<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 March 31, 1999
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 May 6, 1999.
Class Outstanding at May 6, 1999
----- --------------------------
Common Stock, $1.00 Par Value 51,878,311 Shares
<PAGE> 2
BOWATER INCORPORATED
I N D E X
Page
Number
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PART I FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheet at March 31, 1999,
and December 31, 1998 3
Consolidated Statement of Operations for the Three
Months Ended March 31, 1999, and
March 31, 1998 4
Consolidated Statement of Capital Accounts
for the Three Months Ended March 31, 1999 5
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1999, and
March 31, 1998 6
Notes to Consolidated Financial Statements 7-8
2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II OTHER INFORMATION
Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE> 3
PART I
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27.5 $ 58.3
Marketable securities 1.2 1.2
Accounts receivable, net 342.4 372.4
Inventories 206.6 186.3
Other current assets 77.5 77.2
---------- ----------
Total current assets 655.2 695.4
---------- ----------
Timber and timberlands (Note 2) 419.7 472.8
Fixed assets, net 2,837.2 2,885.2
Goodwill 921.5 921.7
Other assets 124.1 116.3
---------- ----------
$ 4,957.7 $ 5,091.4
========== ==========
LIABILITIES AND CAPITAL
Current liabilities:
Current installments of long-term debt (Note 3) $ 20.8 $ 86.2
Revolver credit 134.8 210.0
Accounts payable and accrued liabilities 395.2 464.4
Income taxes payable (Note 2) 58.5 --
Dividends payable 11.4 11.9
---------- ----------
Total current liabilities 620.7 772.5
---------- ----------
Long-term debt, net of current installments (Note 3) 1,464.4 1,534.6
Other long-term liabilities 348.1 356.3
Deferred income taxes 520.1 522.2
Minority interests in subsidiaries (Note 4) 133.2 128.8
Commitments and contingencies (Note 5) -- --
Shareholders' equity:
Series C cumulative preferred stock (Note 6) -- 25.5
Common stock 59.4 59.0
Exchangeable shares (Note 3) 157.0 110.8
Additional paid-in capital 1,250.7 1,230.2
Retained earnings 751.8 657.4
Accumulated other comprehensive income/(loss) (33.2) (28.9)
Loan to ESOT (2.1) (2.6)
Treasury stock, at cost (Note 7) (312.4) (274.4)
---------- ----------
Total shareholders' equity 1,871.2 1,777.0
---------- ----------
$ 4,957.7 $ 5,091.4
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, March 31,
1999 1998
--------- --------
<S> <C> <C>
Sales $ 619.8 411.7
Distribution costs 48.5 28.5
------- -------
Net sales 571.3 383.2
Cost of sales 423.4 274.4
Depreciation, amortization and cost of timber harvested 75.8 45.2
------- -------
Gross profit 72.1 63.6
Selling and administrative expense 21.3 17.3
------- -------
Operating income 50.8 46.3
Other expense/(income):
Interest income (0.5) (6.5)
Interest expense, net of capitalized interest 32.4 16.6
Gain on sale of timberlands (Note 2) (145.4) (21.0)
Other, net (Note 8) (12.3) 4.3
------- -------
(125.8) (6.6)
------- -------
Income before income taxes and minority interests 176.6 52.9
Provision for income taxes (Note 9) 69.7 20.1
Minority interests in net income of subsidiaries 0.4 8.0
------- -------
Net income 106.5 24.8
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments (4.3) --
------- -------
Comprehensive income $ 102.2 $ 24.8
======= =======
Basic earnings per common share (Note 10): $ 1.93 $ 0.60
======= =======
Average common shares outstanding 54.5 40.4
======= =======
Diluted earnings per common share (Note 10): $ 1.89 $ 0.59
======= =======
Average common and common equivalent shares outstanding 55.8 41.0
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
For The Three Months Ended March 31, 1999
(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, 1998 $ 25.5 $ 59.0 $ 110.8 $1,230.2 $ 657.4 $ (28.9) $ (2.6) $(274.4)
Net income - - - - 106.5 - - -
New issuance of stock (Note 3) - - 66.2 - - - - -
Retractions of Exchangeable Shares - 0.4 (20.0) 19.6 - - - -
Redemption of Series C Preferred Stock
(Note 6) (25.5) (0.9)
Dividends on common stock and Exchangeable
Shares ($.20 per share) - - - - (11.1) - - -
Dividends on preferred stock:
Series C ($.14 per share) - - - - (0.1) - - -
Stock options exercised - - - 0.7 - - - -
Tax benefit on exercise of stock options - - - 0.2 - - - -
Reduction in loan to ESOT - - - - - - 0.5 -
Purchase of common stock (Note 7) - - - - - - - (38.0)
Foreign currency translation - - - - - (4.3) - -
---------- -------- ------------ ---------- --------- -------------- ------- --------
Balance at March 31, 1999 $ - $ 59.4 $ 157.0 $1,250.7 $ 751.8 $ (33.2) $ (2.1) $(312.4)
========== ======== ============ ========== ========= ============== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BOWATER INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 31,
1999 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 106.5 $ 24.8
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and cost of timber harvested 75.8 45.2
Deferred income taxes (2.7) 3.7
Minority interests 0.4 8.0
Gain from sale of timberlands (Note 2) (145.4) (21.0)
Change in working capital:
Accounts receivable, net 28.8 (3.5)
Inventories (27.1) (8.6)
Accounts payable and accrued liabilities (53.8) 8.5
Income taxes payable (Note 2) 58.5 9.9
Other, net (2.5) 5.4
------- ------
Net cash from operating activities 38.5 72.4
------- ------
Cash flows from investing activities:
Cash invested in fixed assets, timber and timberlands (54.6) (37.1)
Disposition of fixed assets, timber and timberlands (Note 2) 216.5 30.9
Cash invested in option contracts -- (22.7)
Cash paid on maturity of hedging contracts (11.9) --
Cash invested in marketable securities (0.9) (40.9)
Cash from maturities of marketable securities 1.0 127.0
------- ------
Net cash from investing activities 150.1 57.2
------- ------
Cash flows from financing activities:
Proceeds from short-term borrowings 140.8 --
Payments of short-term borrowings (216.0) --
Cash dividends, including minority interests (Note 4) (13.9) (24.0)
Purchase of common stock (Note 7) (38.0) --
Redemption of Convertible Subordinated Debentures (Note 3) (65.9) --
Payments of long-term debt (1.4) (0.5)
Redemption of Series C Preferred Stock (Note 6) (26.4) --
Stock options exercised 0.7 5.3
Other 0.7 0.5
------- ------
Net cash used for financing activities (219.4) (18.7)
------- ------
Net increase/(decrease) in cash and cash equivalents (30.8) 110.9
Cash and cash equivalents at beginning of year 58.3 228.7
------- ------
Cash and cash equivalents at end of period $ 27.5 $339.6
======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of capitalized interest $ (23.6) $ (13.0)
Income taxes $ (7.9) $ (6.5)
Noncash investing and financing activity:
Conversion of 7.50% Convertible Unsecured
Subordinated Debentures into Bowater Canada Inc.
Exchangeable Shares (Note 3) $ 66.2 $ --
</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 March 31, 1999.
The acquisition of Avenor Inc. and the South Korean newsprint mill, both
which closed in July 1998, are not reflected in the accounts for the
comparable period ended March 31, 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 March 31, 1999 are not necessarily indicative of the results
to be expected for the full year.
2. During the first quarter of 1999, the Company sold approximately 981,000
acres of timberlands and the Pinkham Lumber Company resulting in a pre-tax
gain of $145.4 million, or $1.59 per diluted share after tax. In addition,
the Company recognized severance charges related to the sale of $2.3
million pre-tax. In April 1999, the Company completed the sale of
approximately 650,000 acres of timberlands.
3. In February 1999, the Company redeemed all of its outstanding 7.50%
Convertible Unsecured Subordinated Debentures due 2004. In connection with
the redemption, the Company paid cash of approximately $65.9 million, and
Bowater Canada Inc. issued 1,359,620 Exchangeable shares.
4. During the first quarter of 1999, the Board of Directors of Calhoun
Newsprint Company (CNC) declared a $4.9 million dividend. As a result, $2.4
million was paid to the minority shareholder. In the first quarter of 1998,
$15.4 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 February 1999, the Company redeemed all the remaining shares of its
8.40% Series C Cumulative Preferred Stock for $26.6 million, including
accrued dividends.
7. During the first quarter of 1999, the Company purchased 948,800 shares of
its common stock at a cost of $38.0 million. The purchase of an additional
490,100 shares for $19.4 million in April completed the stock repurchase
program authorized in November 1997. The Company purchased 4.1 million
shares at a cost of $165.2 million under this program. Since the beginning
of 1996, the Company has purchased 8.1 million shares of its common stock
at a total cost of $321.2 million.
8. During the first quarter of 1999, other expense (income) includes $12.6
million of foreign exchange gains compared to a gain of $.3 million in the
first quarter of 1998.
9. The effective tax rates for the first quarter of 1999 and 1998 were 39.5
percent and 38.0 percent, respectively.
10. The calculations of basic and diluted earnings per share for the three
months ended March 31, 1999, include deductions of $0.1 million for Series
C preferred stock dividends and $.9 million for deferred issuance costs
associated with the redemption of the remaining outstanding shares of the
Series C preferred stock. For the three months ended March 31, 1998, the
calculations include a deduction of $0.6 million for Series C preferred
stock dividends.
7
<PAGE> 8
BOWATER INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
11. Segment Information:
The Company is organized into four divisions, three of which are: the
Newsprint & Directory Division, the Coated Paper Division and the Forest
Products Division.
* The Newsprint & Directory Division is responsible for the
manufacturing operations of nine sites in the United States, Canada
and South Korea. It is also responsible for the worldwide marketing of
newsprint, directory paper and uncoated groundwood specialties.
* The Coated Paper Division manufactures coated groundwood paper,
newsprint, market pulp and uncoated groundwood specialties at one
manufacturing site in the United States. This Division is responsible
for the worldwide marketing and sales of coated groundwood paper.
* The Forest Products Division operates three sawmills and manages 2.4
million acres of owned and leased timberlands in the United States and
Canada, as well as 14 million acres of Crown-owned land in Canada on
which the Company has cutting rights. This Division sells wood fiber
to the Newsprint & Directory Division and Coated Paper Division, as
well as markets and sells timber and lumber to third parties in North
America.
The Company's Pulp Division has marketing and sales responsibility for all
of the Company's market pulp sales; however, the financial results from
these sales are included in both the Newsprint & Directory Division and the
Coated Paper Division. Accordingly, no results are reported for the
Company's Pulp Division.
The following tables summarize information about segment profit and loss
and segment assets for the three months ended March 31, 1999 and 1998 and
at March 31, 1999 and 1998, respectively:
(Unaudited, in millions of U.S. dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Newsprint & Coated Forest Corporate/
Three Months Ended Directory Paper Products Other
March 31, 1999 Division Division Division Eliminations Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales-including internal sales $ 414.7 $ 111.0 $ 131.5 $ 2.3 $ 659.5
Elimination of intersegment sales --- --- (88.2) --- (88.2)
- ---------------------------------------------------------------------------------------------------------------
Net sales - external customers 414.7 111.0 43.3 2.3 571.3
- ---------------------------------------------------------------------------------------------------------------
Operating income 30.5 16.5 12.5 (8.7) 50.8
- ---------------------------------------------------------------------------------------------------------------
Total assets at 3/31/99 $3,811.9 $ 483.1 $ 531.6 $131.1 $4,957.7
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Newsprint & Coated Forest Corporate/
Three Months Ended Directory Paper Products Other
March 31, 1998 Division Division Division Eliminations Total
- ---------------------------------------------------------------------------------------------------------------
Net sales-including internal sales $ 232.2 $ 115.6 $ 110.1 $ --- $ 457.9
Elimination of intersegment sales --- --- (74.7) --- (74.7)
- ---------------------------------------------------------------------------------------------------------------
Net sales - external customers 232.2 115.6 35.4 --- 383.2
- ---------------------------------------------------------------------------------------------------------------
Operating income 13.0 28.2 16.4 (11.3) 46.3
- ---------------------------------------------------------------------------------------------------------------
Total assets at 3/31/98 $1,358.4 $ 493.1 $ 444.1 $483.4 $2,779.0
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Organization
The Company is organized into four divisions: the Newsprint & Directory
Division, the Coated Paper Division, the Pulp Division and the Forest Products
Division. Each Division, with the exception of the Pulp Division, is responsible
for the sales and marketing of distinct product lines and the operation of
certain manufacturing sites. The Pulp Division is primarily a marketing and
distribution Division. Therefore, the Company's financial results are collected,
analyzed and reported through the Newsprint & Directory, Coated Paper and Forest
Products Divisions.
Results of Operations
Three Months Ended March 31, 1999, versus
March 31, 1998
For the first quarter of 1999, the Company had operating income of $50.8
million, compared to operating income of $46.3 million for the first quarter of
1998. The Company's shipments of newsprint and market pulp increased due to the
acquisition of Avenor Inc. (Avenor) in July 1998. These improvements were
partially offset by lower prices for most of the Company's products.
Net income for the first quarter of 1999 was $106.5 million, or $1.89 per
diluted share, compared to net income of $24.8 million, or $0.59 per diluted
share in the first quarter of 1998. Included in net income for the first quarter
of 1999 was a pre-tax gain on the sale of timberlands of $145.4 million ($88.7
million after tax), or $1.59 per diluted share. In addition, the Company
recorded pre-tax foreign currency exchange gains of $12.6 million, or $.19 per
diluted share during the first quarter of 1999. First quarter 1999 net sales
were $571.3 million, compared with $383.2 million for the first quarter of 1998
and $639.2 for the fourth quarter of 1998.
Presented below is a discussion of each significant product line followed by
a discussion of the results of each of the reported Divisions.
Product Line Information
In general, the Company's products are globally traded commodities. Pricing and
the level of shipments of these products will continue to be influenced by the
balance between supply and demand as affected by global economic conditions,
changes in consumption and capacity, the level of customer and producer
inventories 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; Resource Information System, Inc. (RISI)
and the Media Industry Newsletter. 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.
Net Sales by Product
(Unaudited, in millions of U.S. dollars)
- ------------------------------------------------------------
Three Months Ended
-------------------------
March 31, March 31,
1999 1998
- ------------------------------------------------------------
Net sales:
Newsprint $347.4 $183.5
Coated groundwood 80.0 97.3
Directory paper 36.3 43.8
Market pulp 96.5 42.7
Uncoated groundwood specialties 16.3 9.0
Lumber and other wood products 43.3 35.4
Distribution costs (48.5) (28.5)
-------------------------
Total net sales $571.3 $383.2
------------- -----------
- ------------------------------------------------------------
NEWSPRINT The Company's average transaction price for newsprint was 9 percent
lower in the first quarter of 1999 compared to the first quarter of 1998, while
the Company's shipments of newsprint more than doubled. The increase in
shipments was due to the acquisition of Avenor and the South Korean newsprint
mill, both in July of 1998. The decrease in average price was due to an
imbalance between supply and demand caused in part by the financial and economic
problems in Asia which lowered demand from this region. Demand in North America
is strong, although there is a temporary excess of supply. Comparing the first
quarter of 1999 to the first quarter of 1998, total U.S. consumption and
consumption of newsprint by U.S. daily newspapers increased. Ad lineage for U.S.
daily newspapers also increased during the first two months of 1999
9
<PAGE> 10
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
compared to the same period last year. At the end of the first quarter of 1999,
newsprint inventory for the U.S. daily newspapers decreased compared to the year
earlier period. North American mill inventories, however, were 60 percent higher
than first quarter 1998 due to excess supply. As of April 30, 1999, the Company
announced that it would curtail newsprint production by 125,000 metric tons to
correct an order book imbalance.
COATED GROUNDWOOD The Company's coated groundwood average transaction price in
the first quarter of 1999 was 11 percent lower than in the first quarter of
1998, and coated groundwood shipments were lower by 8 percent. Coated groundwood
results were negatively impacted by the higher volume of coated paper imports
and by the increased supply of other printing and writing papers. Overall
consumption of coated groundwood paper was moderate during the quarter as
magazine advertising pages and catalogue mailings, measured by Standard A mail
weight, increased slightly over a strong first quarter a year ago. North
American mill inventories of coated groundwood paper as of March 31, 1999, were
196,000 short tons or 53 percent higher than the year ago period which is also
above average historical levels.
DIRECTORY PAPER Shipments of the Company's directory paper were 13 percent lower
in the first quarter of 1999 compared to the first quarter of 1998 and the
average transaction price declined 4 percent. Directory prices generally trend
similarly to newsprint pricing, but with a lag due to the contract nature of the
directory business.
MARKET PULP The first quarter average transaction price for the Company's market
pulp decreased 2 percent compared to the first quarter of 1998. Shipments were
significantly higher than the year ago period due to the inclusion of market
pulp production capacity added with the acquisition of Avenor. Compared to the
first quarter of 1998, NORSCAN (U.S., Canada, Finland, Norway and Sweden
producers) shipments to Asia increased 19 percent as increased economic activity
spurred paper demand. NORSCAN operating rates averaged 93 percent for the first
quarter 1999 and NORSCAN shipments increased 218,000 metric tons when compared
to the same period a year ago. At the end of the quarter, NORSCAN producer
inventories were 1.5 million metric tons or a 25 days supply. With these
improving fundamentals, the Company announced a market pulp price increase of
$25 to $30 per metric ton (depending on grade) as of April 1999.
LUMBER The average transaction price for the Company's lumber products decreased
10 percent in the first quarter of 1999 compared to the first quarter of 1998.
The decline in price was due primarily to a change in mix resulting from the
inclusion of the Manifor sawmill, acquired with Avenor Inc. in July of 1998.
Since the first quarter of 1998, the Asian economic crisis caused a reduction in
net exports and thus, an increased domestic supply of lumber. This lowered
pricing in the domestic market despite strong domestic demand. Housing starts in
the first quarter of 1999 were 1.8 million units (seasonally adjusted annual
rate) and repair and remodeling expenditures increased 9 percent over the first
quarter of 1998. The Company's lumber shipments for the first quarter of 1999
increased by 37 percent compared to the first quarter of 1998, due mainly to the
inclusion of the Manifor sawmill, acquired upon the purchase of Avenor.
TIMBER For the first quarter, shipments of the Company's timber products
increased 34 percent compared to the first quarter of 1998. The increased
shipments were due to the inclusion of timber products from the Avenor
acquisition. Favorable weather conditions as well as the application of
intensive forest management practices continues to increase shipments. The
average transaction price for the Company's timber products in the first quarter
decreased 9 percent compared to a year ago due to lower demand in the southeast
United States timber markets.
Divisional Performance
Net Sales by Division:
- -----------------------------------------------------
Three Months Ended
March 31,
--------------------
(In millions of US dollars) 1999 1998
- -----------------------------------------------------
Division: (1)
Newsprint & Directory $414.7 $232.2
Coated Paper 111.0 115.6
Forest Products 43.3 35.4
Corporate/Other Eliminations 2.3 -
--------------------
Total Net Sales $571.3 $383.2
- -----------------------------------------------------
10
<PAGE> 11
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Operating Income by Division:
- -----------------------------------------------------
Three Months Ended
March 31,
--------------------
(In millions of US dollars) 1999 1998
- -----------------------------------------------------
Division: (1)
Newsprint & Directory $30.5 $13.0
Coated Paper 16.5 28.2
Forest Products 12.5 16.4
Corporate/Other Eliminations (8.7) (11.3)
--------------------
Total Operating Income $50.8 $46.3
- -----------------------------------------------------
(1) Financial results for the production and sale of market pulp are included in
the Newsprint & Directory Division and the Coated Paper Division. The Pulp
Division is responsible for the marketing and distribution of the product.
Newsprint & Directory Division: In July 1998, this Division added five new
manufacturing sites with the acquisitions of Avenor and the South Korean
newsprint mill. Net sales for the Division increased 79 percent, from $232.2
million for first quarter 1998 to $414.7 million for first quarter 1999,
primarily the result of adding the new sites, offset by lower average prices for
newsprint, market pulp and directory. See the previous discussion of product
line results.
Operating income increased 135 percent, from $13.0 million for first quarter
1998 to $30.5 million for the first quarter 1999. Higher shipments of newsprint
and pulp, partially offset by lower prices for newsprint, market pulp and
directory account for this increase.
Coated Paper Division: Net sales decreased $4.6 million, from $115.6 million for
first quarter 1998 to $111.0 million for first quarter 1999, due to lower
average prices for newsprint, market pulp and coated, offset partially by higher
shipments. See the previous discussion of product line results.
Operating income decreased 41 percent, from $28.2 million for first quarter
1998 to $16.5 million for first quarter 1999. This decrease was primarily the
result of lower prices for newsprint, market pulp and coated groundwood paper.
Forest Products Division: Net sales for the Division increased 22 percent, from
$35.4 million for first quarter 1998 to $43.3 million for first quarter 1999,
primarily a result of higher shipments offset by lower prices.
See the previous discussion of product line results.
Operating income for the Division decreased $3.9 million or 24 percent for
first quarter of 1999 compared to the first quarter of 1998 as a result of lower
prices for timber and lumber.
In the first quarter of 1999, the Company completed the sale of
approximately 981,000 acres of timberland in the state of Maine and the Pinkham
Lumber Company. In April 1999, the Company completed another timberland sale of
approximately 650,000 acres, also in the state of Maine.
Corporate/Other Eliminations: Included in this category are general and
administrative expenses. For first quarter 1999, this category also includes
market pulp sales from the Gold River pulp mill, which was permanently closed in
February 1999. Comparing the first quarter of 1999 to the first quarter of 1998,
lower general and administrative expenses more than offset losses on the sales
of market pulp.
Interest and Other Income and Expenses
Interest expense for the first quarter of 1999 compared to the same period last
year increased $15.8 million or 95 percent due to the assumption of Avenor's
debt and borrowings on the Company's credit facility. Comparing the same
periods, interest income decreased $6.0 million due to lower average investment
balances. During the first quarter of 1999, the majority of the Company's free
cash flow was used to repay short-term borrowings.
In March 1999, the Company completed the sale of approximately 981,000 acres
of timberland located in the state of Maine and the Pinkham Lumber Company. In
connection with this sale, the Company reported a pre-tax gain of $145.4
million. In April 1999, the Company completed another sale of approximately
650,000 acres of timberland located in the state of Maine.
"Other, net" for the first quarter of 1999 was income of $12.3 million,
compared with a net expense of $4.3 million in the same quarter of 1998. The
increase in other income was almost entirely due to foreign exchange gains of
$12.6 million during the first quarter of 1999, the majority of which resulted
from marking to market the Company's $1.1 billion hedging program maintained by
Avenor prior to the acquisition.
The Company's effective tax rate for the first quarter of 1999 was 39.5
percent versus 38 percent in the prior year first quarter.
11
<PAGE> 12
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased to $27.5 million at March 31,
1999, from $58.3 million at December 31, 1998. The Company generated cash from
operations of $38.5 million, cash from investing activities of $150.1 million,
and used $219.4 million of cash for financing activities. Aside from cash flow
from operations, capital expenditures, and changes in investments and short-
term borrowings, the Company had several other significant cash transactions
since December 31, 1998. These transactions include: cash proceeds of $216.5
million from the sale of 981,000 acres of timberland and the Pinkham Lumber
Company; cash paid of $65.9 million for the redemption of the Company's 7.50%
Convertible Unsecured Subordinated Debentures; cash paid of $26.4 million for
the redemption of the Company's 8.40% Series C Preferred stock, and common stock
purchases requiring cash of $38.0 million.
Cash from Operating Activities:
During the first three months of 1999, the Company's operations generated $38.5
million of cash compared to $72.4 million of cash during the first three months
of 1998, a decrease of $33.9 million. The decrease was due to higher working
capital needs partially offset by higher operating income. The 1999 operating
cash flow includes the activities of the newly acquired mills.
Cash from Investing Activities:
Cash proceeds from investing activities in the first three months of 1999
totaled $150.1 million, compared with proceeds of $57.2 million during the first
three months of 1998. Comparing the same periods, capital expenditures were
$17.5 million higher, due mainly to the modernization of the Calhoun, Tennessee,
newsprint facility. The Company expects total capital expenditures for 1999 to
approximate $300.0 million.
In March 1999, the Company completed the sale of 981,000 acres of
timberland and the Pinkham Lumber Company resulting in cash proceeds of $216.5
million. In April 1999, the Company completed another sale of approximately
650,000 acres of timberlands which will result in cash proceeds of approximately
$145.0 million. The Company's Forest Products Division periodically reviews
timberland holdings and makes decisions to sell certain non-strategic tracts.
In the first three months of 1999, the Company paid $11.9 million on the
maturity of Canadian dollar hedging contracts and received net proceeds from the
maturity of marketable securities of $0.1 million, compared with net proceeds of
$86.1 million for the same period in 1998. Also in the first quarter of 1998,
the Company invested $22.7 million in Canadian dollar option contracts.
Cash from Financing Activities:
Cash used for financing activities was $219.4 million for the first three months
of 1999 compared to $18.7 million for the first three months of 1998. During the
first quarter of 1999, the Company made net payments of $75.2 million on its
revolving credit facility and paid $65.9 million for the redemption of its 7.50%
Convertible Unsecured Subordinated Debentures due 2004. In addition to the cash
payment, Bowater Canada Inc. issued 1.4 million Exchangeable shares. Also in the
first quarter of 1999, the Company paid $26.4 million for the redemption of the
Company's 8.40% Series C Preferred Stock. Cash dividends decreased $10.1 million
from the prior year quarter primarily due to the payment of a higher cash
dividend to the minority shareholder of Calhoun Newsprint Company during the
first quarter of 1998 ($15.4 million compared to $2.4 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 common stock in the open market or in privately-negotiated
transactions subject to normal trading restrictions. As of March 31, 1999, the
Company had purchased approximately 3.6 million shares at a cost of $145.8
million, of which 948,800 shares had been purchased at a cost of $38.0 million
during the first quarter of 1999. As of April 1999, the Company completed the
stock repurchase program, purchasing an additional 490,100 shares at a cost of
$19.4 million. On May 12, 1999, the Board of Directors authorized a new stock
repurchase program allowing the Company to buy back up to 5.5 million shares.
The Company continues to consider the most effective use of its cash to be for
internal capital investments, share repurchases, investments to grow the
Company's primary product lines and additional debt reductions.
Dispositions
In March 1999, the Company completed the sale of approximately 981,000 acres of
timberland in the state of Maine and the Pinkham Lumber Company to a subsidiary
of J.D. Irving, Limited of Saint John, New Brunswick, for $216.5 million. As
part of the sale, an agreement with Irving was made to supply
<PAGE> 13
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
wood fiber from the purchased timberlands to the Company's paper making
operations at Great Northern Paper in Millinocket and East Millinocket, Maine.
In April 1999, the Company completed the sale of approximately 650,000 acres
of timberland in the state of Maine to affiliates of McDonald Investment
Company, Inc. of Birmingham, Alabama, for approximately $145.0 million. As part
of the sale, an agreement with McDonald was made to supply wood fiber from the
purchased timberlands to the Company's paper making operation at Great Northern
Paper in Millinocket and East Millinocket, Maine.
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. The Millinocket mill
remained available for sale. During the first quarter of 1999, the Company
received an unsolicited proposal from a Canadian investor group for the possible
purchase of Great Northern Paper. This proposal is currently being reviewed.
Gold River Mill Closure
In February 1999, the Company permanently closed its Gold River pulp mill, which
had been shut down due to market conditions since August 23, 1998. The costs
associated with closing this mill were recorded in 1998.
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. The Company has separated its compliance analysis into three
categories.
The first category is business systems. A formal review of all internally
developed software was completed in 1997 and systemwide testing was successfully
completed during 1998. No major problems were encountered. In July 1998, the
Company acquired new operations. To achieve business synergies and year 2000
compliance, the new operations' order fulfillment, order tracking and invoicing
processes were migrated to the Company's internally developed software programs.
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 business systems projects are currently estimated to be $3.0 million.
As of March 31, 1999, approximately $2.0 million has been spent. The readiness
percentage for items in this category is approximately 90 percent as of March
31, 1999.
The second category includes manufacturing process control, manufacturing
equipment and systems, safety, environmental and other non-traditional
information systems areas. The Company currently estimates costs associated with
this category to be $6.0 million. As of March 31, 1999, approximately $2.0
million has been spent. The readiness percentage for this category is
approximately 87 percent as of March 31, 1999.
The third category is the Company's business partners, customers and
suppliers. Testing with e-commerce customers is under way. Briefings have been
conducted for a number of customers at both mill and customer sites. The Company
has identified 665 critical suppliers and is actively assessing their year 2000
readiness. As of March 31, 1999, approximately 83 percent of the critical
suppliers have responded.
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 with the exception of two paper machines that
are currently expected to become compliant in September 1999 coincident with
scheduled maintenance shutdowns. In the event any aspect of the year 2000
program proves to be ineffective in resolving year 2000 compliance issues, the
Company is developing a contingency plan covering all significant business
functions and sites. The Company currently expects to 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 internally or with any of the
13
<PAGE> 14
BOWATER INCORPORATED AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Company's significant suppliers or vendors who cannot be replaced, it could
materially adversely affect the Company's results of operations, liquidity or
financial condition.
The following is a cautionary statement for the 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 first quarter of 2000. 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.
14
<PAGE> 15
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):
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Employment Agreement, dated as of March 15, 1999, by and
between the Company and James T. Wright.
10.2 Change in Control Agreement, dated as of March 15, 1999,
by and between the Company and James T. Wright.
10.3 Employment Agreement, dated as of November 1, 1998, by
and between the Company and Jerry R. Gilmore.
10.4 Employment Agreement, dated as of July 24, 1998, by and
between the Company and R. Donald Newman.
27.1 Financial Data Schedule (electronic filing only).
</TABLE>
(b) Reports on Form 8-K:
None
15
<PAGE> 16
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: May 13, 1999
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1 Employment Agreement, dated as of March 15, 1999, by and
between the Company and James T. Wright.
10.2 Change in Control Agreement, dated as of March 15, 1999, by
and between the Company and James T. Wright.
10.3 Employment Agreement, dated as of November 1, 1998, by and
between the Company and Jerry R. Gilmore.
10.4 Employment Agreement, dated as of July 24, 1998, by and
between the Company and R. Donald Newman.
27.1 Financial Data Schedule (electronic filing only).
</TABLE>
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 15th day of March, 1999, 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 T. Wright, 212 McIver Street, Greenville, South Carolina 29601 (the
"Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President - Human Resources; 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:
<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 - Human Resources of Bowater Incorporated (Salary
Grade 34), 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 $235,000 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.
For 1999, the Executive will be entitled to a 45%
target bonus formula. Any bonus for such year will be
prorated to the nearest full month of active
employment.
(c) Benefit Plans. The Corporation shall make
contributions on the Executive's behalf to the
various benefit plans and programs of the
2
<PAGE> 3
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 five
weeks of annual 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.
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
3
<PAGE> 4
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.
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,
4
<PAGE> 5
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/ Arnold M. Nemirow /s/ James T. Wright
------------------------------------- --------------------------------
Arnold M. Nemirow James T. Wright
Chairman, Chief Executive Officer
and President
5
<PAGE> 1
Exhibit 10.2
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 15th day of March 1999, 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
T. Wright of 212 McIver Street, Greenville, South Carolina 29601 (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
<PAGE> 2
-2-
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 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
<PAGE> 3
-3-
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 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 50% 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.
<PAGE> 4
-4-
(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 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;
<PAGE> 5
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(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.
(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
<PAGE> 6
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during the term of this Agreement, this Agreement shall
continue in effect until it expires in accordance with the
foregoing, but in any event for a period of not less than
three (3) years from the date of the Change in Control.
(b) Notwithstanding Section 2(a), the term of this Agreement shall
end upon the termination of the Executive's employment if,
prior to a Change in Control of the Corporation, the
Executive's employment with the Corporation shall have
terminated under the provisions of any Employment Agreement
between the Corporation and the Executive then in effect.
3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A TERMINATION
If a Change in Control of the Corporation shall have occurred and,
thereafter and during the term of this Agreement, the Executive's
employment by the Corporation is terminated for any reason other than
his death, his Disability, his retirement on his Normal Retirement
Date, by the Corporation for Cause, or by the Executive without Good
Reason, the Executive shall be under no further obligation to perform
services for the Corporation and shall be entitled to receive the
following payments:
(a) The Corporation shall pay to the Executive his full base
salary through the effective date of the termination within
five (5) business days thereafter and all benefits and awards
(including both the cash and stock components) to which the
Executive is entitled under any benefit plans or policies in
which the Executive was a participant prior to the Change in
Control (or, if more favorable, at the effective date of
termination), at the time such payments are due pursuant to
the terms of such benefit plans or policies as in effect
immediately prior to the Change in Control (or, if more
favorable, at the effective date of termination).
(b) At the election of the Executive, in addition to the
entitlements set forth in Section 3(a) but in lieu of any
payment to the Executive of any salary or severance payments
or benefits to which the Executive would be entitled under the
provisions of any Employment Agreement between the Corporation
and the Executive then in effect (if any), the Corporation
shall pay to the Executive, in a lump sum not later than ten
(10) business days following the effective date of the
termination:
(i) an amount equal to three (3) times the Executive's
annual base salary on the effective date of the
termination or, if higher, immediately prior to the
Change in Control;
(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
<PAGE> 7
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awarded under the Corporation's bonus plan in effect
immediately prior to the Change in Control for the
fiscal year in which the Change in Control occurred
had the Executive continued to render services to the
Corporation at the same level of performance, at the
same level of salary, and in the same position as
immediately prior to the Change in Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of the termination occurs and ending on the date
of the termination, one-twelfth of the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's 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
<PAGE> 8
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termination extends beyond the Executive's Normal
Retirement Date.
Upon entering into this Agreement and for a period of
fourteen (14) days following each anniversary of the
date hereof (the "Election Period"), the Executive
may, in writing, direct the Corporation to pay any
amounts to which he is entitled under this Section
3(b) in equal annual installments (not to exceed ten
(10) annual installments), with the first such
installment payable within ten (10) business days of
the effective date of the termination and each
successive installment payable on the anniversary of
the effective date of the termination or the next
following business day if such date is not a business
day (the "Deferred Payment Election"). A Deferred
Payment Election, once made, cannot be revoked except
during an Election Period; provided, however, no
Deferred Payment Election can be made or revoked by
the Executive during an Election Period that occurs
after a Change in Control or at a time when, in the
judgment of the Corporation, a Change in Control may
occur within sixty (60) days of such Election Period.
(c) The Corporation shall pay or provide to the Executive
or his surviving spouse or children, as the case may
be, such amounts and benefits as may be required so
that the pension and other post-retirement benefits
paid or made available to the Executive, his
surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension
(Benefit) Plans in effect immediately prior to the
Change in Control, assuming the Executive continued
in the employ of the Corporation at the same
compensation until the third anniversary of the
effective date of the termination of the Executive's
employment or until his Normal Retirement Date,
whichever is earlier. Notwithstanding any conflicting
restrictions in the Plans or the fact of the
termination of the Executive's employment, until the
Executive's Normal Retirement Date, the Executive or
his surviving spouse and his children shall maintain
a continuing right to receive the pension and other
benefits under the above Plans with payments to begin
upon retirement 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
<PAGE> 9
-9-
Corporation (whether pursuant to the terms of this
Agreement, or any other plan or arrangement or
agreement with the Corporation, any Person whose
actions result in a Change in Control of the
Corporation or any Affiliate or Associate of the
Corporation or any such Person) is subject to the
Excise Tax (as hereinafter defined), the Corporation
shall pay to the Executive an additional amount such
that the total amount of all such payments and
benefits (including payments made pursuant to this
Section 3(e) net of the Excise Tax and all other
applicable federal, state and local taxes) shall
equal the total amount of all such payments and
benefits to which the Executive would have been
entitled, but for this Section 3(e), net of all
applicable federal, state and local taxes except the
Excise Tax. For purposes of this Section 3(e), the
term "Excise Tax" shall mean the tax imposed by
Section 4999 of the Internal Revenue Code of 1986
(the "Code") and any similar tax that may hereafter
be imposed.
The amount of the payment to the Executive under this
Section 3(e) shall be estimated by a nationally
recognized firm of certified public accountants,
which firm may not have provided services to the
Corporation or any Affiliate of the Corporation
within the previous three years and shall not provide
services thereto in the following three years, based
upon the following assumptions:
(i) all payments and benefits to or for the benefit of
the Executive in connection with a Change in Control
of the Corporation or termination of the Executive's
employment following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" shall
be deemed to be subject to the Excise Tax except to
the extent that, in the opinion of tax counsel
selected by the firm of certified public accountants
charged with estimating the payment to the Executive
under this Section 3(e), such payments or benefits
are not subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that the
amount of the estimated payment is less than the amount
actually due to the 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.
<PAGE> 10
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(f) The Executive shall not be required to mitigate the amount
of any payment provided in this Section 3, nor shall any
payment or benefit provided for in this Section 3 be offset by
any compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
(g) If any payment to the Executive required by this Section 3
is not made within the time for such payment specified herein,
the Corporation shall pay to the Executive interest on such
payment at the legal rate payable from time to time upon
judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all
costs, including reasonable attorney's fees and expenses of
either litigation or arbitration, incurred by the Executive in
contesting or disputing any termination of his employment
following a Change in Control or in seeking to obtain or
enforce any right or benefit provided by this Agreement.
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be
enforceable by the Executive, his heirs, executors,
administrators, successors and assigns. This Agreement shall
be binding upon the Corporation, its successors and assigns.
The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Corporation expressly to assume and agree to perform this
Agreement in accordance with its terms. The Corporation shall
obtain such assumption and agreement prior to the
effectiveness of any such succession.
6. NOTICE
Any notices and all other communications provided for herein
shall be in writing and shall be deemed to have been duly
given when delivered or mailed, by certified or registered
mail, return receipt requested, postage prepaid addressed to
the respective addresses set forth on the first page of this
Agreement or to such other address as either 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
<PAGE> 11
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Corporation shall be addressed to the attention of the Board
with a copy to each of the General Counsel, the Vice
President-Human Resources and the Secretary of the
Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or
discharged except in a writing specifically referring to such
provision and signed by the party against which enforcement of
such modification, waiver or discharge is sought. No waiver by
either party hereto of the breach of any condition or
provision of this Agreement shall be deemed a waiver of any
other condition or provision at the same or any other time.
8. GOVERNING LAW
The validity, interpretation, construction and performance of
this Agreement shall be governed by the substantive laws of
the State of Delaware.
9. VALIDITY
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in
full force and effect.
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising
under or in connection with this Agreement shall be settled
exclusively by arbitration in the city nearest to the
Executive's principal residence (or, at the Executive's
election, in the city within the state in which the
Executive's principal residence is located nearest to such
principal residence) which has an office of the American
Arbitration Association by one arbitrator in accordance with
the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction. The Corporation hereby waives
its right to contest the personal jurisdiction or venue of any
court, federal or state, in an action brought to enforce this
Agreement or any award of an arbitrator hereunder which action
is brought in the jurisdiction in which such arbitration was
conducted, or, if no arbitration was elected, in which
arbitration could have been conducted pursuant to this
provision.
<PAGE> 12
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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 /s/ James T. Wright
--------------------------------------- -----------------------------
Arnold M. Nemirow James T. Wright
Its: Chairman, Chief Executive Officer and
President
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 1st day of November, 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 Jerry R. Gilmore, 1219 Shadow Way, Greenville, SC 29615 (the "Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President, US and Korean Newsprint Operations of the Newsprint and Directory
Division, as of the date hereof, and additionally, as of January 27, 1999, as
Vice President of Bowater Incorporated, and
WHEREAS, the Executive is desirous of serving the Corporation in such
capacities;
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 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.
<PAGE> 2
(c) Notwithstanding Section 2(a), the term of this
Agreement shall end upon:
(i) the death of the Executive;
(ii) the inability of the Executive to perform
his duties properly, whether by reason of
ill-health, accident or other cause, for a
period of one hundred and eighty (180)
consecutive days or for periods totaling one
hundred and eighty (180) days occurring
within any twelve (12) consecutive calendar
months; or
(iii) the executive's retirement on his early or
normal retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President, US and Korean Newsprint Operations of the
Newsprint and Directory Division (Salary Grade 34) and, as of January 27, 1999,
as Vice President of Bowater Incorporated (Salary Grade 35), with the duties and
responsibilities customarily attendant to those offices, provided that the
Executive shall undertake such other and further assignments and
responsibilities of at least comparable status as the Board of Directors may
direct. The Executive shall diligently and faithfully devote his full working
time and best efforts to the performance of the services under this Agreement
and to the furtherance of the best interests of the Corporation.
4. Place of Employment. The Executive will be employed at the corporate
offices in the City of Greenville, South Carolina or at such other place as the
Corporation shall designate from time to time, provided, however, that if the
Executive is transferred to another place of employment, necessitating a change
in his residence, the Executive shall be entitled to financial assistance in
accordance with the terms of the Corporation's relocation policy then in effect.
5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the
Executive a base salary of US $253,000 as of the date
hereof and then, as of January 1, 1999, US $275,000,
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).
2
<PAGE> 3
(b) Bonus Plan. In addition to his base salary, the
Executive shall be entitled to receive a bonus under
the Corporation's bonus plan in effect from time to
time determined in the manner, at the time, and in
the amounts set forth under such plan.
(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
3
<PAGE> 4
Corporation's remedy at law for a breach by the Executive of the provisions of
this Section 7 will be inadequate. Accordingly, in the event of the breach or
threatened breach by the Executive of this Section 7, the Corporation shall be
entitled to injunctive relief in addition to any other remedy it may have.
8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless the Corporation shall have terminated the Executive for
"Cause", the Corporation shall pay the Executive severance pay in an amount
equal to 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 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 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
4
<PAGE> 5
accordance with the substantive laws of the State of Delaware.
12. Supersedure. This Agreement shall cancel and supersede all prior
agreements relating to employment between the Executive and the Corporation,
except the Change in Control Agreement.
13. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ James T. Wright /s/ Jerry R. Gilmore
------------------------------------- ---------------------------
James T. Wright Jerry R. Gilmore
Vice President - Human Resources
5
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 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 R. Donald Newman, 3430 Peel Street, Apt. 11D, Montreal, Quebec H3A 3K8 (the
"Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President, Canadian Newsprint Operations of the Newsprint and Directory Division
from the date hereof and additionally, as Vice President of Bowater Incorporated
as of January 27, 1999; and
WHEREAS, the Executive is desirous of serving the Corporation in such
capacities;
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 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.
<PAGE> 2
(c) Notwithstanding Section 2(a), the term of this
Agreement shall end upon:
(i) the death of the Executive;
(ii) the inability of the Executive to perform
his duties properly, whether by reason of
ill-health, accident or other cause, for a
period of one hundred and eighty (180)
consecutive days or for periods totaling one
hundred and eighty (180) days occurring
within any twelve (12) consecutive calendar
months; or
(iii) the Executive's retirement on his early or
normal retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President, Canadian Newsprint Operations, of the Newsprint
and Directory Division (Salary Grade 34) and shall serve additionally as Vice
President of Bowater Incorporated (Salary Grade 35) from and after January 27,
1999, with the duties and responsibilities customarily attendant to those
offices, 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
Division's offices of Bowater Pulp and Paper Canada Inc. in the City of
Montreal, Quebec, Canada 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 $253,000 (US) from the
date hereof, and then $275,000 (US) from and after
January 1, 1999, 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).
2
<PAGE> 3
(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.
(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
3
<PAGE> 4
be inadequate. Accordingly, in the event of the breach or threatened breach by
the Executive of this Section 7, the Corporation shall be entitled to injunctive
relief in addition to any other remedy it may have.
8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless the Corporation shall have terminated the Executive for
"Cause", the Corporation shall pay the Executive severance pay in an amount
equal to 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 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
4
<PAGE> 5
accordance with the substantive laws of the State of Delaware.
12. Supersedure. This Agreement shall cancel and supersede all prior
agreements relating to employment between the Executive and the Corporation,
except the Change in Control Agreement.
13. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ James T. Wright /s/ R. Donald Newman
------------------------------------ ---------------------------
James T. Wright R. Donald Newman
Vice President - Human Resources
5
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