<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8712
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 62-0721803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 East Camperdown Way, P.O. Box 1028, Greenville, SC 29602
(Address of principal executive offices) (Zip Code)
(864) 271-7733
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 10, 1998.
Class Outstanding at November 10, 1998
----- --------------------------------
Common Stock, $1.00 Par Value 53,988,639 Shares
1
<PAGE> 2
BOWATER INCORPORATED
I N D E X
PAGE
NUMBER
------
PART I FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheet at September 30, 1998,
and December 31, 1997 3
Consolidated Statement of Operations for the Three and Nine
Months Ended September 30, 1998, and
September 30, 1997 4
Consolidated Statement of Capital Accounts
for the Nine Months Ended September 30, 1998 5
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1998, and
September 30, 1997 6
Notes to Consolidated Financial Statements 7-10
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-17
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE> 3
PART I
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN MILLIONS OF US DOLLARS)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $577.2 $228.7
Marketable securities 0.4 176.8
Accounts receivable, net 395.5 190.6
Inventories 213.4 105.5
Other current assets 28.5 16.8
Total current assets 1,215.0 718.4
-------- --------
Timber and timberlands 474.8 394.0
Fixed assets, net (Note 2) 2,862.8 1,554.5
Goodwill (Note 2) 863.0 --
Other assets 161.0 78.9
$5,576.6 $2,745.8
======== ========
LIABILITIES AND CAPITAL
Current liabilities:
Current installments of long-term debt $7.3 $1.8
Short-term borrowings (Note 2) 540.0 --
Accounts payable and accrued liabilities 419.2 168.3
Income taxes payable 17.6 15.9
Dividends payable 11.9 8.7
Total current liabilities 996.0 194.7
-------- --------
Long-term debt, net of current installments (Note 2) 1,698.3 757.1
Other long-term liabilities (Note 3) 404.3 169.5
Deferred income taxes 473.6 345.1
Minority interests in subsidiaries (Note 4) 135.9 125.2
Commitments and contingencies (Note 5) -- --
Shareholders' equity:
Series C cumulative preferred stock 25.5 25.5
Common stock (Note 2) 58.5 44.9
Exchangeable shares (Note 2) 132.6 --
Additional paid-in capital (Note 2) 1,208.6 563.1
Retained earnings 643.3 717.0
Accumulated other comprehensive income/(loss) (Note 6) (20.7) (15.5)
Loan to ESOT (3.1) (4.5)
Treasury stock, at cost (176.2) (176.3)
-------- --------
Total shareholders' equity 1,868.5 1,154.2
$5,576.6 $2,745.8
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN MILLIONS OF US DOLLARS EXCEPT
PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $618.7 $406.3 $1,454.3 $1,171.4
Distribution costs 41.8 27.7 98.5 87.9
-------- -------- -------- --------
Net sales 576.9 378.6 1,355.8 1,083.5
Cost of sales 411.0 277.0 965.8 829.7
Depreciation, amortization and cost of timber
harvested 65.8 42.4 154.1 126.2
Impairment of asset (Note 7) 119.6 -- 119.6 --
-------- -------- -------- --------
Gross profit / (loss) (19.5) 59.2 116.3 127.6
Selling and administrative expense 19.5 18.8 50.5 53.8
-------- -------- -------- --------
Operating income / (loss) (39.0) 40.4 65.8 73.8
Other expense / (income):
Interest income (2.2) (5.5) (14.9) (15.7)
Interest expense, net of capitalized interest 27.9 17.0 61.1 50.6
Gain on sale of timberlands (Note 8) -- -- (21.1) --
Other, net (Note 9) 50.1 0.4 71.3 --
75.8 11.9 96.4 34.9
-------- -------- -------- --------
Income / (loss) before income taxes and
minority interests (114.8) 28.5 (30.6) 38.9
Provision for income taxes (Note 10) (28.7) 10.5 3.3 14.4
Minority interests in net income of
subsidiaries 2.0 1.2 10.6 0.9
-------- -------- -------- --------
Net income / (loss) (88.1) 16.8 (44.5) 23.6
Other comprehensive income/(loss), net of tax:
(Note 6)
Foreign currency translation adjustments (3.5) (0.1) (5.2) (0.5)
-------- -------- -------- --------
Comprehensive income / (loss) $ (91.6) $ 16.7 $ (49.7) $ 23.1
======== ======== ======== ========
Basic earnings / (loss) per common share:
(Note 11) $(1.69) $0.40 $ (1.02) $ 0.52
======== ======== ======== ========
Average common shares outstanding 52.6 41.0 45.3 40.7
======== ======== ======== ========
Diluted earnings / (loss) per common share:
(Note 11) $ (1.69) $ 0.40 $ (1.02) $ 0.52
======== ======== ======== ========
Average common and common equivalent shares
outstanding 52.6 41.0 45.3 40.7
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED, IN MILLIONS OF US
DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Series C Accumulated
Cumulative Additional Other
Preferred Common Exchangeable Paid in Retained Comprehensive Loan to Treasury
Stock Stock Shares Capital Earnings Income/(Loss) ESOT Stock
---------- ------- ------------ -------- -------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $25.5 $44.9 $ -- $ 563.1 $717.0 $(15.5) $(4.5) $(176.3)
Net income/(loss) -- -- -- -- (44.5) -- -- --
New issuance of stock -- 12.3 183.6 587.1 -- -- -- --
Retraction of exchangeable shares -- 1.1 (51.3) 50.2 -- -- -- --
Debt conversions to exchangeable
shares -- -- 0.3 -- -- -- -- --
Dividends on common stock ($.60
per share) -- -- -- -- (27.5) -- -- --
Dividends on preferred stock:
Series C ($6.30 per share) -- -- -- -- (1.7) -- -- --
Common stock issued for exercise
of stock options -- 0.2 -- 5.6 -- -- -- --
Tax benefit on exercise of stock
options -- -- -- 2.6 -- -- -- --
Reduction in loan to ESOT -- -- -- -- -- -- 1.4 --
Treasury stock used for employee
benefit
and dividend reinvestment plans -- -- -- -- -- -- -- 0.1
Foreign currency translation -- -- -- -- -- (5.2) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30, 1998 $ 25.5 $ 58.5 $ 132.6 $1,208.6 $ 643.3 $ (20.7) $ (3.1) $ (176.2)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
(5)
<PAGE> 6
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN MILLIONS OF US DOLLARS)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income / (loss) $ (44.5) $ 23.6
Adjustments to reconcile net income / (loss) to net
cash
provided by operating activities:
Depreciation, amortization and cost of timber harvested 154.1 126.2
Deferred income taxes (39.8) (1.6)
Minority interests 10.6 0.9
Gain from sale of timberlands (Note 8) (21.1) --
Write down of assets due to impairment (Note 7) 119.6 --
Write down of Canadian exchange options (Note 9) 22.7 --
Write off of long-term note receivable (Note 9) 15.0 --
Change in working capital:
Accounts receivable, net 2.9 (3.9)
Inventories (6.8) 21.5
Accounts payable and accrued liabilities (28.7) (23.0)
Income taxes payable (8.1) (11.4)
Other, net (9.6) (5.6)
Net cash from operating activities 166.3 126.7
-------- --------
Cash flows from investing activities:
Acquisition of Avenor Inc., net of cash acquired of
$118 million (Note 2) (675.0) --
Acquisition of Daebul newsprint mill (Note 2) (201.0) --
Cash invested in fixed assets, timber and timberlands (147.1) (70.6)
Disposition of fixed assets, timber and timberlands
(Note 8) 32.6 2.8
Disposition of Dryden (Note 2) 523.0 --
Cash invested in option contracts (Note 9) (22.7) --
Cash invested in marketable securities (40.9) (281.2)
Cash from maturities of marketable securities 217.3 350.0
Net cash from (used for) investing activities (313.8) 1.0
-------- --------
Cash flows from financing activities:
Cash dividends, including minority interests (Note 4) (45.7) (48.6)
Purchase of common stock (Note 12) -- (57.2)
Proceeds from short-term borrowings, net of fees 620.3 --
Payments of short-term borrowings (85.0) --
Payments of long-term debt (1.4) (1.3)
Stock options exercised 6.5 23.4
Redemption of LIBOR preferred stock (Note 13) -- (25.0)
Other 1.3 1.3
Net cash from (used for) financing activities 496.0 (107.4)
-------- --------
Net increase in cash and cash equivalents 348.5 20.3
Cash and cash equivalents at beginning of year 228.7 85.3
-------- --------
Cash and cash equivalents at end of period $ 577.2 $ 105.6
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest $ 54.3 $ 46.0
Income taxes $ 51.2 $ 27.3
</TABLE>
See accompanying notes to consolidated financial statements.
(6)
<PAGE> 7
BOWATER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements include the accounts
of Bowater Incorporated and Subsidiaries (the Company) as of September
30, 1998. The consolidated balance sheets, statements of operations,
capital accounts and cash flows are unaudited. However, in the opinion of
Company management, all adjustments (consisting of normal recurring
adjustments) necessary for fair presentation of the interim financial
statements have been made. The results of the interim period ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. On July 24, 1998, the Company completed its acquisition of Avenor Inc.
(Avenor), a Canadian pulp and paper company. The total purchase price,
including assumed debt (approximately $800.0 million), totaled $2.37
billion(C$3.54 billion). The Company utilized its existing cash reserves
of $168.0 million and $625.0 million of its new $1 billion credit facility
to fund the cash portion of the transaction. The Company also issued 12.3
million common shares and its indirect wholly owned subsidiary, Bowater
Canada Inc., issued 3.8 million exchangeable shares to fund the equity
portion of the transaction. At the option of the holder, the exchangeable
shares may be exchanged for Bowater common stock on a one-for- one basis.
The Company accounted for the transaction using the purchase method of
accounting. Accordingly, the assets and liabilities of the acquired
business were included in the Company's Consolidated Balance Sheet at
September 30, 1998. In addition, the operating results of Avenor for the
period July 24, 1998 to September 30, 1998 were included in the Company's
Consolidated Statement of Operations for the period ended September 30,
1998.
The purchase price to Avenor shareholders of $1,575.2 million was
calculated as follows:
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Cash from cash and cash equivalents $ 168.0
Proceeds from $1 billion short-term credit facility 625.0
Issuance of 12.3 million Bowater shares at $48.6636 per share 598.6
Issuance of 3.8 million shares exchangeable into Bowater shares
at US$48.6636 per share 183.6
--------
$1,575.2
========
</TABLE>
The purchase price to Avenor shareholders, plus transaction costs and
other accrued liabilities, the excess of fair value of liabilities
assumed over the historical book value, and the deferred tax
effect of applying purchase accounting at July 24, 1998, over the
historical net assets of Avenor was calculated as follows:
7
<PAGE> 8
BOWATER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Purchase price to Avenor shareholders $1,575.2
Estimated transaction costs 30.0
Additional accrued liabilities 57.4
Excess of fair value of long-term debt assumed over historical value 154.3
Excess of fair value of convertible debt over historical value 52.2
Deferred tax effect of applying purchase accounting 134.8
Less historical net assets (539.5)
--------
$1,464.4
========
</TABLE>
The above calculation of excess purchase price is preliminary. The Company
will finalize this allocation by July 24, 1999. As of July 24, 1998, the
excess purchase price was allocated as follows:
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Timber and timberlands $ 75.0
Fixed assets 425.0
Assets held for sale 101.4
Goodwill 863.0
--------
$1,464.4
========
</TABLE>
The timber and timberlands are being depleted as timber is harvested. The
fixed assets are being depreciated over twenty (20) years. The goodwill is
being amortized on a straight-line basis over forty (40) years. Additional
depreciation on the increase in fair market value of fixed assets acquired,
the amortization of goodwill, the amortization of the increase in fair
market value of debt assumed, and the amortization of the deferred tax
benefit relating to these charges totaled $5.6 million through September
30, 1998. These charges will be $7.5 million in the fourth quarter of 1998
and approximately $30.0 million in each of the next three years. The total
amount through the year 2037 will be approximately $1,075.0 million.
The following summarized unaudited pro forma financial information assumes
the acquisition had occurred on January 1 of each of the following years:
<TABLE>
<CAPTION>
PRO FORMA INFORMATION
(in millions of U.S. dollars, except per share data) Nine Months Ended September 30,
---------------------------------------------------- -------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 1,860.1 $1,904.8
Net loss $ (109.7) $ (103.6)
Diluted loss per share $ (1.94) $ (1.84)
</TABLE>
On September 30, 1998, the Company completed the sale of its Dryden pulp
and paper mill and related assets, which were part of the Avenor
acquisition, for $523.0 million. Upon acquisition, the Dryden assets were
accounted for as assets held for sale. Therefore, no gain or loss was
recorded upon the sale of such assets.
In October 1998, the Company announced that its Gold River pulp mill, which
had been shut down due to market conditions since August 23, would remain
shut and be permanently closed effective February 16, 1999. The costs
associated with closing this facility (U.S. $40 million after-tax), which
was acquired as part of the Avenor acquisition, were recorded as an
adjustment to the cost of the acquisition by increasing goodwill.
Also, on July 16, 1998, the Company completed the purchase of the Daebul
newsprint mill in South Korea for approximately $201.0 million and prepaid
a majority of the current accounts payable for approximately $22.0 million.
The Company utilized its existing cash reserves to fund the acquisition.
The investment was recorded at cost.
3. Included in other long-term liabilities at September 30, 1998, is an
unrealized loss of $119.2 million relating to a $1.5 billion hedging
program maintained by Avenor prior to the acquisition. Avenor entered into
forward and range forward contracts to protect future sales from increases
in the value of the Canadian dollar. Range forward contracts protect the
holder from exchange rate fluctuations outside a specified range. In
accordance with U.S. Generally Accepted Accounting Principles, these hedges
do not qualify for hedge accounting treatment and must be periodically
marked to market, with the resulting expense/income recognized in the
Consolidated Statement of Operations.
8
<PAGE> 9
BOWATER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Upon acquisition, the Company revalued the contracts at the exchange rate
in effect on July 24, 1998 (.6687), resulting in the recognition of an
unrealized loss of $93.2 million. This loss was included in the
calculation of goodwill. At September 30, 1998, the Canadian dollar
continued to weaken against the U.S. dollar and the exchange rate moved to
.6533. This resulted in an unrealized loss of $26.0 million, which has
been reflected in the Statement of Operations as of September 30, 1998. In
addition, the Company recorded a realized loss of $11.2 million on the
contracts which matured since July 24, 1998.
The unrealized loss and related liability will be adjusted in the future as
the U.S./Canadian dollar exchange rate fluctuates. For example, based on
the existing program at September 30, 1998, a $.01 change in the exchange
rate will increase/decrease the liability by approximately $20.0 million.
The following table summarizes the components of the hedging program:
<TABLE>
<CAPTION>
(in millions of US $)
-----------------------------
Type of Contract Contract
(average floor rate/average ceiling rate) Amount Unrealized Losses
----------- -----------------
<S> <C> <C> <C>
1998 Forward (average rate .7078) $ 53.2 $ 4.1
1998 Range forward (.7060/.7387) 150.5 11.3
----------- -----------------
203.7 15.4
----------- -----------------
1999 Range forward (.7123/.7450) 647.1 54.0
2000 Range forward (.7181/.7496) 457.8 41.6
2001 Range forward (.6839/.7138) 183.0 8.2
----------- -----------------
$1,491.6 $119.2
=========== =================
</TABLE>
4. During the first nine months of 1998, the Board of Directors of Calhoun
Newsprint Company (CNC) declared dividends totaling $40.4 million. As a
result, $19.8 million was paid to the minority shareholder. A primary
source of cash for these dividends came as a result of a sale of
approximately 26,000 acres of timberlands (See Note 8). In the first nine
months of 1997, $20.9 million was paid to the minority shareholder.
5. The Company is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims, and other matters. The Company periodically reviews
the status of these proceedings with both inside and outside counsel. The
Company's management believes that the ultimate disposition of these matters
will not have a material adverse effect on the Company's operations or its
financial condition taken as a whole.
6. In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This
statement requires the disclosure of comprehensive income items (which
include net income and certain changes in shareholders' equity) in the
Consolidated Statement of Operations. These additional disclosures do not
have an impact on the Company's results of operations or financial
condition.
7. In January of 1998, the Company announced plans to sell GNP's Millinocket,
Maine paper mill and related assets. The Company received several
unsolicited offers to buy all of the Great Northern Paper assets, including
the assets at its East Millinocket, Maine paper mill. Although none of the
offers were accepted, the Company reevaluated the assets at Millinocket for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets". Based on the reevaluation, the Company wrote down
the book value of the assets resulting in a third quarter charge of $119.6
million or $1.39 per diluted share.
9
<PAGE> 10
BOWATER INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. During the first quarter of 1998, the Company sold approximately 26,000
acres of non-strategic timberlands resulting in a pre-tax gain of $21.0
million, or $.16 per diluted share, after tax and minority interest.
9. During the third quarter of 1998, the Company recorded a reserve of $15.0
million ($.29 per diluted share) against a long-term note receivable.
During the third quarter of 1998, the Company recorded pre-tax foreign
currency exchange losses of $34.7 million or $.49 per diluted share.
Included in this charge are realized and unrealized exchange losses of $11.2
million and $26.0 million, respectively, relating to the hedging program
maintained by Avenor prior to the acquisition. See also Note 3.
During the first nine months of 1998, the Company adjusted the cost of its
purchased options on the Canadian dollar ($22.7 million) and realized a gain
on its Korean won foreign exchange contracts ($2.6 million) resulting in a
net pre-tax charge of $20.1 million.
10. The effective tax rates for the third quarter of 1998 and 1997 were 25 and
37 percent, respectively. The provision for income taxes has been increased
to reflect the non-deductibility of certain book charges and allowances for
tax benefits not currently expected to be realized.
11. The calculations of basic and diluted earnings per share for the three and
nine months ended September 30, 1998, include deductions of $.6 million and
$1.7 million, respectively, for Series C preferred stock dividends. Due to
the net losses incurred for both periods, all common stock equivalents were
excluded to prevent antidilution. For the three and nine months ended
September 30, 1997, the calculations included deductions of $.6 million and
$2.3 million, respectively, for any dividend requirements of the Company's
LIBOR and Series C preferred stock and the amortization of the difference
between the net proceeds from the LIBOR preferred stock and its mandatory
redemption value.
12. During the first quarter of 1997, the Company purchased 1.4 million shares
of common stock at a cost of $57.2 million, completing the stock repurchase
program authorized in February 1996. Since the beginning of the program,
4.0 million shares were purchased at a total cost of $156.0 million. In
November 1997, under a new stock repurchase program, 220,000 shares of
common stock were purchased at a cost of $9.6 million. In November 1998,
the Company purchased 1.0 million shares at a total cost of $42.6 million.
13. On May 12, 1997, the Company redeemed for cash all of the remaining
outstanding shares of LIBOR Preferred Stock, Series A, at its par value of
$50 per share.
10
<PAGE> 11
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
The Company reported a 1998 third quarter net loss of $88 million, or $1.69 per
diluted share. This compares to net income of $17 million, or $.40 per diluted
share in the third quarter of 1997 and net income of $19 million, or $.44 per
diluted share in the second quarter of 1998. Included in net loss for the
third quarter of 1998 was a pre-tax impairment charge of $120 million or $1.39
per diluted share, and a reserve of $15 million, or $.29 per diluted share,
against a long-term note receivable. In addition, the Company recorded pre-tax
foreign currency exchange losses of $35 million, or $.49 per diluted share.
Third quarter 1998 net sales were $577 million, compared to $379 million for
the third quarter of 1997 and $396 million for the second quarter of 1998.
PRODUCT LINE INFORMATION:
(Unaudited, in millions of U.S. dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -----------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales
Newsprint $335.9 $184.5 $ 716.3 $ 529.8
Coated groundwood 97.6 83.7 299.4 240.2
Directory paper 46.2 43.7 132.0 131.8
Market pulp 82.7 47.3 170.0 138.6
Uncoated groundwood specialties 16.0 10.5 33.8 33.7
Lumber and other wood products 40.4 36.6 102.8 97.3
Distribution costs (41.9) (27.7) (98.5) (87.9)
$576.9 $378.6 $1,355.8 $1,083.5
====== ====== ======== ========
Operating income/(loss) $(39.0) $ 40.4 $ 65.8 $ 73.8
====== ====== ======== ========
</TABLE>
11
<PAGE> 12
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998, VERSUS
SEPTEMBER 30, 1997
For the third quarter of 1998, the Company had an operating loss of $39
million, compared to operating income of $40 million in the third quarter of
1997. In the third quarter of 1998, the Company recorded an impairment charge
of $120 million reducing the book value of assets at its Millinocket, Maine
paper mill. Without the impairment charge, operating income increased. This
increase was due to higher average transaction prices for the Company's
newsprint and coated paper products and higher shipments of newsprint and market
pulp due to the Avenor acquisition. These improvements were offset by lower
market pulp prices.
PRODUCT LINE INFORMATION
Although all Company operations are grouped in a single segment, market and
operating trends are discussed by major product. In general, the Company's
products are globally traded commodities. Pricing and the level of shipments
of these products are influenced by the balance between supply and demand as
affected by global economic conditions, changes in consumption and capacity,
the level of customer and producer inventories, and fluctuations in exchange
rates.
The information provided in the following product line discussions
concerning market and industry conditions was obtained from the following
sources: the Newspaper Association of America; the Canadian Pulp and Paper
Association; the American Forest & Paper Association; the Media Industry
Newsletter; Pulp and Paper Week; and Random Lengths Yardstick publications.
This information is provided to enhance the reader's understanding of the
Company's financial results and the conditions under which these results were
achieved.
Newsprint - The Company's newsprint average transaction price in the third
quarter of 1998 was 2 percent higher than the same period last year, while it
decreased 3 percent compared to the second quarter of 1998. Comparing the
third quarters, tonnage shipments increased 78 percent due to the acquisitions
of Avenor and the Daebul newsprint mill. The increase in the average quarter
price versus last year was a result of higher U.S. consumption during the last
quarter of 1997, as well as the first nine months of 1998, which allowed the
Company to increase prices. The Company implemented a domestic price increase
of $35 per metric ton in the fourth quarter of 1997, and announced a domestic
price increase of $40 per metric ton effective April 1, 1998. Despite higher
U.S. consumption, the implementation of the April price increase was slower
than expected, continuing into the third quarter of 1998, as reduced demand in
the Asian market increased supply in the domestic market. Since late 1997, the
economies in Asian countries have slowed and were impacted by significant
currency devaluations, which reduced consumption and forced some producers to
divert export tonnage to the U.S. market. In addition, cheaper imports from
those areas became attractive to U.S. consumers. The decrease in the third
quarter 1998 average transaction price from the previous quarter was due to
lower Asian export prices.
Comparing the third quarter of 1998 to the third quarter of 1997,
consumption of newsprint by U.S. daily newspapers increased. Ad lineage for
U.S. daily newspapers also increased. At the end of the third quarter of 1998,
U.S. daily newspapers' newsprint inventory increased slightly compared to the
same time last year, while North American mill inventories decreased.
Coated Groundwood - The Company's coated groundwood average transaction price
in the third quarter of 1998 was 12 percent higher than the third quarter of
1997, and slightly lower compared to the second quarter of this year.
Favorable market conditions in 1997 allowed the Company to implement a price
increase of up to $40 per ton in October 1997 and another one in January of
1998 for $60 per ton. During the third quarter of 1998, however, prices in the
coated groundwood paper market began to decline, as the supply of paper
outpaced demand due to a higher volume of coated paper imports and increased
capacity of competing paper grades. The Company's average transaction price
declined in October 1998 compared to the third quarter average transaction
price. U.S. coated groundwood shipments decreased in the third quarter of 1998
compared to the same period last year, while U.S. coated groundwood mill
inventory levels increased.
Directory Paper - The Company's third quarter average transaction price for
directory paper increased 2 percent from the third quarter of 1997 and
decreased 2 percent in comparison to the second
12
<PAGE> 13
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
quarter of 1998. Minor fluctuations in the Company's average transaction
price are normally caused by the mix of different grades sold. In addition,
changes in market conditions caused by conservation measures and global
economies also impact transaction pricing.
Market Pulp - Upon the acquisition of Avenor, the Company now produces and
sells northern hardwood and northern softwood market pulp. The Company's
market pulp average transaction price for the third quarter of 1998 decreased
14 percent from the third quarter of 1997, and 3 percent from the second
quarter of 1998. Tonnage shipments increased over 100 percent due to the
acquisition of Avenor. In the fourth quarter of 1997, the devaluation of Asian
currencies negatively affected pulp consumption in the export market and pulp
pricing in the global market. Lower consumption, leading to an excess of
supply, caused prices to decline. This continued into the first nine months of
1998. In August and again in October 1998, the Company lowered its U.S. price
of northern market pulp by $25 per metric ton. In the third quarter of 1998,
NORSCAN (U.S., Canada, Finland, Norway and Sweden producers) inventory levels
of market pulp were higher compared to the year ago period, while NORSCAN
shipments of market pulp were lower comparing the same periods.
Lumber - The average transaction price for the Company's lumber products
decreased in the third quarter of 1998 compared to the year ago period. During
the third quarter of 1998, U.S. lumber prices continued to decline, as supply
outpaced demand. This imbalance was directly related to a steep decline in
Japanese housing construction caused by the Asian economic crisis, which forced
U.S. producers to divert exports to the U.S. market. U.S. lumber consumption
in 1998, although strong, has not been able to absorb the excess supply.
COST OF SALES AND OTHER INCOME AND EXPENSES
Cost of sales increased $134 million or 48 percent in the third quarter of 1998
compared to the third quarter of last year. The large increase is a result of
the additional amounts of newsprint, market pulp and lumber sold in the third
quarter from the newly acquired companies. Comparing the same periods, selling
and administrative expenses increased $.7 million or 4 percent. This increase
was also due to the acquisitions; however, the increase was partially offset by
lower professional and consulting fees and lower charges for employee fringe
benefits, which are linked to the Company's common share price. Interest
expense for the third quarter of 1998 compared to the same period last year
increased $11 million or 64 percent due to the assumption of Avenor's debt and
borrowings on the Company's credit facility used to pay in part for the Avenor
acquisition. Comparing the same periods, interest income decreased $3 million
as the Company reduced its cash investments in the third quarter to purchase the
Daebul newsprint mill in South Korea. "Other expense, net" for the third
quarter of 1998 increased $50 million compared to the prior year. During the
third quarter, the Company recorded a reserve of $15 million against a long-term
note receivable and recorded foreign currency losses of $35 million. The
majority of the foreign currency losses resulted from marking to market a $1.5
billion hedging program maintained by Avenor prior to the acquisition. See
Note 3 on page 8 for information relating to the hedging program.
The Company's effective tax rate for the third quarter of 1998 was 25
percent versus 37 percent in the prior year third quarter. In the third
quarter of 1998, the Company reduced the tax benefit recorded to reflect the
non-deductibility of certain book charges and allowances for tax benefits not
currently expected to be realized.
NINE MONTHS ENDED SEPTEMBER 30, 1998, VERSUS
SEPTEMBER 30, 1997
For the first nine months of 1998, the Company's operating income of $66
million decreased $8 million compared to the first nine months of 1997. In the
first nine months of 1998, the Company recorded an impairment charge of $120
million reducing the book value of assets at its Millinocket, Maine paper mill.
Without the impairment charge, operating income increased. This increase was
due to higher average transaction prices for the Company's newsprint and coated
paper products and higher shipments of newsprint and market pulp due to the
Avenor acquisition. These improvements were offset by lower market pulp
prices.
13
<PAGE> 14
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRODUCT LINE INFORMATION
Newsprint - For the first nine months of 1998, the Company's newsprint average
transaction price increased 8 percent compared to the same period last year.
Comparing the same periods, tonnage shipments increased 25 percent, reflecting
the additional volumes from the acquisitions. Higher U.S. consumption in the
latter part of 1997 enabled the Company to implement a fourth quarter 1997
domestic price increase of $35 per metric ton. The consumption trend continued
and in April 1998, the Company announced another domestic price increase of $40
per metric ton. This price increase took longer to implement as reduced
consumption in the export market increased supply in the domestic market.
Since late 1997, the economies in Asian countries have slowed and were impacted
by significant currency devaluations, which reduced consumption and forced
some producers to divert export tonnage to the U.S. market. In addition,
cheaper imports from those areas became attractive to U.S. consumers. Total
U.S. newsprint consumption and U. S. dailies' newsprint consumption increased
during the first nine months of 1998 compared to the same period in 1997.
Coated Groundwood - The Company's coated groundwood average transaction price
increased 20 percent during the first nine months of 1998 compared to the year
ago period, while shipments increased 3 percent. In 1997, demand in the coated
groundwood paper market increased from the lower levels experienced in the
prior year. This trend continued into the first half of 1998, allowing the
Company to increase prices $100 per ton since the third quarter of 1997.
However, in the third quarter of 1998, lower demand, increased inventories, and
rising imports caused supply to exceed demand. At the end of the third quarter
of 1998, U.S. coated groundwood mill inventory levels increased significantly
from the second quarter of this year.
Directory Paper - The Company's average transaction price for directory paper
decreased 2 percent in the first nine months of 1998 compared to the first nine
months of 1997. A large portion of the Company's directory paper sales is
based on contracts, the pricing of which was determined in earlier periods. In
1997, conservation measures by end users reduced their consumption, causing
directory paper prices to decrease. In addition, the mix of different grades
sold impacts the average transaction price from period to period.
Market Pulp - The average transaction price for the Company's market pulp
decreased 7 percent in the first nine months of 1998 compared to the first nine
months of 1997. Tonnage shipments increased 31 percent comparing the same
periods due to the Avenor acquisition. The economic crisis in Asia has
negatively affected consumption and pricing in the pulp markets over the past
twelve months. NORSCAN market pulp shipments decreased in the first nine
months of 1998 compared to the same period last year, while inventory levels
increased significantly.
Lumber - The average transaction price for the Company's lumber products
decreased in the first nine months of 1998 compared to the year ago period. In
the third quarter of 1997, prices in the U.S. lumber market began to decrease,
as a decline in the Japanese housing market forced producers to divert lumber
to the U.S. market, causing an oversupply. The effects of this continued into
the first nine months of 1998, causing prices to decline. U.S. lumber
consumption has been strong during the first nine months of 1998; however, it
has not replaced all of the consumption shortfall caused by the Japanese
housing market.
COST OF SALES AND OTHER INCOME AND EXPENSES
Cost of sales increased $136 million in the first nine months of 1998 compared
to the first nine months of 1997. The large increase is due to the additional
tons of product sold from the newly acquired companies. Comparing the same
periods, selling and administrative expenses decreased $3 million due to lower
professional and consulting fees and lower charges for employee fringe
benefits, which are linked to the Company's common share price. This was
partially offset by additional expenses from the acquisitions. Interest
expense for the first nine months of 1998 compared to the same period last year
increased $11 million, while interest income decreased $1 million. These
changes are a direct result of the acquisitions of Avenor and the Daebul
newsprint mill as the Company borrowed from its $1
14
<PAGE> 15
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
billion credit facility, assumed Avenor's debt and used available cash balances
to fund the transactions.
In the first nine months of 1998, Calhoun Newsprint Company (CNC) (a joint
venture in which the Company holds a 51 percent interest) sold approximately
26,000 acres of non-strategic timberlands resulting in a pre-tax gain of $21
million. No such sales were made in the corresponding period in 1997.
Included in "other expense, net" for the first nine months of 1998 is the
Company's adjustment of the cost of its Canadian dollar option contracts to
fair market value. This resulted in a pre-tax charge of $23 million. In
addition, the Company recorded a reserve of $15 million against a long-term
note receivable and recorded foreign currency losses of $36 million. The
majority of the foreign currency losses were the result of marking to market a
$1.5 billion hedging program maintained by Avenor prior to the acquisition.
See Note 3 on page 8 for information relating to the hedging program.
In the first nine months of 1998, the Company reduced the tax benefit
recorded to reflect the non-deductibility of certain book charges and
allowances for tax benefits not currently expected to be realized.
In the prior year period, the effective tax rate was 37 percent.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance on
September 30, 1998, totaled $578 million compared to $406 million on December
31, 1997, and $382 million on September 30, 1997. Aside from cash flow from
operations and capital expenditures, the Company had several other significant
cash transactions since December 31, 1997. These transactions include: cash of
$675 million for the purchase of Avenor; cash of $201 million for the purchase
of the Daebul newsprint mill; the sale of the Dryden white paper mill with
proceeds of $523 million; net proceeds from short term borrowings of $535
million; the sale of 26,000 acres of non-strategic timberlands with proceeds of
$31 million; the purchase of currency options on the Canadian dollar for $23
million to hedge the Company's acquisition of Avenor; and a $20 million
dividend payment to the minority shareholder of CNC.
CASH FROM OPERATING ACTIVITIES:
During the first nine months of 1998, the Company's operations generated $166
million of cash compared to $127 million of cash during the first nine months
of 1997, an increase of $39 million. This increase was primarily the result of
an increase in operating income of $112 million (excluding the non-cash
impairment charge of $120 million), offset by changes in net interest paid,
taxes paid and working capital balances.
CASH FROM INVESTING ACTIVITIES:
Cash flow from investing activities in the first nine months of 1998 was an
outflow of $314 million compared to an inflow of $1 million in the first nine
months of last year. Comparing the same periods, capital expenditures were $77
million higher, due mainly to the modernization of the Calhoun, Tennessee
newsprint facility. The Company expects total capital expenditures for 1998 to
approximate $220 million, excluding the acquisition of Avenor and the Daebul
newsprint mill.
In the first nine months of 1998, the Company acquired Avenor and the
Daebul newsprint mill requiring total cash outflows of $876 million. During
the same period, the Company sold the Dryden white paper mill, which was
acquired upon the acquisition of Avenor, for $523 million. The Company also
sold 26,000 acres of non-strategic timberlands resulting in proceeds of $31
million. The Company's Forest Products Division periodically reviews
timberland holdings and makes decisions to sell certain non-strategic tracts.
In the first nine months of 1998, $176 million of net cash flow was from
the maturity of marketable securities versus $69 million in the first nine
months of 1997. Offsetting this in 1998 was a cash outflow of $23 million for
the purchase of currency options on the Canadian dollar to hedge the Company's
acquisition of Avenor.
CASH FROM FINANCING ACTIVITIES:
Cash flow from financing activities was $496 million for the first nine months
of 1998 compared to a cash outflow of $107 million for the first nine months of
1997. During the third quarter of 1998, the Company borrowed $620 million, net
of financing fees, from its $1 billion credit facility to fund the acquisition
of Avenor. During the third quarter, the Company repaid $85 million of the
borrowing. Subsequently, the Company repaid an additional $465 million,
leaving a balance of $75 million outstanding on October 31, 1998. During the
first nine months of 1997, the Company purchased 1.4 million common shares at a
cost of $57 million. In November 1997, the Company announced the adoption of a
new stock repurchase program, authorizing it to repurchase up to 4.1 million
shares of the Company's outstanding
15
<PAGE> 16
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
common stock in the open market or in privately-negotiated transactions
subject to normal trading restrictions. Since January 1, 1998 through
September 30, 1998, no purchases under the program have been made. In
November 1998, the Company purchased 1.0 million shares at a total cost of
$43 million. The Company continues to consider the most effective use of its
cash for internal capital investments, share repurchases, investments to grow
the Company's primary product lines and additional debt reductions.
In the first nine months of 1997, the Company redeemed for cash the
remaining 500,000 outstanding shares of LIBOR Preferred Stock at a cost of $25
million and realized $17 million more cash from the exercise of stock options
versus the same period in 1998.
ACQUISITIONS/DISPOSITION
On July 15, 1998, the Company completed the acquisition of the Daebul newsprint
mill, which is located on the southwest coast of South Korea. Using its
existing cash reserves, the Company purchased the production assets of the mill
for approximately $201 million and pre-paid the majority of the current
accounts payable for approximately $22 million as required by the court in the
seller's bankruptcy proceedings. Upon closing, the mill was free and clear of
all indebtedness.
On July 24, 1998, the Company completed the acquisition of Avenor. The
total purchase price, including assumed debt totaled $2.37 billion (C$3.54
billion) or $23.46 (C$35.00) per Avenor common share. The Company utilized
$168 million of its existing cash reserves and $625 million of its new $1
billion credit facility to fund the cash portion of the transaction. In
addition, the Company issued 12.3 million common shares and its indirect
wholly-owned subsidiary, Bowater Canada Inc., issued 3.8 million
exchangeable shares to fund the equity portion of the transaction.
On September 30, 1998, the Company sold the recently acquired pulp and
paper mill and related assets in Dryden, Ontario, for C$790 million
(approximately US$520 million). The Company used a substantial portion of the
proceeds to repay its borrowings under the $1 billion credit facility
subsequent to quarter-end.
With the completion of these acquisitions and the Dryden disposition, the
Company consists of 11 pulp and paper mills in the United States, Canada and
South Korea. These operations are currently supported by more than 4 million
acres of timberlands owned in the United States and Canada and over 14 million
acres of timber cutting rights in Canada. The Company has doubled its annual
newsprint and groundwood paper making capacity and is now the second largest
newsprint producer in the world and the sixth largest market pulp producer in
North America.
GREAT NORTHERN PAPER
In October 1998, the Company reported that it would proceed with its previously
announced $220 million modernization program for Great Northern Paper at its
East Millinocket, Maine pulp and paper mill complex. Earlier this year, the
Company reported that it had received unsolicited offers to buy its Great
Northern Paper assets in Maine. However, after thoroughly reviewing the
proposals following completion of its Avenor acquisition, the Company concluded
that its investment plans for the East Millinocket facility will bring the most
value to the Company and its shareholders. The Millinocket mill, however, will
remain available for sale. In the third quarter of 1998, the Company recorded
an impairment charge of $120 million to write-down the book value of the
Millinocket mill.
Also in October, the Company announced that it will pursue timber
monetization opportunities for a substantial amount of its acreage in Maine.
Subsequently, the Company announced the sale of 1.7 million acres of its Maine
timberlands and the Pinkham Lumber Company sawmill for an aggregate purchase
price of $375 million. As part of these sale transactions, the Company and the
prospective buyers will enter into agreements to supply the Company's Great
Northern Paper paper making operations with wood fiber from the purchased
timberlands. The proceeds will be used for the reduction of debt, repurchase
of common shares and other strategic purposes. The Company expects to close
these transactions in the first quarter of 1999.
GOLD RIVER MILL CLOSURE
In October 1998, the Company announced that its Gold River pulp mill, which had
been shut down due to market conditions since August 23, would remain shut and
be permanently closed effective February 16, 1999. The costs associated with
closing this facility (U.S. $40 million after-tax), which was acquired as part
of the Avenor acquisition, were recorded as an adjustment to the cost of the
acquisition by increasing goodwill.
16
<PAGE> 17
BOWATER INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 COMPLIANCE
Since 1990, the Company has reengineered its major internally developed software
programs. During this effort, the Company examined potential problems arising
from the inability of certain application software programs to recognize the
year 2000. A formal review of all internally developed software was completed
in 1997 and system wide testing was completed in September 1998. No major
problems were encountered. Business processes from the Company's newly acquired
properties are being migrated to these applications and are scheduled to be
operational during the first quarter of 1999. In addition, all major
third-party licensed application software programs have been reviewed and are
either compliant or the licenser has released a compliant version to which the
Company will migrate by mid-year 1999. The costs associated with these projects
are currently estimated to be $4 million. As of September 30, 1998, $2 million
has been spent.
An expanded team was also established to review other phases of the
Company's year 2000 work, which include manufacturing process control,
manufacturing equipment and systems, suppliers, business partners, customers,
safety, environmental, and other non-traditional information systems areas. The
Company currently estimates these costs to be in the range of $5 million to $7
million. As of September 30, 1998, $2 million has been spent.
The cost estimates to complete the Company's year 2000 projects do not
include any internal costs incurred such as payroll costs for the Company's
information systems group. Although these costs are not separately tracked,
the Company has devoted a substantial amount of its internal resources to
complete these projects.
The Company plans to complete all of its major year 2000 compliance work by
mid-year 1999. In connection with its year 2000 compliance program, the Company
will be developing a contingency plan in the event any aspect of the program
proves to be ineffective in solving the year 2000 compliance problems. The
Company will complete this plan in October 1999.
The Company's year 2000 compliance projects were designed and implemented
to prevent an interruption of normal business activities or operations due to a
system's inability to recognize the year 2000. Despite these efforts, if a
material year 2000 problem does occur, it could materially adversely affect the
Company's results of operations, liquidity or financial condition.
The following is a cautionary statement for purposes of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The
Company is including this statement to take advantage of these provisions for
forward looking statements regarding its year 2000 compliance. In its
disclosure, the Company stated estimated completion dates and costs to complete
the project based on assumptions it believes to be reasonable. These estimates
and assumptions almost always vary from actual results and the difference
between the estimate and the actual result may be material, depending on the
circumstances. Although made in good faith, there can be no assurance that the
estimates and assumptions will be the actual result achieved or accomplished.
Factors that could cause results to differ materially from those expressed in
the forward looking statements include (but are not limited to), the ability to
verify year 2000 compliance by third parties including suppliers, the ability
to locate and correct all relevant computer code, and the ability to identify
all areas of year 2000 risks.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires a public company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company is
required to adopt this standard in the third quarter of 1999. The Company has
not yet assessed the impact this standard will have on its financial condition
or results of operations at the time of adoption; however, the impact will
ultimately depend on the amount and type of derivative instruments held at the
time of adoption.
17
<PAGE> 18
BOWATER INCORPORATED AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
Exhibit No. Description
- ----------- -----------
2.1 Amended and Restated Arrangement Agreement dated as of March 9, 1998,
by and between the Company and Avenor Inc. (incorporated by reference to
Annex D of the Joint Management Information Circular and Proxy Statement
filed on June 18, 1998, on Schedule 14A).
2.2 Asset Purchase Agreement dated August 4, 1998, by and between Bowater
Pulp and Paper Canada Inc., Bowater Incorporated, Weyerhaeuser Canada
Ltd. and Weyerhaeuser Company (incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated September 30, 1998,
File No. 1-8712 (the "8-K")). Schedules have been omitted but will
be furnished supplementally to the Commission upon request.
2.2.1 Amending Agreement made September 30, 1998, by and between Bowater Pulp
and Paper Canada Inc., Bowater Incorporated, Weyerhaeuser Canada Ltd.
and Weyerhaeuser Company (incorporated by reference to Exhibit 2.1.1
to the 8-K).
10.1 Employment Agreement, dated as of August 1, 1998, by and between the
Company and James H. Dorton.
10.2 Change in Control Agreement, dated as of August 1, 1998, by and between
the Company and James H. Dorton.
10.3 Employment Agreement, dated as of August 1, 1998, by and between the
Company and William G. Harvey.
10.4 Change in Control Agreement, dated as of August 1, 1998, by and between
the Company and William G. Harvey.
10.5 Employment Agreement, dated as of July 24,1998, by and between the
Company and David J. Steuart.
10.6 Change in Control Agreement, dated as of July 24, 1998, by and between
the Company and David J. Steuart.
27.1 Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K:
The Company filed with the Securities and Exchange Commission Current
Report on Form 8-K as follows:
On October 15, 1998, the Company filed a current report on Form 8-K
dated September 30, 1998, to report the completion of the Dryden
Mill sale.
18
<PAGE> 19
BOWATER INCORPORATED AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOWATER INCORPORATED
By /s/ David G. Maffucci
-----------------------------
David G. Maffucci
Senior Vice President and
Chief Financial Officer
By /s/ Michael F. Nocito
-----------------------------
Michael F. Nocito
Vice President and Controller
Dated: November 16, 1998
19
<PAGE> 20
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
2.1 Amended and Restated Arrangement Agreement dated as of March 9, 1998,
by and between the Company and Avenor Inc. (incorporated by reference to
Annex D of the Joint Management Information Circular and Proxy Statement
filed on June 18, 1998, on Schedule 14A).
2.2 Asset Purchase Agreement dated August 4, 1998, by and between Bowater
Pulp and Paper Canada Inc., Bowater Incorporated, Weyerhaeuser Canada
Ltd. and
Weyerhaeuser Company (incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated September 30,1998,
File No. 1-8712 (the "8-K")). Schedules have been omitted but will
be furnished supplementally to the Commission upon request.
2.2.1 Amending Agreement made September 30, 1998, by and between Bowater
Pulp and Paper Canada Inc., Bowater Incorporated, Weyerhaeuser Canada
Ltd. and Weyerhaeuser Company (incorporated by reference to Exhibit
2.1.1 to the 8-K).
10.1 Employment Agreement, dated as of August 1, 1998, by and between the
Company and James H. Dorton.
10.2 Change in Control Agreement, dated as of August 1, 1998, by and between
the Company and James H. Dorton.
10.3 Employment Agreement, dated as of August 1, 1998, by and between the
Company and William G. Harvey.
10.4 Change in Control Agreement, dated as of August 1, 1998, by and between
the Company and William G. Harvey.
10.5 Employment Agreement, dated as of July 24,1998, by and between the
Company and David J. Steuart.
10.6 Change in Control Agreement, dated as of July 24, 1998, by and between
the Company and David J. Steuart.
27.1 Financial Data Schedule (electronic filing only).
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 1st day of August, 1998, by and
between BOWATER INCORPORATED, a Delaware corporation having a mailing address of
55 East Camperdown Way, Greenville, South Carolina 29601 (the "Corporation"),
and James H. Dorton, 10 Hidden Oak, Simpsonville, SC 29681 (the "Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President - Corporate Development & Strategy; and
WHEREAS, the Executive is desirous of serving the Corporation in such
capacity;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. During the term of this Agreement the Corporation agrees
to continue to employ the Executive, and the Executive agrees to continue in the
employ of the Corporation, in accordance with and subject to the provisions of
this Agreement.
2. Term.
(a) Subject to the provisions of subparagraphs (b) and (c) of this
Section 2, the term of this Agreement shall begin on the Date
hereof and shall continue thereafter until terminated by
either party by written notice given to the other party at
least thirty (30) days prior to the effective date of any such
termination. The effective date of the termination shall be
the date stated in such notice, provided that if the
Corporation specifies an effective date that is more than
thirty (30) days following the date of such notice, the
Executive may, upon thirty (30) days' written notice to the
Corporation, accelerate the effective date of such
termination.
(b) Notwithstanding Section 2(a), upon the occurrence of a Change
in Control as defined in the Change in Control Agreement of
even date herewith between the Corporation and the Executive
(the "Change in Control Agreement"), the term of this
Agreement shall be deemed to continue until terminated, but in
any event, for a period of not less than three (3) years
following the date of the Change in Control, unless such
termination shall be at the Executive's election for other
than "Good Reason" as that term is defined in the Change in
Control Agreement.
(c) Notwithstanding Section 2(a), the term of this Agreement shall
end upon:
1
<PAGE> 2
(i) the death of the Executive;
(ii) the inability of the Executive to perform his duties
properly, whether by reason of ill-health, accident
or other cause, for a period of one hundred and
eighty (180) consecutive days or for periods totaling
one hundred and eighty (180) days occurring within
any twelve (12) consecutive calendar months; or
(iii) the Executive's retirement on his early or normal
retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President - Corporate Development & Strategy, of Bowater
Incorporated (Salary Grade 32), with the duties and responsibilities customarily
attendant to that office, provided that the Executive shall undertake such other
and further assignments and responsibilities of at least comparable status as
the Board of Directors may direct. The Executive shall diligently and faithfully
devote his full working time and best efforts to the performance of the services
under this Agreement and to the furtherance of the best interests of the
Corporation.
4. Place of Employment. The Executive will be employed at the
Corporation's offices in the City of Greenville, South Carolina or at such other
place as the Corporation shall designate from time to time, provided, however,
that if the Executive is transferred to another place of employment,
necessitating a change in his residence, the Executive shall be entitled to
financial assistance in accordance with the terms of the Corporation's
relocation policy then in effect.
5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the Executive a base
salary of $200,000.00 payable in substantially equal periodic
installments on the Corporation's regular payroll dates. The
Executive's base salary shall be reviewed at least annually
and from time to time may be increased (or reduced, if such
reduction is effected pursuant to across-the-board salary
reductions similarly affecting all management personnel of the
Corporation).
(b) Bonus Plan. In addition to his base salary, the Executive
shall be entitled to receive an annual bonus under the
Corporation's bonus plan in effect from time to time
determined in the manner, at the time, and in the amounts set
forth under such plan.
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(c) Benefit Plans. The Corporation shall make contributions on the
Executive's behalf to the various benefit plans and programs
of the Corporation in which the Executive is eligible to
participate in accordance with the provisions thereof as in
effect from time to time.
(d) Vacations. The Executive shall be entitled to paid vacation,
in keeping with the Corporate policy as in effect from time to
time, to be taken at such time or times as may be approved by
the Corporation.
(e) Expenses. The Corporation shall reimburse the Executive for
all reasonable expenses properly incurred, and appropriately
documented, by the Executive in connection with the business
of the Corporation.
(f) Perquisites. The Corporation shall make available to the
Executive all perquisites to which he is entitled by virtue of
his position.
6. Nondisclosure. During and after the term of this Agreement, the
Executive shall not, without the written consent of the Board of Directors of
the Corporation, disclose or use directly or indirectly, (except in the course
of employment hereunder and in furtherance of the business of the Corporation or
any of its subsidiaries and affiliates) any of the trade secrets or other
confidential information or proprietary data of the Corporation or its
subsidiaries or affiliates; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same or similar
businesses.
7. Noncompetition. During the term of this Agreement, and for a period
of one (1) year after the date the Executive's employment terminates, the
Executive shall not, without the prior approval of the Board of Directors of the
Corporation in the same or a similar capacity engage in or invest in, or aid or
assist anyone else in the conduct of any business (other than the businesses of
the Corporation and its subsidiaries and affiliates) which directly competes
with the business of the Corporation and its subsidiaries and affiliates as
conducted during the term hereof. If any court of competent jurisdiction shall
determine that any of the provisions of this Section 7 shall not be enforceable
because of the duration or scope thereof, the parties hereto agree that said
court shall have the power to reduce the duration and scope of such provision to
the extent necessary to make it enforceable and this Agreement in its reduced
form shall be valid and enforceable to the extent permitted by law. The
Executive acknowledges that the Corporation's remedy at law for a breach by the
Executive of the provisions of this Section 7 will be inadequate. Accordingly,
in the event of the breach or threatened breach by the Executive of this Section
7, the Corporation shall be entitled to injunctive relief in addition to any
other remedy it may have.
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8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless the Corporation shall have terminated the Executive for
"Cause", the Corporation shall pay the Executive severance pay in an amount
equal to twenty-four (24) months of the Executive's base salary on the effective
date of the termination, plus 1/12 of the amount of the last annual bonus paid
to the Executive under the Corporation's bonus plan applicable to the Executive
for each month in the period beginning on January 1 of the year in which the
date of the termination occurs and ending on the date of the termination and for
each months' base salary to which the Executive is entitled under this Section
8, provided, however, that any amount paid to the Executive by the Corporation
for services rendered subsequent to the thirtieth (30th) day following the
communication to the Executive of notice of termination shall be deducted from
the severance pay otherwise due hereunder. Such payment shall be made in a lump
sum within ten (10) business days following the effective date of the
termination. The severance pay shall be in lieu of all other compensation or
payments of any kind relating to the termination of the Executive's employment
hereunder; provided that the Executive's entitlement to compensation or payments
under the Corporation's retirement plans, stock option or incentive plans,
savings plans or bonus plans attributable to service rendered prior to the
effective date of the termination shall not be affected by this clause and shall
continue to be governed by the applicable provisions of such plans; and further
provided that in lieu hereof, at his election, the Executive shall be entitled
to the benefits of the Change in Control Agreement of even date hereof between
the Corporation and the Executive, if termination occurs in a manner and at a
time when such Change in Control Agreement is applicable. For purposes of this
Agreement, the term for "Cause" shall mean because of gross negligence or
willful misconduct by the Executive either in the course of his employment
hereunder or which has a material adverse effect on the Corporation or the
Executive's ability to perform adequately and effectively his duties hereunder.
9. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered or mailed, by registered or certified mail, return receipt requested
to the respective addresses of the parties set forth above, or to such other
address as any party hereto shall designate to the other party in writing
pursuant to the terms of this Section 9.
10. Severability. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision.
11. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of Delaware.
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12. Supersedure. This Agreement shall cancel and supersede all prior
agreements relating to employment between the Executive and the Corporation,
except the Change in Control Agreement.
13. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Richard F. Frisch /s/ James H. Dorton
---------------------------------- -----------------------------
Richard F. Frisch James H. Dorton
Its: Vice President - Human Resources
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EXHIBIT 10.2
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 1st day of August, 1998, by and between
Bowater Incorporated, a Delaware corporation having a mailing address of 55 East
Camperdown Way, Greenville, South Carolina 29601 (the "Corporation"), and James
H. Dorton of 10 Hidden Oak, Simpsonville, SC 29681 (the "Executive").
WHEREAS, the Corporation considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(a) "Acquiring Person" means the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the
combined voting power of the Corporation's then outstanding
securities, not including (except as provided in Clause (i) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing
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5% or more of the combined voting power of the Corporation's
then outstanding securities. Notwithstanding the foregoing,
(i) securities acquired pursuant to an agreement described in
the preceding sentence will be included in determining whether
a Beneficial Owner is an Acquiring Person if, subsequent to
the approved acquisition, the Beneficial Owner acquires 5% or
more of such voting power other than pursuant to such an
agreement so approved and (ii) a Person shall not be an
Acquiring Person if such Person is eligible to and files a
Schedule 13G with respect to such Person's status as a
Beneficial Owner of all Common Stock of the Corporation of
which the Person is a Beneficial Owner.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (the
"Act").
(c) A "Beneficial Owner" of Common Stock means (i) a Person who
beneficially owns such Common Stock, directly or indirectly,
or (ii) a Person who has the right to acquire such Common
Stock (whether such right is exercisable immediately or only
with the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing or
upon the exercise of conversion rights, exchange rights,
warrants, options or otherwise.
(d) "Cause" shall mean and be limited to the Executive's gross
negligence, willful misconduct or conviction of a felony,
which negligence, misconduct or conviction has a demonstrable
and material adverse effect upon the Corporation, provided
that, to the extent that the Corporation contends that Cause
exists by virtue of Executive's gross negligence or willful
misconduct, and such gross negligence or willful misconduct is
capable of being cured, the Corporation shall have given the
Executive written notice of the alleged negligence or
misconduct and the Executive shall have failed to cure such
negligence or misconduct within thirty (30) days after his
receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date
stated in a written notice of such termination delivered by
the Corporation to the Executive (which notice shall not be
delivered before the end of the thirty (30) day period
described in the preceding sentence, if applicable) and
accompanied by a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the
Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for the Executive's
termination, provided that the effective date shall not be
less than thirty (30) days from the date such notice is given.
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(e) "Change in Control" of the Corporation shall be deemed to have
occurred if:
(i) any Person is or becomes an Acquiring Person;
(ii) less than two-thirds (2/3) of the total membership of
the Board shall be Continuing Directors; or
(iii) the stockholders of the Corporation shall approve a
merger or consolidation of the Corporation or a plan
of complete liquidation of the Corporation or an
agreement for the sale or disposition by the
Corporation of all or substantially all of the
Corporation's assets.
(f) "Commencement Date" shall mean the date of this Agreement,
which shall be the beginning date of the term of this
Agreement.
(g) "Continuing Directors" shall mean any member of the Board who
(i) was a member of the Board prior to the date of the event
that would constitute a Change in Control, and any successor
of a Continuing Director while such successor is a member of
the Board, (ii) is not an Acquiring Person or an Affiliate or
Associate of an Acquiring Person, and (iii) is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors.
(h) "Disability" shall mean the Executive's total and permanent
disability as defined in the Corporation's long term
disability insurance policy covering the Executive immediately
prior to the Change in Control.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934
as amended.
(j) "Good Reason" shall mean:
(i) an adverse change in the Executive's status, duties
or responsibilities as an executive of the
Corporation as in effect immediately prior to the
Change in Control, provided that the Executive shall
have given the Corporation written notice of the
alleged adverse change and the Corporation shall have
failed to cure such change within thirty (30) days
after its receipt of such notice;
(ii) failure of the Corporation to pay or provide the
Executive in a timely fashion the salary or benefits
to which he is entitled under any Employment
Agreement between the Corporation and the
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Executive in effect on the date of the Change in
Control, or under any benefit plans or policies in
which the Executive was participating at the time of
the Change in Control (including, without limitation,
any incentive, bonus, stock option, restricted stock,
health, accident, disability, life insurance, thrift,
vacation pay, deferred compensation and retirement
plans or policies);
(iii) the reduction of the Executive's salary as in effect
on the date of the Change in Control;
(iv) the taking of any action by the Corporation
(including the elimination of a plan without
providing substitutes therefor, the reduction of the
Executive's awards thereunder or failure to continue
the Executive's participation therein) that would
substantially diminish the aggregate projected value
of the Executive's awards or benefits under the
Corporation's benefit plans or policies described in
Section 1(j)(ii) in which the Executive was
participating at the time of the Change in Control;
(v) a failure by the Corporation to obtain from any
successor the assent to this Agreement contemplated
by Section 5 hereof; or
(vi) the relocation of the principal office at which the
Executive is to perform his services on behalf of the
Corporation to a location more than thirty-five (35)
miles from its location immediately prior to the
Change in Control or a substantial increase in the
Executive's business travel obligations subsequent to
the Change in Control.
Any circumstance described in this Section 1(j) shall
constitute Good Reason even if such circumstance would not
constitute a breach by the Corporation of the terms of the
Employment Agreement between the Corporation and the Executive
in effect on the date of the Change in Control. The Executive
shall be deemed to have terminated his employment for Good
Reason effective upon the effective date stated in a written
notice of such termination given by him to the Corporation
(which notice shall not be given, in circumstances described
in Section 1(j)(i), before the end of the thirty (30) day
period described therein) setting forth in reasonable detail
the facts and circumstances claimed to provide the basis for
termination, provided that the effective date may not precede,
nor be more than sixty (60) days from, the date such notice is
given. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to,
any circumstances constituting Good Reason hereunder.
(k) "Normal Retirement Date" shall have the meaning given to such
term in the Corporation's basic qualified pension plan in
which the Executive is a participant as in effect on the date
hereof or any successor or substitute plan adopted prior to a
Change in Control.
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(l) "Person" means any individual, firm, corporation, partnership,
trust or other entity.
2. TERM OF AGREEMENT
(a) The term of this Agreement shall initially be for the period
beginning on the Commencement Date and ending on the day
before the third anniversary of the Commencement Date. The
term of this Agreement shall automatically be extended on the
first anniversary of the Commencement Date until the day
before the fourth anniversary of the Commencement Date without
further action by the parties, and shall be automatically
extended by an additional year on each succeeding anniversary
of the Commencement Date, unless either the Corporation or the
Executive shall have served notice upon the other party prior
to such anniversary of its or his intention either that the
term of this Agreement shall not be extended, or that the
Executive's Employment Agreement is terminated, provided,
however, that if a Change in Control of the Corporation shall
occur during the term of this Agreement, this Agreement shall
continue in effect until it expires in accordance with the
foregoing, but in any event for a period of not less than
three (3) years from the date of the Change in Control.
(b) Notwithstanding Section 2(a), the term of this Agreement shall
end upon the termination of the Executive's employment if,
prior to a Change in Control of the Corporation, the
Executive's employment with the Corporation shall have
terminated under the provisions of any Employment Agreement
between the Corporation and the Executive then in effect.
3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A TERMINATION
If a Change in Control of the Corporation shall have occurred and,
thereafter and during the term of this Agreement, the Executive's
employment by the Corporation is terminated for any reason other than
his death, his Disability, his retirement on his Normal Retirement
Date, by the Corporation for Cause, or by the Executive without Good
Reason, the Executive shall be under no further obligation to perform
services for the Corporation and shall be entitled to receive the
following payments:
(a) The Corporation shall pay to the Executive his full base
salary through the effective date of the termination within
five (5) business days thereafter and all benefits and awards
(including both the cash and stock components) to which the
Executive is entitled under any benefit plans or policies in
which the Executive was a participant prior to the Change in
Control (or, if more favorable, at the
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effective date of termination), at the time such payments are
due pursuant to the terms of such benefit plans or policies as
in effect immediately prior to the Change in Control (or, if
more favorable, at the effective date of termination).
(b) At the election of the Executive, in addition to the
entitlements set forth in Section 3(a) but in lieu of any
payment to the Executive of any salary or severance payments
or benefits to which the Executive would be entitled under the
provisions of any Employment Agreement between the Corporation
and the Executive then in effect (if any), the Corporation
shall pay to the Executive, in a lump sum not later than ten
(10) business days following the effective date of the
termination:
(i) an amount equal to three (3) times the Executive's
annual base salary on the effective date of the
termination or, if higher, immediately prior to the
Change in Control;
(ii) an amount equal to three (3) times the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation at
the same level of performance, at the same level of
salary, and in the same position as immediately prior
to the Change in Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of
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the termination occurs and ending on the date of the
termination, one-twelfth of the greater of (x) the
highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's annual bonus plan in effect immediately
prior to the Change in Control for the fiscal year in
which the Change in Control occurred had the
Executive continued to render services to the
Corporation at the same level of performance, at the
same level of salary, and in the same position as
immediately prior to the Change in Control.
(vi) If a payment may be increased by reference to an
alternate calculation which cannot be made by the
time the payment is due, payment of the lesser, known
amount shall be made when due, and if any additional
amount becomes due, such additional amount shall be
paid within ten (10) days after the information upon
which calculation of such payment is dependent first
becomes available.
The amount of all payments due to the Executive pursuant to
this Section 3(b) shall be reduced by 1/36 for each full
calendar month by which the date which is three (3) years from
the effective date of the Executive's termination extends
beyond the Executive's Normal Retirement Date.
Upon entering into this Agreement and for a period of fourteen
(14) days following each anniversary of the date hereof (the
"Election Period"), the Executive may, in writing, direct the
Corporation to pay any amounts to which he is entitled under
this Section 3(b) in equal annual installments (not to exceed
ten (10) annual installments), with the first such installment
payable within ten (10) business days of the effective date of
the termination and each successive installment payable on the
anniversary of the effective date of the termination or the
next following business day if such date is not a business day
(the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
(c) The Corporation shall pay or provide to the Executive or his
surviving spouse or children, as the case may be, such amounts
and benefits as may be required so that the pension and other
post-retirement benefits paid or made available to the
Executive, his surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
in effect immediately prior to the Change in Control, assuming
the Executive continued in the employ of the Corporation at
the same compensation until the third anniversary of the
effective date of the termination of the
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Executive's employment or until his Normal Retirement Date,
whichever is earlier. Notwithstanding any conflicting
restrictions in the Plans or the fact of the termination of
the Executive's employment, until the Executive's Normal
Retirement Date, the Executive or his surviving spouse and his
children shall maintain a continuing right to receive the
pension and other benefits under the above Plans with payments
to begin upon retirement and to elect an imputed retirement on
the Executive's 50th birthdate or any of his birthdates
thereafter until his Normal Retirement Date, such election to
be made by so notifying the Corporation within one (1) year
after termination of his employment.
(d) The Corporation shall pay for or provide the Executive
individual out-placement assistance as offered by a member
firm of the Association of Out-Placement Consulting Firms.
(e) If any payment or benefit to or for the benefit of the
Executive in connection with a Change in Control of the
Corporation or termination of the Executive's employment
following a Change in Control of the Corporation (whether
pursuant to the terms of this Agreement, or any other plan or
arrangement or agreement with the Corporation, any Person
whose actions result in a Change in Control of the Corporation
or any Affiliate or Associate of the Corporation or any such
Person) is subject to the Excise Tax (as hereinafter defined),
the Corporation shall pay to the Executive an additional
amount such that the total amount of all such payments and
benefits (including payments made pursuant to this Section
3(e) net of the Excise Tax and all other applicable federal,
state and local taxes) shall equal the total amount of all
such payments and benefits to which the Executive would have
been entitled, but for this Section 3(e), net of all
applicable federal, state and local taxes except the Excise
Tax. For purposes of this Section 3(e), the term "Excise Tax"
shall mean the tax imposed by Section 4999 of the Internal
Revenue Code of 1986 (the "Code") and any similar tax that may
hereafter be imposed.
The amount of the payment to the Executive under this Section
3(e) shall be estimated by a nationally recognized firm of
certified public accountants, which firm may not have provided
services to the Corporation or any Affiliate of the
Corporation within the previous three years and shall not
provide services thereto in the following three years, based
upon the following assumptions:
(i) all payments and benefits to or for the benefit of
the Executive in connection with a Change in Control
of the Corporation or termination of the Executive's
employment following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" shall
be deemed to be subject to the Excise Tax except to
the extent that, in the opinion of tax counsel
selected by the firm of certified public accountants
charged with estimating the payment to the Executive
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under this Section 3(e), such payments or benefits
are not subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that the
amount of the estimated payment is less than the amount
actually due to the Executive under this Section 3(e), the
amount of any such shortfall shall be paid to the Executive
within ten (10) days after the existence of the shortfall is
discovered.
(f) The Executive shall not be required to mitigate the amount of
any payment provided in this Section 3, nor shall any payment
or benefit provided for in this Section 3 be offset by any
compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
(g) If any payment to the Executive required by this Section 3 is
not made within the time for such payment specified herein,
the Corporation shall pay to the Executive interest on such
payment at the legal rate payable from time to time upon
judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all costs,
including reasonable attorney's fees and expenses of either litigation
or arbitration, incurred by the Executive in contesting or disputing
any termination of his employment following a Change in Control or in
seeking to obtain or enforce any right or benefit provided by this
Agreement.
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be enforceable by the
Executive, his heirs, executors, administrators, successors and
assigns. This Agreement shall be binding upon the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Corporation expressly to assume and agree to perform this Agreement
in accordance with its terms. The Corporation shall obtain such
assumption and agreement prior to the effectiveness of any such
succession.
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6. NOTICE
Any notices and all other communications provided for herein shall be
in writing and shall be deemed to have been duly given when delivered
or mailed, by certified or registered mail, return receipt requested,
postage prepaid addressed to the respective addresses set forth on the
first page of this Agreement or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt. All notices to the Corporation shall be addressed to the
attention of the Board with a copy to each of the General Counsel, the
Vice President-Human Resources and the Secretary of the Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or discharged
except in a writing specifically referring to such provision and signed
by the party against which enforcement of such modification, waiver or
discharge is sought. No waiver by either party hereto of the breach of
any condition or provision of this Agreement shall be deemed a waiver
of any other condition or provision at the same or any other time.
8. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the substantive laws of the State of
Delaware.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in the city nearest to the Executive's principal residence
(or, at the Executive's election, in the city within the state in which
the Executive's principal residence is located nearest to such
principal residence) which has an office of the American Arbitration
Association by one arbitrator in
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accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction. The Corporation hereby waives its right to
contest the personal jurisdiction or venue of any court, federal or
state, in an action brought to enforce this Agreement or any award of
an arbitrator hereunder which action is brought in the jurisdiction in
which such arbitration was conducted, or, if no arbitration was
elected, in which arbitration could have been conducted pursuant to
this provision.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Richard F. Frisch /s/ James H. Dorton
---------------------------------- ------------------------
Richard F. Frisch James H. Dorton
Its: Vice President - Human Resources
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 1st day of August, 1998, by and
between BOWATER INCORPORATED, a Delaware corporation having a mailing address of
55 East Camperdown Way, Greenville, South Carolina 29601 (the "Corporation"),
and William G. Harvey, 169 Main Road, Hudson, Quebec J0P 1H0 (the "Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President - Treasurer; and
WHEREAS, the Executive is desirous of serving the Corporation in such
capacity;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. During the term of this Agreement the Corporation agrees
to continue to employ the Executive, and the Executive agrees to continue in the
employ of the Corporation, in accordance with and subject to the provisions of
this Agreement.
2. Term.
(a) Subject to the provisions of subparagraphs (b) and (c) of this
Section 2, the term of this Agreement shall begin on the Date
hereof and shall continue thereafter until terminated by
either party by written notice given to the other party at
least thirty (30) days prior to the effective date of any such
termination. The effective date of the termination shall be
the date stated in such notice, provided that if the
Corporation specifies an effective date that is more than
thirty (30) days following the date of such notice, the
Executive may, upon thirty (30) days' written notice to the
Corporation, accelerate the effective date of such
termination.
(b) Notwithstanding Section 2(a), upon the occurrence of a Change
in Control as defined in the Change in Control Agreement of
even date herewith between the Corporation and the Executive
(the "Change in Control Agreement"), the term of this
Agreement shall be deemed to continue until terminated, but in
any event, for a period of not less than three (3) years
following the date of the Change in Control, unless such
termination shall be at the Executive's election for other
than "Good Reason" as that term is defined in the Change in
Control Agreement.
(c) Notwithstanding Section 2(a), the term of this Agreement shall
end upon:
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(i) the death of the Executive;
(ii) the inability of the Executive to perform his duties
properly, whether by reason of ill-health, accident
or other cause, for a period of one hundred and
eighty (180) consecutive days or for periods totaling
one hundred and eighty (180) days occurring within
any twelve (12) consecutive calendar months; or
(iii) the Executive's retirement on his early or normal
retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President - Treasurer of Bowater Incorporated (Salary Grade
31), with the duties and responsibilities customarily attendant to that office,
provided that the Executive shall undertake such other and further assignments
and responsibilities of at least comparable status as the Board of Directors may
direct. The Executive shall diligently and faithfully devote his full working
time and best efforts to the performance of the services under this Agreement
and to the furtherance of the best interests of the Corporation.
4. Place of Employment. The Executive will be employed at the
Corporation's offices in the City of Greenville, South Carolina or at such other
place as the Corporation shall designate from time to time, provided, however,
that if the Executive is transferred to another place of employment,
necessitating a change in his residence, the Executive shall be entitled to
financial assistance in accordance with the terms of the Corporation's
relocation policy then in effect.
5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the Executive a base
salary of $140,000 payable in substantially equal periodic
installments on the Corporation's regular payroll dates. The
Executive's base salary shall be reviewed at least annually
and from time to time may be increased (or reduced, if such
reduction is effected pursuant to across-the-board salary
reductions similarly affecting all management personnel of the
Corporation).
(b) Bonus Plan. In addition to his base salary, the Executive
shall be entitled to receive an annual bonus under the
Corporation's bonus plan in effect from time to time
determined in the manner, at the time, and in the amounts set
forth under such plan.
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(c) Benefit Plans. The Corporation shall make contributions on the
Executive's behalf to the various benefit plans and programs
of the Corporation in which the Executive is eligible to
participate in accordance with the provisions thereof as in
effect from time to time.
(d) Vacations. The Executive shall be entitled to paid vacation,
in keeping with the Corporate policy as in effect from time to
time, to be taken at such time or times as may be approved by
the Corporation.
(e) Expenses. The Corporation shall reimburse the Executive for
all reasonable expenses properly incurred, and appropriately
documented, by the Executive in connection with the business
of the Corporation.
(f) Perquisites. The Corporation shall make available to the
Executive all perquisites to which he is entitled by virtue of
his position.
6. Nondisclosure. During and after the term of this Agreement, the
Executive shall not, without the written consent of the Board of Directors of
the Corporation, disclose or use directly or indirectly, (except in the course
of employment hereunder and in furtherance of the business of the Corporation or
any of its subsidiaries and affiliates) any of the trade secrets or other
confidential information or proprietary data of the Corporation or its
subsidiaries or affiliates; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same or similar
businesses.
7. Noncompetition. During the term of this Agreement, and for a period
of one (1) year after the date the Executive's employment terminates, the
Executive shall not, without the prior approval of the Board of Directors of the
Corporation in the same or a similar capacity engage in or invest in, or aid or
assist anyone else in the conduct of any business (other than the businesses of
the Corporation and its subsidiaries and affiliates) which directly competes
with the business of the Corporation and its subsidiaries and affiliates as
conducted during the term hereof. If any court of competent jurisdiction shall
determine that any of the provisions of this Section 7 shall not be enforceable
because of the duration or scope thereof, the parties hereto agree that said
court shall have the power to reduce the duration and scope of such provision to
the extent necessary to make it enforceable and this Agreement in its reduced
form shall be valid and enforceable to the extent permitted by law. The
Executive acknowledges that the Corporation's remedy at law for a breach by the
Executive of the provisions of this Section 7 will be inadequate. Accordingly,
in the event of the breach or threatened breach by the Executive of this Section
7, the Corporation shall be entitled to injunctive relief in addition to any
other remedy it may have.
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8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless the Corporation shall have terminated the Executive for
"Cause", the Corporation shall pay the Executive severance pay in an amount
equal to twelve (12) months of the Executive's base salary on the effective date
of the termination, plus 1/12 of the amount of the last annual bonus paid to the
Executive under the Corporation's bonus plan applicable to the Executive for
each month in the period beginning on January 1 of the year in which the date of
the termination occurs and ending on the date of the termination and for each
months' base salary to which the Executive is entitled under this Section 8,
provided, however, that any amount paid to the Executive by the Corporation for
services rendered subsequent to the thirtieth (30th) day following the
communication to the Executive of notice of termination shall be deducted from
the severance pay otherwise due hereunder. Such payment shall be made in a lump
sum within ten (10) business days following the effective date of the
termination. The severance pay shall be in lieu of all other compensation or
payments of any kind relating to the termination of the Executive's employment
hereunder; provided that the Executive's entitlement to compensation or payments
under the Corporation's retirement plans, stock option or incentive plans,
savings plans or bonus plans attributable to service rendered prior to the
effective date of the termination shall not be affected by this clause and shall
continue to be governed by the applicable provisions of such plans; and further
provided that in lieu hereof, at his election, the Executive shall be entitled
to the benefits of the Change in Control Agreement of even date hereof between
the Corporation and the Executive, if termination occurs in a manner and at a
time when such Change in Control Agreement is applicable. For purposes of this
Agreement, the term for "Cause" shall mean because of gross negligence or
willful misconduct by the Executive either in the course of his employment
hereunder or which has a material adverse effect on the Corporation or the
Executive's ability to perform adequately and effectively his duties hereunder.
9. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered or mailed, by registered or certified mail, return receipt requested
to the respective addresses of the parties set forth above, or to such other
address as any party hereto shall designate to the other party in writing
pursuant to the terms of this Section 9.
10. Severability. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision.
11. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of Delaware.
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12. Supersedure. This Agreement shall cancel and supersede all prior
agreements relating to employment between the Executive and the Corporation,
except the Change in Control Agreement.
13. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Richard F. Frisch /s/ William G. Harvey
--------------------------------- ---------------------
Richard F. Frisch William G. Harvey
Its: Vice President - Human Resources
5
<PAGE> 1
EXHIBIT 10.4
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 1st day of August, 1998, by and between
Bowater Incorporated, a Delaware corporation having a mailing address of 55 East
Camperdown Way, Greenville, South Carolina 29601 (the "Corporation"), and
William G. Harvey of 169 Main Road, Hudson, Quebec J0P 1H0 (the "Executive").
WHEREAS, the Corporation considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(a) "Acquiring Person" means the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the
combined voting power of the Corporation's then outstanding
securities, not including (except as provided in Clause (i) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing
<PAGE> 2
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5% or more of the combined voting power of the Corporation's
then outstanding securities. Notwithstanding the foregoing,
(i) securities acquired pursuant to an agreement described in
the preceding sentence will be included in determining whether
a Beneficial Owner is an Acquiring Person if, subsequent to
the approved acquisition, the Beneficial Owner acquires 5% or
more of such voting power other than pursuant to such an
agreement so approved and (ii) a Person shall not be an
Acquiring Person if such Person is eligible to and files a
Schedule 13G with respect to such Person's status as a
Beneficial Owner of all Common Stock of the Corporation of
which the Person is a Beneficial Owner.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (the
"Act").
(c) A "Beneficial Owner" of Common Stock means (i) a Person who
beneficially owns such Common Stock, directly or indirectly,
or (ii) a Person who has the right to acquire such Common
Stock (whether such right is exercisable immediately or only
with the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing or
upon the exercise of conversion rights, exchange rights,
warrants, options or otherwise.
(d) "Cause" shall mean and be limited to the Executive's gross
negligence, willful misconduct or conviction of a felony,
which negligence, misconduct or conviction has a demonstrable
and material adverse effect upon the Corporation, provided
that, to the extent that the Corporation contends that Cause
exists by virtue of Executive's gross negligence or willful
misconduct, and such gross negligence or willful misconduct is
capable of being cured, the Corporation shall have given the
Executive written notice of the alleged negligence or
misconduct and the Executive shall have failed to cure such
negligence or misconduct within thirty (30) days after his
receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date
stated in a written notice of such termination delivered by
the Corporation to the Executive (which notice shall not be
delivered before the end of the thirty (30) day period
described in the preceding sentence, if applicable) and
accompanied by a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the
Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for the Executive's
termination, provided that the effective date shall not be
less than thirty (30) days from the date such notice is given.
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(e) "Change in Control" shall be deemed to have occurred upon:
(i) The date that any Person is or becomes an Acquiring
Person.
(ii) The date that the Corporation's shareholders approve
a merger, consolidation or reorganization of the
Corporation with another corporation or other Person,
unless, immediately following such merger,
consolidation or reorganization, (A) at least 50% of
the combined voting power of the outstanding
securities of the resulting entity would be held in
the aggregate by the shareholders of the Corporation
as of the record date for such approval (provided
that securities held by any individual or entity that
is an Acquiring Person, or who would be an Acquiring
Person if 5% were substituted for 20% in the
definition of such term, shall not be counted as
securities held by the shareholders of the
Corporation, but shall be counted as outstanding
securities for purposes of this determination), or
(B) at least 50% of the board of directors or similar
body of the resulting entity are Continuing
Directors.
(iii) The date the Corporation sells or otherwise transfers
all or substantially all of its assets to another
corporation or other Person, unless, immediately
after such sale or transfer, (A) at least 50% of the
combined voting power of the then-outstanding
securities of the resulting entity immediately
following such transaction is held in the aggregate
by the Corporation's shareholders as determined
immediately prior to such transaction (provided that
securities held by any individual or entity that is
an Acquiring Person, or who would be an Acquiring
Person if 5% were substituted for 20% in the
definition of such term, shall not be counted as
securities held by the shareholders of the
Corporation, but shall be counted as outstanding
securities for purposes of this determination), or
(B) at least 50% of the board of directors or similar
body of the resulting entity are Continuing
Directors.
(iv) The date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors.
(f) "Commencement Date" shall mean the date of this Agreement,
which shall be the beginning date of the term of this
Agreement.
(g) "Continuing Directors" shall mean any member of the Board who
(i) was a member of the Board prior to the date of the event
that would constitute a Change in Control, and any successor
of a Continuing Director while such successor is a
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member of the Board, (ii) is not an Acquiring Person or an
Affiliate or Associate of an Acquiring Person, and (iii) is
recommended or elected to succeed the Continuing Director by a
majority of the Continuing Directors.
(h) "Disability" shall mean the Executive's total and permanent
disability as defined in the Corporation's long term
disability insurance policy covering the Executive immediately
prior to the Change in Control.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934
as amended.
(j) "Good Reason" shall mean:
(i) an adverse change in the Executive's status, duties
or responsibilities as an executive of the
Corporation as in effect immediately prior to the
Change in Control, provided that the Executive shall
have given the Corporation written notice of the
alleged adverse change and the Corporation shall have
failed to cure such change within thirty (30) days
after its receipt of such notice;
(ii) failure of the Corporation to pay or provide the
Executive in a timely fashion the salary or benefits
to which he is entitled under any Employment
Agreement between the Corporation and the Executive
in effect on the date of the Change in Control, or
under any benefit plans or policies in which the
Executive was participating at the time of the Change
in Control (including, without limitation, any
incentive, bonus, stock option, restricted stock,
health, accident, disability, life insurance, thrift,
vacation pay, deferred compensation and retirement
plans or policies);
(iii) the reduction of the Executive's salary as in effect
on the date of the Change in Control;
(iv) the taking of any action by the Corporation
(including the elimination of a plan without
providing substitutes therefor, the reduction of the
Executive's awards thereunder or failure to continue
the Executive's participation therein) that would
substantially diminish the aggregate projected value
of the Executive's awards or benefits under the
Corporation's benefit plans or policies described in
Section 1(j)(ii) in which the Executive was
participating at the time of the Change in Control;
(v) a failure by the Corporation to obtain from any
successor the assent to this Agreement contemplated
by Section 5 hereof; or
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(vi) the relocation of the principal office at which the
Executive is to perform his services on behalf of the
Corporation to a location more than thirty-five (35)
miles from its location immediately prior to the
Change in Control or a substantial increase in the
Executive's business travel obligations subsequent to
the Change in Control.
Any circumstance described in this Section 1(j) shall
constitute Good Reason even if such circumstance would not
constitute a breach by the Corporation of the terms of the
Employment Agreement between the Corporation and the Executive
in effect on the date of the Change in Control. The Executive
shall be deemed to have terminated his employment for Good
Reason effective upon the effective date stated in a written
notice of such termination given by him to the Corporation
(which notice shall not be given, in circumstances described
in Section 1(j)(i), before the end of the thirty (30) day
period described therein) setting forth in reasonable detail
the facts and circumstances claimed to provide the basis for
termination, provided that the effective date may not precede,
nor be more than sixty (60) days from, the date such notice is
given. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to,
any circumstances constituting Good Reason hereunder.
(k) "Normal Retirement Date" shall have the meaning given to such
term in the Corporation's basic qualified pension plan in
which the Executive is a participant as in effect on the date
hereof or any successor or substitute plan adopted prior to a
Change in Control.
(l) "Person" means any individual, firm, corporation, partnership,
trust or other entity.
2. TERM OF AGREEMENT
(a) The term of this Agreement shall initially be for the period
beginning on the Commencement Date and ending on the day
before the third anniversary of the Commencement Date. The
term of this Agreement shall automatically be extended on the
first anniversary of the Commencement Date until the day
before the fourth anniversary of the Commencement Date without
further action by the parties, and shall be automatically
extended by an additional year on each succeeding anniversary
of the Commencement Date, unless either the Corporation or the
Executive shall have served notice upon the other party prior
to such anniversary of its or his intention either that the
term of this Agreement shall not be extended, or that the
Executive's Employment Agreement is terminated, provided,
however, that if a Change in Control of the Corporation shall
occur during the term of this Agreement, this Agreement shall
continue in effect until it expires in accordance with the
foregoing, but in any event for a period of not less than
three (3) years from the date of the Change in Control.
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(b) Notwithstanding Section 2(a), the term of this Agreement shall
end upon the termination of the Executive's employment if,
prior to a Change in Control of the Corporation, the
Executive's employment with the Corporation shall have
terminated under the provisions of any Employment Agreement
between the Corporation and the Executive then in effect.
3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A TERMINATION
If a Change in Control of the Corporation shall have occurred and,
thereafter and during the term of this Agreement, the Executive's
employment by the Corporation is terminated for any reason other than
his death, his Disability, his retirement on his Normal Retirement
Date, by the Corporation for Cause, or by the Executive without Good
Reason, the Executive shall be under no further obligation to perform
services for the Corporation and shall be entitled to receive the
following payments:
(a) The Corporation shall pay to the Executive his full base
salary through the effective date of the termination within
five (5) business days thereafter and all benefits and awards
(including both the cash and stock components) to which the
Executive is entitled under any benefit plans or policies in
which the Executive was a participant prior to the Change in
Control (or, if more favorable, at the effective date of
termination), at the time such payments are due pursuant to
the terms of such benefit plans or policies as in effect
immediately prior to the Change in Control (or, if more
favorable, at the effective date of termination).
(b) At the election of the Executive, in addition to the
entitlements set forth in Section 3(a) but in lieu of any
payment to the Executive of any salary or severance payments
or benefits to which the Executive would be entitled under the
provisions of any Employment Agreement between the Corporation
and the Executive then in effect (if any), the Corporation
shall pay to the Executive, in a lump sum not later than ten
(10) business days following the effective date of the
termination:
(i) an amount equal to three (3) times the Executive's
annual base salary on the effective date of the
termination or, if higher, immediately prior to the
Change in Control;
(ii) an amount equal to three (3) times the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control
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occurred had the Executive continued to render
services to the Corporation at the same level of
performance, at the same level of salary, and in the
same position as immediately prior to the Change in
Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of the termination occurs and ending on the date
of the termination, one-twelfth of the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's annual bonus plan in effect immediately
prior to the Change in Control for the fiscal year in
which the Change in Control occurred had the
Executive continued to render services to the
Corporation at the same level of performance, at the
same level of salary, and in the same position as
immediately prior to the Change in Control.
(vi) If a payment may be increased by reference to an
alternate calculation which cannot be made by the
time the payment is due, payment of the lesser, known
amount shall be made when due, and if any additional
amount becomes due, such additional amount shall be
paid within ten (10) days after the information upon
which calculation of such payment is dependent first
becomes available.
The amount of all payments due to the Executive pursuant to
this Section 3(b) shall be reduced by 1/36 for each full
calendar month by which the date which is three (3) years from
the effective date of the Executive's termination extends
beyond the Executive's Normal Retirement Date.
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Upon entering into this Agreement and for a period of fourteen
(14) days following each anniversary of the date hereof (the
"Election Period"), the Executive may, in writing, direct the
Corporation to pay any amounts to which he is entitled under
this Section 3(b) in equal annual installments (not to exceed
ten (10) annual installments), with the first such installment
payable within ten (10) business days of the effective date of
the termination and each successive installment payable on the
anniversary of the effective date of the termination or the
next following business day if such date is not a business day
(the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
(c) The Corporation shall pay or provide to the Executive or his
surviving spouse or children, as the case may be, such amounts
and benefits as may be required so that the pension and other
post-retirement benefits paid or made available to the
Executive, his surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
in effect immediately prior to the Change in Control, assuming
the Executive continued in the employ of the Corporation at
the same compensation until the third anniversary of the
effective date of the termination of the Executive's
employment or until his Normal Retirement Date, whichever is
earlier. Notwithstanding any conflicting restrictions in the
Plans or the fact of the termination of the Executive's
employment, until the Executive's Normal Retirement Date, the
Executive or his surviving spouse and his children shall
maintain a continuing right to receive the pension and other
benefits under the above Plans with payments to begin upon
retirement and to elect an imputed retirement on the
Executive's 50th birthdate or any of his birthdates thereafter
until his Normal Retirement Date, such election to be made by
so notifying the Corporation within one (1) year after
termination of his employment.
(d) The Corporation shall pay for or provide the Executive
individual out-placement assistance as offered by a member
firm of the Association of Out-Placement Consulting Firms.
(e) If any payment or benefit to or for the benefit of the
Executive in connection with a Change in Control of the
Corporation or termination of the Executive's employment
following a Change in Control of the Corporation (whether
pursuant to the terms of this Agreement, or any other plan or
arrangement or agreement with the Corporation, any Person
whose actions result in a Change in Control of the Corporation
or any Affiliate or Associate of the Corporation or any such
Person) is subject to the Excise Tax (as hereinafter defined),
the Corporation shall
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pay to the Executive an additional amount such that the total
amount of all such payments and benefits (including payments
made pursuant to this Section 3(e) net of the Excise Tax and
all other applicable federal, state and local taxes) shall
equal the total amount of all such payments and benefits to
which the Executive would have been entitled, but for this
Section 3(e), net of all applicable federal, state and local
taxes except the Excise Tax. For purposes of this Section
3(e), the term "Excise Tax" shall mean the tax imposed by
Section 4999 of the Internal Revenue Code of 1986 (the "Code")
and any similar tax that may hereafter be imposed.
The amount of the payment to the Executive under this Section
3(e) shall be estimated by a nationally recognized firm of
certified public accountants, which firm may not have provided
services to the Corporation or any Affiliate of the
Corporation within the previous three years and shall not
provide services thereto in the following three years, based
upon the following assumptions:
(i) all payments and benefits to or for the benefit of
the Executive in connection with a Change in Control
of the Corporation or termination of the Executive's
employment following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" shall
be deemed to be subject to the Excise Tax except to
the extent that, in the opinion of tax counsel
selected by the firm of certified public accountants
charged with estimating the payment to the Executive
under this Section 3(e), such payments or benefits
are not subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that the
amount of the estimated payment is less than the amount
actually due to the Executive under this Section 3(e), the
amount of any such shortfall shall be paid to the Executive
within ten (10) days after the existence of the shortfall is
discovered.
(f) The Executive shall not be required to mitigate the amount of
any payment provided in this Section 3, nor shall any payment
or benefit provided for in this Section 3 be offset by any
compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
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(g) If any payment to the Executive required by this Section 3 is
not made within the time for such payment specified herein,
the Corporation shall pay to the Executive interest on such
payment at the legal rate payable from time to time upon
judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all costs,
including reasonable attorney's fees and expenses of either litigation
or arbitration, incurred by the Executive in contesting or disputing
any termination of his employment following a Change in Control or in
seeking to obtain or enforce any right or benefit provided by this
Agreement.
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be enforceable by the
Executive, his heirs, executors, administrators, successors and
assigns. This Agreement shall be binding upon the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Corporation expressly to assume and agree to perform this Agreement
in accordance with its terms. The Corporation shall obtain such
assumption and agreement prior to the effectiveness of any such
succession.
6. NOTICE
Any notices and all other communications provided for herein shall be
in writing and shall be deemed to have been duly given when delivered
or mailed, by certified or registered mail, return receipt requested,
postage prepaid addressed to the respective addresses set forth on the
first page of this Agreement or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt. All notices to the Corporation shall be addressed to the
attention of the Board with a copy to each of the General Counsel,
the Vice President-Human Resources and the Secretary of the
Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or discharged
except in a writing specifically referring to such provision and signed
by the party against which enforcement of such modification, waiver or
discharge is sought. No waiver by either
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party hereto of the breach of any condition or provision of this
Agreement shall be deemed a waiver of any other condition or provision
at the same or any other time.
8. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the substantive laws of the State of
Delaware.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in the city nearest to the Executive's principal residence
(or, at the Executive's election, in the city within the state in which
the Executive's principal residence is located nearest to such
principal residence) which has an office of the American Arbitration
Association by one arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The
Corporation hereby waives its right to contest the personal
jurisdiction or venue of any court, federal or state, in an action
brought to enforce this Agreement or any award of an arbitrator
hereunder which action is brought in the jurisdiction in which such
arbitration was conducted, or, if no arbitration was elected, in which
arbitration could have been conducted pursuant to this provision.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Richard F. Frisch /s/ William G. Harvey
-------------------------------- -------------------------
Richard F. Frisch William G. Harvey
Its: Vice President - Human Resources
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 24th day of July, 1998, by and among
BOWATER INCORPORATED, a Delaware corporation having a mailing address of 55 East
Camperdown Way, Greenville, South Carolina 29601 ("Bowater U.S."), BOWATER PULP
AND PAPER CANADA INC., a Canadian corporation having a mailing address of 1250
Rene-Levesque Blvd., West, Montreal, Quebec H3B 4Y3, and previously called
Avenor Inc. ("Bowater Canada") and David J. Steuart, having a mailing address at
120 Beritt Drive, Burlington, Ontario L7L 2T1 (the "Executive").
WHEREAS, Bowater U.S. desires to employ the Executive as President,
Pulp Division through its affiliate, Bowater Canada; and
WHEREAS, the Executive is desirous of serving Bowater U.S. and Bowater
Canada in such capacity;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. During the term of this Agreement Bowater U.S. agrees to
continue to employ the Executive through its affiliate, Bowater Canada, and the
Executive agrees to continue in the employ of Bowater U.S. or its affiliate, in
accordance with and subject to the provisions of this Agreement.
2. Term.
(a) Subject to the provisions of subparagraphs (b) and (c) of this
Section 2, the term of this Agreement shall begin on the date
hereof and shall continue thereafter until terminated by any
party by written notice given to the other parties at least
thirty (30) days prior to the effective date of any such
termination. The effective date of the termination shall be
the date stated in such notice, provided that if Bowater U.S.
or Bowater Canada specifies an effective date that is more
than thirty (30) days following the date of such notice, the
Executive may, upon thirty (30) days' written notice to
Bowater U.S. and Bowater Canada, terminate his employment at
an earlier date and such earlier termination shall not be, or
be deemed to be, a voluntary termination of employment and
shall not affect the Executive's entitlement to any rights or
benefits he may have as a result of the termination of his
employment by Bowater U.S. or Bowater Canada.
(b) Notwithstanding Section 2(a), upon the occurrence of a Change
in Control as defined in the Change in Control Agreement of
even date herewith between Bowater U.S. and the Executive (the
"Change in Control Agreement"), the term of this Agreement
shall be deemed to continue until terminated, but in any
event, for a period of not less than three (3) years
1
<PAGE> 2
following the date of the Change in Control, unless such termination
shall be at the Executive's election for other than "Good Reason" as
that term is defined in the Change in Control Agreement.
(c) Notwithstanding Section 2(a), the term of this Agreement shall
end upon:
(i) the death of the Executive;
(ii) the inability of the Executive to perform his duties
properly, whether by reason of ill-health, accident
or other cause, for a period of one hundred and
eighty (180) consecutive days or for periods totaling
one hundred and eighty (180) days occurring within
any twelve (12) consecutive calendar months; or
(iii) the Executive's retirement on his early or normal
retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as President, Pulp Division of Bowater U.S. through its affiliate,
Bowater Canada, with the duties and responsibilities customarily attendant to
that office, provided that the Executive shall undertake such other and further
assignments and responsibilities of at least comparable status as the Board of
Directors of Bowater U.S. may direct. The Executive shall diligently and
faithfully devote his full working time and best efforts to the performance of
the services under this Agreement and to the furtherance of the best interests
of Bowater U.S. and Bowater Canada.
4. Place of Employment. The Executive will be employed at the offices
of Bowater Canada in the Greater Metropolitan Toronto Area or at such other
place as Bowater U.S. shall designate from time to time, provided, however, that
if the Executive is transferred to another place of employment, necessitating a
change in his residence, the Executive shall be entitled to financial assistance
in accordance with the terms of the relocation policy of Bowater U.S. then in
effect.
5. Compensation and Benefits.
(a) Base Salary. The Executive shall be paid a base salary of
$353,000 (Canadian) payable in substantially equal periodic
installments on regular payroll dates. The Executive's base
salary shall be reviewed after six months and at least
annually thereafter and from time to time may be increased (or
reduced, if such reduction is effected pursuant to
across-the-board salary reductions similarly affecting all
management personnel of Bowater U.S.).
2
<PAGE> 3
(b) Bonus Plan. In addition to his base salary, the Executive
shall be entitled to receive a bonus under the bonus plans of
Bowater U.S. (annual and long term) in effect from time to
time determined in the manner, at the time, and in the amounts
set forth under such plans. For the balance of 1998, the
Executive shall be entitled to a bonus computed in accordance
with the Avenor Inc. Short Term Incentive Plan, but with a 40%
(in lieu of 36%) target, in lieu of participation in the short
term incentive annual bonus plans of Bowater U.S. for such
period.
(c) Benefit Plans. Bowater U.S. or Bowater Canada shall make
contributions on the Executive's behalf to the various benefit
plans and programs of Bowater U.S. or Bowater Canada in which
the Executive is eligible to participate in accordance with
the provisions thereof as in effect from time to time.
(d) Vacations. The Executive shall be entitled to paid vacation
(currently five weeks per year) in keeping with the policy of
Bowater U.S. as in effect from time to time, to be taken at
such time or times as may be approved by Bowater U.S.
(e) Expenses. Bowater U.S. or Bowater Canada shall reimburse the
Executive for all reasonable expenses properly incurred, and
appropriately documented, by the Executive in connection with
the business of Bowater U.S. or Bowater Canada.
(f) Perquisites. Bowater U.S. shall make available to the
Executive all perquisites to which he is entitled by virtue of
his position including, at least as of the date hereof, the
perquisites to which he was entitled as an executive of Avenor
Inc.
6. Nondisclosure. During and after the term of this Agreement, the
Executive shall not, without the written consent of the Board of Directors of
Bowater U.S., disclose or use directly or indirectly, (except in the course of
employment hereunder and in furtherance of the business of Bowater U.S. or any
of its subsidiaries and affiliates) any of the trade secrets or other
confidential information or proprietary data of Bowater U.S. or its subsidiaries
or affiliates; provided, however, that confidential information shall not
include any information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same or similar
businesses.
7. Noncompetition. During the term of this Agreement, and for a period
of one (1) year after the date the Executive's employment terminates, the
Executive shall not, without the prior approval of the Board of Directors of
Bowater U.S. in the same or a similar capacity engage in or invest in, or aid or
assist anyone else in the conduct of any business (other than the businesses of
Bowater U.S. and its subsidiaries and affiliates) which directly competes with
the
3
<PAGE> 4
business of Bowater U.S. and its subsidiaries and affiliates as conducted during
the term hereof. If any court of competent jurisdiction shall determine that any
of the provisions of this Section 7 shall not be enforceable because of the
duration or scope thereof, the parties hereto agree that said court shall have
the power to reduce the duration and scope of such provision to the extent
necessary to make it enforceable and this Agreement in its reduced form shall be
valid and enforceable to the extent permitted by law. The Executive acknowledges
that the remedy of Bowater U.S. or Bowater Canada at law for a breach by the
Executive of the provisions of this Section 7 will be inadequate. Accordingly,
in the event of the breach or threatened breach by the Executive of this Section
7, Bowater U.S. and Bowater Canada shall be entitled to injunctive relief in
addition to any other remedy it may have.
8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless Bowater U.S. or Bowater Canada shall have terminated
the Executive for "Cause", Bowater U.S. shall pay the Executive severance pay in
an amount equal to twenty-four (24) months of the Executive's base salary on the
effective date of the termination, plus 1/12 of the amount of the last annual
bonus paid to the Executive under the annual bonus plan of Bowater U.S.
applicable to the Executive for each month in the period beginning on January 1
of the year in which the termination occurs and ending on the date of the
termination and for each months' base salary to which the Executive is entitled
under this Section 8. Such payment shall be made in a lump sum within ten (10)
business days following the effective date of the termination. The severance pay
shall be in lieu of all other compensation or payments of any kind relating to
the termination of the Executive's employment hereunder; provided that the
Executive's entitlement to compensation or payments under the retirement plans,
stock option or incentive plans, savings plans or bonus plans in which the
Executive participates, attributable to service rendered prior to the effective
date of the termination shall not be affected by this clause and shall continue
to be governed by the applicable provisions of such plans; and further provided
that in lieu hereof, at his election, the Executive shall be entitled to the
benefits of the Change in Control Agreement of even date hereof between Bowater
U.S. and the Executive, if termination occurs in a manner and at a time when
such Change in Control Agreement is applicable. For purposes of this Agreement,
the term for "Cause" shall mean because of gross negligence or willful
misconduct by the Executive either in the course of his employment hereunder or
which has a material adverse effect on Bowater U.S. or the Executive's ability
to perform adequately and effectively his duties hereunder.
9. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered or mailed, by registered or certified mail, return receipt requested
to the respective addresses of the parties set forth above, or to such other
address as any party hereto shall designate to the other party in writing
pursuant to the terms of this Section 9.
10. Severability. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision.
4
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11. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the Province of Ontario.
12. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
13. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of Bowater U.S. and the
heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, Bowater U.S., Bowater Canada and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Arnold M. Nemirow
-------------------------------------
Arnold M. Nemirow
Its: Chairman and Chief Executive Officer
BOWATER PULP AND PAPER CANADA INC.
By /s/ Arnold M. Nemirow
-------------------------------------
Arnold M. Nemirow, President
/s/ David J. Steuart
-----------------------------------------
David J. Steuart
5
<PAGE> 1
EXHIBIT 10.6
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 24th day of July, 1998, by and between
Bowater Incorporated, a Delaware corporation having a mailing address of 55 East
Camperdown Way, Greenville, South Carolina 29601 (the "Corporation"), and David
J. Steuart having a mailing address at 120 Beritt Drive, Burlington, Ontario L7L
2T1 (the "Executive").
WHEREAS, the Corporation considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(a) "Acquiring Person" means the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the
combined voting power of the Corporation's then outstanding
securities, not including (except as provided in Clause (i) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the
combined voting power of the Corporation's then outstanding
securities. Notwithstanding the foregoing, (i) securities
acquired pursuant to an agreement described in the preceding
sentence will be included in determining whether a Beneficial
Owner is
<PAGE> 2
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an Acquiring Person if, subsequent to the approved
acquisition, the Beneficial Owner acquires 5% or more of such
voting power other than pursuant to such an agreement so
approved and (ii) a Person shall not be an Acquiring Person if
such Person is eligible to and files a Schedule 13G with
respect to such Person's status as a Beneficial Owner of all
Common Stock of the Corporation of which the Person is a
Beneficial Owner.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (the
"Act").
(c) A "Beneficial Owner" of Common Stock means (i) a Person who
beneficially owns such Common Stock, directly or indirectly,
or (ii) a Person who has the right to acquire such Common
Stock (whether such right is exercisable immediately or only
with the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing or
upon the exercise of conversion rights, exchange rights,
warrants, options or otherwise.
(d) "Cause" shall mean and be limited to the Executive's gross
negligence, willful misconduct or conviction of a felony,
which negligence, misconduct or conviction has a demonstrable
and material adverse effect upon the Corporation, provided
that, to the extent that the Corporation contends that Cause
exists by virtue of Executive's gross negligence or willful
misconduct, and such gross negligence or willful misconduct is
capable of being cured, the Corporation shall have given the
Executive written notice of the alleged negligence or
misconduct and the Executive shall have failed to cure such
negligence or misconduct within thirty (30) days after his
receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date
stated in a written notice of such termination delivered by
the Corporation to the Executive (which notice shall not be
delivered before the end of the thirty (30) day period
described in the preceding sentence, if applicable) and
accompanied by a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the
Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for the Executive's
termination, provided that the effective date shall not be
less than thirty (30) days from the date such notice is given.
(e) "Change in Control" shall be deemed to have occurred upon:
(i) The date that any Person is or becomes an Acquiring
Person.
(ii) The date that the Corporation's shareholders approve
a merger, consolidation or reorganization of the
Corporation with another
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corporation or other Person, unless, immediately
following such merger, consolidation or
reorganization, (A) at least 50% of the combined
voting power of the outstanding securities of the
resulting entity would be held in the aggregate by
the shareholders of the Corporation as of the record
date for such approval (provided that securities held
by any individual or entity that is an Acquiring
Person, or who would be an Acquiring Person if 5%
were substituted for 20% in the definition of such
term, shall not be counted as securities held by the
shareholders of the Corporation, but shall be counted
as outstanding securities for purposes of this
determination), or (B) at least 50% of the board of
directors or similar body of the resulting entity are
Continuing Directors.
(iii) The date the Corporation sells or otherwise transfers
all or substantially all of its assets to another
corporation or other Person, unless, immediately
after such sale or transfer, (A) at least 50% of the
combined voting power of the then-outstanding
securities of the resulting entity immediately
following such transaction is held in the aggregate
by the Corporation's shareholders as determined
immediately prior to such transaction (provided that
securities held by any individual or entity that is
an Acquiring Person, or who would be an Acquiring
Person if 5% were substituted for 20% in the
definition of such term, shall not be counted as
securities held by the shareholders of the
Corporation, but shall be counted as outstanding
securities for purposes of this determination), or
(B) at least 50% of the board of directors or similar
body of the resulting entity are Continuing
Directors.
(iv) The date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors.
(f) "Commencement Date" shall mean the date of this Agreement,
which shall be the beginning date of the term of this
Agreement.
(g) "Continuing Directors" shall mean any member of the Board who
(i) was a member of the Board prior to the date of the event
that would constitute a Change in Control, and any successor
of a Continuing Director while such successor is a member of
the Board, (ii) is not an Acquiring Person or an Affiliate or
Associate of an Acquiring Person, and (iii) is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors.
(h) "Disability" shall mean the Executive's total and permanent
disability as defined in the Corporation's long term
disability insurance policy covering the Executive immediately
prior to the Change in Control.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934
as amended.
(j) "Good Reason" shall mean:
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(i) an adverse change in the Executive's status, duties
or responsibilities as an executive of the
Corporation as in effect immediately prior to the
Change in Control, provided that the Executive shall
have given the Corporation written notice of the
alleged adverse change and the Corporation shall have
failed to cure such change within thirty (30) days
after its receipt of such notice;
(ii) failure of the Corporation to pay or provide the
Executive in a timely fashion the salary or benefits
to which he is entitled under any Employment
Agreement between the Corporation and the Executive
in effect on the date of the Change in Control, or
under any benefit plans or policies in which the
Executive was participating at the time of the Change
in Control (including, without limitation, any
incentive, bonus, stock option, restricted stock,
health, accident, disability, life insurance, thrift,
vacation pay, deferred compensation and retirement
plans or policies);
(iii) the reduction of the Executive's salary as in effect
on the date of the Change in Control;
(iv) the taking of any action by the Corporation
(including the elimination of a plan without
providing substitutes therefor, the reduction of the
Executive's awards thereunder or failure to continue
the Executive's participation therein) that would
substantially diminish the aggregate projected value
of the Executive's awards or benefits under the
Corporation's benefit plans or policies described in
Section 1(j)(ii) in which the Executive was
participating at the time of the Change in Control;
(v) a failure by the Corporation to obtain from any
successor the assent to this Agreement contemplated
by Section 5 hereof; or
(vi) the relocation of the principal office at which the
Executive is to perform his services on behalf of the
Corporation to a location more than thirty-five (35)
miles from its location immediately prior to the
Change in Control or a substantial increase in the
Executive's business travel obligations subsequent to
the Change in Control.
Any circumstance described in this Section 1(j) shall
constitute Good Reason even if such circumstance would not
constitute a breach by the Corporation of the terms of the
Employment Agreement between the Corporation and the Executive
in effect on the date of the Change in Control. The Executive
shall be deemed to have terminated his employment for Good
Reason effective upon the effective date stated in a written
notice of such termination given by him to the Corporation
(which notice shall not be given, in circumstances described
in Section 1(j)(i), before the end of the thirty (30) day
period described therein) setting forth in
<PAGE> 5
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reasonable detail the facts and circumstances claimed to
provide the basis for termination, provided that the effective
date may not precede, nor be more than sixty (60) days from,
the date such notice is given. The Executive's continued
employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good
Reason hereunder.
(k) "Normal Retirement Date" shall have the meaning given to such
term in the Corporation's basic qualified pension plan in
which the Executive is a participant as in effect on the date
hereof or any successor or substitute plan adopted prior to a
Change in Control.
(l) "Person" means any individual, firm, corporation, partnership,
trust or other entity.
2. TERM OF AGREEMENT
(a) The term of this Agreement shall initially be for the period
beginning on the Commencement Date and ending on the day
before the third anniversary of the Commencement Date. The
term of this Agreement shall automatically be extended on the
first anniversary of the Commencement Date until the day
before the fourth anniversary of the Commencement Date without
further action by the parties, and shall be automatically
extended by an additional year on each succeeding anniversary
of the Commencement Date, unless either the Corporation or the
Executive shall have served notice upon the other party prior
to such anniversary of its or his intention either that the
term of this Agreement shall not be extended, or that the
Executive's Employment Agreement is terminated, provided,
however, that if a Change in Control of the Corporation shall
occur during the term of this Agreement, this Agreement shall
continue in effect until it expires in accordance with the
foregoing, but in any event for a period of not less than
three (3) years from the date of the Change in Control.
(b) Notwithstanding Section 2(a), the term of this Agreement shall
end upon the termination of the Executive's employment if,
prior to a Change in Control of the Corporation, the
Executive's employment with the Corporation shall have
terminated under the provisions of any Employment Agreement
between the Corporation and the Executive then in effect.
3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A TERMINATION
If a Change in Control of the Corporation shall have occurred and,
thereafter and during the term of this Agreement, the Executive's
employment by the Corporation is terminated for any reason other than
his death, his Disability, his retirement on his Normal Retirement
Date, by the Corporation for Cause, or by the Executive without Good
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Reason, the Executive shall be under no further obligation to perform
services for the Corporation and shall be entitled to receive the
following payments:
(a) The Corporation shall pay to the Executive his full base
salary through the effective date of the termination within
five (5) business days thereafter and all benefits and awards
(including both the cash and stock components) to which the
Executive is entitled under any benefit plans or policies in
which the Executive was a participant prior to the Change in
Control (or, if more favorable, at the effective date of
termination), at the time such payments are due pursuant to
the terms of such benefit plans or policies as in effect
immediately prior to the Change in Control (or, if more
favorable, at the effective date of termination).
(b) At the election of the Executive, in addition to the
entitlements set forth in Section 3(a) but in lieu of any
payment to the Executive of any salary or severance payments
or benefits to which the Executive would be entitled under the
provisions of any Employment Agreement between the Corporation
and the Executive then in effect (if any), the Corporation
shall pay to the Executive, in a lump sum not later than ten
(10) business days following the effective date of the
termination:
(i) an amount equal to three (3) times the Executive's
annual base salary on the effective date of the
termination or, if higher, immediately prior to the
Change in Control;
(ii) an amount equal to three (3) times the greater of (x)
the highest amount of the actual bonus awarded to the
Executive by the Corporation in the five (5) fiscal
years immediately preceding the year in which the
Change in Control occurred and (y) an amount equal to
the amount the Executive would have been awarded
under the Corporation's bonus plan in effect
immediately prior to the Change in Control for the
fiscal year in which the Change in Control occurred
had the Executive continued to render services to the
Corporation at the same level of performance, at the
same level of salary, and in the same position as
immediately prior to the Change in Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
<PAGE> 7
- 7 -
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of the termination occurs and ending on the date
of the termination, one-twelfth of the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's annual bonus plan in effect immediately
prior to the Change in Control for the fiscal year in
which the Change in Control occurred had the
Executive continued to render services to the
Corporation at the same level of performance, at the
same level of salary, and in the same position as
immediately prior to the Change in Control.
(vi) If a payment may be increased by reference to an
alternate calculation which cannot be made by the
time the payment is due, payment of the lesser, known
amount shall be made when due, and if any additional
amount becomes due, such additional amount shall be
paid within ten (10) days after the information upon
which calculation of such payment is dependent first
becomes available.
The amount of all payments due to the Executive pursuant to
this Section 3(b) shall be reduced by 1/36 for each full
calendar month by which the date which is three (3) years from
the effective date of the Executive's termination extends
beyond the Executive's Normal Retirement Date.
Upon entering into this Agreement and for a period of fourteen
(14) days following each anniversary of the date hereof (the
"Election Period"), the Executive may, in writing, direct the
Corporation to pay any amounts to which he is entitled under
this Section 3(b) in equal annual installments (not to exceed
ten (10) annual installments), with the first such installment
payable within ten (10) business days of the effective date of
the termination and each successive installment payable on the
anniversary of the effective date of the termination or the
next following business day if such date is not a business day
(the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
<PAGE> 8
- 8 -
(c) The Corporation shall pay or provide to the Executive or his
surviving spouse or children, as the case may be, such amounts
and benefits as may be required so that the pension and other
post-retirement benefits paid or made available to the
Executive, his surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
applicable to the Executive in effect immediately prior to the
Change in Control, assuming the Executive continued in the
employ of the Corporation at the same compensation until the
third anniversary of the effective date of the termination of
the Executive's employment or until his Normal Retirement
Date, whichever is earlier. Notwithstanding any conflicting
restrictions in the Plans or the fact of the termination of
the Executive's employment, until the Executive's Normal
Retirement Date, the Executive or his surviving spouse and his
children shall maintain a continuing right to receive the
pension and other benefits under the above Plans with payments
to begin upon retirement and to elect an imputed retirement on
the Executive's 50th birthdate or any of his birthdates
thereafter until his Normal Retirement Date, such election to
be made by so notifying the Corporation within one (1) year
after termination of his employment.
(d) The Corporation shall pay for or provide the Executive
individual out-placement assistance as offered by a member
firm of the Association of Out-Placement Consulting Firms.
(e) If any payment or benefit to or for the benefit of the
Executive in connection with a Change in Control of the
Corporation or termination of the Executive's employment
following a Change in Control of the Corporation (whether
pursuant to the terms of this Agreement, or any other plan or
arrangement or agreement with the Corporation, any Person
whose actions result in a Change in Control of the Corporation
or any Affiliate or Associate of the Corporation or any such
Person) is subject to the Excise Tax (as hereinafter defined),
the Corporation shall pay to the Executive an additional
amount such that the total amount of all such payments and
benefits (including payments made pursuant to this Section
3(e) net of the Excise Tax and all other applicable federal,
provincial and local taxes) shall equal the total amount of
all such payments and benefits to which the Executive would
have been entitled, but for this Section 3(e), net of all
applicable federal, provincial and local taxes except the
Excise Tax. For purposes of this Section 3(e), the term
"Excise Tax" shall mean any tax similar to the tax imposed by
Section 4999 of the Internal Revenue Code of 1986 (the
"Code").
The amount of the payment to the Executive under this Section
3(e) shall be estimated by a nationally recognized firm of
certified public accountants, which firm may not have provided
services to the Corporation or any Affiliate of the
Corporation within the previous three years and shall not
provide services thereto in the following three years, based
upon the following assumptions:
<PAGE> 9
- 9 -
(i) all payments and benefits to or for the benefit of
the Executive in connection with a Change in Control
of the Corporation or termination of the Executive's
employment following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code (or any comparable provision under Canadian
law), and all "excess parachute payments" shall be
deemed to be subject to the Excise Tax except to the
extent that, in the opinion of tax counsel selected
by the firm of certified public accountants charged
with estimating the payment to the Executive under
this Section 3(e), such payments or benefits are not
subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay federal,
provincial and local taxes at the highest marginal
rate of taxation for the applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that the
amount of the estimated payment is less than the amount
actually due to the Executive under this Section 3(e), the
amount of any such shortfall shall be paid to the Executive
within ten (10) days after the existence of the shortfall is
discovered.
(f) The Executive shall not be required to mitigate the amount of
any payment provided in this Section 3, nor shall any payment
or benefit provided for in this Section 3 be offset by any
compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
(g) If any payment to the Executive required by this Section 3 is
not made within the time for such payment specified herein,
the Corporation shall pay to the Executive interest on such
payment at the legal rate payable from time to time upon
judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all costs,
including reasonable attorney's fees and expenses of either litigation
or arbitration, incurred by the Executive in contesting or disputing
any termination of his employment following a Change in Control or in
seeking to obtain or enforce any right or benefit provided by this
Agreement.
<PAGE> 10
- 10 -
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be enforceable by the
Executive, his heirs, executors, administrators, successors and
assigns. This Agreement shall be binding upon the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Corporation expressly to assume and agree to perform this Agreement
in accordance with its terms. The Corporation shall obtain such
assumption and agreement prior to the effectiveness of any such
succession.
6. NOTICE
Any notices and all other communications provided for herein shall be
in writing and shall be deemed to have been duly given when delivered
or mailed, by certified or registered mail, return receipt requested,
postage prepaid addressed to the respective addresses set forth on the
first page of this Agreement or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt. All notices to the Corporation shall be addressed to the
attention of the Board with a copy to each of the General Counsel, the
Vice President-Human Resources and the Secretary of the Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or discharged
except in a writing specifically referring to such provision and signed
by the party against which enforcement of such modification, waiver or
discharge is sought. No waiver by either party hereto of the breach of
any condition or provision of this Agreement shall be deemed a waiver
of any other condition or provision at the same or any other time.
8. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the substantive laws of the State of
Delaware.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
<PAGE> 11
- 11 -
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in the city nearest to the Executive's principal residence
(or, at the Executive's election, in the city within the province in
which the Executive's principal residence is located nearest to such
principal residence) which has an office of the American Arbitration
Association (or a similar Canadian association) by one arbitrator in
accordance with the rules of the American Arbitration Association (or
the Canadian equivalent) then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. The Corporation
hereby waives its right to contest the personal jurisdiction or venue
of any court, federal or state, in an action brought to enforce this
Agreement or any award of an arbitrator hereunder which action is
brought in the jurisdiction in which such arbitration was conducted,
or, if no arbitration was elected, in which arbitration could have been
conducted pursuant to this provision.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Arnold M. Nemirow
--------------------------------------
Arnold M. Nemirow
Its: Chairman and Chief Executive Officer
/s/ David J. Steuart
-----------------------------------------
David J. Steuart
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