nominee or assignee shall be entitled, depending on
conversion right exercised by such Debentureholder as
set forth in section 4.1:
(i) to enter in the books of Bowater Canada as
at the Date of Conversion (as hereinafter
defined) (or such later date as is specified
in subsection 4.2.2) as the holder of the
number of Exchangeable Shares into which
such Debenture is convertible in accordance
with the provisions of subsections 4.1.1 or
4.1.2 hereof, as applicable and, as soon as
practicable thereafter, the Corporation
shall deliver or cause to be delivered to
such Debentureholder or, subject as
aforesaid, his nominee or assignee, a
certificate for such Exchangeable Shares
and, if applicable, a cheque for any amount
payable under section 4.5; and
(ii) if such Debentureholder has exercised his
conversion right to receive cash and
Exchangeable Shares as contemplated in
subsection 4.1.2, to receive an amount
payable in lawful money of Canada as
contemplated under subsection 4.1.2, which
amount shall be sent to such Debentureholder
on the Business Day immediately following
the Date of Conversion (or such later date
as is specified in subsection 4.2.2).
4.2.2 For the purposes hereof, a Debenture shall be deemed
to be surrendered for conversion on the date (the
"DATE OF CONVERSION") on which it is so surrendered
in accordance with the provisions hereof and, in the
case of a Debenture so surrendered by mail or other
means of delivery, on the date on which it is
received by the Trustee at one of its offices
specified in subsection 4.2.1, provided that if a
Debenture is surrendered for conversion on a day on
which any register of Exchangeable Shares is closed,
the Person entitled to receive Exchangeable Shares
shall become the holder of record of such
Exchangeable Shares as at the date on which such
register is next reopened and provided that if a
Debenture is surrendered for conversion on any
interest payment date or the day of selection by the
Trustee of any Debentures for redemption, or in
either case during the 10 preceding Business Days,
such Debenture shall be deemed to be surrendered for
conversion on the Business Day immediately following
such interest payment date or date on which
Debentures are selected for redemption.
4.2.3 Any part, being $100 or an integral multiple thereof,
of a Debenture of a denomination in excess of $100
may be converted as provided herein and all
references in this Indenture to conversion of
Debentures shall be deemed to include conversion of
such parts. The Holder of any Debenture of which part
only is converted shall, upon the exercise of his
right of conversion, surrender such Debenture to the
Trustee, and the Trustee shall
<PAGE> 12
9.
cancel the same and shall, without charge, forthwith
certify and deliver to the Holder a new Debenture or
Debentures in an aggregate principal amount equal to
the unconverted part of the principal amount of the
Debenture so surrendered.
4.2.4 The Holder of a Debenture surrendered for conversion
in accordance with this section 4.2 shall be entitled
to receive accrued and unpaid interest in respect
thereof only for the period up to the interest
payment date, if any, that falls on the Date of
Conversion or, if the Date of Conversion is not an
interest payment date, for the period up to the
interest payment date immediately preceding the Date
of Conversion; and there shall be no payment or
adjustment by the Corporation on account of any
interest accrued or accruing on such Debenture from
the date of the latest interest payment date to the
Date of Conversion. The holders of Exchangeable
Shares issued upon conversion shall be entitled to
receive only dividends declared in favour of holders
of record of Exchangeable Shares on and after the
Date of Conversion or such later date as such Holder
shall become the holder of record of such
Exchangeable Shares pursuant to subsection 4.2.2,
from which applicable date the Exchangeable Shares
will for all purposes be and be deemed to be issued
and outstanding as fully paid and non-assessable
Exchangeable Shares.
4.3 ADJUSTMENT OF CONVERSION PRICE
4.3.1 The Conversion Price will be subject to adjustment
from time to time in the events and in the manner
provided as follows and as a consequence thereof, the
conversion rights attached to the Debentures as set
forth in section 4.1 will be similarly and
proportionately adjusted.
4.3.2 if and whenever, at any time after the date hereof
and prior to the Time of Expiry, Bowater Canada:
(i) issues Exchangeable Shares (or securities
convertible into or exchangeable for
Exchangeable Shares) to holders of
Exchangeable Shares as a stock dividend or
other distribution (other than Dividends
Paid in the Ordinary Course);
(ii) makes a distribution to holders of
Exchangeable Shares on its outstanding
Exchangeable Shares payable in Exchangeable
Shares (or securities convertible into or
exchangeable for Exchangeable Shares) (other
than Dividends Paid in the Ordinary Course);
(iii) subdivides or changes its outstanding
Exchangeable Shares into a greater number of
Exchangeable Shares; or
(iv) consolidates or changes its outstanding
Exchangeable Shares into a smaller number of
Exchangeable Shares,
<PAGE> 13
10.
(any of such events in subsection (i), (ii), (iii)
and (iv) hereinafter referred to as an "EXCHANGEABLE
SHARE REORGANIZATION"), then the Conversion Price
will be adjusted, effective immediately after the
effective date or record date for the occurrence of
an Exchangeable Share Reorganization, as the case may
be, at which the holders of Exchangeable Shares are
determined for the purpose of the Exchangeable Share
Reorganization, by multiplying the Conversion Price
in effect immediately prior to such effective date or
record date by a fraction, the numerator of which
will be the number of Exchangeable Shares outstanding
on such effective date or record date before giving
effect to such Exchangeable Share Reorganization and
the denominator of which will be the number of
Exchangeable Shares outstanding immediately after
giving effect to such Exchangeable Share
Reorganization (including, in the case where
securities exchangeable for or convertible into
Exchangeable Shares are distributed, the number of
Exchangeable Shares that would have been outstanding
had all such securities been exchanged for or
converted into Exchangeable Shares on such effective
date or record date);
4.3.3 if and whenever, at any time after the date hereof
and prior to the Time of Expiry, Bowater Canada fixes
a record date for the issue of rights, options or
warrants to all or substantially all of the holders
of Exchangeable Shares under which such holders are
entitled, during a period expiring not more than 45
days after the date of such issue (the "RIGHTS
PERIOD"), to subscribe for or purchase Exchangeable
Shares (or securities convertible into or
exchangeable for Exchangeable Shares) at a price per
share to the holder (or at a conversion or exchange
price per share during the Rights Period to the
holder in the case of securities convertible into or
exchangeable for Exchangeable Shares) of less than
95% of the Current Market Price for the Exchangeable
Shares on such record date (any of such event
hereinafter referred to as a "RIGHTS OFFERING"), then
the Conversion Price will be adjusted, effective
immediately after the end of the Rights Period, to a
price determined by multiplying the Conversion Price
in effect immediately prior to the end of the Rights
Period by a fraction:
(i) the numerator of which will be the aggregate
of:
(a) the number of Exchangeable Shares
outstanding as of the record date
for the Rights Offering, and
(b) a number determined by dividing (1)
either (A) the product of the
number of Exchangeable Shares
issued or subscribed for during the
Rights Period upon the exercise of
the rights, warrants or options
under the Rights Offering and the
price at which such Exchangeable
Shares are offered, or, as the case
may be, (B) the product of the
exchange or conversion price of
such securities exchangeable for or
convertible into Exchangeable
Shares and the number of
Exchangeable
<PAGE> 14
11.
Shares for or into which the
securities so offered pursuant to
the Rights Offering could have been
exchanged or converted during the
Rights Period, by (2) the Current
Market Price for the Exchangeable
Shares as of the record date for
the Rights Offering, and
(ii) the denominator of which will be the number
of Exchangeable Shares outstanding, or the
number of Exchangeable Shares which would be
outstanding if all the exchangeable or
convertible securities were exchanged for or
converted into Exchangeable Shares during
the Rights Period, after giving effect to
the Rights Offering and including the number
of Exchangeable Shares actually issued or
subscribed for during the Rights Period upon
exercise of the rights, warrants or options
under the Rights Offering.
Any Debentureholder who has exercised the right to
convert the Debentures held by such Holder into
Exchangeable Shares in accordance with this Article 4
during the period beginning immediately after the
record date for a Rights Offering and ending on the
last day of the Rights Period for the Rights Offering
will, in addition to the Exchangeable Shares to which
that holder would otherwise be entitled upon such
conversion, be entitled to that number of additional
Exchangeable Shares equal to the result obtained when
the difference, if any, between the Conversion Price
in effect immediately prior to the end of such Rights
Offering and the Conversion Price as adjusted for
such Rights Offering pursuant to this subsection is
multiplied by the number of Exchangeable Shares
received upon the conversion of the Debentures held
by such Holder during such period, and the resulting
product is divided by the applicable Conversion Price
as adjusted for such Rights Offering pursuant to this
subsection; provided that the provisions of
subsection 4.5 will be applicable to any fractional
interest in an Exchangeable Share to which such
Holder might otherwise be entitled under the
foregoing provisions of this subsection. Such
additional Exchangeable Shares will be deemed to have
been issued to the Debentureholder immediately
following the end of the Rights Period and a
certificate for such additional Exchangeable Shares
will be delivered to such Holder within 15 Business
Days following the end of the Rights Period. To the
extent that any such rights, options or warrants are
not so exercised on or before the expiry thereof, the
Conversion Price will be readjusted to the Conversion
Price which would then be in effect based on the
number of Exchangeable Shares (or the securities
convertible into or exchangeable for Exchangeable
Shares) actually delivered on the exercise of such
rights, options or warrants;
4.3.4 if and whenever, at any time after the date hereof
and prior to the Time of Expiry, Bowater Canada fixes
a record date for the issue or the distribution to
all or substantially all the holders of Exchangeable
Shares or of (i) securities of Bowater Canada
including rights, options or warrants
<PAGE> 15
12.
to acquire securities of Bowater Canada or any of its
property or assets and including evidences of
indebtedness or (ii) any property or other assets,
including evidences of indebtedness, and if such
issuance or distribution does not constitute a
Dividend Paid in the Ordinary Course, an Exchangeable
Share Reorganization or a Rights Offering (any of
such non-excluded events hereinafter referred to as a
"SPECIAL DISTRIBUTION"), the Conversion Price will be
adjusted effective immediately after such record date
to a price determined by multiplying the Conversion
Price in effect on such record date by a fraction:
(a) the numerator of which will be:
(1) the product of the number of
Exchangeable Shares outstanding on
such record date and the Current
Market Price thereof on such record
date; less
(2) the aggregate fair market value, as
determined by the Directors of
Bowater Canada (whose determination
will be conclusive), to the holders
of Exchangeable Shares of such
securities or property or other
assets so issued or distributed in
the Special Distribution; and
(b) the denominator of which will be the product
of the number of Exchangeable Shares
outstanding on such record date and the
Current Market Price of the Exchangeable
Shares on such record date.
To the extent that any Special Distribution is not so
made, the Conversion Price will be immediately
readjusted, with retroactive effect to the record
date, to the Conversion Price which would then be in
effect based upon such securities or property or
other assets as actually distributed;
4.3.5 if and whenever at any time after the date hereof and
prior to the Maturity Date, there is a
reclassification of the Exchangeable Shares at any
time outstanding or a change or exchange of the
Exchangeable Shares into or for other securities or
any other capital reorganization (other than an
Exchangeable Share Reorganization), or a
consolidation, amalgamation or merger of Bowater
Canada with or into any other company or other entity
(other than a consolidation, amalgamation or merger
that does not result in any reclassification of the
outstanding Exchangeable Shares or a change or
exchange of the Exchangeable Shares into or for other
shares), or a transfer of the undertaking or assets
of Bowater Canada as an entirety or substantially as
an entirety to another corporation or other entity in
which the holders of Exchangeable Shares are entitled
to receive shares, other securities or other property
(any of such events hereinafter referred to as a
"CAPITAL REORGANIZATION"), any Holder of Debentures
who exercises the right to convert Debentures into
Exchangeable Shares pursuant to Debentures then held
after the effective date of such Capital
<PAGE> 16
13.
Reorganization will be entitled to receive, and will
accept for the same aggregate consideration, in lieu
of the number of Exchangeable Shares to which such
Holder was previously entitled upon such conversion,
the aggregate number of shares, other securities or
other property which such holder would have been
entitled to receive as a result of such Capital
Reorganization if, on the effective date thereof, the
holder had been the registered holder of the number
of Exchangeable Shares to which such holder was
previously entitled upon conversion. The Corporation
will take all steps necessary to ensure that, on a
Capital Reorganization, the Holders of Debentures
will receive the aggregate number of shares, other
securities or other property to which they are
entitled as a result of the Capital Reorganization.
Appropriate adjustments will be made as a result of
any such Capital Reorganization in the application of
the provisions set forth in this Article 4 with
respect to the rights and interests thereafter of
holders of Debentures, such that the provisions set
forth in this Article 4 will thereafter
correspondingly be made applicable as nearly as may
reasonably be in relation to any shares, other
securities or other property thereafter deliverable
upon the conversion of any Debenture. Any such
adjustment will be made by and set forth in an
indenture supplemental hereto approved by action of
the Directors of the Corporation and by the Trustee
and entered into pursuant to the provisions of
Article Thirteen and will for all purposes be
conclusively deemed to be an appropriate adjustment;
4.3.6 if the purchase price provided for in any right,
options or warrants (the "RIGHTS OFFERING PRICE")
referred to in subsections 4.3.3 or 4.3.4 is
decreased, the Conversion Price will forthwith be
changed so as to decrease the Conversion Price to the
Conversion Price that would have been obtained if the
adjustment to the Conversion Price made under
subsection 4.3.3 or 4.3.4, as the case may be, with
respect to such rights, options or warrants had been
made on the basis of the Rights Offering Price as so
decreased, provided that the terms of this subsection
will not apply to any decrease in the Rights Offering
Price resulting from terms in any such rights,
options or warrants designed to prevent dilution
except to the extent that the resulting decrease in
the Conversion Price under this subsection would be
greater than the decrease, if any, in the Conversion
Price to be made under the terms of this section by
virtue of the occurrence of the event giving rise to
such decrease in the Rights Offering Price;
4.3.7 in any case in which this section 4.3 shall require
that an adjustment shall become effective immediately
after a record date for an event referred to herein,
the Corporation may defer, until the occurrence of
such event, issuing to the Holder of any Debenture
converted after such record date and before the
occurrence of such event the additional Exchangeable
Shares issuable upon such conversion by reason of the
adjustment required by such event; provided, however,
that the Corporation shall deliver to such Holder an
appropriate instrument evidencing such Holder's right
to
<PAGE> 17
14.
receive such additional Exchangeable Shares upon the
occurrence of such event and the right to receive any
distributions made on such additional Exchangeable
Shares declared in favour of holders of record of
Exchangeable Shares on and after the Date of
Conversion or such later date on which such Holder
would, but for the provisions of this subsection
4.3.7, have become the holder of record of such
additional Exchangeable Shares pursuant to subsection
4.2.2.
4.4 RULES REGARDING CALCULATION OF ADJUSTMENT OF
CONVERSION PRICE
For the purposes of section 4.3:
4.4.1 The adjustments provided for in section 4.3 are
cumulative and will be computed to the nearest
one-tenth of one cent and will be made successively
whenever an event referred to therein occurs, subject
to the following subsections of this section.
4.4.2 No adjustment in the Conversion Price will be
required unless such adjustment would result in a
cumulative change of at least 1% in the prevailing
Conversion Price; provided, however, that any
adjustments that, except for the provisions of this
subsection would otherwise have been required to be
made, will be carried forward and taken into account
in any subsequent adjustment.
4.4.3 No adjustment in the Conversion Price will be
required upon the issuance from time to time of
Exchangeable Shares under any bona fide executive
compensation plan adopted by Bowater Canada from time
to time.
4.4.4 No adjustment in the Conversion Price will be made in
respect of any event described in section 4.3, other
than the events referred to in subsections 4.3.2(iii)
and (iv), if Debentureholders are entitled to
participate in such event on the same terms, mutatis
mutandis, as if they had converted their Debentures
prior to or on the effective date or record date of
such event. Any such participation will be subject to
the prior consent (to the extent required) of each
Canadian stock exchange on which the Exchangeable
Shares are listed, or were listed, or were listed in
the year prior to the occurrence of the event
described in this section.
4.4.5 If at any time a dispute arises with respect to
adjustments provided for in section 4.3, such dispute
will be conclusively determined by the auditors of
the Corporation, or if they are unable or unwilling
to act, by such other firm of independent chartered
accountants as may be selected by the Directors of
the Corporation and any such determination will be
binding upon the Corporation, the Trustee and the
Debentureholders; such auditors or accountants will
be given access by the Corporation to all necessary
records of Bowater Canada. If any such determination
is made, the
<PAGE> 18
15.
Corporation will deliver a Certificate of the
Corporation to the Trustee describing such
determination.
4.4.6 If Bowater Canada sets a record date to determine the
holders of Exchangeable Shares for the purpose of
entitling them to receive any dividend or
distribution or sets a record date to take any other
action and thereafter and before the distribution to
such shareholders of any such dividend or
distribution or the taking of any other action,
legally abandons its plan to pay or deliver such
dividend or distribution or take such other action,
then no adjustment in the Conversion Price shall be
made.
4.4.7 In the absence of a resolution of the Directors of
Bowater Canada fixing a record date for a Special
Distribution or Rights Offering, Bowater Canada will
be deemed to have fixed as the record date therefor
the date on which the Special Distribution or Rights
Offering is effected.
4.5 NO REQUIREMENT TO ISSUE FRACTIONAL SHARES
The Corporation shall not be required to issue or
cause to be issued fractional Exchangeable Shares upon the
conversion of Debentures. If more than one Debenture shall be
surrendered for conversion at one time by the same Holder, the
number of whole Exchangeable Shares issuable upon conversion
thereof shall be computed on the basis of the aggregate
principal amount of the Debentures to be converted. If any
fractional interest in an Exchangeable Share would, except for
the provisions of this section, be deliverable upon the
conversion of any principal amount of Debentures, the
Corporation shall, in lieu of delivering any certificate for
such fractional interest, satisfy such fractional interest by
paying to the Holder of such surrendered Debentures an amount
in lawful money of Canada equal to the identical fraction of
the Current Market Price of the Exchangeable Shares on the
Business Day preceding the Date of Conversion.
4.6 RESERVATION OF EXCHANGEABLE SHARES
The Corporation shall ensure to reserve and keep
available out of Bowater Canada's authorized Exchangeable
Shares (if the number thereof is or becomes limited) solely
for the purpose of issue upon conversion of Debentures as
provided herein, and conditionally cause the issue to Holders
of Debentures who may exercise their conversion rights
hereunder, such number of Exchangeable Shares as shall then be
issuable upon the conversion of such outstanding Debentures
and the Corporation shall ensure that all such Exchangeable
Shares shall be listed on the Montreal Exchange and The
Toronto Stock Exchange for trading upon their issuance. All
Exchangeable Shares that shall be so issuable shall be duly
and validly issued as fully paid and non-assessable.
<PAGE> 19
16.
4.7 QUALIFICATION OF EXCHANGEABLE SHARES
If at any time any registration or filing
pursuant to any securities laws applicable in Canada is
required to ensure that any Exchangeable Shares issuable upon
the conversion of the Debentures are issued in compliance with
all such laws or to ensure that any such Exchangeable Shares,
once issued, are not subject to any restriction as to the
resale thereof (other than any restriction as to the resale
thereof imposed by any securities laws applicable in Canada by
reason of a Person or a combination of Persons holding
sufficient Exchangeable Shares to affect materially the
control, or to be deemed to affect materially the control, of
Bowater Canada), the Corporation covenants that it will take
all such action as may be necessary to make or obtain such
registration or filing, as the case may be.
4.8 TAXES AND CHARGES ON CONVERSION
The Corporation will from time to time promptly
pay or make provision satisfactory to the Trustee for the
payment of all taxes and charges that may be imposed by any
laws applicable in Canada or the United States (except income
tax or security transfer tax, if any) that shall be payable
with respect to the payment, issuance or delivery of monies
and/or Exchangeable Shares to the Holders of Debentures upon
the exercise of their right of conversion pursuant to the
terms of the Debentures and of this Indenture.
4.9 CANCELLATION OF CONVERTED DEBENTURES
All Debentures converted in whole or in part
shall be forthwith delivered to and cancelled by the Trustee
and, subject to subsection 4.2.3, no Debentures shall be
issued in substitution therefor. For greater certainty, the
amount payable in lawful money of Canada and/or the number of
Exchangeable Shares issued upon the conversion of such
Debentures pursuant to section 4.2 shall fully satisfy and
discharge the obligations of the Corporation to pay the
principal amount of such Debentures as at the Date of
Conversion thereof.
4.10 CERTIFICATE AS TO ADJUSTMENT
The Corporation shall from time to time, promptly
after the occurrence of any event that requires an adjustment
or readjustment as provided in section 4.3, deliver a
Certificate of the Corporation to the Trustee specifying the
nature of the event requiring the same and the amount of the
adjustment or readjustment necessitated thereby and setting
forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such Certificate
of the Corporation and the amount of the adjustment specified
therein shall, subject to the provisions of subsections 4.3.4
and 4.3.7, be conclusive and binding on all interested
parties. Except in respect of any subdivision, revision,
reduction, combination or consolidation of the Exchangeable
Shares, the Corporation shall forthwith give notice to the
Debentureholders specifying the event requiring such
adjustment or readjustment and the amount thereof, including
the resulting Conversion Price; provided that if the
Corporation has
<PAGE> 20
17.
advised the Debentureholders of all the relevant facts in
respect of such event, no such notice need be given under this
section 4.10.
4.11 NOTICE OF SPECIAL MATTERS
The Corporation covenants that, so long as any
Debentures remain outstanding, it will give notice to the
Trustee and to the Debentureholders of Bowater Canada's
intention to fix a record date for any event referred to in
subsection 4.3.2, 4.3.3 or 4.3.4 (other than the subdivision,
redivision, reduction, combination or consolidation of
Exchangeable Shares) or a cash dividend (other than a Dividend
Paid in the Ordinary Course) that may give rise to an
adjustment in the Conversion Price, and such notice shall
specify the particulars of such event and the record date and
the effective date for such event; provided that the
Corporation shall only be required to specify in such notice
such particulars of such event as shall have been fixed and
determined on the date on which such notice is given. Such
notice shall be given not less than 14 days prior to the
applicable record date.
4.12 NOTICE OF EXPIRY OF CONVERSION RIGHT
The Corporation covenants that, so long as any
Debentures remain outstanding, it will give notice to the
Trustee and the Debentureholders in the manner provided in
Article 11, not less than 21 days prior to the Time of Expiry,
of the expiry of the right of the Holders of the Debentures to
convert their Debentures.
4.13 REVIVAL OF RIGHT TO CONVERT
If the Corporation shall fail to redeem any
Debenture that has been called for redemption upon due
surrender of such Debenture, any right to convert such
Debenture as provided in this Article 4 shall revive and
continue as if such Debenture had not been called for
redemption.
4.14 PROTECTION OF TRUSTEE
Subject to section 12.3, the Trustee shall not at
any time be under any duty or responsibility to any
Debentureholder to determine whether any facts exist that may
require any adjustment in the Conversion Price, or with
respect to the nature or extent of any such adjustment when
made, or with respect to the method employed in making the
same; and shall not be accountable with respect to the
validity or value (or the kind or amount) of any Exchangeable
Shares or of any shares or other securities or other property
that may at any time be issued or delivered upon the
conversion of any Debenture; and shall not be responsible for
any failure of the Corporation to make any cash payment, or
any failure of the Corporation to issue, transfer or deliver
Exchangeable Shares or share certificates upon the surrender
of any Debenture for the purpose of conversion, or to comply
with any of the covenants contained in this Article 4.".
<PAGE> 21
18.
SECTION 2.05 EVENTS OF DEFAULT
The Principal Indenture is hereby further amended by:
(i) deleting the period found at the end of subsection
7.1.6 thereof and substituting therefor a semi-colon
and word "; or"; and
(ii) adding to section 7.1 thereof the following as
subsections 7.1.7 to 7.1.14, inclusive, of the said
section 7.1:
"7.1.7 if a decree or order of a court having
jurisdiction in the premises is entered
adjudging Bowater Canada a bankrupt or insolvent
under the Bankruptcy and Insolvency Act (Canada)
or any other bankruptcy, insolvency or analogous
laws applicable in Canada or the United States,
or issuing sequestration or process of execution
against, or against any substantial part of, the
property of Bowater Canada, or appointing a
receiver of Bowater Canada or any substantial
part of its property, or ordering the winding-up
or liquidation of its affairs unless Bowater
Canada actively and diligently contests in good
faith such decree or order and has such decree
or order stayed on or before 30 days after the
issue of such decree or order by a court; or
7.1.8 if an order is made or a resolution is passed
for the winding-up or liquidation of Bowater
Canada except in the course of carrying out or
pursuant to a transaction in respect of which
the conditions of section 9.1 are duly observed
and performed or if Bowater Canada institutes
proceedings to be adjudicated a bankrupt or
insolvent, or consents to the institution of
bankruptcy or insolvency proceedings against it
under the Bankruptcy and Insolvency Act (Canada)
or any other bankruptcy, insolvency or analogous
laws applicable in Canada or the United States,
or consents to the filing of any such petition
or to the appointment of a receiver of Bowater
Canada or any substantial part of its property,
or makes a general assignment for the benefit of
creditors, or admits in writing its inability to
pay its debts generally as they become due or
takes corporate action in furtherance of any of
the aforesaid purposes; or
7.1.9 if Bowater Canada makes default in observing or
performing any other covenant or condition of
this Indenture on its part to be observed or
performed and if such default continues for a
period of 60 days after notice in writing has
been given to Bowater Canada by the Trustee
specifying such default and requiring Bowater
Canada to rectify the same, unless the Trustee
(having regard to the subject matter of the
default) shall have agreed to a longer period
and, in such event, for the period agreed to by
the Trustee; or
<PAGE> 22
19.
7.1.10 if an encumbrancer takes possession of all or
substantially all of the property of Bowater
Canada, or if any process of execution is levied
or enforced upon or against all or substantially
all of the property of Bowater Canada and
remains unsatisfied for a period of 60 days or
such longer period as would permit any such
property to be sold thereunder, unless Bowater
Canada actively and diligently contests in good
faith such process, but in that event Bowater
Canada shall, if the Trustee so requires, give
security that, in the discretion of the Trustee,
is sufficient to pay in full the amount thereby
claimed in case the claim is held to be valid;
or
7.1.11 if a decree or order of a court having
jurisdiction in the premises is entered
adjudging Bowater a bankrupt or insolvent under
Title 11 of the United States Code or any other
bankruptcy, insolvency or analogous laws
applicable in Canada or the United States, or
issuing sequestration or process of execution
against, or against any substantial part of, the
property of Bowater, or appointing a receiver of
Bowater or any substantial part of its property,
or ordering the winding-up or liquidation of its
affairs unless Bowater actively and diligently
contests in good faith such decree or order and
has such decree or order stayed on or before 30
days after the issue of such decree or order by
a court; or
7.1.12 if an order is made or a resolution is passed
for the winding-up or liquidation of Bowater
except in the course of carrying out or pursuant
to a transaction in respect of which the
conditions of section 9.1 are duly observed and
performed or if Bowater institutes proceedings
to be adjudicated a bankrupt or insolvent, or
consents to the institution of bankruptcy or
insolvency proceedings against it under Title 11
of the United States Code or any other
bankruptcy, insolvency or analogous laws
applicable in Canada or the United States, or
consents to the filing of any such petition or
to the appointment of a receiver of Bowater or
any substantial part of its property, or makes a
general assignment for the benefit of creditors,
or admits in writing its inability to pay its
debts generally as they become due or takes
corporate action in furtherance of any of the
aforesaid purposes; or
7.1.13 if Bowater makes default in observing or
performing any other covenant or condition of
this Indenture on its part to be observed or
performed and if such default continues for a
period of 60 days after notice in writing has
been given to Bowater by the Trustee specifying
such default and requiring Bowater to rectify
the same, unless the Trustee (having regard to
the subject matter of the default) shall have
agreed to a longer period and, in such event,
for the period agreed to by the Trustee; or
<PAGE> 23
20.
7.1.14 if an encumbrancer takes possession of all or
substantially all of the property of Bowater, or if
any process of execution is levied or enforced upon
or against all or substantially all of the property
of Bowater and remains unsatisfied for a period of 60
days or such longer period as would permit any such
property to be sold thereunder, unless Bowater
actively and diligently contests in good faith such
process, but in that event Bowater shall, if the
Trustee so requires, give security that, in the
discretion of the Trustee, is sufficient to pay in
full the amount thereby claimed in case the claim is
held to be valid.".
SECTION 2.06 NOTICE OF EVENTS OF DEFAULT
The Principal Indenture is hereby further amended by adding in
section 7.2 thereof after the words "the Corporation" found on the sixth line of
the first paragraph of the said section 7.2 the punctuation and the words ",
Bowater Canada and Bowater".
SECTION 2.07 ACCELERATION ON DEFAULT
The Principal Indenture is hereby further amended by deleting
the last sentence of section 7.3 thereof in its entirety and substituting
therefor the following:
"Such payment when made shall be deemed to have been made in
discharge of the Corporation's obligations hereunder and of
the obligations of Bowater Canada and Bowater hereunder, and
any moneys so received by the Trustee shall be applied as
provided in section 7.7.".
SECTION 2.08 IMMUNITY OF SHAREHOLDERS, DIRECTORS AND OTHERS
The Principal Indenture is hereby further amended by:
(i) adding to the first paragraph of section 7.12 thereof
after the words "Successor Corporation" found on the
fourth line of the said section 7.12 the word
"thereof"; and
(ii) adding to section 7.12 thereof the following as the
second paragraph of the said section 7.12:
" The Debentureholders and the Trustee waive and
release any right, cause of action or remedy now or
hereafter existing in any jurisdiction against any
past, present or future incorporator, shareholder,
director or officer of (i) Bowater Canada or of any
Successor Corporation thereof arising from any
covenant, agreement, representations or warranty by
Bowater Canada contained herein; and (ii) Bowater or
of any Successor Corporation thereof arising from any
covenant, agreement, representations or warranty by
Bowater contained herein.".
<PAGE> 24
21.
SECTION 2.09 DISCHARGE
The Principal Indenture is hereby further amended by deleting
from section 8.4 thereof the words "execute and deliver to the Corporation such
deeds or other instruments as may be necessary to evidence the satisfaction and
discharge of this Indenture and to release the Corporation from its covenants
contained herein except those relating to the indemnification of the Trustee."
beginning on the twelfth line of the said section 8.4 and substituting therefor
the words "execute and deliver to the Corporation, Bowater Canada and Bowater
such deeds or other instruments as may be necessary to evidence the satisfaction
and discharge of this Indenture and to release each of the Corporation, Bowater
Canada and Bowater from its covenants contained herein except those relating to
the indemnification of the Trustee.".
SECTION 2.10 ARTICLE 9 - SUCCESSOR CORPORATION
The Principal Indenture is hereby amended by deleting Article
9 thereof in its entirety and substituting therefor the following:
"ARTICLE 9
SUCCESSOR CORPORATION
9.1 CERTAIN REQUIREMENTS IN RESPECT OF MERGER, ETC.
Neither the Corporation, Bowater Canada nor Bowater
shall enter into any transaction whether by way of
amalgamation (except in respect of the Corporation or Bowater
Canada, a short-form amalgamation with one or more of its
wholly-owned subsidiaries pursuant to the Canada Business
Corporations Act, and except in respect of Bowater, a
short-form amalgamation with one or more of its subsidiaries
(the common stock of which is wholly-owned) pursuant to
applicable federal or state laws in the United States),
merger, arrangement, reconstruction, reorganization,
consolidation, transfer, sale, lease or otherwise whereby all
or substantially all of its undertaking property and assets
would become the property of any other Person or of any
continuing corporation resulting therefrom, unless, but may do
so if:
9.1.1 such other Person or continuing corporation is a
corporation (the "Successor Corporation") in respect
of the Corporation or Bowater Canada, as the case may
be, incorporated under the laws of Canada or any
province thereof, or in respect of Bowater under the
laws of the United States or any state thereof.
9.1.2 the Successor Corporation shall perform such acts and
execute prior to or contemporaneously with the
completion of such transaction such indenture
supplemental hereto and other instruments (if any) as
in the opinion of Counsel are necessary or advisable
to evidence the assumption by the Successor
Corporation, if such Successor Corporation is a
successor to the Corporation, of the liability for
the due and punctual payment of all the Debentures
and the interest thereon and all other moneys
<PAGE> 25
22.
payable hereunder and the covenant of such Successor
Corporation to pay the same, or if the Successor
Corporation is a successor corporation to Bowater
Canada or Bowater, of the guarantee obligations of
Bowater Canada or Bowater, as the case may be, set
out herein, and the agreement by the Successor
Corporation to observe and perform all the covenants
and obligations of the Corporation, Bowater Canada or
Bowater, as the case may be, under this Indenture;
9.1.3 the Debentures will be valid and binding obligations
of the Successor Corporation in respect of the
Corporation entitling the Holders as against such
Successor Corporation to all of the rights they have
under this Indenture; and
9.1.4 no condition or event shall exist in respect of the
Corporation, Bowater Canada or Bowater, as the case
may be, or the Successor Corporation either at the
time of such transaction or immediately thereafter
after giving full effect thereto that constitutes or
would after the giving of notice or the lapse of time
or both constitute an Event of Default hereunder.
9.2 VESTING OF POWERS IN SUCCESSOR
Whenever the conditions of section 9.1 have been duly
observed and performed the Trustee shall execute and deliver
the supplemental indenture provided for in Article Thirteen
and thereupon:
9.2.1 the Successor Corporation shall possess and from time
to time may exercise each and every right and power
of the Corporation, Bowater Canada or Bowater, as the
case may be, under this Indenture in the name of such
Person or otherwise and any act or proceeding by any
provision of this Indenture required to be done or
performed by any directors or officers of the
Corporation, Bowater Canada or Bowater, as the case
may be, may be done and performed with like force and
effect by the like directors or officers of such
Successor Corporation; and
9.2.2 the Corporation, Bowater Canada or Bowater, as the
case may be, shall be released and discharged from
liability under this Indenture and the Trustee may
execute any documents that it may be advised are
necessary or advisable for effecting or evidencing
such release and discharge.".
SECTION 2.11 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION
The Principal Indenture is hereby further amended:
(i) by deleting subsection 10.11.1 thereof in its entirety
and substituting therefor the following:
<PAGE> 26
23.
"10.11.1 power to approve any change whatsoever in any of the
provisions of this Indenture or the Debentures and
any modification, abrogation, alteration, compromise
or arrangement of the rights of the Debentureholders
and/or the Trustee against the Corporation, Bowater
Canada or Bowater, as the case may be, or against
its respective undertaking, property and assets or
any part thereof, whether such rights arise under
this Indenture or the Debentures or otherwise;";
(ii) by deleting subsection 10.11.2 thereof in its entirety
and substituting therefor the following:
"10.11.2 power to approve any scheme for the reconstruction
or reorganization of the Corporation, Bowater Canada
or Bowater or for the consolidation, amalgamation or
merger of the Corporation, Bowater Canada or Bowater
with any other corporation or for the selling or
leasing of the undertaking, property and assets of
the Corporation, Bowater Canada or Bowater or any
part thereof, provided that no such approval shall
be necessary in respect of any such transaction if
the provisions of Article 9 shall have been complied
with;";
(iii) by deleting subsection 10.11.8 thereof in its entirety
and substituting therefor the following:
"10.11.8 power to agree to any compromise or arrangement with
any creditor or creditors or any class or classes of
creditors, whether secured or otherwise, and with
holders of any shares or other securities of the
Corporation, Bowater Canada or Bowater;"; and
(iv) by deleting subsection 10.11.10 thereof in its entirety
and substituting therefor the following:
"10.11.10 power to approve the exchange of the Debentures for
or the conversion thereof into cash, shares, bonds,
debentures or other securities or obligations of the
Corporation, Bowater Canada or Bowater, or of any
company formed or to be formed;".
SECTION 2.12 NOTICE TO THE CORPORATION AND BOWATER CANADA
The Principal Indenture is hereby further amended by deleting
section 11.1 thereof in its entirety and substituting therefor the following:
"Any notice to the Corporation under the provisions of this
Indenture shall be valid and effective if delivered personally
to, or, subject to section 11.4, if given by registered mail,
postage prepaid, addressed to, the Corporation c/o 55 East
Camperdown Way, Greenville, SC 29601, Attention: The Office of
the Secretary and shall be deemed to have been given on the
date of delivery or on the fifth Business Day after such
letter has been mailed, as the case may be. The
<PAGE> 27
24.
Corporation may from time to time notify the Trustee of a
change of address which thereafter, until changed by further
notice, shall be the address of the Corporation for all
purposes of this Indenture.
Any notice to Bowater Canada under the provisions of this
Indenture shall be valid and effective if delivered personally
to, or, subject to section 11.4, if given by registered mail,
postage prepaid, addressed to, Bowater Canada c/o 55 East
Camperdown Way, Greenville, SC 29601, Attention: The Office of
the Secretary and shall be deemed to have been given on the
date of delivery or on the fifth Business Day after such
letter has been mailed, as the case may be. Bowater Canada may
from time to time notify the Trustee of a change of address
which thereafter, until changed by further notice, shall be
the address of Bowater Canada for all purposes of this
Indenture.
Any notice to Bowater under the provisions of this Indenture
shall be valid and effective if delivered personally to, or,
subject to section 11.4, if given by registered mail, postage
prepaid, addressed to, Bowater c/o 55 East Camperdown Way,
Greenville, SC 29601, Attention: The Office of the Secretary
and shall be deemed to have been given on the date of delivery
or on the fifth Business Day after such letter has been
mailed, as the case may be. Bowater may from time to time
notify the Trustee of a change of address which thereafter,
until changed by further notice, shall be the address of
Bowater for all purposes of this Indenture.".
SECTION 2.13 NOTICE TO THE TRUSTEE
The Principal Indenture is hereby further amended by deleting
the last sentence of section 11.3 thereof and substituting therefor the
following:
"The Trustee may from time to time notify the Corporation,
Bowater Canada and Bowater of a change in address which
thereafter, until changed by further notice, shall be the
address of the Trustee for all purposes of this Indenture.".
SECTION 2.14 MAIL SERVICE INTERRUPTION
The Principal Indenture is hereby further amended by deleting
the second paragraph of section 11.4 thereof in its entirety and substituting
therefor the following:
"If, by reason of any actual or threatened interruption of
mail service due to strike, lock-out or otherwise, any notice
to be given to the Trustee or to the Corporation, Bowater
Canada or Bowater would be unlikely to reach its destination
in a timely manner, such notice shall be valid and effective
only if delivered personally in accordance with sections 11.1
or 11.3, as the case may be.".
<PAGE> 28
25.
SECTION 2.15 NO CONFLICT OF INTEREST
The Principal Indenture is hereby further amended by deleting
section 12.2 thereof in its entirety and substituting therefor the following:
"12.2 NO CONFLICT OF INTEREST
The Trustee represents to each of the Corporation,
Bowater Canada and Bowater that at the date of the execution
and delivery of this Indenture there exists no material
conflict of interest in the role of the Trustee as a fiduciary
hereunder. The parties hereto acknowledge that the Trustee
serves as trustee under that certain voting and exchange trust
agreement dated as of July 24, 1998, among the Trustee,
Bowater, Bowater Canada and Bowater Canadian Holdings
Incorporated, and that the Trustee also serves as Bowater
Canada's registrar, transfer and paying agent and the parties
hereto agree that the Trustee serving in the capacities as
aforesaid does not constitute a conflict of interest in the
role of the Trustee as a fiduciary hereunder. If at any time a
material conflict of interest exists in the Trustee's role as
a fiduciary hereunder the Trustee shall, within 90 days after
ascertaining that such a material conflict of interest exists,
either eliminate the same or else resign as Trustee hereunder
by giving notice in writing to each of the Corporation,
Bowater Canada and Bowater at least 21 days prior to such
resignation and shall thereupon be discharged from all further
duties and liabilities hereunder.".
SECTION 2.16 EVIDENCE, EXPERTS AND ADVISERS
The Principal Indenture is hereby further amended by deleting
subsection 12.4.1 thereof in its entirety and substituting therefor the
following:
"12.4.1 In addition to the reports, certificates, opinions,
statutory declarations and other evidence required by
this Indenture, each of the Corporation, Bowater
Canada and Bowater shall furnish to the Trustee such
additional evidence of compliance of such party with
any provisions hereof, and in such form, as may be
prescribed by Indenture Legislation or as the Trustee
may reasonably require by written notice to the
Corporation, Bowater Canada or Bowater, as the case
may be.".
SECTION 2.17 TRUSTEE MAY DEAL IN DEBENTURES
The Principal Indenture is hereby further amended by deleting
section 12.5 thereof in its entirety and substituting therefor the following:
"12.5 TRUSTEE MAY DEAL IN DEBENTURES
Subject to section 12.3 and to any applicable law,
the Trustee may buy, sell, lend upon and deal in the
Debentures or other securities of the Corporation, Bowater
Canada or Bowater, either with the Corporation, Bowater Canada
or Bowater or otherwise, and generally contract and enter into
financial
<PAGE> 29
26.
transactions with the Corporation, Bowater Canada or Bowater
or otherwise, without being liable to account for any profits
made thereby.".
SECTION 2.18 PROTECTION OF TRUSTEE
The Principal Indenture is hereby further amended by:
(i) deleting subsection 12.7.1 thereof in its entirety
and substituting therefor the following:
"12.7.1 the Trustee shall not be liable for or by
reason of any statements of fact or recitals
in this Indenture or in the Debentures
(except the representation contained in
section 12.2 and in the certificate of the
Trustee on the Debentures) or required to
verify the same but all such statements or
recitals are and shall be deemed to be made
by the Corporation, Bowater Canada or
Bowater, as the case may be;"; and
(ii) deleting subsection 12.7.4 thereof in its entirety
and substituting therefor the following:
"12.7.4 the Trustee shall not incur any liability or
responsibility whatever or be in any way
responsible for the consequence of any
breach on the part of the Corporation,
Bowater Canada or Bowater of any of the
covenants herein contained or of any acts of
the agents of the Corporation, Bowater
Canada or Bowater.".
SECTION 2.19 INVESTMENT OF TRUST MONEYS
The Principal Indenture is hereby further amended by deleting
the last sentence of the first paragraph of section 12.8 thereof in its entirety
and substituting therefor the following:
"The Trustee shall allow interest at the current rate for
similar deposits on moneys remaining on deposit with it and,
provided that the Corporation, Bowater Canada and Bowater are
not in default hereunder, shall credit the Corporation with
interest received on moneys deposited with other depositaries
and on all moneys invested as provided in this section 12.8.".
SECTION 2.20 ACTION BY THE TRUSTEE TO PROTECT INTERESTS
The Principal Indenture is hereby further amended by deleting
the first paragraph of section 12.9 thereof in its entirety and substituting
therefor the following:
"The Trustee shall be entitled and empowered, either in its
own name or as trustee of an express trust, or as power of
attorney or attorney-in-fact for the Holders, or in any one or
more of such capacities, to file such proof of debt, amendment
of proof of debt, claim, petition or other document as may be
necessary or advisable
<PAGE> 30
27.
in order to have the claim of the Trustee and of the Holders
allowed in any insolvency, bankruptcy, liquidation or other
judicial proceedings relative to the Corporation, Bowater
Canada or Bowater or its respective creditors or relative to
or affecting its respective property. The Trustee is hereby
irrevocably appointed (and the successive respective Holders
by taking and holding the same shall be conclusively deemed to
have so appointed the Trustee) the true and lawful agent,
power of attorney or attorney-in-fact of the respective
Holders with authority to make and file in the respective
names of the Holders or on behalf of the Holders as a class,
subject to deduction from any such claims of the amounts of
any claims filed by any of the Holders themselves, any proof
of debt, amendment of proof of debt, claim, petition or other
documents in any such proceedings and to receive payment of
any sums becoming distributable on account thereof, and to
execute any such other papers and documents and to do and
perform any and all such acts and things for and on behalf of
such Holders, as may be necessary or advisable in the opinion
of the Trustee, in order to have the respective claims of the
Trustee and of the Holders against the Corporation, Bowater
Canada or Bowater or its respective property allowed in any
such proceeding, and to receive payment of or on account of
such claims; provided, however, that nothing contained in this
Indenture shall be deemed to give to the Trustee, unless so
authorized by Extraordinary Resolution, any right to accept or
consent to any plan of reorganization or otherwise by action
of any character in such proceeding to waive or change in any
way any right of any Debentureholder.".
SECTION 2.21 FONDE DE POUVOIR
The Principal Indenture is hereby further amended by adding in
section 12.12 thereof after the words and punctuation "the Corporation," found
on the third line of the second paragraph of the said section 12.12 the words
and punctuation "Bowater Canada, Bowater".
SECTION 2.22 SUPPLEMENTAL INDENTURES
The Principal Indenture is hereby amended by:
(i) deleting the phase "a resolution of the directors,
the Corporation" found on the first and second line
of section 13.1 thereof and substituting therefor the
words and punctuation "all necessary corporate
action, the Corporation, Bowater Canada and Bowater";
and
(ii) deleting subsection 13.1.1 thereof in its entirety
and substituting therefor the following:
"13.1.1 adding to the provisions hereof such
additional covenants of the Corporation,
Bowater Canada or Bowater, enforcement
provisions and other provisions for the
protection of the Holders of the Debentures
and/or providing for events of default in
addition to those herein specified;"; and
<PAGE> 31
28.
(iii) deleting subsection 13.1.3 thereof in its entirety
and substituting therefor the following:
"13.1.3 evidencing the succession or successive
successions of other companies to the
Corporation, Bowater Canada or Bowater, as
the case may be, and the covenants of and
obligations assumed by any such successor in
accordance with the provisions of this
Indenture;".
ARTICLE THREE
CONFIRMATION
SECTION 3.01 GENERAL CONFIRMATION
The amendments provided for in this Supplemental Indenture
shall not prejudice any act or thing done prior to the date of this Supplemental
Indenture.
ARTICLE FOUR
COVENANTS OF BOWATER CANADA
SECTION 4.01 COVENANTS OF BOWATER CANADA
In consideration of the execution of this Supplemental
Indenture by the Trustee and the acknowledgments, consents, agreements and
covenants contained herein, Bowater Canada covenants with the Trustee for the
benefit of the Trustee and the Debentureholders as follows:
(a) except as otherwise expressly provided in the Indenture,
Bowater Canada will at all times maintain its corporate
existence and, promptly following the written request of the
Trustee, it will furnish or cause to be furnished to the
Trustee or its duly authorized agent or attorney such
information relating to its business as the Trustee may
reasonably require and such books of account shall at all
reasonable times be open for inspection by the Trustee or such
agent or attorney for the sole purpose of determining whether
Bowater Canada is in compliance hereunder;
(b) Bowater Canada will duly and punctually perform and carry out
all of the acts or things to be done by it as provided in the
Indenture; and
(c) Bowater Canada will file with the Trustee copies of the annual
reports and of the information, documents, and other reports
(or copies of such portions of any of the foregoing as the
United States Securities and Exchange Commission (the
"Commission") may from time to time by rules and regulations
prescribe) which Bowater Canada is required to file with the
Commission pursuant to Section 13 or
<PAGE> 32
29.
Section 15(d) of the Securities Exchange Act of 1934; or, if
Bowater Canada is not required to file information, documents
or reports pursuant to either of such sections, then to file
with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic
information, documents and reports which may be required
pursuant to Section 13 of the Securities Exchange Act of 1934
in respect of a security listed and registered on a national
securities exchange as may be prescribed in such rules and
regulations.
ARTICLE FIVE
COVENANTS OF BOWATER
SECTION 5.01 COVENANTS OF BOWATER
In consideration of the execution of this Supplemental
Indenture by the Trustee and the acknowledgments, consents, agreements and
covenants contained herein, Bowater covenants with the Trustee for the benefit
of the Trustee and the Debentureholders as follows:
(a) except as otherwise expressly provided in the Indenture,
Bowater will at all times maintain its corporate existence
and, promptly following the written request of the Trustee, it
will furnish or cause to be furnished to the Trustee or its
duly authorized agent or attorney such information relating to
its business as the Trustee may reasonably require and such
books of account shall at all reasonable times be open for
inspection by the Trustee or such agent or attorney for the
sole purpose of determining whether Bowater is in compliance
hereunder;
(b) Bowater will duly and punctually perform and carry out all of
the acts or things to be done by it as provided in the
Indenture; and
(c) Bowater will file with the Trustee copies of the annual
reports and of the information, documents, and other reports
(or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations
prescribe) which Bowater is required to file with the
Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if Bowater is not
required to file information, documents or reports pursuant to
either of such sections, then to file with the Trustee and the
Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports
which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934 in respect of a security listed and
registered on a national securities exchange as may be
prescribed in such rules and regulations.
<PAGE> 33
30.
ARTICLE SIX
GUARANTEE OF BOWATER CANADA
SECTION 6.01 GUARANTEE FOR BENEFIT OF ALL DEBENTURE HOLDERS
The provisions of the guarantee set forth herein are for the
benefit of, and the Trustee declares that its holds all rights hereby conferred
in trust for the equal and rateable benefit of, all present and future Holders
of Debentures from time to time issued under the Indenture and entitled to the
benefits hereof.
SECTION 6.02 GUARANTEE OF PRINCIPAL AND INTEREST
Subject to and in accordance with the provisions of the
Indenture, Bowater Canada irrevocably and unconditionally guarantees to, and
covenants and agrees with, the Trustee that the Corporation will pay all
principal and interest (including interest on amounts in default) due or falling
due in respect of the Debentures, and every part thereof, as and when the same
shall from time to time become due and payable in accordance with the terms of
the Indenture and the Debentures issued thereunder, and will perform and satisfy
all other liabilities and obligations arising pursuant to or under the
Indenture.
Without limiting the generality of the foregoing, if the
Corporation shall make default in payment of the principal of and/or interest
(including interest on amounts in default) on the Debentures or any part thereof
when due, Bowater Canada shall immediately after demand by the Trustee pay to
the Trustee for the equal and rateable benefit of each and every Holder of a
Debenture in respect of which there shall be default the amount of such
principal and interest (including interest on amounts in default) remaining
unpaid.
Acceleration of maturity of the Debentures shall accelerate
the liability of Bowater Canada hereunder.
The guarantee by Bowater Canada hereunder is a guarantee of
payment, performance and compliance and not of collection and is in no way
conditional or contingent upon any attempt to collect from or enforce
performance or compliance by the Corporation. In the event of a default in
payment of principal of or interest on any Debenture, or performance and
satisfaction of any other liabilities or obligations arising pursuant to or
under the Indenture, the Trustee or any Debentureholder may institute legal
proceedings directly against Bowater Canada to enforce the guarantee by Bowater
Canada hereunder without proceeding against the Corporation.
SECTION 6.03 BOWATER CANADA'S LIABILITY ON DISCHARGE OF THE CORPORATION
In the event that the Trustee, pursuant to Sections 7.1 and
7.3 of the Indenture, shall have declared the principal of and interest on the
Debentures then outstanding and any other moneys payable under the Indenture as
provided in the Indenture to be due and payable and that no part of or a portion
only of the said principal and interest shall have been paid by or on behalf of
the Corporation and by operation of law the Corporation shall have been
discharged from all further liability under or in respect of the Debentures, or
in the event that, pursuant to any compromise or arrangement, whether voluntary
or involuntary, between the Corporation and
<PAGE> 34
31.
its creditors or any of them the Debentures are cancelled or the terms thereof
are modified or in any other way the Corporation is released from its obligation
under and with respect to the Debentures or any part thereof, then for all
purposes hereof the Debentures shall nevertheless be deemed to be still in
existence and outstanding and Bowater Canada shall on the date of such
discharge, cancellation, modification or release be primarily liable to make
payment of interest (including interest on amounts in default) and principal on
the Debentures under the Indenture and to perform and satisfy all other
liabilities and obligations of the Corporation arising pursuant to or under the
Indenture in the same manner as though Bowater Canada were a party to the
Indenture in place of the Corporation and with primary liability hereunder but
only to the extent that, with respect to monetary obligations, there are
insufficient funds in the hands of the Trustee at such time to make such
payment.
For the purposes of, and without limiting the generality of,
the foregoing, Bowater Canada shall pay as aforesaid to the Trustee for the
equal and rateable benefit of each and every Holder of a Debenture the amounts
required to be paid on the dates provided for such payments under the provisions
of the Indenture as aforesaid on account of interest (including interest on
amounts in default) and principal on the Debentures, as the case may be, payable
by the Corporation.
Bowater Canada shall at the time when it becomes primarily
liable execute an agreement with the Trustee evidencing the primary liability to
be assumed by Bowater Canada as aforesaid and providing for the issue to the
Holders of Debentures of instruments in evidence thereof, provided that, with
the concurrence of the Trustee, Bowater Canada may at its option create, execute
and deliver to the Trustee bonds, debentures, promissory notes or other
evidences of the indebtedness, liabilities or obligations of Bowater Canada
hereunder including without limitation bonds, debentures, promissory notes or
other evidence of the indebtedness of Bowater under the Indenture in principal
amounts having the same maturity, bearing interest at the same rate as the
Debentures and payable to the holders of the Debentures in the same principal
amounts as the principal amounts of the Debentures held by each such Holder, and
which in each case shall be deemed to be in supplementation of, and not in
substitution for, the obligations of Bowater Canada under the Indenture.
It shall be a condition of the issue to the Holder of any
Debentures of any bonds, debentures, promissory notes or evidences of
indebtedness or liability of Bowater Canada hereinbefore referred to in this
Section that such Holder of a Debenture shall have assigned to Bowater Canada
all Debentures so held, if such Debentures have not been theretofore cancelled,
and all securities and other property, rights and benefits that such Holder may
have received from the Corporation or otherwise in consideration for or by
reason of the cancellation or modification of any Debenture held by such Holder
or the release of the Corporation from liability thereon, provided that the
failure of the Holder of any Debenture to assign such bond, securities,
property, rights or benefits shall not affect or limit the primary liability of
Bowater Canada to such Holder.
SECTION 6.04 LIABILITY OF BOWATER CANADA
Bowater Canada agrees with the Trustee that, as among Bowater
Canada, the Holders of Debentures and the Trustee, Bowater Canada shall not be
released or exonerated by time being given, or any other forbearance whatsoever
whether as to time of performance or
<PAGE> 35
32.
otherwise, including, without limitation, the acceptance of any partial payment
or performance, or by any failure or delay in giving any notice required under
the Indenture, or by any variation in or departure from the provisions of the
Indenture, or by any modification, extension, renewal, replacement, amendment,
supplement, continuation or alteration of the Debentures or of the Indenture, or
by anything done, suffered or permitted by the Trustee or the Holders of
Debentures under the provisions of the Indenture as it may be supplemented
and/or amended from time to time, or by any release of the Corporation resulting
from any reconstruction, consolidation, amalgamation, merger, sale, transfer,
lease, conveyance or other transaction under the provisions of Article Nine of
the Indenture or otherwise, or by reason of any arrangement entered into between
the Trustee or the Holders of Debentures and the Corporation whereby but for the
provisions of this section Bowater Canada would or might be released or
exonerated in law or in equity, or by any default by the Corporation under, or
any invalidity or unenforceability of, or by any limitation on the liability of
the Corporation, or on the method or terms of payment under, or any irregularity
or other defect in, the Debentures or the Indenture, or by any assignment or
other transfer of the Debentures or any interest therein or in the Indenture,
whether before or after any default under the Debentures or the Indenture, or by
any defence, set-off or counterclaim that the Corporation or Bowater Canada may
have or assert or any other circumstance, whether or not Bowater Canada shall
have notice or knowledge of any of the foregoing; and, for greater certainty,
that the Holders of Debentures and the Trustee shall not be bound either to seek
or exhaust its recourse against the Corporation or against any other Person or
against the property of the Corporation or of any other Person before being
entitled to payment from Bowater Canada.
SECTION 6.05 CONTINUING OBLIGATIONS
The obligations of Bowater Canada hereunder shall be
continuing obligations and a fresh cause of action shall be deemed to arise in
respect of each default. Bowater Canada agrees with the Trustee that it will
from time to time deliver to the Trustee suitable acknowledgements under its
corporate seal of its continuing liability hereunder in such form as Counsel may
advise and as will prevent any action brought against it in respect of any
default hereunder being barred by any statute of limitations or law of
prescription now or hereafter in force in the Province of Ontario or elsewhere
in Canada or the United States.
SECTION 6.06 SUBROGATION
Any payment by or recovery from Bowater Canada of any moneys
payable by the Corporation under the Indenture shall not be taken to relieve the
Corporation from liability for such payment, but such liability of the
Corporation shall continue unimpaired as a liability enforceable by or on behalf
of Bowater Canada in respect thereof, and Bowater Canada shall be subrogated pro
tanto as against the Corporation to the rights, privileges and powers to which
the Trustee was entitled prior to such payment by or on behalf of Bowater Canada
provided nevertheless that such rights of Bowater Canada shall rank subsequent
to and not pari passu with the rights of or enforceable by the Trustee on behalf
of the Holders of Debentures and Bowater Canada shall not, unless and until the
whole of the principal moneys of the Debentures and the interest thereon and all
other moneys owing under the provisions of the Indenture shall have been paid,
be entitled to any rights or remedies in subrogation to the rights, privileges
and powers of the Trustee as aforesaid.
<PAGE> 36
33.
Except as hereinbefore in this Section expressly provided with
respect to the rights of Bowater Canada by way of subrogation to the rights,
privileges and powers of the Trustee, nothing contained in this Section shall or
shall be deemed to restrict the recovery by Bowater Canada at any time from the
Corporation of any amounts that may have been paid by or on behalf of Bowater
Canada hereunder.
If the Trustee shall hold any assets for the benefit of the
Holders of Debentures whether or not such assets are the property of the
Corporation or if the Trustee shall be a party to any proceedings, or shall have
any rights to institute any proceedings, for the benefit of the Holders of
Debentures, whether against the Corporation or its property or otherwise,
Bowater Canada shall, at such time as the whole of the principal moneys of the
Debentures, the interest (including interest on amounts in default) thereon and
all other moneys owing under the provisions of the Indenture shall have been
paid and all other liabilities and obligations arising pursuant to or under the
Indenture have been performed or satisfied, be entitled to all such assets and
rights and shall be subrogated to the rights, privileges and powers of the
Trustee with respect thereto and with respect to any such proceedings.
SECTION 6.07 WAIVER
Bowater Canada hereby waives notice of acceptance of the
guarantee herein contained and acknowledges that the guarantee and the covenants
and agreements of Bowater Canada herein contained and provided for shall take
effect and are hereby declared to be binding upon Bowater Canada notwithstanding
any defect in or omission from the Indenture or the Debentures. Bowater Canada
hereby unconditionally waives notice of any of the matters referred to in
Section 6.04, all notices which may be required by any statute, rule of law,
contract or otherwise to preserve any rights of the Trustee on behalf of any
Holder of Debentures against Bowater Canada hereunder, including any right to
the enforcement, assertion or exercise of any right, remedy, power or privilege,
and any requirement of diligence on the part of the Trustee.
SECTION 6.08 WAIVER OF DEFAULT
Bowater Canada shall be deemed not to be in default hereunder
if the default of the Corporation in respect of which Bowater Canada would
otherwise be or become liable hereunder shall have been waived or directed to be
waived pursuant to the provisions in that regard contained in the Indenture.
SECTION 6.09 ADDITIONAL OBLIGATIONS
When demand for payment has been made, Bowater Canada shall be
liable to the Trustee for all reasonable expenses incurred by the Trustee
including legal costs (on a solicitor and client basis) incurred by or on behalf
of the Trustee resulting from any action instituted on the basis hereof.
SECTION 6.10 ACKNOWLEDGEMENT
Bowater Canada acknowledges that this guarantee has been
delivered free of any conditions and that no representations have been made to
Bowater Canada affecting the liability of Bowater Canada under this guarantee
save as may be specifically embodied herein and agrees
<PAGE> 37
34.
that this guarantee is in addition to and not in substitution for any other
guarantee(s) held or that may hereafter be held by the Trustee.
ARTICLE SEVEN
GUARANTEE OF BOWATER
SECTION 7.01 GUARANTEE FOR BENEFIT OF ALL DEBENTURE HOLDERS
The provisions of the guarantee set forth herein are for the
benefit of, and the Trustee declares that its holds all rights hereby conferred
in trust for the equal and rateable benefit of, all present and future Holders
of Debentures from time to time issued under the Indenture and entitled to the
benefits hereof.
SECTION 7.02 GUARANTEE OF PRINCIPAL AND INTEREST
Subject to and in accordance with the provisions of the
Indenture, Bowater irrevocably and unconditionally guarantees to, and covenants
and agrees with, the Trustee that the Corporation will pay all principal and
interest (including interest on amounts in default) due or falling due in
respect of the Debentures, and every part thereof, as and when the same shall
from time to time become due and payable in accordance with the terms of the
Indenture and the Debentures issued thereunder, and will perform and satisfy all
other liabilities and obligations arising pursuant to or under the Indenture.
Without limiting the generality of the foregoing, if the
Corporation shall make default in payment of the principal of and/or interest
(including interest on amounts in default) on the Debentures or any part thereof
when due, Bowater shall immediately after demand by the Trustee pay to the
Trustee for the equal and rateable benefit of each and every Holder of a
Debenture in respect of which there shall be default the amount of such
principal and interest (including interest on amounts in default) remaining
unpaid.
Acceleration of maturity of the Debentures shall accelerate
the liability of Bowater hereunder.
The guarantee by Bowater hereunder is a guarantee of payment,
performance and compliance and not of collection and is in no way conditional or
contingent upon any attempt to collect from or enforce performance or compliance
by the Corporation. In the event of a default in payment of principal of or
interest on any Debenture, or performance and satisfaction of any other
liabilities or obligations arising pursuant to or under the Indenture, the
Trustee or any Debentureholder may institute legal proceedings directly against
Bowater to enforce the guarantee by Bowater hereunder without proceeding against
the Corporation.
SECTION 7.03 BOWATER'S LIABILITY ON DISCHARGE OF THE CORPORATION
In the event that the Trustee, pursuant to Sections 7.1 and
7.3 of the Indenture, shall have declared the principal of and interest on the
Debentures then outstanding and any other moneys payable under the Indenture as
provided in the Indenture to be due and payable and
<PAGE> 38
35.
that no part of or a portion only of the said principal and interest shall have
been paid by or on behalf of the Corporation and by operation of law the
Corporation shall have been discharged from all further liability under or in
respect of the Debentures, or in the event that, pursuant to any compromise or
arrangement, whether voluntary or involuntary, between the Corporation and its
creditors or any of them the Debentures are cancelled or the terms thereof are
modified or in any other way the Corporation is released from its obligation
under and with respect to the Debentures or any part thereof, then for all
purposes hereof the Debentures shall nevertheless be deemed to be still in
existence and outstanding and Bowater shall on the date of such discharge,
cancellation, modification or release be primarily liable to make payment of
interest (including interest on amounts in default) and principal on the
Debentures under the Indenture and to perform and satisfy all other liabilities
and obligations of the Corporation arising pursuant to or under the Indenture in
the same manner as though Bowater were a party to the Indenture in place of the
Corporation and with primary liability hereunder but only to the extent that
there are insufficient funds in the hands of the Trustee at such time to make
such payment.
For the purposes of the foregoing, Bowater shall pay as
aforesaid to the Trustee for the equal and rateable benefit of each and every
Holder of a Debenture the amounts required to be paid on the dates provided for
such payments under the provisions of the Indenture as aforesaid on account of
interest (including interest on amounts in default) and principal on the
Debentures, as the case may be, payable by the Corporation.
Bowater shall at the time when it becomes primarily liable
execute an agreement with the Trustee evidencing the primary liability to be
assumed by Bowater as aforesaid and providing for the issue to the Holders of
Debentures of instruments in evidence thereof, provided that, with the
concurrence of the Trustee, Bowater may at its option create, execute and
deliver to the Trustee bonds, debentures, promissory notes or other evidences of
the indebtedness, liabilities or obligations of Bowater hereunder including
without limitation bonds, debentures, promissory notes or other evidence of the
indebtedness of Bowater under the Indenture in principal amounts having the same
maturity, bearing interest at the same rate as the Debentures and payable to the
holders of the Debentures in the same principal amounts as the principal amounts
of the Debentures held by each such Holder, and which in each case shall be
deemed to be in supplementation of, and not in substitution for, the obligations
of Bowater under the Indenture.
It shall be a condition of the issue to the Holder of any
Debentures of any bonds, debentures, promissory notes or evidences of
indebtedness of Bowater hereinbefore referred to in this Section that such
Holder of a Debenture shall have assigned to Bowater all Debentures so held, if
such Debentures have not been theretofore cancelled, and all securities and
other property, rights and benefits that such Holder may have received from the
Corporation or otherwise in consideration for or by reason of the cancellation
or modification of any Debenture held by such Holder or the release of the
Corporation from liability thereon, provided that the failure of the Holder of
any Debenture to assign such bond, securities, property, rights or benefits
shall not affect or limit the primary liability of Bowater to such Holder.
SECTION 7.04 LIABILITY OF BOWATER
Bowater agrees with the Trustee that, as among Bowater, the
Holders of Debentures and the Trustee, Bowater shall not be released or
exonerated by time being given, or
<PAGE> 39
36.
any other forbearance whatsoever whether as to time of performance or otherwise,
including, without limitation, the acceptance of any partial payment or
performance, or by any failure or delay in giving any notice required under the
Indenture, or by any variation in or departure from the provisions of the
Indenture, or by any modification, extension, renewal, replacement, amendment,
supplement, continuation or alteration of the Debentures or of the Indenture, or
by anything done, suffered or permitted by the Trustee or the Holders of
Debentures under the provisions of the Indenture as it may be supplemented
and/or amended from time to time, or by any release of the Corporation resulting
from any reconstruction, consolidation, amalgamation, merger, sale, transfer,
lease, conveyance or other transaction under the provisions of Article Nine of
the Indenture or otherwise, or by reason of any arrangement entered into between
the Trustee or the Holders of Debentures and the Corporation whereby but for the
provisions of this section Bowater would or might be released or exonerated in
law or in equity, or by any default by the Corporation under, or any invalidity
or unenforceability of, or by any limitation on the liability of the
Corporation, or on the method or terms of payment under, or any irregularity or
other defect in, the Debentures or the Indenture, or by any assignment or other
transfer of the Debentures or any interest therein or in the Indenture, whether
before or after any default under the Debentures or the Indenture, or by any
defence, set-off or counterclaim that the Corporation or Bowater may have or
assert or any other circumstance, whether or not Bowater shall have notice or
knowledge of any of the foregoing; and, for greater certainty, that the Holders
of Debentures and the Trustee shall not be bound either to seek or exhaust its
recourse against the Corporation or against any other Person or against the
property of the Corporation or of any other Person before being entitled to
payment from Bowater.
SECTION 7.05 CONTINUING OBLIGATIONS
The obligations of Bowater hereunder shall be continuing
obligations and a fresh cause of action shall be deemed to arise in respect of
each default. Bowater agrees with the Trustee that it will from time to time
deliver to the Trustee suitable acknowledgements under its corporate seal of its
continuing liability hereunder in such form as Counsel may advise and as will
prevent any action brought against it in respect of any default hereunder being
barred by any statute of limitations or law of prescription now or hereafter in
force in the Province of Ontario or elsewhere in Canada or the United States.
SECTION 7.06 SUBROGATION
Any payment by or recovery from Bowater of any moneys payable
by the Corporation under the Indenture shall not be taken to relieve the
Corporation from liability for such payment, but such liability of the
Corporation shall continue unimpaired as a liability enforceable by or on behalf
of Bowater in respect thereof, and Bowater shall be subrogated pro tanto as
against the Corporation to the rights, privileges and powers to which the
Trustee was entitled prior to such payment by or on behalf of Bowater provided
nevertheless that such rights of Bowater shall rank subsequent to and not pari
passu with the rights of or enforceable by the Trustee on behalf of the Holders
of Debentures and Bowater shall not, unless and until the whole of the principal
moneys of the Debentures and the interest thereon and all other moneys owing
under the provisions of the Indenture shall have been paid, be entitled to any
rights or remedies in subrogation to the rights, privileges and powers of the
Trustee as aforesaid.
<PAGE> 40
37.
Except as hereinbefore in this Section expressly provided with
respect to the rights of Bowater by way of subrogation to the rights, privileges
and powers of the Trustee, nothing contained in this Section shall or shall be
deemed to restrict the recovery by Bowater at any time from the Corporation of
any amounts that may have been paid by or on behalf of Bowater hereunder.
If the Trustee shall hold any assets for the benefit of the
Holders of Debentures whether or not such assets are the property of the
Corporation or if the Trustee shall be a party to any proceedings, or shall have
any rights to institute any proceedings, for the benefit of the Holders of
Debentures, whether against the Corporation or its property or otherwise,
Bowater shall, at such time as the whole of the principal moneys of the
Debentures, the interest (including interest on amounts in default) thereon and
all other moneys owing under the provisions of the Indenture shall have been
paid and all other liabilities and obligations arising pursuant to or under the
Indenture have been performed or satisfied, be entitled to all such assets and
rights and shall be subrogated to the rights, privileges and powers of the
Trustee with respect thereto and with respect to any such proceedings.
SECTION 7.07 WAIVER
Bowater hereby waives notice of acceptance of the guarantee
herein contained and acknowledges that the guarantee and the covenants and
agreements of Bowater herein contained and provided for shall take effect and
are hereby declared to be binding upon Bowater notwithstanding any defect in or
omission from the Indenture or the Debentures. Bowater hereby unconditionally
waives notice of any of the matters referred to in Section 7.04, all notices
which may be required by any statute, rule of law, contract or otherwise to
preserve any rights of the Trustee on behalf of any Holder of Debentures against
Bowater hereunder, including any right to the enforcement, assertion or exercise
of any right, remedy, power or privilege, and any requirement of diligence on
the part of the Trustee.
SECTION 7.08 WAIVER OF DEFAULT
Bowater shall be deemed not to be in default hereunder if the
default of the Corporation in respect of which Bowater would otherwise be or
become liable hereunder shall have been waived or directed to be waived pursuant
to the provisions in that regard contained in the Indenture.
SECTION 7.09 ADDITIONAL OBLIGATIONS
When demand for payment has been made, Bowater shall be liable
to the Trustee for all reasonable expenses incurred by the Trustee including
legal costs (on a solicitor and client basis) incurred by or on behalf of the
Trustee resulting from any action instituted on the basis hereof.
SECTION 7.10 ACKNOWLEDGEMENT
Bowater acknowledges that this guarantee has been delivered
free of any conditions and that no representations have been made to Bowater
affecting the liability of Bowater under this guarantee save as may be
specifically embodied herein and agrees that this
<PAGE> 41
38.
guarantee is in addition to and not in substitution for any other guarantee(s)
held or that may hereafter be held by the Trustee.
ARTICLE EIGHT
ACKNOWLEDGEMENT AND AGREEMENTS OF TRUSTEE
SECTION 8.01 ACKNOWLEDGEMENT AND AGREEMENTS
The Trustee hereby determines, acknowledges, confirms and
agrees that this Supplemental Indenture has been entered into by the
Corporation, Bowater Canada, Bowater and the Trustee contemporaneously with the
completion of the Transaction.
SECTION 8.02 ACCEPTANCE BY TRUSTEE
The Trustee hereby accepts the trusts in this Supplemental
Indenture declared and created and agrees to perform the same upon the terms and
conditions hereinbefore set forth but subject to the provisions of the Principal
Indenture as the same have been amended or supplemented by this Supplemental
Indenture.
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01 CONFIRMATION OF PRINCIPAL INDENTURE
The terms and provisions of the Principal Indenture, as
amended and supplemented by this Supplemental Indenture, are in all respects
confirmed.
SECTION 9.02 FURTHER ASSURANCES
The parties hereto hereby covenant and agree to execute and
deliver such further and other instruments and to take such further or other
action as may be necessary or advisable to give effect to this Supplemental
Indenture and the provisions hereof.
SECTION 9.03 COUNTERPARTS AND FORMAL DATE
This Supplemental Indenture may be executed in several
counterparts, each of which so executed shall be deemed to be an original and
such counterparts together shall constitute one and the same instrument and,
notwithstanding their date of execution, shall be deemed to bear the formal date
as of July 24, 1998.
<PAGE> 42
39.
SECTION 9.04 ENUREMENT
This Supplemental Indenture shall enure to the benefit of and
be binding upon the successors and assigns of the Trustee, the Corporation,
Bowater Canada and Bowater, as the case may be.
IN WITNESS WHEREOF the parties hereto have executed this
Supplemental Indenture under their respective corporate seals and by the hands
of their officers on their behalf.
AVENOR INC.
By: /s/ Wendy C. Shiba c/s
-----------------------------------
Wendy C. Shiba
Vice President and Secretary
BOWATER CANADA INC.
By: /s/ David G. Maffucci c/s
-----------------------------------
David G. Maffucci
Vice President
By: /s/ Wendy C. Shiba
-----------------------------------
Wendy C. Shiba
Vice President and Secretary
BOWATER INCORPORATED
By: /s/ David G. Maffucci c/s
-----------------------------------
David G. Maffucci
Senior Vice President and Chief
Financial Officer
By: /s/ Wendy C. Shiba
-----------------------------------
Wendy C. Shiba
Vice President, Secretary and
Assistant General Counsel
MONTREAL TRUST COMPANY
By: /s/ Antonietta De Luca c/s
-----------------------------------
Antonietta De Luca
Senior Trust Officer
By: /s/ Sylvie Marineau
-----------------------------------
Sylvie Marineau
Senior Manager Client Servicing
<PAGE> 43
SCHEDULE "A"
PROVISIONS ATTACHING TO THE
EXCHANGEABLE SHARES
The Exchangeable Shares shall have the following rights, privileges,
restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these share provisions:
"AFFILIATE" of any person means any other person directly or
indirectly controlling, controlled by, or under common control with, that
person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as applied to any person, means the possession by another person,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of that first mentioned person, whether through
the ownership of voting securities, by contract or otherwise.
"BOARD OF DIRECTORS" means the board of directors of Bowater Canada.
"BOWATER" means Bowater Incorporated, a corporation existing under the
laws of the State of Delaware, and any successor corporation thereto.
"BOWATER CANADA" means Bowater Canada Inc., a corporation incorporated
under the Canada Business Corporations Act and a subsidiary of Bowater
Holdings.
"BOWATER COMMON SHARES" mean the shares of common stock of Bowater,
US$1.00 par value per share, and any other securities into which such
shares may be changed.
"BOWATER DIVIDEND DECLARATION DATE" means the date on which the Board
of Directors of Bowater declares any dividend on the Bowater Common Shares.
"BOWATER HOLDINGS" means Bowater Canadian Holdings Incorporated, a
corporation incorporated under the Companies Act (Nova Scotia) and a
subsidiary of Bowater.
"BOWATER HOLDINGS CALL NOTICE" has the meaning ascribed thereto in
Section 6.3 of these share provisions.
"BUSINESS DAY" means any day, other than a Saturday, a Sunday and a
statutory holiday in Montreal, Quebec or New York, New York.
"CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed
in a foreign currency (the "Foreign Currency Amount") at any date the
product obtained by multiplying:
(a) the Foreign Currency Amount by,
(b) the noon spot exchange rate on such date for such foreign
currency expressed in Canadian dollars as reported by the Bank of Canada
or, in the event such spot exchange rate is not available, such exchange
rate on such date for such foreign currency expressed in Canadian
dollars as may be deemed by the Board of Directors to be appropriate for
such purpose.
"COMMON SHARES" means the common shares in the capital of Bowater
Canada.
"CONTROL OF BOWATER" means the ownership by one Person or a Person and
its Affiliates of securities carrying a majority of the voting rights
attaching to all outstanding securities of Bowater.
"CURRENT MARKET PRICE" means, in respect of a Bowater Common Share on
any date, the Canadian Dollar Equivalent of the average of the closing
prices of Bowater Common Shares during a period of 20 consecutive trading
days ending not more than three trading days before such date on the New
York Stock Exchange, or, if the Bowater Common Shares are not then quoted
on the New York Stock
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Exchange, on such other stock exchange or automated quotation system on
which the Bowater Common Shares are listed or quoted, as the case may be,
as may be selected by the Board of Directors for such purpose; provided,
however, that if in the opinion of the Board of Directors the public
distribution or trading activity of Bowater Common Shares during such
period does not create a market which reflects the fair market value of a
Bowater Common Share, then the Current Market Price of a Bowater Common
Share shall be determined by the Board of Directors based upon the advice
of such qualified independent financial advisors as the Board of Directors
may deem to be appropriate, and provided further that any such selection,
opinion or determination by the Board of Directors shall be conclusive and
binding.
"EXCHANGEABLE SHARES" mean the non-voting exchangeable shares in the
capital of Bowater Canada having the rights, privileges, restrictions and
conditions set forth herein.
"LIQUIDATION AMOUNT" has the meaning ascribed thereto in Section 5.1
of these share provisions.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in the Plan
of Arrangement.
"LIQUIDATION DATE" has the meaning ascribed thereto in Section 5.1 of
these share provisions.
"PERSON" includes any individual, firm, partnership, joint venture,
venture capital fund, association, trust, trustee, executor, administrator,
legal personal representative, estate, group, body corporate, corporation,
unincorporated association or organization, government body, syndicate or
other entity, whether or not having legal status.
"PLAN OF ARRANGEMENT" means the plan of arrangement relating to the
arrangement of Avenor Inc. under section 192 of the Canada Business
Corporations Act, a copy of which is annexed hereto as Exhibit I.
"PREFERRED SHARES" means the non-voting preferred shares in the
capital of Bowater Canada.
"PURCHASE PRICE" has the meaning ascribed thereto in Section 6.3 of
these share provisions.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in the Plan
of Arrangement.
"REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed thereto in
the Plan of Arrangement.
"REDEMPTION DATE" means the date, if any, established by the Board of
Directors for the redemption by Bowater Canada of Exchangeable Shares
pursuant to Article 7 of these share provisions, which date shall be no
earlier than June 30, 2008, unless:
(a) there are fewer than 500,000 Exchangeable Shares outstanding
(other than Exchangeable Shares held by Bowater and its
Affiliates), as such number of shares may be adjusted as deemed
appropriate by the Board of Directors to give effect to any
subdivision or consolidation of or stock dividend on the
Exchangeable Shares, any issue or distribution of rights to
acquire Exchangeable Shares or securities exchangeable for or
convertible into Exchangeable Shares, any issue or distribution
of other securities or rights or evidences of indebtedness or
assets, or any other capital reorganization or other
transaction affecting the Exchangeable Shares; or
(b) a transaction is proposed that will result in Control of
Bowater being acquired by any Person, in which case (in the
event that the Board of Directors elects to redeem the
Exchangeable Shares) the Redemption Date will be the date
immediately prior to the date the acquisition of Control of
Bowater occurs pursuant to such transaction.
"REDEMPTION PRICE" has the meaning ascribed thereto in Section 7.1 of
these share provisions.
"RETRACTED SHARES" has the meaning ascribed thereto in Section 6.1 of
these share provisions.
"RETRACTION CALL RIGHT" has the meaning ascribed thereto in Section
6.1 of these share provisions.
"RETRACTION DATE" has the meaning ascribed thereto in Section 6.1(b)
of these share provisions.
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"RETRACTION PRICE" has the meaning ascribed thereto in Section 6.1 of
these share provisions.
"RETRACTION REQUEST" has the meaning ascribed thereto in Section 6.1
of these share provisions.
"SUPPORT AGREEMENT" means the Support Agreement to be entered into
between Bowater, Bowater Holdings and Bowater Canada.
"TRANSFER AGENT" means the Montreal Trust Company of Canada or such
other person as may from time to time be appointed by Bowater Canada as the
registrar and transfer agent for the Exchangeable Shares.
"TRUSTEE" means Montreal Trust Company of Canada, the trustee under
the Voting and Exchange Trust Agreement, a corporation organized and
existing under the laws of Canada and authorized to carry on the business
of a trust company in all the provinces of Canada, and any successor
trustee appointed under the Voting and Exchange Trust Agreement.
"VOTING AND EXCHANGE TRUST AGREEMENT" means the Voting and Exchange
Trust Agreement to be entered into between Bowater, Bowater Holdings,
Bowater Canada and the Trustee.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the
Common Shares, the Preferred Shares and any other shares ranking junior to the
Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or
winding-up of Bowater Canada, whether voluntary or involuntary, or any other
distribution of the assets of Bowater Canada among its shareholders for the
purpose of winding up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each Bowater Dividend
Declaration Date, declare a dividend on each Exchangeable Share:
(a) in the case of a cash dividend declared on the Bowater Common
Shares, in an amount in cash for each Exchangeable Share in U.S. dollars or
the Canadian Dollar Equivalent thereof on the Bowater Dividend Declaration
Date of the cash dividend declared on each Bowater Common Share;
(b) in the case of a stock dividend declared on the Bowater Common
Shares to be paid in Bowater Common Shares, in such number of Exchangeable
Shares for each Exchangeable Share as is equal to the number of Bowater
Common Shares to be paid on each Bowater Common Share; or
(c) in the case of a dividend declared on the Bowater Common Shares in
property other than cash or Bowater Common Shares, in such type and amount
of property for each Exchangeable Share as is the same as or economically
equivalent to (to be determined by the Board of Directors as contemplated
by Section 3.5 hereof) the type and amount of property declared as a
dividend on each Bowater Common Share.
Such dividends shall be paid out of money, assets or property of Bowater Canada
properly applicable to the payment of dividends, or out of authorized but
unissued shares of Bowater Canada, as applicable.
3.2 Cheques of Bowater Canada payable at par at any branch of the bankers
of Bowater Canada shall be issued in respect of any cash dividends contemplated
by Section 3.1(a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share shall satisfy the cash dividend represented thereby unless
the cheque is not paid on presentation. Certificates registered in the name of
the registered holder of Exchangeable Shares shall be issued or transferred in
respect of any stock dividends contemplated by Section 3.1(b) hereof and the
sending of such a certificate to each holder of an Exchangeable Share shall
satisfy the stock dividend represented thereby. Such other type and amount of
property in respect of any
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<PAGE> 46
dividends contemplated by Section 3.1(c) hereof shall be issued, distributed or
transferred by Bowater Canada in such manner as it shall determine and the
issuance, distribution or transfer thereof by Bowater Canada to each holder of
an Exchangeable Share shall satisfy the dividend represented thereby. No holder
of an Exchangeable Share shall be entitled to recover by action or other legal
process against Bowater Canada any dividend that is represented by a cheque that
has not been duly presented to Bowater Canada's bankers for payment or that
otherwise remains unclaimed for a period of six years from the date on which
such dividend was payable.
3.3 The record date for the determination of the holders of Exchangeable
Shares entitled to receive payment of, and the payment date for, any dividend
declared on the Exchangeable Shares under Section 3.1 hereof shall be the same
dates as the record date and payment date, respectively, for the corresponding
dividend declared on the Bowater Common Shares.
3.4 If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends that remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which Bowater Canada shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
3.5 The Board of Directors shall determine, in good faith and in its sole
discretion (with the assistance of such reputable and qualified independent
financial advisors and/or other experts as the Board of Directors may require),
economic equivalence for the purposes of Section 3.1(c) hereof, and each such
determination shall be conclusive and binding on Bowater Canada and its
shareholders. In making each such determination, the following factors shall,
without excluding other factors determined by the Board of Directors to be
relevant, be considered by the Board of Directors:
(a) in the case of any stock dividend or other distribution payable in
Bowater Common Shares, the number of such shares issued in proportion to
the number of Bowater Common Shares previously outstanding;
(b) in the case of the issuance or distribution of any rights, options
or warrants to subscribe for or purchase Bowater Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire Bowater Common Shares), the relationship between the exercise price
of each such right, option or warrant and the current market value (as
determined by the Board of Directors in the manner above contemplated) of a
Bowater Common Share;
(c) in the case of the issuance or distribution of any other form of
property (including without limitation any shares or securities of Bowater
of any class other than Bowater Common Shares, any rights, options or
warrants other than those referred to in Section 3.5(b) above, any
evidences of indebtedness of Bowater or any assets of Bowater), the
relationship between the fair market value (as determined by the Board of
Directors in the manner above contemplated) of such property to be issued
or distributed with respect to each outstanding Bowater Common Share and
the current market value (as determined by the Board of Directors in the
manner above contemplated) of a Bowater Common Share; and
(d) in all such cases, the general taxation consequences of the
relevant event to holders of Exchangeable Shares to the extent that such
consequences may differ from the taxation consequences to holders of
Bowater Common Shares as a result of differences between taxation laws of
Canada and the United States (except for any differing consequences arising
as a result of differing marginal taxation rates and without regard to the
individual circumstances of holders of Exchangeable Shares).
For purposes of the foregoing determinations, the current market value of
any security listed and traded or quoted on a securities exchange shall be the
weighted average of the daily trading prices of such security during a period of
not less than 20 consecutive trading days ending not more than five trading days
before the date of determination on the principal securities exchange on which
such securities are listed and traded or quoted; provided, however, that if in
the opinion of the Board of Directors the public distribution or trading
activity of such securities during such period does not create a market which
reflects the fair market value of
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<PAGE> 47
such securities, then the current market value thereof shall be determined by
the Board of Directors, in good faith and in its sole discretion (with the
assistance of such reputable and qualified independent financial advisors and/or
other experts as the board may require), and provided further that any such
determination by the Board of Directors shall be conclusive and binding on
Bowater Canada and its shareholders.
ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares are outstanding, Bowater
Canada shall not at any time without, but may at any time with, the approval of
the holders of the Exchangeable Shares given as specified in Section 10.2 of
these share provisions:
(a) pay any dividends on the Common Shares, the Preferred Shares or
any other shares ranking junior to the Exchangeable Shares, other than
stock dividends payable in Common Shares or any such other shares ranking
junior to the Exchangeable Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in respect of
Common Shares, Preferred Shares or any other shares ranking junior to the
Exchangeable Shares;
(c) redeem or purchase any other shares of Bowater Canada ranking
equally with the Exchangeable Shares with respect to the payment of
dividends or on any liquidation distribution; or
(d) issue any Exchangeable Shares or any other shares of Bowater
Canada ranking equally with, or superior to, the Exchangeable Shares other
than by way of stock dividends to the holders of such Exchangeable Shares.
The restrictions in Sections 4.1(a), 4.1(b), 4.1(c) and 4.1(d) above shall
not apply if all dividends on the outstanding Exchangeable Shares corresponding
to dividends declared and paid to date on the Bowater Common Shares shall have
been declared and paid in full on the Exchangeable Shares.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of Bowater
Canada or any other distribution of the assets of Bowater Canada among its
shareholders for the purpose of winding up its affairs, a holder of Exchangeable
Shares shall be entitled, subject to applicable law, to receive from the assets
of Bowater Canada in respect of each Exchangeable Share held by such holder on
the effective date (the "Liquidation Date") of such liquidation, dissolution or
winding-up, before any distribution of any part of the assets of Bowater Canada
among the holders of the Common Shares, the Preferred Shares or any other shares
ranking junior to the Exchangeable Shares, an amount per share (the "Liquidation
Amount") equal to:
(a) the Current Market Price of a Bowater Common Share on the last
Business Day prior to the Liquidation Date, which shall be satisfied in
full by Bowater Canada causing to be delivered to such holder one Bowater
Common Share; plus
(b) the right to receive the full amount when paid of all unpaid
dividends on each such Exchangeable Share for which the record date has
occurred prior to the Liquidation Date.
5.2 On or promptly after the Liquidation Date, and subject to the exercise
by Bowater Holdings of the Liquidation Call Right, Bowater Canada shall cause to
be delivered to the holders of the Exchangeable Shares the Liquidation Amount
for each such Exchangeable Share upon presentation and surrender of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the Canada Business Corporations Act and the by-laws
of Bowater Canada and such additional documents and instruments as the Transfer
Agent may reasonably require, at the registered office of Bowater Canada or at
any office of the Transfer Agent as may be specified by Bowater Canada by notice
to the holders of the Exchangeable Shares. Payment of the total
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Liquidation Amount for such Exchangeable Shares shall be made by delivery to
each holder, at the address of the holder recorded in the securities register of
Bowater Canada for the Exchangeable Shares or by holding for pick-up by the
holder at the registered office of Bowater Canada or at any office of the
Transfer Agent as may be specified by Bowater Canada by notice to the holders of
Exchangeable Shares, on behalf of Bowater Canada of certificates representing
Bowater Common Shares (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance)
and on the applicable dividend payment date a cheque of Bowater Canada payable
at par at any branch of the bankers of Bowater Canada in respect of the full
amount of any unpaid dividends comprising part of the total Liquidation Amount
(in each case less any amounts withheld on account of tax required to be
deducted and withheld therefrom by Bowater Canada). On and after the Liquidation
Date, the holders of the Exchangeable Shares shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive their proportionate
part of the total Liquidation Amount, unless payment of the total Liquidation
Amount for such Exchangeable Shares shall not be made upon presentation and
surrender of share certificates in accordance with the foregoing provisions, in
which case the rights of the holders shall remain unaffected until the total
Liquidation Amount has been paid in the manner hereinbefore provided. Bowater
Canada shall have the right at any time after the Liquidation Date to deposit or
cause to be deposited the total Liquidation Amount in respect of the
Exchangeable Shares represented by certificates that have not at the Liquidation
Date been surrendered by the holders thereof in a custodial account with any
chartered bank or trust company in Canada. Upon such deposit being made, the
rights of the holders of Exchangeable Shares after such deposit shall be limited
to receiving their proportionate part of the total Liquidation Amount (in each
case less any amounts withheld on account of tax required to be deducted and
withheld therefrom) for such Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of the
total Liquidation Amount, the holders of the Exchangeable Shares shall
thereafter be considered and deemed for all purposes to be holders of the
Bowater Common Shares delivered to them or the custodian on their behalf.
5.3 After Bowater Canada has satisfied its obligations to pay the holders
of the Exchangeable Shares the Liquidation Amount per Exchangeable Share
pursuant to Section 5.1 of these share provisions, such holders shall not be
entitled to share in any further distribution of the assets of Bowater Canada.
ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time, subject
to the exercise by Bowater Holdings of the Retraction Call Right and otherwise
upon compliance with the provisions of this Article 6, to require Bowater Canada
to redeem any or all of the Exchangeable Shares registered in the name of such
holder for an amount per share equal to (a) the Current Market Price of a
Bowater Common Share on the last Business Day prior to the Retraction Date,
which shall be satisfied in full by Bowater Canada causing to be delivered to
such holder one Bowater Common Share for each Exchangeable Share presented and
surrendered by the holder, plus (b) the right to receive the full amount when
paid of all unpaid dividends thereon for which the record date for such
dividends has occurred prior to the Retraction Date (collectively the
"Retraction Price"). To effect such redemption, the holder shall present and
surrender at the registered office of Bowater Canada or at any office of the
Transfer Agent as may be specified by Bowater Canada by notice to the holders of
Exchangeable Shares the certificate or certificates representing the
Exchangeable Shares which the holder desires to have Bowater Canada redeem,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Canada Business Corporations Act and
the by-laws of Bowater Canada and such additional documents and instruments as
the Transfer Agent may
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reasonably require, and together with a duly executed statement (the "Retraction
Request") in the form of Schedule A hereto or in such other form as may be
acceptable to Bowater Canada:
(a) specifying that the holder desires to have all or any number
specified therein of the Exchangeable Shares represented by such
certificate or certificates (the "Retracted Shares") redeemed by Bowater
Canada;
(b) stating the Business Day on which the holder desires to have
Bowater Canada redeem the Retracted Shares (the "Retraction Date"),
provided that the Retraction Date shall be not less than 10 Business Days
nor more than 15 Business Days after the date on which the Retraction
Request is received by Bowater Canada and further provided that, in the
event that no such Business Day is specified by the holder in the
Retraction Request, the Retraction Date shall be deemed to be the fifteenth
Business Day after the date on which the Retraction Request is received by
Bowater Canada; and
(c) acknowledging the overriding right (the "Retraction Call Right")
of Bowater Holdings to purchase all but not less than all the Retracted
Shares directly from the holder and that the Retraction Request shall be
deemed to be a revocable offer by the holder to sell the Retracted Shares
to Bowater Holdings in accordance with the Retraction Call Right on the
terms and conditions set out in Section 6.3 below.
6.2 Subject to the exercise by Bowater Holdings of the Retraction Call
Right, upon receipt by Bowater Canada or the Transfer Agent in the manner
specified in Section 6.1 hereof of a certificate or certificates representing
the number of Exchangeable Shares which the holder desires to have Bowater
Canada redeem, together with a Retraction Request, and provided that the
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, Bowater Canada shall redeem the Retracted Shares effective at the
close of business on the Retraction Date and shall cause to be delivered to such
holder the total Retraction Price with respect to such shares (provided that any
unpaid dividends forming part of the Retraction Price shall be paid on the
payment date for such dividends). If only a part of the Exchangeable Shares
represented by any certificate is redeemed (or purchased by Bowater Holdings
pursuant to the Retraction Call Right), a new certificate for the balance of
such Exchangeable Shares shall be issued to the holder at the expense of Bowater
Canada.
6.3 Upon receipt by Bowater Canada of a Retraction Request, Bowater Canada
shall immediately notify Bowater and Bowater Holdings thereof. In order to
exercise the Retraction Call Right, Bowater Holdings must notify Bowater Canada
of its determination to do so (the "Bowater Holdings Call Notice") within five
Business Days of notification to Bowater Holdings by Bowater Canada of the
receipt by Bowater Canada of the Retraction Request. If Bowater Holdings
delivers the Bowater Holdings Call Notice within such five Business Day time
period, and provided that the Retraction Request is not revoked by the holder in
the manner specified in Section 6.7, the Retraction Request shall thereupon be
considered only to be an offer by the holder to sell the Retracted Shares to
Bowater Holdings in accordance with the Retraction Call Right. In such event,
Bowater Canada shall not redeem the Retracted Shares and Bowater Holdings shall
purchase from such holder and such holder shall sell to Bowater Holdings on the
Retraction Date the Retracted Shares for a purchase price (the "Purchase Price")
per share equal to the Retraction Price per share. For the purposes of
completing a purchase pursuant to the Retraction Call Right, Bowater Holdings
shall deposit with the Transfer Agent, on or before the Retraction Date,
certificates representing Bowater Common Shares and shall waive any rights to
receive any dividends which represent the amount of the remaining portion, if
any, of the total Purchase Price (in each case less any amounts withheld on
account of tax required to be deducted and withheld therefrom by Bowater
Holdings). Provided that Bowater Holdings has complied with the immediately
preceding sentence, the closing of the purchase and sale of the Retracted Shares
pursuant to the Retraction Call Right shall be deemed to have occurred as at the
close of business on the Retraction Date and, for greater certainty, no
redemption by Bowater Canada of such Retracted Shares shall take place on the
Retraction Date. In the event that Bowater Holdings does not deliver a Bowater
Holdings Call Notice within such five Business Day period, and provided that the
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, Bowater Canada shall redeem the Retracted Shares on the Retraction
Date and in the manner otherwise contemplated in this Article 6.
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6.4 Bowater Canada or Bowater Holdings, as the case may be, shall deliver
or cause the Transfer Agent to deliver to the relevant holder, at the address of
the holder recorded in the securities register of Bowater Canada for the
Exchangeable Shares or at the address specified in the holder's Retraction
Request or by holding for pick-up by the holder at the registered office of
Bowater Canada or at any office of the Transfer Agent as may be specified by
Bowater Canada by notice to the holders of Exchangeable Shares, certificates
representing the Bowater Common Shares (which shares shall be duly issued as
fully paid and non-assessable and shall be free and clear of any lien, claim or
encumbrance) registered in the name of the holder or in such other name as the
holder may request in payment of the total Retraction Price or the total
Purchase Price, as the case may be, and on the applicable dividend payment date
a cheque payable at par at any branch of the bankers of Bowater Canada in
payment of the remaining portion, if any, of the total Retraction Price or the
total Purchase Price, as the case may be (in each case less any amounts withheld
on account of tax required to be deducted and withheld therefrom), and such
delivery of such certificates and cheque on behalf of Bowater Canada or by
Bowater Holdings, as the case may be, or by the Transfer Agent shall be deemed
to be payment of and shall satisfy and discharge all liability for the total
Retraction Price or total Purchase Price, as the case may be, to the extent that
the same is represented by such share certificates and cheque (plus any tax
deducted and withheld therefrom and remitted to the proper tax authority),
unless such cheque is not paid on due presentation.
6.5 On and after the close of business on the Retraction Date, the holder
of the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the total
Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made as provided in Section 6.4, in which case
the rights of such holder shall remain unaffected until the total Retraction
Price or the total Purchase Price, as the case may be, has been paid in the
manner hereinbefore provided. On and after the close of business on the
Retraction Date, provided that presentation and surrender of certificates and
payment of the total Retraction Price or the total Purchase Price, as the case
may be, has been made in accordance with the foregoing provisions, the holder of
the Retracted Shares so redeemed by Bowater Canada or purchased by Bowater
Holdings shall thereafter be considered and deemed for all purposes to be a
holder of the Bowater Common Shares delivered to it.
6.6 Notwithstanding any other provision of this Article 6, Bowater Canada
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
Bowater Canada believes that on any Retraction Date it would not be permitted by
any of such provisions to redeem the Retracted Shares tendered for redemption on
such date, and provided that Bowater Holdings shall not have exercised the
Retraction Call Right with respect to the Retracted Shares, Bowater Canada shall
only be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent of the maximum number that may be so redeemed
(rounded down to a whole number of shares) as would not be contrary to such
provisions and shall notify the holder at least two Business Days prior to the
Retraction Date as to the number of Retracted Shares which will not be redeemed
by Bowater Canada. In any case in which the redemption by Bowater Canada of
Retracted Shares would be contrary to solvency requirements or other provisions
of applicable law, Bowater Canada shall redeem Retracted Shares in accordance
with Section 6.2 of these share provisions on a pro rata basis and shall issue
to each holder of Retracted Shares a new certificate, at the expense of Bowater
Canada, representing the Retracted Shares not redeemed by Bowater Canada
pursuant to Section 6.2 hereof. Provided that the Retraction Request is not
revoked by the holder in the manner specified in Section 6.7, the holder of any
such Retracted Shares not redeemed by Bowater Canada pursuant to Section 6.2 of
these share provisions as a result of solvency requirements of applicable law
shall be deemed by giving the Retraction Request to require Bowater to purchase
such Retracted Shares from such holder on the Retraction Date or as soon as
practicable thereafter on payment by Bowater to such holder of the Purchase
Price for each such Retracted Share, all as more specifically provided in the
Voting and Exchange Trust Agreement.
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6.7 A holder of Retracted Shares may, by notice in writing given by the
holder to Bowater Canada before the close of business on the Business Day
immediately preceding the Retraction Date, withdraw its Retraction Request, in
which event such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction Request to sell the
Retracted Shares to Bowater Holdings shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY BOWATER CANADA
7.1 Subject to applicable law, and provided Bowater Holdings has not
exercised the Redemption Call Right, Bowater Canada shall on the Redemption Date
redeem the whole of the then outstanding Exchangeable Shares for an amount per
share equal to (a) the Current Market Price of a Bowater Common Share on the
last Business Day prior to the Redemption Date, which shall be satisfied in full
by Bowater Canada causing to be delivered to each holder of Exchangeable Shares
one Bowater Common Share for each Exchangeable Share held by such holder, plus
(b) the right to receive the full amount when paid of all unpaid dividends
thereon for which the record date has occurred prior to the Redemption Date
(collectively, the "Redemption Price").
7.2 In any case of a redemption of Exchangeable Shares under this Article
7, Bowater Canada shall, at least 60 days before the Redemption Date, send or
cause to be sent to each holder of Exchangeable Shares a notice in writing of
the redemption by Bowater Canada or the purchase by Bowater Holdings under the
Redemption Call Right, as the case may be, of the Exchangeable Shares held by
such holder; provided, however, that in the event of a redemption of the
Exchangeable Shares at the election of the Board of Directors (or a purchase by
Bowater Holdings as a result thereof) upon a transaction being proposed that
would result in Control of Bowater being acquired by any Person, Bowater Canada
shall cause such notice to be sent at least the number of days prior to the
Redemption Date established by the Board of Directors as the Board of Directors
determines to be reasonably practicable under the circumstances; provided
further, however, that in each case the accidental failure or omission to give
such notice to fewer than 10% of the holders of the Exchangeable Shares shall
not affect the validity of such notice of redemption. In either case, such
notice shall set out the formula for determining the Redemption Price or the
Redemption Call Purchase Price, as the case may be, the Redemption Date and, if
applicable, particulars of the Redemption Call Right.
7.3 On or after the Redemption Date and subject to the exercise by Bowater
Holdings of the Redemption Call Right, Bowater Canada shall cause to be
delivered to the holders of the Exchangeable Shares to be redeemed the
Redemption Price for each such Exchangeable Share upon presentation and
surrender at the registered office of Bowater Canada or at any office of the
Transfer Agent as may be specified by Bowater Canada in such notice of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the Canada Business Corporations Act and the by-laws
of Bowater Canada and such additional documents and instruments as the Transfer
Agent may reasonably require. Payment of the total Redemption Price for such
Exchangeable Shares shall be made by delivery to each holder, at the address of
the holder recorded in the securities register of Bowater Canada or by holding
for pick-up by the holder at the registered office of Bowater Canada or at any
office of the Transfer Agent as may be specified by Bowater Canada in such
notice, on behalf of Bowater Canada of certificates representing Bowater Common
Shares (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim or encumbrance) and on the applicable
dividend payment date a cheque of Bowater Canada payable at par at any branch of
the bankers of Bowater Canada in respect of the full amount of any unpaid
dividends comprising part of the total Redemption Price (in each case less any
amounts withheld on account of tax required to be withheld and remitted
therefrom by Bowater Canada). On and after the Redemption Date, the holders of
the Exchangeable Shares called for redemption shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of
holders in respect thereof, other than the right to receive their proportionate
part of the total Redemption Price, unless payment of the total Redemption Price
for such Exchangeable Shares shall not be made upon presentation and surrender
of certificates in accordance with the foregoing
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<PAGE> 52
provisions, in which case the rights of the holders shall remain unaffected
until the total Redemption Price has been paid in the manner hereinbefore
provided. Bowater Canada shall have the right at any time after the sending of
notice of its intention to redeem the Exchangeable Shares as aforesaid to
deposit or cause to be deposited the total Redemption Price of the Exchangeable
Shares so called for redemption, or of such of the said Exchangeable Shares
represented by certificates that have not at the date of such deposit been
surrendered by the holders thereof in connection with such redemption, in a
custodial account with any chartered bank or trust company in Canada named in
such notice (less any amounts withheld on account of tax required to be withheld
and remitted therefrom by Bowater Canada). Upon the later of such deposit being
made and the Redemption Date, the Exchangeable Shares in respect whereof such
deposit shall have been made shall be redeemed and the rights of the holders
thereof after such deposit or Redemption Date, as the case may be, shall be
limited to receiving their proportionate part of the total Redemption Price for
such Exchangeable Shares so deposited, against presentation and surrender of the
said certificates held by them, respectively, in accordance with the foregoing
provisions. Upon such payment or deposit of the total Redemption Price, the
holders of the Exchangeable Shares shall thereafter be considered and deemed for
all purposes to be holders of the Bowater Common Shares delivered to them or the
custodian on their behalf.
ARTICLE 8
PURCHASE FOR CANCELLATION
8.1 Subject to applicable law and the articles of Bowater Canada, Bowater
Canada may at any time and from time to time purchase for cancellation all or
any part of the outstanding Exchangeable Shares at any price by tender to all
the holders of record of Exchangeable Shares then outstanding or through the
facilities of any stock exchange on which the Exchangeable Shares are listed or
quoted at any price per share together with an amount equal to all declared and
unpaid dividends thereon for which the record date has occurred prior to the
date of purchase. If in response to an invitation for tenders under the
provisions of this Section 8.1, more Exchangeable Shares are tendered at a price
or prices acceptable to Bowater Canada than Bowater Canada is prepared to
purchase, the Exchangeable Shares to be purchased by Bowater Canada shall be
purchased as nearly as may be pro rata according to the number of shares
tendered by each holder who submits a tender to Bowater Canada, provided that
when shares are tendered at different prices, the pro rating shall be effected
(disregarding fractions) only with respect to the shares tendered at the price
at which more shares were tendered than Bowater Canada is prepared to purchase
after Bowater Canada has purchased all the shares tendered at lower prices. If
part only of the Exchangeable Shares represented by any certificate shall be
purchased, a new certificate for the balance of such shares shall be issued at
the expense of Bowater Canada.
ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law, the holders of the Exchangeable
Shares shall not be entitled as such to receive notice of or to attend any
meeting of the shareholders of Bowater Canada or to vote at any such meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but only with the
approval of the holders of the Exchangeable Shares given as hereinafter
specified.
10.2 Any approval given by the holders of the Exchangeable Shares to add
to, change or remove any right, privilege, restriction or condition attaching to
the Exchangeable Shares or any other matter requiring the approval or consent of
the holders of the Exchangeable Shares shall be deemed to have been sufficiently
given
10
<PAGE> 53
if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than two-thirds of the votes cast on such resolution at a meeting of
holders of Exchangeable Shares duly called and held at which the holders of at
least 25% of the outstanding Exchangeable Shares at that time are present or
represented by proxy; provided that if at any such meeting the holders of at
least 25% of the outstanding Exchangeable Shares at that time are not present or
represented by proxy within one-half hour after the time appointed for such
meeting then the meeting shall be adjourned to such date not less than five days
thereafter and to such time and place as may be designated by the Chairman of
such meeting. At such adjourned meeting the holders of Exchangeable Shares
present or represented by proxy thereat may transact the business for which the
meeting was originally called and a resolution passed thereat by the affirmative
vote of not less than two-thirds of the votes cast on such resolution at such
meeting shall constitute the approval or consent of the holders of the
Exchangeable Shares.
ARTICLE 11
RECIPROCAL CHANGES, ETC.
IN RESPECT OF BOWATER COMMON SHARES
11.1 Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that Bowater will not without the prior approval of
Bowater Canada and the prior approval of the holders of the Exchangeable Shares
given in accordance with Section 10.2 of these share provisions:
(a) issue or distribute Bowater Common Shares (or securities
exchangeable for or convertible into or carrying rights to acquire Bowater
Common Shares) to the holders of all or substantially all of the then
outstanding Bowater Common Shares by way of stock dividend or other
distribution, other than an issue of Bowater Common Shares (or securities
exchangeable for or convertible into or carrying rights to acquire Bowater
Common Shares) to holders of Bowater Common Shares who exercise an option
to receive dividends in Bowater Common Shares (or securities exchangeable
for or convertible into or carrying rights to acquire Bowater Common
Shares) in lieu of receiving cash dividends;
(b) issue or distribute rights, options or warrants to the holders of
all or substantially all of the then outstanding Bowater Common Shares
entitling them to subscribe for or to purchase Bowater Common Shares (or
securities exchangeable for or convertible into or carrying rights to
acquire Bowater Common Shares);
(c) issue or distribute to the holders of all or substantially all of
the then outstanding Bowater Common Shares:
(i) shares or securities of Bowater of any class other than Bowater
Common Shares (other than shares convertible into or exchangeable for or
carrying rights to acquire Bowater Common Shares);
(ii) rights, options or warrants other than those referred to in
Section 11.1(b) above;
(iii) evidences of indebtedness of Bowater; or
(iv) assets of Bowater,
unless the economic equivalent on a per share basis of such rights, options,
securities, shares, evidences of indebtedness or other assets is issued or
distributed simultaneously to holders of the Exchangeable Shares.
11.2 Each holder of an Exchangeable Share acknowledges that the Support
Agreement further provides, in part, that Bowater will not without the prior
approval of Bowater Canada and the prior approval of the holders of the
Exchangeable Shares given in accordance with Section 10.2 of these share
provisions:
(i) subdivide, redivide or change the then outstanding Bowater Common
Shares into a greater number of Bowater Common Shares;
(ii) reduce, combine, consolidate or change the then outstanding
Bowater Common Shares into a lesser number of Bowater Common Shares; or
11
<PAGE> 54
(iii) reclassify or otherwise change the Bowater Common Shares or
effect an amalgamation, merger, reorganization or other transaction
affecting the Bowater Common Shares,
unless the same or an economically equivalent change shall simultaneously be
made to, or in, the rights of the holders of the Exchangeable Shares. The
Support Agreement further provides, in part, that the aforesaid provisions of
the Support Agreement shall not be changed without the approval of the holders
of the Exchangeable Shares given in accordance with Section 10.2 of these share
provisions.
ARTICLE 12
ACTIONS BY BOWATER CANADA UNDER SUPPORT AGREEMENT
12.1 Bowater Canada will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by Bowater, Bowater Holdings and Bowater Canada with
all provisions of the Support Agreement applicable to Bowater, Bowater Holdings
and Bowater Canada, respectively, in accordance with the terms thereof
including, without limitation, taking all such actions and doing all such things
as shall be necessary or advisable to enforce to the fullest extent possible for
the direct benefit of Bowater Canada all rights and benefits in favour of
Bowater Canada under or pursuant to such agreement.
12.2 Bowater Canada shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations under,
the Support Agreement without the approval of the holders of the Exchangeable
Shares given in accordance with Section 10.2 of these share provisions other
than such amendments, waivers and/or forgiveness as may be necessary or
advisable for the purposes of:
(a) adding to the covenants of the other party or parties to such
agreement for the protection of Bowater Canada or the holders of the
Exchangeable Shares thereunder;
(b) making such provisions or modifications not inconsistent with such
agreement as may be necessary or desirable with respect to matters or
questions arising thereunder which, in the opinion of the Board of
Directors, it may be expedient to make, provided that the Board of
Directors shall be of the opinion, after consultation with counsel, that
such provisions and modifications will not be prejudicial to the interests
of the holders of the Exchangeable Shares; or
(c) making such changes in or corrections to such agreement which, on
the advice of counsel to Bowater Canada, are required for the purpose of
curing or correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error contained therein, provided
that the Board of Directors shall be of the opinion, after consultation
with counsel, that such changes or corrections will not be prejudicial to
the interests of the holders of the Exchangeable Shares.
ARTICLE 13
LEGEND
13.1 The certificates evidencing the Exchangeable Shares shall contain or
have affixed thereto a legend in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Plan of
Arrangement relating to the Liquidation Call Right and the Redemption Call
Right, and the Voting and Exchange Trust Agreement (including the provisions
with respect to the voting rights, exchange right and automatic exchange
thereunder).
ARTICLE 14
NOTICES
14.1 Any notice, request or other communication to be given to Bowater
Canada by a holder of Exchangeable Shares shall be in writing and shall be valid
and effective if given by mail (postage prepaid) or by telecopy or by delivery
to the Transfer Agent, with a copy addressed to the Secretary of Bowater Canada
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<PAGE> 55
and addressed to the attention of the President of Bowater Canada. Any such
notice, request or other communication, if given by mail, telecopy or delivery,
shall only be deemed to have been given and received upon actual receipt thereof
by the Transfer Agent and Bowater Canada.
14.2 Any presentation and surrender by a holder of Exchangeable Shares to
Bowater Canada or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding-up of Bowater
Canada or the retraction or redemption of Exchangeable Shares shall be made by
registered mail (postage prepaid) or by delivery to the registered office of
Bowater Canada or to such office of the Transfer Agent as may be specified by
Bowater Canada, in each case addressed to the attention of the President of
Bowater Canada. Any such presentation and surrender of certificates shall only
be deemed to have been made and to be effective upon actual receipt thereof by
Bowater Canada or the Transfer Agent, as the case may be. Any such presentation
and surrender of certificates made by registered mail shall be at the sole risk
of the holder mailing the same.
14.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of Bowater Canada shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of Bowater
Canada or, in the event of the address of any such holder not being so recorded,
then at the last known address of such holder. Any such notice, request or other
communication, if given by mail, shall be deemed to have been given and received
on the third Business Day following the date of mailing and, if given by
delivery, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Exchangeable Shares shall not invalidate
or otherwise alter or affect any action or proceeding to be taken by Bowater
Canada pursuant thereto.
ARTICLE 15
SPECIFIED AMOUNT
15.1 For the purposes of subsection 191(4) of the Income Tax Act (Canada),
the specified amount in respect of an Exchangeable Share is C$72.6061.
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<PAGE> 56
SCHEDULE A
NOTICE OF RETRACTION
To Bowater Canada Inc. ("Bowater Canada") and Bowater Canadian Holdings
Incorporated ("Bowater Holdings") and Bowater Incorporated ("Bowater").
This notice is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the Exchangeable Share(s) of Bowater Canada
represented by this certificate and all capitalized words and expressions used
in this notice that are defined in the Share Provisions have the meanings
ascribed to such words and expressions in such Share Provisions.
The undersigned hereby notifies Bowater Canada that, subject to the
Retraction Call Right referred to below, the undersigned desires to have Bowater
Canada redeem in accordance with Article 6 of the Share Provisions:
[ ] all share(s) represented by this certificate; or
[ ] ________ share(s) only.
The undersigned hereby notifies Bowater Canada that the Retraction Date
shall be ____________ .
NOTE: The Retraction Date must be a Business Day and must not be less than 10
Business Days nor more than 15 Business Days after the date upon which
this notice is received by Bowater Canada. In the event that no such
Business Day is specified above, the Retraction Date shall be deemed to be
the 15th Business Day after the date on which this notice is received by
Bowater Canada.
The undersigned acknowledges the Retraction Call Right of Bowater Holdings
to purchase all but not less than all the Retracted Shares from the undersigned
and that this notice shall be deemed to be a revocable offer by the undersigned
to sell the Retractable Shares to Bowater Holdings in accordance with the
Retraction Call Right on the Retraction Date for the Purchase Price and on the
other terms and conditions set out in Section 6.3 of the Share Provisions. This
notice of retraction, and the offer to sell the Retracted Shares to Bowater
Holdings, may be revoked and withdrawn by the undersigned only by notice in
writing given to Bowater Canada at any time before the close of business on the
Business Day immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency provisions of
applicable law, Bowater Canada is unable to redeem all Retracted Shares, the
undersigned will be deemed to have exercised the Exchange Right (as defined in
the Voting and Exchange Trust Agreement) so as to require Bowater to purchase
the unredeemed Retracted Shares.
The undersigned hereby represents and warrants to Bowater, Bowater Canada
and Bowater Holdings that the undersigned:
[ ] is
(select one)
[ ] is not
a non-resident of Canada for purposes of the Income Tax Act (Canada). THE
UNDERSIGNED ACKNOWLEDGES THAT IN THE ABSENCE OF AN INDICATION THAT THE
UNDERSIGNED IS NOT A NON-RESIDENT OF CANADA, WITHHOLDING ON ACCOUNT OF CANADIAN
TAX WILL BE MADE FROM AMOUNTS PAYABLE TO THE UNDERSIGNED ON THE REDEMPTION OR
PURCHASE OF THE RETRACTED SHARES.
The undersigned hereby represents and warrants to Bowater, Bowater Canada
and Bowater Holdings that the undersigned has good title to, and owns, the
share(s) represented by this certificate to be acquired by Bowater, Bowater
Canada or Bowater Holdings, as the case may be, free and clear of all liens,
claims and encumbrances.
<TABLE>
<S> <C> <C>
- --------------------- ----------------------------------- -----------------------------------
(Date) (Signature of Shareholder) (Guarantee of Signature)
</TABLE>
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<PAGE> 57
[ ] Please check box if the securities and any cheque(s) resulting from the
retraction or purchase of the Retracted Shares are to be held for pick-up
by the shareholder at the Transfer Agent, failing which the securities and
any cheque(s) will be mailed to the last address of the shareholder as it
appears on the register.
NOTE: This panel must be completed and this certificate, together with such
additional documents as the Transfer Agent may require, must be deposited
with the Transfer Agent. The securities and any cheque(s) resulting from
the retraction or purchase of the Retracted Shares will be issued and
registered in, and made payable to, respectively, the name of the
shareholder as it appears on the register of Bowater Canada and the
securities and any cheque(s) resulting from such retraction or purchase
will be delivered to such shareholder as indicated above, unless the form
appearing immediately below is duly completed.
<TABLE>
<S> <C>
Date -------------------------------------
- ------------------------------------------------------
Name of Person in Whose Name Securities or Cheque(s)
Are to be Registered, Issued or Delivered (please
print)
- ------------------------------------------------------ ---------------------------------------------
Street Address or P.O. Box Signature of Shareholder
- ------------------------------------------------------ ---------------------------------------------
City, Province and Postal Code Signature Guaranteed by
</TABLE>
NOTE: If the notice of retraction is for less than all of the shares represented
by this certificate, a certificate representing the remaining share(s) of
Bowater Canada represented by this certificate will be issued and
registered in the name of the shareholder as it appears on the register of
Bowater Canada, unless the Share Transfer Power on the share certificate
is duly completed in respect of such share(s).
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<PAGE> 58
EXHIBIT I
PLAN OF ARRANGEMENT
UNDER SECTION 192
OF THE CANADA BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:
"ACT" means the Canada Business Corporations Act, R.S.C. 1995, c. C-44.
"ARRANGEMENT" means the arrangement under section 192 of the Act on the
terms and subject to the conditions set out in this Plan of Arrangement, subject
to any amendments thereto made in accordance with section 7.1 of the Arrangement
Agreement or made at the direction of the Court in the Final Order.
"ARRANGEMENT AGREEMENT" means the agreement made as of March 9, 1998
between Avenor and Bowater, as amended, supplemented and/or restated in
accordance therewith prior to the Effective Date, providing for, among other
things, the Arrangement.
"ARRANGEMENT RESOLUTION" means the special resolution passed by the holders
of the Avenor Common Shares at the Avenor Shareholders' Meeting.
"AVENOR" means Avenor Inc., a corporation subsisting under the Act.
"AVENOR COMMON SHARES" means the common shares in the capital of Avenor.
"AVENOR OPTIONS" means stock options of Avenor issued under Avenor's Key
Employee Stock Option Plan.
"AVENOR SARS" means stock appreciation rights of Avenor issued under
Avenor's Key Employee Stock Option Plan.
"AVENOR SHAREHOLDERS' MEETING" means the annual and special meeting of the
shareholders of Avenor (including any adjournment thereof) that is to be
convened as provided by the Interim Order to consider, and if deemed advisable,
approve the Arrangement.
"AVERAGE TRADING PRICE OF BOWATER COMMON SHARES" means the number that
equals the weighted average trading price, denominated in U.S. dollars, of
Bowater Common Shares as reported on the NYSE for the 20 days on which trading
took place on the NYSE ending on the Determination Date; provided, however, that
if such average trading price exceeds U.S.$55.6187, the Average Trading Price of
Bowater Common Shares shall be U.S.$55.6187, and if such average trading price
is less than U.S.$45.5062, the Average Trading Price of Bowater Common Shares
shall be U.S.$45.5062.
"BOWATER" means Bowater Incorporated, a corporation existing under the laws
of the State of Delaware.
"BOWATER CANADA" means Bowater Canada Inc., a corporation incorporated
under the Act and a subsidiary of Bowater Holdings.
"BOWATER COMMON SHARE" means a share of common stock of Bowater, US$1.00
par value per share.
"BOWATER ELECTED SHARE" means any Avenor Common Share that the holder shall
have elected, in a duly completed Letter of Transmittal received by the
Depositary no later than 5:00 p.m. (Montreal time) on the Business Day
immediately preceding the Meeting Date to exchange under the Arrangement for a
fraction of a Bowater Common Share or that is deemed to be a Bowater Elected
Share pursuant to Section 2.3(b).
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"BOWATER HOLDINGS" means Bowater Canadian Holdings Incorporated, a
corporation incorporated under the Companies Act (Nova Scotia) and a subsidiary
of Bowater.
"BUSINESS DAY" means any day, other than a Saturday, a Sunday and a
statutory holiday in Toronto, Ontario, Montreal, Quebec or New York, New York.
"CASH ELECTED SHARE" means any Avenor Common Share that the holder shall
have elected, in a duly completed Letter of Transmittal received by the
Depositary no later than 5:00 p.m. (Montreal time) on the Business Day
immediately preceding the Meeting Date to exchange under the Arrangement for
C$35 in cash or that is deemed to be a Cash Elected Share pursuant to Section
2.3(d).
"CERTIFICATE" means the certificate of arrangement giving effect to the
Arrangement, issued pursuant to subsection 192(7) of the Act after the Articles
of Arrangement have been filed.
"COURT" means the Ontario Court of Justice (General Division).
"DEPOSITARY" means the The Trust Company of Bank of Montreal appointed for
the purpose of, among other things, exchanging certificates representing Avenor
Common Shares for cash, Exchangeable Shares or Bowater Common Shares, as the
case may be.
"DETERMINATION DATE" means the day which is the third Business Day prior to
the Effective Date.
"DETERMINATION DATE FOREIGN EXCHANGE RATE" means the number (including any
decimal fraction) which is the value in Canadian dollars of one U.S. dollar at
the rate of exchange equal to the Bank of Canada's noon spot exchange rate for
such currencies on the Determination Date.
"DISSENT PROCEDURES" has the meaning set out in Section 3.1.
"DISSENTING SHAREHOLDER" means a holder of Avenor Common Shares who
dissents in respect of the Arrangement in strict compliance with the Dissent
Procedures.
"EFFECTIVE DATE" means the date shown on the Certificate.
"EFFECTIVE TIME" means 12:01 a.m. on the Effective Date.
"EXCHANGE RATIO" means the number equal to C$35 divided by the product of
(i) the Average Trading Price of Bowater Common Shares and (ii) the
Determination Date Foreign Exchange Rate.
"EXCHANGEABLE SHARE" means a share in the class of non-voting exchangeable
shares in the capital of Bowater Canada.
"EXCHANGEABLE SHARE ELECTED SHARE" means any Avenor Common Share that the
holder shall have elected, in a duly completed Letter of Transmittal received by
the Depositary no later than 5:00 p.m. (Montreal time) on the Business Day
immediately preceding the Meeting Date to exchange under the Arrangement for a
fraction of an Exchangeable Share or that is deemed to be an Exchangeable Share
Elected Share pursuant to Section 2.1(d) or 2.3(b).
"EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares.
"FINAL ORDER" means the final order of the Court approving the Arrangement.
"INTERIM ORDER" means the interim order of the Court made in connection
with the process for obtaining shareholder approval of the Arrangement and
related matters.
"JOINT PROXY STATEMENT" means the joint management information circular and
proxy statement of Avenor and Bowater to be prepared and sent to the
shareholders of Avenor in connection with the Avenor Shareholders' Meeting.
"LETTER OF TRANSMITTAL" means collectively a Letter of Transmittal and
Election Form in the forms accompanying the Joint Proxy Statement.
"LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in Section
5.1(a).
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"LIQUIDATION DATE" has the meaning ascribed thereto in the Exchangeable
Share Provisions.
"MEETING DATE" means the date of the Avenor Shareholders' Meeting.
"NYSE" means the New York Stock Exchange, Inc.
"OUTSTANDING AVENOR COMMON SHARES" means the number of Avenor Common Shares
outstanding immediately prior to the Effective Time.
"PERSON" includes any individual, firm, partnership, joint venture, venture
capital fund, association, trust, trustee, executor, administrator, legal
personal representative, estate, group, body corporate, corporation,
unincorporated association or organization, government body, syndicate or other
entity, whether or not having legal status.
"REDEMPTION CALL RIGHT" has the meaning ascribed thereto in Section 5.2(a).
"REDEMPTION DATE" has the meaning ascribed thereto in the Exchangeable
Share Provisions.
"SHARE ELECTED SHARE" means a Cash Elected Share that, because of the
operation of the proration provisions set forth in Section 2.3(b), shall be
deemed to be an Exchangeable Share Elected Share; provided, however, that if the
holder thereof shall have elected in a duly completed Letter of Transmittal
received by the Depositary no later than 5:00 p.m. (Montreal time) on the
Business Day immediately preceding the Meeting Date to have Cash Elected Shares
that are subject to the proration provisions set forth in Section 2.3(b) be
deemed to be Bowater Elected Shares, such Cash Elected Shares shall be deemed to
be Bowater Elected Shares.
1.2 SECTIONS AND HEADINGS
The division of this Plan of Arrangement into sections and the insertion of
headings are for reference purposes only and shall not affect the interpretation
of this Plan of Arrangement. Unless otherwise indicated, any reference in this
Plan of Arrangement to a section or an exhibit refers to the specified section
of or exhibit to this Plan of Arrangement.
1.3 NUMBER, GENDER AND PERSONS
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa, words importing
any gender include all genders and words importing persons include individuals,
corporations, partnerships, associations, trusts, unincorporated organizations,
governmental bodies and other legal or business entities of any kind.
ARTICLE 2
ARRANGEMENT
2.1 ARRANGEMENT
Commencing at the Effective Time, the following shall occur and shall be
deemed to occur in the following order without any further act or formality:
(a) subject to Section 2.3, each Bowater Elected Share will be transferred
by the holder thereof to Bowater Holdings in exchange for that number
of fully paid and non-assessable Bowater Common Shares equal to the
Exchange Ratio, and the name of each such holder will be removed from
the register of holders of Avenor Common Shares and added to the
register of holders of Bowater Common Shares and Bowater Holdings will
be added to the register of holders of Avenor Common Shares
accordingly;
(b) Bowater Holdings will transfer to Bowater Canada all the Avenor Common
Shares then owned by Bowater Holdings and, as consideration therefor,
Bowater Canada will issue an equivalent number of common shares of
Bowater Canada to Bowater Holdings, and Bowater Holdings will be
removed
I-3
<PAGE> 61
from the register of holders of Avenor Common Shares and Bowater Canada
will be added to the register of holders of Avenor Common Shares
accordingly;
(c) subject to Section 2.3, each Cash Elected Share and Exchangeable Share
Elected Share will be transferred by the holder thereof to Bowater
Canada in exchange for (i) in the case of a Cash Elected Share, C$35 in
cash, without interest thereon and (ii) in the case of an Exchangeable
Share Elected Share, that number of Exchangeable Shares equal to the
Exchange Ratio, and each holder who receives cash will be removed from
the register of holders of Avenor Common Shares and each holder who
receives Exchangeable Shares will be removed from the register of
holders of Avenor Common Shares and added to the register of holders of
Exchangeable Shares and Bowater Canada shall be recorded as the
registered holder of such Avenor Common Shares so exchanged; provided,
however, that where a holder receives both cash and Exchangeable
Shares, each Avenor Common Share transferred to Bowater Canada by the
holder thereof will be deemed to have been transferred to Bowater
Canada for a combination of cash and Exchangeable Shares, with the cash
portion of such consideration received by such holder for such share
being equal to the aggregate cash consideration received by such holder
divided by the number of Avenor Common Shares so transferred;
(d) subject to Section 2.3, each Avenor Common Share in respect of which an
effective election has not been made (other than Avenor Common Shares
held by Dissenting Shareholders who are ultimately entitled to be paid
the fair value of the Avenor Common Shares held by them) will be deemed
to be an Exchangeable Share Elected Share and will be transferred to
Bowater Canada in exchange for Exchangeable Shares in accordance with
the provisions described in paragraph (c) above, and each such holder
will be removed from the register of holders of Avenor Common Shares
and added to the register of holders of Exchangeable Shares and Bowater
Canada shall be recorded as the registered holder of such Avenor Common
Shares so exchanged; and
(e) all outstanding Avenor Options and Avenor SARs shall be terminated.
2.2 ELECTIONS
Each Person who, at or prior to 5:00 p.m. (Montreal Time) on the Business
Day immediately preceding the Meeting Date, is a holder of record of Avenor
Common Shares, will be entitled, with respect to all or a portion of such
shares, to make an election at or prior to 5:00 p.m. on the Business Day
immediately preceding the Meeting Date to receive cash, Exchangeable Shares or
Bowater Common Shares, or a combination thereof, in exchange for such holder's
Avenor Common Shares, on the basis set forth herein and in accordance with such
arrangements and procedures as will be agreed upon in good faith by Bowater,
Bowater Holdings, Bowater Canada and Avenor, including the form of the Letter of
Transmittal containing the elections and the procedures governing transmittal.
2.3 PRORATION
(a) Notwithstanding Section 2.1(c), the maximum aggregate amount of cash
that may be paid to holders of Avenor Common Shares pursuant to this
Article 2 (the "Cash Cap") shall be equal to (A) the product of (i)
C$35, (ii) the number of Outstanding Avenor Common Shares and (iii)
0.60 less (B) the lesser of (x) the product of (i) $21 and (ii) the
number of Avenor Common Shares in respect of which a notice of dissent
has been delivered by Dissenting Shareholders in accordance with the
Act and (y) $65,000,000.
(b) If the product (the "Requested Cash Amount") of (i) the aggregate
number of Cash Elected Shares and (ii) C$35, exceeds the Cash Cap, then
a cash proration factor (the "Cash Proration Factor") shall be
determined by dividing the Cash Cap by the Requested Cash Amount and
the number of Cash Elected Shares of each holder thereof shall be
reduced to the product of (x) the Cash Proration Factor and (y) the
number of Cash Elected Shares of such holder (the "Available Cash
Elected Shares"), and the difference between such holder's Cash Elected
Shares and such holder's Available Cash Elected Shares shall be deemed
to be Share Elected Shares of such holder.
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(c) Notwithstanding Sections 2.1(a), (c) and (d), the maximum aggregate
number of Exchangeable Shares and Bowater Common Shares that may be
issued to or received by holders of Avenor Common Shares pursuant to
this Article 2 (the "Share Cap") shall be equal to the product of (x)
the Exchange Ratio, (y) the number of Outstanding Avenor Common Shares
and (z) 0.50.
(d) If the product (the "Requested Share Amount") of (w) the difference
between (A) the number of Outstanding Avenor Common Shares (other than
Avenor Common Shares held by holders who have delivered a notice of
dissent in accordance with the Act) and (B) the aggregate number of
Cash Elected Shares (such difference, the "Deemed Share Elected
Shares") and (x) the Exchange Ratio, exceeds the Share Cap, then a
share proration factor (the "Share Proration Factor") shall be
determined by dividing the Share Cap by the Requested Share Amount and
the number of Deemed Share Elected Shares of each holder thereof shall
be reduced to the product of (x) the Share Proration Factor and (y) the
number of Deemed Share Elected Shares of such holder (the "Available
Share Elected Shares") and the difference between such holder's Deemed
Share Elected Shares and such holder's Available Share Elected Shares
shall be deemed to be Cash Elected Shares of such holder. If the number
of Deemed Share Elected Shares is reduced pursuant to the provisions of
this paragraph (d), such reduction will be made pro rata as between the
Exchangeable Share Elected Shares and the Bowater Elected Shares of
such holder.
ARTICLE 3
RIGHTS OF DISSENT
3.1 RIGHTS OF DISSENT
Holders of Avenor Common Shares may exercise rights of dissent with respect
to such shares pursuant to and in the manner set forth in section 190 of the Act
and this section 3.1 (the "Dissent Procedures") in connection with the
Arrangement and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their Avenor Common
Shares shall be deemed to have transferred such Avenor Common Shares to
Avenor for cancellation on the Effective Date; or
(b) are ultimately not entitled, for any reason, to be paid fair value for
their Avenor Common Shares shall be deemed to have participated in the
Arrangement on the same basis as a non-dissenting holder of Avenor
Common Shares and shall receive Exchangeable Shares on the basis
determined in accordance with Section 2.1(d),
but in no case shall Bowater, Bowater Holdings, Bowater Canada, Avenor or any
other Person be required to recognize such holders as holders of Avenor Common
Shares after the Effective Time, and the names of such holders of Avenor Common
Shares shall be deleted from the registers of holders of Avenor Common Shares at
the Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES
At or promptly after the Effective Time, Bowater Canada shall deposit with
the Depositary, for the benefit of the holders of Avenor Common Shares who will
receive Exchangeable Shares in connection with the Arrangement, certificates
representing the Exchangeable Shares issued pursuant to Section 2.1 upon the
exchange of Avenor Common Shares. Upon surrender to the Depositary for
cancellation of a certificate which immediately prior to the Effective Time
represented one or more Avenor Common Shares that were exchanged for one or more
Exchangeable Shares under the Arrangement, together with such other documents
and instruments as would have been required to effect the transfer of the shares
formerly represented by such certificate under the Act and the by-laws of Avenor
and such additional documents and instruments as the
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Depositary may reasonably require, the holder of such surrendered certificate
shall be entitled to receive in exchange therefor, and the Depositary shall
deliver to such holder, a certificate representing that number (rounded down to
the nearest whole number) of Exchangeable Shares which such holder has the right
to receive (together with any dividends or distributions with respect thereto
pursuant to Section 4.4 and any cash in lieu of fractional Exchangeable Shares
pursuant to Section 4.5 and as a result of the operation of Section 2.3), and
the certificate so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Avenor Common Shares that is not registered in the
transfer records of Avenor, a certificate representing the proper number of
Exchangeable Shares may be issued to the transferee if the certificate
representing such Avenor Common Shares is presented to the Depositary,
accompanied by all documents required to evidence and effect such transfer.
Until surrendered as contemplated by this Section 4.1, each certificate which
immediately prior to the Effective Time represented Avenor Common Shares that
were exchanged for Exchangeable Shares shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender (i)
the certificate representing Exchangeable Shares as contemplated by this Section
4.1, (ii) a cash payment in lieu of any fractional Exchangeable Shares as
contemplated by Section 4.5 and a cash payment as a result of the operation of
Section 2.3, and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Exchangeable
Shares as contemplated by Section 4.4.
4.2 EXCHANGE OF CERTIFICATES FOR BOWATER COMMON SHARES
At or promptly after the Effective Time, Bowater Holdings shall deposit
with the Depositary, for the benefit of the holders of Avenor Common Shares who
will receive Bowater Common Shares in connection with the Arrangement,
certificates representing the Bowater Common Shares issued pursuant to Section
2.1 in exchange for outstanding Avenor Common Shares. Upon surrender to the
Depositary for cancellation of a certificate which immediately prior to the
Effective Time represented outstanding Avenor Common Shares that were exchanged
for Bowater Common Shares, together with such other documents and instruments as
would have been required to effect the transfer of the shares formerly
represented by such certificate under the Act and the by-laws of Avenor and such
additional documents and instruments as the Depositary may reasonably require,
the holder of such surrendered certificate shall be entitled to receive in
exchange therefor, and the Depositary shall deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of Bowater Common Shares which such holder has the right to receive (together
with any dividends or distributions with respect thereto pursuant to Section 4.4
and any cash in lieu of fractional Bowater Common Shares pursuant to Section 4.3
and as a result of the operation of Section 2.3), and the certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Avenor Common Shares which is not registered in the transfer
records of Avenor, a certificate representing the proper number of Bowater
Common Shares may be issued to the transferee if the certificate representing
such Avenor Common Shares is presented to the Depositary, accompanied by all
documents required to evidence and effect such transfer. Until surrendered as
contemplated by this Section 4.2, each certificate which immediately prior to
the Effective Time represented one or more outstanding Avenor Common Shares that
were exchanged for one or more Bowater Common Shares shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender (i) the certificate representing Bowater Common Shares as contemplated
by this Section 4.2, (ii) a cash payment in lieu of any fractional Bowater
Common Shares as contemplated by Section 4.5 and as a result of the operation of
Section 2.3 and (iii) any dividends or distributions with a record date after
the Effective Time theretofore paid or payable with respect to Bowater Common
Shares as contemplated by Section 4.4.
4.3 EXCHANGE OF CERTIFICATES FOR CASH
At or promptly after the Effective Time, Bowater Canada shall deposit
sufficient cash with the Depositary for the benefit of the holders of Avenor
Common Shares who will receive cash in connection with the Arrangement. Upon
surrender to the Depositary for cancellation of a certificate which immediately
prior to the Effective Time represented outstanding Avenor Common Shares that
were exchanged for cash, together with such other documents and instruments as
would have been required to effect the transfer of the shares formerly
represented by such certificate under the Act and the by-laws of Avenor and such
additional
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documents and instruments as the Depositary may reasonably require, the holder
of such surrendered certificate shall be entitled to receive in exchange
therefor, and the Depositary shall deliver to such holder, the cash which such
holder has the right to receive under the Arrangement. The cash deposited with
the Depositary shall be held in an interest bearing account, and any interest
earned on such funds shall be for the account of Bowater Canada.
4.4 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES
No dividends or other distributions declared or made after the Effective
Time with respect to Exchangeable Shares or Bowater Common Shares with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
certificate which immediately prior to the Effective Time represented
outstanding Avenor Common Shares that were exchanged pursuant to Section 2.1,
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 4.5, unless and until the holder of record of such
certificate shall surrender such certificate in accordance with Section 4.1 or
4.2. Subject to applicable law, at the time of such surrender of any such
certificate, there shall be paid to the record holder of the certificates
representing whole Common Shares, as the case may be, without interest (i) the
amount of any cash payable in lieu of a fractional Exchangeable Share or Bowater
Common Share to which such holder is entitled pursuant to Section 4.5, (ii) the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole Exchangeable Share or
Bowater Common Share, as the case may be, and (iii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Exchangeable Share or Bowater
Common Share, as the case may be.
4.5 NO FRACTIONAL SHARES
No certificates or scrip representing fractional Exchangeable Shares or
fractional Bowater Common Shares shall be issued upon the surrender for exchange
of certificates pursuant to Section 4.1 or 4.2 and no dividend, stock split or
other change in the capital structure of Bowater Canada or Bowater shall relate
to any such fractional security and such fractional interests shall not entitle
the owner thereof to vote or to exercise any rights as a security holder of
Bowater Canada or Bowater. In lieu of any such fractional securities:
(a) each Person otherwise entitled to a fractional interest in an
Exchangeable Share will receive a cash payment equal to such Person's
pro rata portion of the net proceeds after expenses received by the
Depositary upon the sale of whole shares representing an accumulation
of all fractional interests in Exchangeable Shares to which all such
Persons would otherwise be entitled. The Depositary will sell such
Exchangeable Shares by private sale (including by way of sale through
the facilities of any stock exchange upon which the Exchangeable Shares
are then listed) as soon as reasonably practicable following the
Effective Date. The aggregate net proceeds after expenses of such sale
will be distributed by the Depositary, pro rata in relation to the
respective fractions, among the Persons otherwise entitled to receive
fractional interests in Exchangeable Shares; and
(b) each person otherwise entitled to a fractional interest in a Bowater
Common Share will receive a cash payment equal to such Person's pro
rata portion of the net proceeds after expenses received by the
Depositary upon the sale of whole shares representing an accumulation
of all fractional interests in Bowater Common Shares to which all such
Persons would otherwise be entitled. The Depositary will sell such
Bowater Common Shares on the NYSE as soon as practicable following the
Effective Date. The aggregate net proceeds after expenses of such sale
will be distributed by the Depositary, pro rata in relation to the
respective fractions, among the Persons otherwise entitled to receive
fractional interests in Bowater Common Shares.
4.6 LOST CERTIFICATES
In the event any certificate which immediately prior to the Effective Time
represented one or more outstanding Avenor Common Shares that were exchanged
pursuant to Section 2.1 shall have been lost, stolen
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or destroyed, upon the making of an affidavit of that fact by the Person
claiming such certificate to be lost, stolen or destroyed, the Depositary will
issue in exchange for such lost, stolen or destroyed certificate, cash and/or
one or more certificates representing one or more Exchangeable Shares or Bowater
Common Shares (and any dividends or distributions with respect thereto and any
cash pursuant to Section 4.5) deliverable in accordance with such holder's
Letter of Transmittal and subject to Section 2.3. When authorizing such payment
in exchange for any lost, stolen or destroyed certificate, the Person to whom
certificates representing Exchangeable Shares or Bowater Common Shares are to be
issued shall, as a condition precedent to the issuance thereof, give a bond
satisfactory to Bowater Canada or Bowater, as the case may be, in such sum as
Bowater Canada or Bowater may, acting reasonably, direct or otherwise indemnify
Bowater Canada or Bowater in a manner satisfactory to Bowater Canada or Bowater,
acting reasonably, against any claim that may be made against Bowater Canada or
Bowater with respect to the certificate alleged to have been lost, stolen or
destroyed.
4.7 EXTINCTION OF RIGHTS
Any certificate which immediately prior to the Effective Time represented
outstanding Avenor Common Shares that were exchanged pursuant to Section 2.1 and
not deposited, with all other instruments required by Section 4.1 or 4.2, on or
prior to the third anniversary of the Effective Date shall cease to represent a
claim or interest of any kind or nature as a shareholder of Bowater Canada or
Bowater. On such date, the Exchangeable Shares or Bowater Common Shares to which
the former registered holder of the certificate referred to in the preceding
sentence was ultimately entitled shall be deemed to have been surrendered to
Bowater Canada or Bowater, as the case may be, together with all entitlements to
dividends, distributions and interest thereon held for such former registered
holder.
4.8 WITHHOLDING RIGHTS
Bowater Holdings, Bowater Canada, Bowater and the Depositary shall be
entitled to deduct and withhold from any dividend or consideration otherwise
payable under this Plan of Arrangement to any holder of Avenor Common Shares,
Bowater Common Shares or Exchangeable Shares such amounts as Bowater Canada,
Bowater Holdings, Bowater or the Depositary is required or permitted to deduct
and withhold with respect to such payment under the Income Tax Act (Canada), the
United States Internal Revenue Code of 1986 or any provision of provincial,
state, local or foreign tax law, in each case as amended. To the extent that
amounts are so withheld, such withheld amounts shall be treated for all purposes
hereof as having been paid to the holder of the shares in respect of which such
deduction and withholding was made, provided that such withheld amounts are
actually remitted to the appropriate taxing authority. To the extent that the
amount so required or permitted to be deducted or withheld from any payment to a
holder exceeds the cash portion of the consideration otherwise payable to the
holder, Bowater Holdings, Bowater Canada, Bowater and the Depositary are hereby
authorized to sell or otherwise dispose of such portion of the consideration as
is necessary to provide sufficient funds to Bowater Holdings, Bowater Canada,
Bowater or the Depositary, as the case may be, to enable it to comply with such
deduction or withholding requirement and Bowater Holdings, Bowater Canada,
Bowater or the Depositary shall notify the holder thereof and remit any
unapplied balance of the net proceeds of such sale.
ARTICLE 5
CERTAIN RIGHTS OF BOWATER HOLDINGS
TO ACQUIRE EXCHANGEABLE SHARES
5.1 BOWATER HOLDINGS LIQUIDATION CALL RIGHT
(a) Bowater Holdings shall have the overriding right (the "Liquidation Call
Right"), in the event of and notwithstanding the proposed liquidation,
dissolution or winding-up of Bowater Canada pursuant to Article 5 of
the Exchangeable Share Provisions, to purchase from all but not less
than all of the holders of Exchangeable Shares on the Liquidation Date
all but not less than all of the Exchangeable
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Shares held by each such holder on payment by Bowater Holdings of an
amount per share equal to (a) the Current Market Price (as defined in
the Exchangeable Share Provisions) of a Bowater Common Share on the
last Business Day prior to the Liquidation Date, which shall be
satisfied in full by causing to be delivered to such holder one Bowater
Common Share, plus (b) the right to receive the full amount when paid
of all unpaid dividends on such Exchangeable Share for which the record
date has occurred prior to Liquidation Date (collectively the
"Liquidation Call Purchase Price"). In the event of the exercise of the
Liquidation Call Right by Bowater Holdings, each holder shall be
obligated to sell all the Exchangeable Shares held by the holder to
Bowater Holdings on the Liquidation Date on payment by Bowater Holdings
to the holder of the Liquidation Call Purchase Price for each such
share.
(b) To exercise the Liquidation Call Right, Bowater Holdings must notify
Bowater Canada's transfer agent (the "Transfer Agent"), as agent for
the holders of Exchangeable Shares, and Bowater Canada of Bowater
Holdings' intention to exercise such right at least 45 days before the
Liquidation Date in the case of a voluntary liquidation, dissolution or
winding-up of Bowater Canada and at least five Business Days before the
Liquidation Date in the case of an involuntary liquidation, dissolution
or winding-up of Bowater Canada. The Transfer Agent will notify the
holders of Exchangeable Shares as to whether or not Bowater Holdings
has exercised the Liquidation Call Right forthwith after the expiry of
the period during which the same may be exercised by Bowater Holdings.
If Bowater Holdings exercises the Liquidation Call Right, then on the
Liquidation Date Bowater Holdings will purchase and the holders will
sell all of the Exchangeable Shares then outstanding for a price per
share equal to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, Bowater Holdings shall deposit
with the Transfer Agent, on or before the Liquidation Date,
certificates representing the aggregate number of Bowater Common Shares
deliverable by Bowater Holdings in payment of the total Liquidation
Call Purchase Price and shall waive any rights to receive any dividends
which represent the amount of the remaining portion, if any, of the
total Liquidation Call Purchase Price, less any amounts withheld
pursuant to Section 4.8 hereof. Provided that Bowater Holdings has
complied with the immediately preceding sentence, on and after the
Liquidation Date the rights of each holder of Exchangeable Shares will
be limited to receiving such holder's proportionate part of the total
Liquidation Call Purchase Price payable by Bowater Holdings (which in
the case of unpaid dividends, if any, shall be satisfied by the payment
thereof by Bowater Canada on the payment date for such dividends) upon
presentation and surrender by the holder of certificates representing
the Exchangeable Shares held by such holder and the holder shall on and
after the Liquidation Date be considered and deemed for all purposes to
be the holder of the Bowater Common Shares to which it is entitled.
Upon surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents
and instruments as may be required to effect a transfer of Exchangeable
Shares under the Act and the by-laws of Bowater Canada and such
additional documents and instruments as the Transfer Agent may
reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of Bowater Holdings shall deliver to such
holder, certificates representing the Bowater Common Shares to which
the holder is entitled and on the applicable dividend payment date a
cheque or cheques payable at par at any branch of the bankers of
Bowater Canada in Canada in payment of the remaining portion, if any,
of the total Liquidation Call Purchase Price less any amounts withheld
pursuant to Section 4.8 hereof. If Bowater Holdings does not exercise
the Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of the Exchangeable Shares will be
entitled to receive in exchange therefor the liquidation price
otherwise payable by Bowater Canada in connection with the liquidation,
dissolution or winding-up of Bowater Canada pursuant to Article 5 of
the Exchangeable Share Provisions.
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5.2 BOWATER HOLDINGS REDEMPTION CALL RIGHT
In addition to Bowater Holdings' rights contained in the Exchangeable Share
Provisions, including, without limitation, the Retraction Call Right (as defined
in the Exchangeable Share Provisions), Bowater Holdings shall have the following
rights in respect of the Exchangeable Shares:
(a) Bowater Holdings shall have the overriding right (the "Redemption Call
Right"), notwithstanding the proposed redemption of the Exchangeable
Shares by Bowater Canada pursuant to Article 7 of the Exchangeable
Share Provisions, to purchase from all but not less than all of the
holders of Exchangeable Shares on the Redemption Date all but not less
than all of the Exchangeable Shares held by each such holder on payment
by Bowater Holdings to the holder of an amount per share equal to (a)
the Current Market Price (as defined in the Exchangeable Share
Provisions) of a Bowater Common Share on the last Business Day prior to
the Redemption Date, which shall be satisfied in full by causing to be
delivered to such holder one Bowater Common Share plus (b) the right to
receive the full amount when paid of all unpaid dividends on such
Exchangeable Share for which the record date has occurred prior to the
Redemption Date (collectively the "Redemption Call Purchase Price"). In
the event of the exercise of the Redemption Call Right by Bowater
Holdings, each holder shall be obligated to sell all the Exchangeable
Shares held by the holder to Bowater Holdings on the Redemption Date on
payment by Bowater Holdings to the holder of the Redemption Call
Purchase Price for each such share.
(b) To exercise the Redemption Call Right, Bowater Holdings must notify the
Transfer Agent, as agent for the holders of Exchangeable Shares, and
Bowater Canada of Bowater Holdings' intention to exercise such right at
least 60 days before the Redemption Date, except in the case of a
redemption occurring as a result of an acquisition of Control of
Bowater (as defined in the Exchangeable Share Provisions) in which case
Bowater Holdings shall notify the Transfer Agent and Bowater Canada on
or before the Redemption Date. The Transfer Agent will notify the
holders of the Exchangeable Shares as to whether or not Bowater
Holdings has exercised the Redemption Call Right forthwith after the
expiry of the period during which the same may be exercised by Bowater
Holdings. If Bowater Holdings exercises the Redemption Call Right, on
the Redemption Date Bowater Holdings will purchase and the holders will
sell all of the Exchangeable Shares then outstanding for a price per
share equal to the Redemption Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, Bowater Holdings shall deposit
with the Transfer Agent, on or before the Redemption Date, certificates
representing the aggregate number of Bowater Common Shares deliverable
by Bowater Holdings in payment of the total Redemption Call Purchase
Price and shall waive any rights to receive any dividends which
represent the amount of the remaining portion, if any, of the total
Redemption Call Purchase Price less any amounts withheld pursuant to
Section 4.8 hereof. Provided that Bowater Holdings has complied with
the immediate preceding sentence, on and after the Redemption Date the
rights of each holder of Exchangeable Shares will be limited to
receiving such holder's proportionate part of the total Redemption Call
Purchase Price payable by Bowater Holdings (which in case of unpaid
dividends, if any, shall be satisfied by the payment thereof by Bowater
Canada on the payment date for such dividends) upon presentation and
surrender by the holder of certificates representing the Exchangeable
Shares held by such holder and the holder shall on and after the
Redemption Date be considered and deemed for all purposes to be the
holder of the Bowater Common Shares to which it is entitled. Upon
surrender to the Transfer Agent of a certificate or certificates
representing Exchangeable Shares, together with such other documents
and instruments as may be required to effect a transfer of Exchangeable
Shares under the Act and the by-laws of Bowater Canada and such
additional documents and instruments as the Transfer Agent may
reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the
Transfer Agent on behalf of Bowater Holdings shall deliver to such
holder, certificates representing the Bowater Common Shares to which
the holder is entitled and on the applicable dividend payment date a
cheque or cheques payable at par at any branch of the bankers of
Bowater Canada in Canada in payment of the remaining portion, if any,
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of the total Redemption Call Purchase Price less any amounts withheld
pursuant to Section 4.8 hereof. If Bowater Holdings does not exercise
the Redemption Call Right in the manner described above, on the
Redemption Date the holders of the Exchangeable Shares will be entitled
to receive in exchange therefor the redemption price otherwise payable
by Bowater Canada in connection with the redemption of the Exchangeable
Shares pursuant to Article 7 of the Exchangeable Share Provisions.
ARTICLE 6
AMENDMENTS
6.1 AMENDMENTS TO PLAN OF ARRANGEMENT
Avenor reserves the right to amend, modify and/or supplement this Plan of
Arrangement at any time and from time to time, provided that each such
amendment, modification and/or supplement must be (i) set out in writing, (ii)
approved by Bowater, (iii) filed with the Court and, if made following the
Avenor Shareholders' Meeting, approved by the Court, and (iv) communicated to
holders of Avenor Common Shares if and as required by the Court.
Any amendment, modification or supplement to this Plan of Arrangement may
be proposed by Avenor at any time prior to the Avenor Shareholders' Meeting
(provided that Bowater shall have consented thereto) with or without any other
prior notice or communication, and if so proposed and accepted by the Persons
voting at the Avenor Shareholders' Meeting (other than as may be required under
the Interim Order), shall become part of this Plan of Arrangement for all
purposes.
Any amendment, modification or supplement to this Plan of Arrangement that
is approved by the Court following the Avenor Shareholders' Meeting shall be
effective only if (i) it is consented to by each of Avenor and Bowater, and (ii)
if required by the Court, it is consented to by holders of the Avenor Common
Shares voting in the manner directed by the Court.
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SCHEDULE "B"
CONVERSION FORM
TO: AVENOR INC.
The undersigned registered holder of the within Debenture hereby
irrevocably elects to convert said Debenture (or $ principal amount
thereof*) into either (please check one only) for each $100 principal amount of
the Debenture to be converted:
/ / 2.191 fully paid and non-assessable Exchangeable Shares of
Bowater Canada Inc., or
/ / $79.54 in lawful currency of Canada together with 1.0955 fully
paid and non-assessable Exchangeable Shares of Bowater Canada
Inc.,
in each case in accordance with the terms of the Trust Indenture, as
amended and supplemented to date, referred to in said Debenture, and
the undersigned directs that the Exchangeable Shares or the monies and
Exchangeable Shares, as the case may be, issuable and/or payable and
deliverable upon the conversion as aforesaid be issued and/or paid and
delivered to the person indicated below. (If Exchangeable Shares are to
be issued in the name of a person other than the holder, all requisite
transfer taxes must be tendered by the undersigned).
Dated:
----------------------
--------------------------------------
(Signature of Registered Holder)
(NOTE: Signature must correspond
exactly with the name written on the
Debenture. Executors, administrators,
successors, assigns, trustees, heirs,
legatees, guardians or other legal
representatives must submit
satisfactory evidence of authority to
act.)
*If less than the full principal amount of the within Debenture is to be
converted, indicate in the space provided the principal amount (which must be
$100 or an integral multiple thereof) to be converted.
NOTE: If Exchangeable Shares are to be issued in the name of a person
other than the holder, the signature must be guaranteed by a
Canadian chartered bank or trust company or by a member firm of a
recognized stock exchange in Canada.
Print name in which Exchangeable Shares and/or monies issued and/or
payable on conversion are to be issued, registered and/or paid and delivered.
Name:
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- --------------------------------------------------------------------------------
(Address) (City, Province and Postal Code)
Name of guarantor:
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Authorized signature:
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<PAGE> 1
EXHIBIT 4.11
CERTIFICATE OF DESIGNATION
OF
SPECIAL VOTING STOCK
OF
BOWATER INCORPORATED
-------------
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
-------------
BOWATER INCORPORATED, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify that the following resolution was duly adopted by the Board
of Directors of the Corporation at a special meeting of the Board of Directors
held on May 20, 1998:
RESOLVED that, subject to the consummation of the transactions
contemplated by the Amended and Restated Arrangement Agreement dated as of March
9, 1998, between Avenor Inc., a Canadian corporation, and the Corporation, and
pursuant to the authority vested in the Board by the Restated Certificate of
Incorporation of the Corporation, the Board does hereby create, authorize and
provide for the issuance of Special Voting Stock, consisting of one share (the
"Special Voting Stock"), having the designations, preferences, relative,
participating, optional and other special rights and the qualifications,
limitations and restrictions thereof that are set forth in the Restated
Certificate of Incorporation of the Corporation and in this Resolution as
follows:
(a) Designation. There is hereby created out of the authorized
and unissued shares of Serial Preferred Stock of the Corporation a series of
Serial Preferred Stock designated as the "Special Voting Stock". The number of
shares constituting the Special Voting Stock shall be one.
(b) Ranking. The Special Voting Stock shall, with respect to
rights on liquidation, winding up and dissolution, rank (i) senior to all
classes of common stock of the Corporation, and (ii) junior to any other class
or series of Serial Preferred Stock of the Corporation.
(c) Dividends. No dividend shall be payable to the holder of the
share of Special Voting Stock.
(d) Liquidation Preference. (i) Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, if the Special Voting
Stock is then outstanding, the holder thereof shall be entitled to receive, out
of the assets of the Corporation available for distribution to its stockholders,
an amount equal to $10.00 before any distribution is made on the common stock of
the Corporation or any other stock of the Corporation ranking junior to the
Special Voting Stock as to distribution of assets on liquidation, dissolution or
winding-up. After payment of the full amount of the liquidation preference of
the outstanding share of Special Voting Stock, the holder of the share of
Special Voting Stock shall not be entitled to any further participation in any
distribution of assets of the Corporation.
<PAGE> 2
2
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more other entities shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation.
(e) Voting Rights. (i) The holder of Special Voting Stock, except
as otherwise required under applicable law or as set forth in subparagraph (ii)
below, shall not be entitled to vote on any matter required or permitted to be
voted upon by the stockholders of the Corporation.
(ii) At each annual or special meeting of stockholders of the
Corporation, the holder of the Special Voting Stock shall be entitled to vote on
all matters submitted to a vote of the holders of common stock of the
Corporation, voting together with the holders of common stock of the Corporation
as a single class (except as otherwise provided herein or by applicable law),
and the holder of the Special Voting Stock shall be entitled to cast on any such
matter a number of votes equal to the number of Exchangeable Shares (the
"Exchangeable Shares") of Bowater Canada Inc., a Canadian corporation ("Bowater
Canada"), then outstanding (A) that are not owned by the Corporation or its
affiliates and (B) as to which the holder of the Special Voting Stock has timely
received voting instructions from the holders of such Exchangeable Shares in
accordance with the Voting and Exchange Trust Agreement to be entered into among
the Corporation, Bowater Canadian Holdings Incorporated, a corporation
incorporated under the Companies Act (Nova Scotia), Bowater Canada and the
trustee thereunder.
(f) Conversion or Exchange. The holder of the share of Special
Voting Stock shall not have any rights hereunder to convert such share into, or
exchange such share for, shares of any other series or class of Capital Stock of
the Corporation.
(g) Reissuance of Special Voting Stock. If the share of Special
Voting Stock is at any time redeemed, purchased or otherwise acquired by the
Corporation in any manner, it shall after such redemption, purchase or other
acquisition have the status of an authorized and unissued share of Serial
Preferred Stock undesignated as to series and may be redesignated and reissued
as part of any series of Serial Preferred Stock.
(h) Redemption. The share of Special Voting Stock shall not be
subject to redemption, except that at such time as no Exchangeable Shares (other
than Exchangeable Shares owned by the Corporation and its affiliates) shall be
outstanding, the Special Voting Stock shall automatically be redeemed and
canceled, with an amount equal to $10.00 due and payable upon such redemption.
(i) Restrictions. So long as any Exchangeable Shares (other than
Exchangeable Shares owned by the Corporation and its affiliates) shall be
outstanding, the number of shares comprising the Special Voting Stock shall not
be increased or decreased and no other term of the Special Voting Stock shall be
amended, except upon approval of the holder of the outstanding share of Special
Voting Stock. So long as the share of Special Voting Stock is outstanding, the
Corporation shall (i) fully comply with all terms of the Exchangeable Shares
applicable to the Corporation and with all contractual obligations of the
Corporation associated with such Exchangeable Shares and (ii) not amend, alter,
change or repeal this paragraph (i) except upon the approval of the holder of
the outstanding share of Special Voting Stock.
<PAGE> 3
3
(j) Certain Definitions. As used in this Certificate of
Designation, the following terms shall have the following meanings (and (i)
terms defined in the singular have comparable meanings when used in the plural
and vice versa, (ii) "including" means including without limitation and (iii)
"or" is not exclusive, unless the context otherwise requires):
"Special Voting Stock" means the Special Voting Stock of the
Corporation.
"Board" means the Board of Directors of the Corporation or any
committee thereof duly authorized to act on behalf of such Board.
"Capital Stock" means, with respect to any Person, any shares
or other equivalents (however designated) of corporate stock, partnership
interests or any other participations, rights, warrants, options or other
interests in the nature of an equity interest in such Person, including
Preferred Stock, but excluding any debt security convertible or exchangeable
into such equity interest.
"Person" means any individual, corporation, company (including
any limited liability company), partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however
designated, that entitles the holder thereof to a preference with respect to the
payment of dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such Person, over shares of any other
class of Capital Stock issued by such Person.
IN WITNESS WHEREOF, Bowater Incorporated has caused this
Certificate of Designation to be signed by David G. Maffucci, its Senior Vice
President and Chief Financial Officer, and attested by Wendy C. Shiba, its Vice
President, Secretary and Assistant General Counsel, as of this 15th day of July,
1998.
BOWATER INCORPORATED
By: /s/ David G. Maffucci
---------------------------------
Name: David G. Maffucci
Title: Senior Vice President and
Chief Financial Officer
Attest:
By: /s/ Wendy C. Shiba
-------------------------------------
Name: Wendy C. Shiba
Title: Vice President, Secretary and
Assistant General Counsel
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Bowater Incorporated:
We consent to the use of our report dated February 6, 1998, except as to
Note 2, which is as of March 9, 1998, on the consolidated financial statements
of Bowater Incorporated as of December 31, 1997 and 1996, and for each of the
years in the three-year period ended December 31, 1997, incorporated herein by
reference, and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Greenville, South Carolina
July 24, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PRICEWATERHOUSECOOPERS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Bowater
Incorporated of the report issued by Price Waterhouse dated February 13, 1998
relating to the consolidated financial statements of Avenor Inc., which appears
on page FS-27 of the Joint Management Information Circular and Proxy Statement
for Bowater Incorporated and Avenor Inc. (the "Circular"). We also consent to
the references to us under the heading "Experts" in the Prospectus and under the
heading "Avenor Selected Consolidated Financial Data" in the Circular. However,
it should be noted that PricewaterhouseCoopers has not prepared or certified
such "Avenor Selected Consolidated Financial Data".
/s/ PricewaterhouseCoopers
Chartered Accountants
Montreal, Canada
July 24, 1998
