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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NO. 1-8712
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
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DELAWARE 62-0721803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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55 EAST CAMPERDOWN WAY
P. O. BOX 1028
GREENVILLE, SOUTH CAROLINA 29602
(Address of principal executive offices)
(864) 271-7733
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $1 per share New York Stock Exchange, Inc.
Pacific Exchange, Inc.
The London Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting common equity held by
nonaffiliates of the registrant as of March 22, 1999, was $2,356,937,030.
As of March 22, 1999, there were 51,677,241 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
parts of this report indicated below:
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Annual Report to Shareholders for the year ended December
31, 1998 Parts I, II and IV
Proxy Statement with respect to the Annual Meeting of
Shareholders to be held on May 12, 1999 Part III
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PART I
ITEM 1. BUSINESS
GENERAL
Bowater Incorporated (together with its consolidated subsidiaries, the
"Company") is engaged in the manufacture, sale and distribution of newsprint,
directory paper, uncoated groundwood specialties, coated groundwood paper,
market pulp, lumber, and timber. The Company operates facilities in the United
States, Canada, and South Korea and, as of December 31, 1998, managed and
controlled approximately 16.4 million acres of timberlands to support these
facilities. This excludes the 1.6 million acres of Maine timberlands the Company
has sold or agreed to sell to third parties. The Company markets and distributes
its various products in North America and overseas.
In July 1998, the Company completed the acquisition of a South Korean
newsprint mill, which is located in the Daebul Industrial Complex on the
southwest coast of South Korea. The mill has an annual production capacity of
250,000 metric tons of recycled newsprint. Information regarding the Company's
acquisition of this mill is incorporated herein by reference to pages 24 and 38
of the Company's 1998 Annual Report ("Annual Report").
In July 1998, the Company also acquired 100 percent of the stock of Avenor
Inc. ("Avenor"). Avenor owned or had significant ownership interests in pulp and
paper mills at: Dalhousie, New Brunswick; Gatineau, Quebec; Thunder Bay,
Ontario; Dryden, Ontario; Usk, Washington; and Gold River, British Columbia.
Avenor also owned sawmills in Maniwaki, Quebec; Dryden, Ontario; and Ear Falls,
Ontario. Following the acquisition, the Company sold the Dryden white paper
mill, the Dryden sawmill, the Ear Falls sawmill and associated cutting rights.
In February 1999, the Company permanently closed its Gold River pulp mill in
British Columbia, which had been closed due to market conditions since August
1998. Information regarding the Company's acquisition of Avenor is incorporated
herein by reference to pages 24-25 and 37-38 of the Company's Annual Report.
In the fourth quarter of 1998, the Company agreed to sell approximately 1.6
million acres of timberlands in the state of Maine, including the Pinkham Lumber
Company. Information regarding sales of real property is incorporated herein by
reference to pages 24-25 and 38 of the Annual Report.
The Company was incorporated in Delaware in 1964. The Company's principal
executive offices are located at 55 East Camperdown Way, Greenville, South
Carolina 29602, and its telephone number at that address is (864) 271-7733.
Information regarding the Company's segments, which includes net sales by
product line and geographic information about net sales and long-lived assets,
is incorporated herein by reference to pages 21-22 and 49-51 of the Annual
Report. Information regarding the Company's fixed assets is incorporated herein
by reference to page 40 of the Annual Report.
Information regarding the Company's liquidity and capital resources is
incorporated herein by reference to pages 23-25 and 28-29 of the Annual Report.
OPERATING DIVISIONS
The Company operates through four divisions: the Newsprint and Directory
Division, the Coated Paper Division, the Pulp Division and the Forest Products
Division. In 1997, the Company consolidated its directory paper business into
the former Newsprint Division, replacing the Great Northern Paper Division. In
addition, the Company reorganized its United States and Canadian forest and wood
products operations into a new division called the Forest Products Division. In
1998, the Company reorganized its pulp operations into a new division called the
Pulp Division.
The Newsprint and Directory Division, headquartered in Greenville, South
Carolina, consists of the following manufacturing facilities: the Calhoun
Operations and Calhoun Newsprint Company ("CNC") (which is owned approximately
51 percent by the Company and approximately 49 percent by Herald
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Company, Inc.) located in Calhoun, Tennessee; Bowater Mersey Paper Company
Limited ("Mersey Operations") (which is owned 51 percent by the Company and 49
percent by The Washington Post Company) located in Liverpool, Nova Scotia; Great
Northern Paper, Inc. ("GNP"), consisting of the East Millinocket Operations
located in East Millinocket, Maine, and the Millinocket Operations located in
Millinocket, Maine; Avenor Maritimes Inc. ("Dalhousie Operations") (which is
owned 67 percent by the Company, 25 percent by Oji Paper Co., Ltd. and 8 percent
by Mitsui & Co., Ltd.) located in Dalhousie, New Brunswick; the Gatineau
Operations located in Gatineau, Quebec; the Thunder Bay Operations located in
Thunder Bay, Ontario; Ponderay Newsprint Company ("Ponderay Operations") (which
is a partnership in which the Company has a 40 percent interest and is the
managing partner; the balance of the partnership is held by subsidiaries of five
newspaper publishers) located in Usk, Washington; and the Mokpo Operations,
located in Mokpo, South Korea. This division is also supported by six domestic
sales offices, which are responsible for marketing all of the Company's North
American newsprint, directory paper and some uncoated groundwood specialties.
International marketing of newsprint, directory paper and some uncoated
groundwood specialties is supported by offices in Singapore, England, Brazil,
Korea and Japan.
The Coated Paper Division, headquartered in Charlotte, North Carolina,
consists of the Catawba Operations located in Catawba, South Carolina, and three
sales offices. This division is responsible for selling all of the Company's
coated groundwood paper and some uncoated groundwood specialties.
The Pulp Division, headquartered in Burlington, Ontario, consists of two
sales offices. This division is responsible for marketing all of the Company's
market pulp, which is produced at the Thunder Bay, Catawba and Calhoun
Operations. Previously, this division included the Gold River pulp mill in
British Columbia, which was permanently closed in February 1999.
The Forest Products Division, headquartered in Calhoun, Tennessee, consists
of three manufacturing facilities: Bowater Lumber Company located in
Albertville, Alabama; Bowater Mersey Paper Company Limited Oakhill Sawmill
(which is owned 51 percent by the Company and 49 percent by The Washington Post
Company) located in Bridgewater, Nova Scotia; and Manifor Inc., a sawmill
located in Maniwaki, Quebec. In March 1999, the Company sold the Pinkham Lumber
Company located in Ashland, Maine. The Forest Products Division is supported by
seven business offices and is responsible for managing the Company's timberlands
and selling all of the Company's timber, softwood lumber and non-strategic
timberlands.
Additional information regarding the Company's divisions is incorporated
herein by reference to the inside front cover of the Annual Report.
NEWSPRINT, DIRECTORY PAPER AND UNCOATED GROUNDWOOD SPECIALTIES
The Company is the largest manufacturer of newsprint and directory paper in
the United States. Its market share in the United States is approximately 14
percent. Including its Mersey, Dalhousie, and Ponderay Operations, the Company's
annual production capacity of newsprint, directory paper and uncoated groundwood
specialties is approximately 3.1 million metric tons, or approximately 18
percent of the North American capacity total. Including the South Korean
newsprint mill, the Company's annual production capacity of these products is
approximately 3.4 million metric tons or approximately 8 percent of the
worldwide capacity total. These amounts were generated internally using data
from various publications including Paper Trader, a monthly publication of
Resource Information System, Inc.
The Calhoun Operations, one of the largest and most productive newsprint
mills in North America, are located on the Hiwassee River in Tennessee. This
facility operates four paper machines, which produced 548,000 metric tons of
newsprint and uncoated groundwood specialties in 1998. Also located at this
facility is CNC's paper machine, which produced 221,000 metric tons of newsprint
in 1998. Although the Company manages and operates the entire facility, CNC also
owns 68.4 percent of the thermomechanical pulp ("TMP") mill and 100 percent of
the recycled fiber plant at the facility. The Company owns the remaining 31.6
percent of the TMP mill and all of the other assets at this location, which
include a kraft pulp mill and other support equipment necessary to produce the
finished product. The Company is currently in the process of expanding the TMP
mill at this location.
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The Mokpo Operations, located in the Daebul Industrial Complex on the
southwest coast of South Korea, have one paper machine that produces recycled
content newsprint. This facility began production in late 1996 and is one of the
lowest-cost newsprint mills in Asia. The mill produced approximately 228,000
metric tons of recycled newsprint in 1998. The facility also includes a
recycling plant with an annual capacity of approximately 250,000 metric tons of
deinked pulp and has year-round deep-sea docking facilities.
The Dalhousie Operations, located in the Canadian Province of New
Brunswick, have two newsprint machines. These machines were rebuilt in 1982 and
produced 222,000 metric tons of newsprint in 1998. A modernization program was
completed in 1996 with the construction of a secondary effluent treatment plant
and a TMP mill. This operation also has year-round deep-sea docking facilities
that can accommodate large ocean freighters, providing economical access to
ports along the eastern seaboard of the United States and throughout the world.
The Gatineau Operations, located on the north bank of the Ottawa River in
the Canadian Province of Quebec, consist of three paper machines, which produced
435,000 metric tons of high-quality recycled content newsprint in 1998. This
facility also includes a recycling plant with an annual capacity of 180,000
metric tons of deinked pulp, a refuse boiler, a TMP mill, and a secondary
effluent treatment facility.
The Mersey Operations, located in the Canadian Province of Nova Scotia on
an ice-free port providing economical access to ports along the eastern seaboard
of the United States and throughout the world, have two paper machines. Built in
1929, they were rebuilt between 1983 and 1985 and produced 236,000 metric tons
of newsprint in 1998. This facility also operates a TMP mill, a wastewater
treatment facility and other support equipment required to produce the finished
product.
The Ponderay Operations, located on the Pend Oreille River in the State of
Washington, consist of one newsprint machine, which began production in 1989 and
produced 243,000 metric tons of recycled newsprint in 1998. This facility also
operates a TMP mill, a recycling plant, a wastewater treatment facility and
other support equipment required to produce the finished product.
The Thunder Bay Operations, located beside the Kaministiquia River in the
Canadian Province of Ontario, include three newsprint machines and two kraft
pulp mills. This facility produced 536,000 metric tons of newsprint and 543,000
metric tons of market pulp in 1998. A newsprint machine with a capacity of
240,000 metric tons per year was installed at this site in 1991. This facility
also includes a TMP mill with an annual capacity of 316,000 metric tons and a
recycling plant with an annual capacity of 125,000 metric tons of deinked pulp.
A chip handling system and secondary effluent treatment plant were installed in
1995.
Newsprint, directory paper and uncoated groundwood specialties are also
produced at three other Company locations. The newsprint machine at the Catawba
Operations, located on the Catawba River in South Carolina, produced 216,000
metric tons in 1998. The East Millinocket Operations, located on the West Branch
of the Penobscot River in northern Maine, have two paper machines that were
built in 1954 and rebuilt in 1986. These two machines produced a total of
259,000 metric tons of newsprint, directory paper and uncoated groundwood
specialties in 1998. This facility also operates a groundwood pulp mill, a
recycled fiber plant and other support equipment required to produce the
finished product. Beginning in 1999, the Company plans to modernize this
facility over a two-year period at an estimated cost of $220 million. The
Millinocket Operations, located eight miles from the East Millinocket
Operations, have four paper machines that produced 119,000 metric tons of
directory paper and uncoated groundwood specialties in 1998. These paper grades
are used in directories, catalogs, newspaper advertising inserts and magazines,
and are sold primarily to customers east of the Mississippi River. The
Millinocket site is currently available for sale.
The Newsprint and Directory Division has over 40 percent of its newsprint
capacity located in Canada and a significant newsprint facility located in South
Korea. The Company's international operations are subject to typical risks of
doing business abroad such as possible revaluation of currencies, currency
fluctuations, changes in international trade regimes such as GATT or NAFTA,
dependence on local markets for supply, export duties, quotas, restrictions on
the transfer of funds and foreign ownership of property, and political and
economic instability. To date, the Company's results of operations have not been
materially
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affected by any of these risks, but the Company cannot predict the likelihood of
any of these risks having a material effect on the Company's results of
operations in the future.
North American newsprint, directory paper and uncoated groundwood specialty
paper are sold directly by the Company through its regional sales offices
located near major metropolitan areas. Sales to Southeast Asia and Pacific Rim
countries are made through Bowater Asia Pte Ltd. Sales to Europe and the Middle
East are made through Bowater Europe Ltd., while sales to South America are
supported by Bowater S. America Ltda. and sales to Japan and South Korea are
supported by Bowater Japan Ltd. and Bowater-Halla Paper Co., Ltd., respectively.
The Company distributes newsprint, directory paper and uncoated groundwood
specialties by rail, truck, ship and barge.
In 1998, the Company sold newsprint to various related parties. During
1998, CNC's minority shareholder and its affiliates purchased in excess of CNC's
annual output. In addition, the Company's other joint venture partners purchased
an aggregate of approximately 350,000 metric tons during 1998. No single
customer, related or otherwise, accounted for 10 percent or more of the
Company's 1998 consolidated net sales.
COATED GROUNDWOOD PAPER
The Company is one of the largest producers of coated groundwood paper in
the United States and North America, with a capacity of 494,000 short tons, or
approximately 11 percent and 9 percent of the United States and North American
capacity, respectively. These amounts were generated internally using data from
the American Forest and Paper Association. Coated groundwood paper produced by
the Company is primarily light weight coated paper and is used in magazines,
catalogs, advertising pieces, textbooks, direct mail pieces and coupons.
The Company manufactures a variety of coated paper grades on two paper
machines at the Catawba Operations and on three of the four paper machines at
the Millinocket Operations. Both machines at the Catawba Operations utilize
off-machine blade coaters. At the Millinocket Operations, two machines produce a
base stock that is coated on an off-machine blade coater while the third machine
has an on-machine roll coater. In 1998, the two coated paper machines at the
Catawba Operations produced 352,000 short tons of coated groundwood paper, and
the three machines at the Millinocket Operations produced 134,000 short tons of
coated groundwood paper. The Catawba Operations include a kraft pulp mill, a TMP
mill and other support equipment required to produce the finished product. The
Millinocket Operations include a sulfite pulp mill and other support equipment
required to produce the finished product.
Coated groundwood paper is sold domestically by the Company and through
paper brokers to major printers, publishers, and catalogers. It is distributed
by truck and rail from the Catawba and Millinocket facilities. These facilities
are strategically located to supply the southeastern and northeastern United
States, respectively, and they jointly serve the midwestern market. Export
markets are serviced primarily through international agents. As discussed above,
the Millinocket site is currently available for sale.
MARKET PULP
The Pulp Division markets the output from the Company's pulp mills. In
addition to furnishing substantially all of the Company's internal pulp
requirements, these pulp mills produce softwood and hardwood market pulp. The
Company is the sixth largest producer of paper grade market pulp in North
America and has a North American market share of approximately 11 percent. These
numbers were generated internally using data from the Canadian Pulp and Paper
Association. Market pulp is used by manufacturers of fine paper, tissues and
other paper products.
In 1998, the Catawba Operations produced 227,000 metric tons of softwood
market pulp; the Calhoun Operations produced 133,000 metric tons of hardwood
market pulp; and the Thunder Bay Operations produced 177,000 metric tons of
hardwood market pulp and 365,000 metric tons of softwood market pulp.
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North American sales are made directly by the Company, while export sales
are made through international sales agents local to their markets. The Company
distributes market pulp primarily by truck, rail and ship.
FOREST PRODUCTS
In addition to market pulp and paper, the Company sells pulpwood,
sawtimber, lumber and wood chips to a variety of customers located in the
eastern United States and Canada. The Company also sells non-strategic
timberland tracts and provides its manufacturing facilities with a portion of
the wood needed for pulp, paper and lumber production.
At December 31, 1998, the Company owned, leased, or possessed cutting
rights on approximately 18.0 million acres of timberlands throughout the United
States and Canada. Approximately 2 million acres of these timberlands (of which
the Company has sold or agreed to sell 1.6 million acres) are located in the
State of Maine, 900,000 acres in the southeastern United States, 8.3 million
acres in Ontario, 4.9 million acres in Quebec, 1.3 million acres in New
Brunswick and 600,000 acres in Nova Scotia. This timberland base supplies a
portion of the needs of the Company's paper mills and sawmills, as well as many
independently owned forest products businesses. The Company maintains two
nurseries and contracts with numerous other nurseries in order to replace trees
harvested from its timberlands and from the timberlands of small private
landowners. The Company also uses harvest practices designed to promote natural
regeneration.
In 1998, the Company consumed 10.3 million tons of wood for pulp, paper and
lumber production. Of this amount, 4.3 million tons of wood were harvested from
Company-owned or leased properties, while 6.0 million tons were purchased,
primarily under contract, from local wood producers, private landowners and
sawmills (in the form of residual chips) at market prices. In addition, the
Company harvested 2.5 million tons of wood from Company-owned or leased
properties to sell to other sawmills and paper companies.
The Company operates three sawmills that produce construction grade lumber.
Bowater Lumber Company produced 95.1 million board feet of lumber in 1998. It
sells its lumber in the southeastern and mid-western United States. The Bowater
Mersey Paper Company Limited Oakhill Sawmill, which produced 36.8 million board
feet of lumber in 1998, sells to customers in eastern Canada and the
northeastern United States. The Manifor Inc. sawmill, which produced 66.2
million board feet of lumber in 1998, sells mainly to customers in eastern
Canada. The Pinkham Lumber Company, which the Company sold in the first quarter
of 1999, produced 75.7 million board feet of lumber in 1998. This lumber was
sold to customers in eastern Canada and the northeastern United States. The
Company distributes lumber by truck and rail.
RECYCLING CAPABILITY
The Company has focused its efforts in recent years on meeting the demand
for recycled-content paper products, providing an environmental benefit in
reducing solid waste landfill deposits. In addition, this effort allows
publishers and other customers to meet recycled-content standards.
The Company operates recycling plants at its Calhoun, Mokpo, East
Millinocket, Gatineau, Ponderay and Thunder Bay Operations. Taking a mixture of
old newspapers and old magazines ("recovered paper"), these plants utilize
advanced mechanical and chemical processes to manufacture high quality pulp. The
recycled fiber pulp is combined with virgin fiber pulp. The resulting products,
which include recycled-content newsprint, directory paper, coated groundwood
paper and uncoated groundwood specialties, are comparable in quality to paper
produced with 100 percent virgin fiber pulp. In 1998, the Company processed 1.2
million short tons of recovered paper.
The Company purchases recovered paper from suppliers in the regions of the
Company's recycling plants. These suppliers collect, sort and bale the material
before selling it to the Company, primarily under long-term contracts, with
prices and quantities fluctuating according to market conditions. The Company is
one of the largest purchasers of recovered paper in North America.
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COMPETITION
In general, the Company's products are globally-traded commodities, and the
markets in which the Company competes are highly competitive. The Company's
operating results reflect the general cyclical pattern of the pulp and paper
industry. Pricing and the level of shipments of the Company's products are
influenced by the balance between supply and demand as affected by global
economic conditions, changes in consumption and capacity, the level of customer
and producer inventories, and fluctuations in exchange rates. Any material
decline in prices for the Company's products or other adverse developments in
the market for the Company's products could have a material adverse effect on
the Company.
Newsprint, one of the Company's principal products, is produced by numerous
worldwide manufacturers. Aside from quality specifications to meet customer
needs, the production of newsprint does not depend upon a proprietary process or
formula. The Company competes with approximately 20 major worldwide producers of
newsprint. In addition, the Company faces actual and potential competition from
numerous smaller producers located around the world. Price, quality, service and
the ability to produce paper with recycled content are important competitive
determinants.
The Company competes with approximately 10 market pulp companies of similar
size in North America. Like newsprint, market pulp is one of the Company's
principal products and is a globally-traded commodity in which competition
exists in all major markets. Market pulp prices historically have been volatile.
Aside from quality specifications to meet customer needs, the production of
market pulp does not depend on a proprietary process or formula. The Company
produces four out of the six major grades of market pulp and competes with other
producers from South America (eucalyptus hardwood pulp and radiata pine softwood
pulp), Europe (northern softwood pulp and northern hardwood pulp), and Asia
(mixed tropical hardwood pulp). Price, quality and service are considered the
main competitive determinants.
The Company competes with approximately 13 coated groundwood producers
located in North America. In addition, approximately six major offshore
suppliers of coated groundwood paper sell into the North American market. As a
major supplier to printers in North America, the Company also competes with
numerous worldwide suppliers of other grades of paper such as coated freesheet,
supercalendered and uncoated groundwood papers. Price, quality and service are
important competitive determinants, but a degree of proprietary knowledge is
required in both the manufacture and use of this product, which requires close
customer-supplier relationships.
The Company competes with three major worldwide producers and several
smaller producers of directory paper. Price, quality and service, as well as the
ability to produce lower basis weights and recycled products, are all important
competitive determinants.
The Company is not a major producer in the uncoated groundwood specialties
or lumber markets.
As with other globally manufactured and sold commodities, the competitive
position of the Company's products is significantly affected by the volatility
of currency exchange rates. See "Quantitative and Qualitative Disclosures About
Market Risk" on pages 12-13 of this Form 10-K. The Company has significant
operations in the United States, Canada and South Korea, with several of its
primary competitors located in Canada, Sweden and Finland. Accordingly, the
relative rates of exchange between those countries' currencies and the United
States dollar can have a substantial effect on the Company's ability to compete.
In addition, the degree to which the Company competes with foreign producers
depends in part on the level of demand abroad. Shipping costs generally cause
producers to prefer to sell in local markets when the demand is sufficient in
those markets.
Trends in electronic data transmission and storage could adversely affect
traditional print media, including products of the Company's customers; however,
neither the timing nor the extent of those trends can be predicted with
certainty. Industry reports indicate that the Company's newspaper publishing
customers in North America have experienced some loss of market share to other
forms of media and advertising, such as direct mailings and newspaper inserts
(both of which are end uses for several of the Company's products), television
and the Internet. Some of these customers are also facing a decline in newspaper
readership, circulation and advertising lineage. The Company does not believe
that this is the case in most overseas
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markets. The Company's magazine and catalog publishing customers have also been
adversely affected by the use of electronic media for merchandising products,
while they have benefited from the increase in magazine and catalog publications
whose content is driven by electronic media, especially computer hardware and
software.
Part of the Company's competitive strategy is to be a lower-cost producer
of its products while maintaining strict quality standards and responding to
environmental concerns. Currently, some of the Company's competitors are
lower-cost producers of some of the businesses in which the Company operates,
including newsprint. The Company's six recycling facilities have enhanced its
competitive position by enabling it to respond to customer demand for
recycled-content newsprint, directory paper, coated groundwood paper and
uncoated groundwood specialties.
RAW MATERIALS AND ENERGY
The manufacture of pulp and paper requires significant amounts of wood and
energy. The wood needed for pulp, paper and lumber production is obtained from
Company-owned or leased properties and is purchased from local producers. The
Company also uses recovered paper as raw material when producing recycled-
content paper grades. See "Forest Products" and "Recycling Capability" on page 5
of this Form 10-K for information regarding the Company's procurement and use of
raw materials.
Steam and electrical power are the primary forms of energy used in pulp and
paper production. Process steam is produced in boilers using a variety of fuel
sources. All of the Company's mills produce all of their steam requirements with
the exception of the Mersey Operations, which purchase all of its steam from a
third-party supplier. The Gatineau, Mersey and Mokpo Operations purchase all of
their electrical power requirements. The Thunder Bay Operations produce
one-third of its electrical requirements, while the Calhoun and Catawba
Operations produce more than two-thirds of their electrical requirements. The
balance of their requirements is purchased. GNP has the capacity to be totally
self-sufficient electrically with six hydroelectric facilities (containing 31
hydroelectric generators) located on the West Branch of the Penobscot River and
seven steam turbine generators located in the mill power plants.
The Company operates its Maine hydroelectric facilities pursuant to
long-term licenses granted by the Federal Energy Regulatory Commission ("FERC").
The licenses for certain dams expired at the end of 1993, and the Company
continued to operate those dams under interim licenses. In October 1996, FERC
issued new 30-year licenses allowing the Company to continue operating its
hydroelectric facilities with substantially similar terms and conditions as the
old licenses. In November 1996, five intervenors filed requests for a rehearing,
generally rearguing issues already considered by FERC. The requests were denied
in November 1998. Several interveners filed motions with FERC requesting
reconsideration of the denial. Others filed a petition for review with the U.S.
Court of Appeals. These requests and this petition are pending, and, although no
assurances can be given, management believes that the requests and petition
should not result in any material adverse change to the terms or conditions of
the licenses.
EMPLOYEES
As of December 31, 1998, the Company employed 8,300 people, of whom 5,900
were represented by bargaining units. The labor contract at the Catawba
Operations, which covers all of the plant's hourly employees, expires in April
2003. The labor contract with most of the plant's hourly employees at the
Calhoun Operations expires in July 2002. The labor agreement for the majority of
unionized employees at GNP expires in July 2001, while all other labor
agreements there expire during 2002. The labor contract covering all unionized
employees at the Dalhousie, Gatineau, Thunder Bay, and Mersey Operations expired
in April 1998. These Operations continue to operate under the terms of the
expired agreements pending the outcome of the ongoing negotiations at each
location. Negotiations for each of these locations were initiated during January
and February 1999, following the establishment and validation of a pattern
agreement for the Canadian Paper Industry in December 1998. All plant facilities
are situated in areas where adequate labor pools exist. Relations with employees
are considered good.
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TRADEMARKS AND LICENSES
The Company owns the trademarked Company logo exclusively throughout the
world. Effective June 30, 1997, the Company obtained from the former Bowater
plc, now Rexam plc, ownership of the name "Bowater" in connection with the sale
of all of the Company's products exclusively throughout the world, with a
limited exception for a few non-conflicting uses by Rexam plc. The Company
considers its interests in the Company logo and name to be valuable and
necessary to the conduct of its business.
ENVIRONMENTAL MATTERS
Information regarding environmental matters is incorporated herein by
reference to pages 17 and 25 of the Annual Report.
The Company believes that its United States, Canadian and South Korean
operations are in substantial compliance with all applicable federal, state,
provincial, and local environmental regulations and that all currently-required
control equipment is in operation. While it is impossible to predict future
environmental regulations that may be established, the Company believes that it
will not be at a competitive disadvantage with regard to meeting future United
States, Canadian or South Korean standards.
The Company has taken positive action to address concerns about municipal
solid waste by constructing recycled fiber plants at its Calhoun and East
Millinocket Operations. Through acquisitions in 1998, the Company added four
recycling plants at the Mokpo, Gatineau, Ponderay, and Thunder Bay Operations.
See "Recycling Capability" on page 5 of this Form 10-K.
ITEM 2. PROPERTIES
Information regarding the Company's properties is incorporated herein by
reference to the material included in Item 1, "Business" of this Form 10-K, and
on the inside front cover, page 56 and the back cover page of the Annual Report.
In addition to the properties that it owns, the Company also leases under
long-term leases certain timberlands, office premises, and office and
transportation equipment and has cutting rights with respect to certain
timberlands. Information regarding timberland leases, operating leases and
cutting rights is incorporated herein by reference to pages 48-49 of the Annual
Report.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims and other matters. The Company's management believes that
the ultimate disposition of these matters will not have a material adverse
effect on the Company's operations or its financial condition taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
8
<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 22, 1999
The Company's executive officers, who are elected by the Board of Directors
to serve one-year terms, are listed below. There are no family relationships
among officers and no arrangements or understandings between any officer and any
other person pursuant to which the officer was selected.
<TABLE>
<CAPTION>
SERVED AS
NAME AGE POSITION OFFICER SINCE
- ---- --- -------- -------------
<S> <C> <C> <C>
Arnold M. Nemirow 55 Chairman, President and Chief Executive Officer 1994
Arthur D. Fuller 54 Executive Vice President and 1995
President -- Newsprint and Directory Division
Anthony H. Barash 56 Senior Vice President -- Corporate Affairs and 1996
General Counsel
James H. Dorton 42 Vice President -- Corporate Development and 1996
Strategy
E. Patrick Duffy 57 Senior Vice President and President -- Coated 1995
Paper Division
Jerry R. Gilmore 50 Vice President 1999
Richard K. Hamilton 50 Vice President and President -- Forest Products 1997
Division
William G. Harvey 41 Vice President and Treasurer 1998
Steven G. Lanzl 50 Vice President -- Information Technology 1996
David G. Maffucci 48 Senior Vice President and Chief Financial 1992
Officer
Donald G. McNeil 48 Senior Vice President and President -- Great 1995
Northern Paper, Inc.
Robert A. Moran 54 Vice President -- Manufacturing Services 1992
R. Donald Newman 52 Vice President 1999
Michael F. Nocito 43 Vice President and Controller 1993
Wendy C. Shiba 48 Vice President, Secretary and Assistant General 1993
Counsel
David J. Steuart 53 Vice President and President -- Pulp Division 1998
James T. Wright 52 Vice President -- Human Resources 1999
</TABLE>
Arnold M. Nemirow became Chairman in March 1996, and Chief Executive
Officer in March 1995. He has been President and a director of the Company since
September 1994 and was Chief Operating Officer from September 1994 through
February 1995. Previously he was President, Chief Executive Officer and a
director of Wausau Paper Mills Company, a pulp and paper company, from 1990
through 1994, Chairman, President, Chief Executive Officer and a director of
Nekoosa Papers, Inc., the business papers division of Great Northern Nekoosa
Corporation, from 1988 to 1990 and Vice President of Great Northern Nekoosa
Corporation from 1984 to 1990.
Arthur D. Fuller became Executive Vice President and President -- Newsprint
and Directory Division in 1997. From 1995 to 1997, he was Senior Vice President
and President -- Newsprint Division. He was Vice President Finance, Planning &
Administration of MacMillan Bloedel Packaging Inc., the containerboard and
packaging business of MacMillan Bloedel Ltd., from 1994 to 1995. From 1991 to
1993 he was a partner of Nukraft, which sought to develop a recycled linerboard
mill, and from 1987 to 1990 he was Vice President and General Manager of Great
Southern Paper Company, the containerboard division of Great Northern Nekoosa
Corporation. Earlier he held various management positions with Great Southern
Paper Company.
Anthony H. Barash became Senior Vice President -- Corporate Affairs and
General Counsel in 1996. From 1993 through 1996, he was a partner of the law
firm Seyfarth, Shaw, Fairweather & Geraldson, where he was a member of the
firm's Business Law and Real Estate Group. From 1980 to 1993, he was a senior
partner of the law firm Barash & Hill, where he also concentrated in business
and real estate law.
James H. Dorton became Vice President -- Corporate Development and Strategy
in August 1998. He served as Vice President and Treasurer from 1996 to 1998.
From 1990 through 1996, he was Treasurer of
9
<PAGE> 11
Intergraph Corporation, a manufacturer and designer of computers and software
for engineering applications, where he was responsible for treasury management,
corporate finance and shareholder relations. He was Assistant Treasurer of
Intergraph Corporation from 1986 to 1990.
E. Patrick Duffy became Senior Vice President and President -- Coated Paper
Division in 1995. He was President of the Telecommunications Business Unit of
R.R. Donnelly and Sons, a printing company, from 1993 to 1995, where he was
responsible for the sale and manufacture of printed products, and President of
its Catalog Group from 1990 to 1992. Previously he was a Senior Vice President
of R.R. Donnelly and Sons.
Jerry R. Gilmore became Vice President of the Company in January 1999. He
has been Vice President -- United States and Korean Operations of the Newsprint
and Directory Division since October 1998. Previously he held other positions in
the Newsprint and Directory Division, as Vice President -- Administration and
Planning from 1995 to April 1998 and as Vice President with responsibility for
the integration of recent acquisitions from April to October 1998. Prior to
joining the Company in 1994, he held financial and management positions with
Georgia-Pacific Corporation and Great Northern Nekoosa Corporation, both forest
products companies.
Richard K. Hamilton became Vice President and President -- Forest Products
Division in 1997. He was Vice President Wood Products -- Newsprint Division from
1995 to 1997. From 1993 to 1995, he was Group Manager -- Forest Resources
Division of Georgia-Pacific Corporation, a forest products company, where he was
responsible for a woodlands organization management of about 340,000 acres of
timberland and the procurement, production and sale of pulpwood, logs and wood
chips. Previously, he held various woodlands positions with Great Southern Paper
Company and Scott Paper Company.
William G. Harvey became Vice President and Treasurer in August 1998.
Previously he was employed by Avenor, a pulp and paper company, as Vice
President and Treasurer from 1995 to 1998, Director of Finance from 1994 to 1995
and Manager of Finance during 1994. These were positions of increasing
responsibility performing cash management, corporate finance, investor relations
and various other treasury functions.
Steven G. Lanzl became Vice President -- Information Technology in 1996.
From 1992 to 1996, he was with E.I. du Pont de Nemours and Company, a
diversified chemical and petroleum products company, where he was responsible
for planning information system initiatives. Earlier he was with DuPont Asia
Pacific, Ltd. in Japan as Manager of Information Systems Planning.
David G. Maffucci became Senior Vice President and Chief Financial Officer
in 1995. He had served as Vice President -- Treasurer since 1993 and Treasurer
from 1992 to 1993 and relinquished the title of Treasurer in 1996. From 1977 to
1992, he held various positions of increasing responsibility in the Company's
Finance Department.
Donald G. McNeil became Senior Vice President in 1995, and has been
President of GNP since 1994. He was President and General Manager of Bowater
Mersey Paper Company, a subsidiary of the Company ("Mersey"), from 1992 to 1994.
He was General Manager of Mersey from 1991 to 1992 and Assistant General Manager
from 1990 to 1991. From 1977 to 1989, he held various engineering and management
positions with Mersey.
Robert A. Moran became Vice President -- Manufacturing Services in 1996 and
was Vice President -- Pulp and Paper Manufacturing Services from 1992 to 1996.
He was Vice President -- Manufacturing Services for the Pulp and Paper Group
from 1991 and Director of Planning and Development for the Pulp and Paper Group
from 1988 to 1991. He also served as Assistant General Manager of the Catawba
Operations during 1988.
R. Donald Newman became Vice President of the Company in January 1999. He
has been Vice President -- Canadian Newsprint Operations of the Newsprint and
Directory Division since July 1998. Previously he held other positions in the
Newsprint and Directory Division, as Vice President -- Operations and Resident
Manager of the Calhoun Operations from 1995 to 1998, and as Vice President and
Operations Manager of the Calhoun Operations from 1994 to 1995.
10
<PAGE> 12
Michael F. Nocito became Vice President and Controller in 1993. He was
Controller of the Calhoun Operations from 1992 to 1993 and Assistant Controller
of the Calhoun Operations from 1988 to 1992. From 1978 to 1988 he held various
positions of increasing responsibility in the Company's Finance Department.
Wendy C. Shiba became Vice President in 1997 and has been Secretary and
Assistant General Counsel since 1993. From 1992 to 1993, she was Corporate Chair
of the City of Philadelphia Law Department where she managed the Corporate
Group. She was Associate Professor of Law from 1990 to 1993 and Assistant
Professor of Law from 1985 to 1990 at Temple University School of Law. Earlier
she practiced corporate law in the private sector.
David J. Steuart became Vice President of the Company in January 1999. He
has been President of the Pulp Division since July 1998. He was President, Pulp
Group of Avenor from 1994 until its acquisition by the Company in July 1998. In
this position he had profit/loss responsibility for the Pulp Group and performed
related manufacturing and marketing functions.
James T. Wright became Vice President -- Human Resources in March 1999. He
was Vice President -- Human Resources for Georgia-Pacific Corporation from 1993
to 1999. Prior to 1993, he held human resource and labor relations positions
with Georgia-Pacific Corporation and Weyerhaeuser Company, both forest products
companies.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
(a) The Company's common stock, $1 par value ("Common Stock"), is listed on
the New York Stock Exchange (stock symbol BOW), the Pacific Exchange, Inc., and
the London Stock Exchange. Price information with respect to the Company's
Common Stock on the inside back cover of the Annual Report is incorporated
herein by reference.
(b) As of March 22, 1999, there were 4,902 holders of record of the
Company's Common Stock.
(c) The Company has paid consecutive quarterly dividends of $.20 per share
of Common Stock during 1997 and 1998. Future declarations of dividends on the
Company's Common Stock are discretionary with the Board of Directors, and the
declaration of any dividends will depend upon, among other things, the Company's
earnings, capital requirements and financial condition. In addition, the
Company's ability to pay dividends on its Common Stock depends on its
maintaining adequate net worth and compliance with the required ratio of total
debt to total capital as defined in and required by the Company's current credit
agreement (the "Credit Agreement"). The Credit Agreement requires the Company to
maintain a minimum consolidated net worth (generally defined therein as common
shareholders' equity plus any outstanding preferred stock) of $1.5 billion as of
December 31, 1998. In addition, the Credit Agreement imposes a maximum 65
percent ratio of total debt to total capital (defined therein as total debt plus
net worth). At December 31, 1998, the consolidated net worth of the Company and
the ratio of total debt to total capital as defined under the Credit Agreement
were $1.8 billion and 51 percent, respectively.
In connection with the Company's acquisition of Avenor on July 24, 1998,
the Company issued an aggregate of 12,301,286 shares of its Common Stock to
Avenor shareholders, and the Company's subsidiary, Bowater Canada Inc., issued
an aggregate of 3,773,547 Exchangeable Shares to the former Avenor shareholders.
The Exchangeable Shares are exchangeable, at the option of the holder, into
shares of Bowater Common Stock on a one-for-one basis. The shares were issued
pursuant to an order of arrangement approved by the Ontario Court of Justice
(General Division) in exchange for all of the outstanding shares of common stock
of Avenor. Accordingly, the issuance was exempt from registration pursuant to
Section 3(a)(10) of the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding the Company's financial position and operating record
is incorporated herein by reference to pages 54-55 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding the Company's business and financial results is
incorporated herein by reference to pages 19-29 of the Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Subsequent to the purchase of Avenor in July 1998, the Company's exposure
to fluctuations in the Canadian dollar has increased. The newly acquired
Canadian operations have costs that are primarily denominated in Canadian
dollars. As a result, the Company's earnings will be affected, to a greater
extent than in the past, by increases or decreases in the value of the Canadian
dollar. Increases in the value of the Canadian dollar versus the U.S. dollar
will tend to reduce reported earnings in U.S. dollar terms, and decreases in the
value of the Canadian dollar will tend to increase reported earnings.
12
<PAGE> 14
Using Canadian dollar range forward contracts, the Company actively hedges
against the risk of a rising Canadian dollar. At December 31, 1998, the Company
had approximately $1.3 billion of Canadian dollar contracts. Information
regarding the carrying value and fair market value of the contracts is
incorporated by reference to Note 11 on page 42 of the Annual Report.
Information regarding the range of exchange rates by maturity date is summarized
in the table below:
<TABLE>
<CAPTION>
LIABILITY
NOTIONAL ----------------------- RANGE OF
FOREIGN CURRENCY EXCHANGE AMOUNT OF CARRYING FAIR CANADIAN$/US$
AGREEMENTS AND OPTIONS DERIVATIVES AMOUNT MARKET VALUE EXCHANGE RATES
- ------------------------- ----------- -------- ------------ ---------------
(IN MILLIONS OF US$)
<S> <C> <C> <C> <C>
Buy Currency:
Canadian dollar
Due in 1999 $ 647.1 $ 54.3 $ 54.3 1.2820 - 1.4978
Due in 2000 457.8 42.1 42.1 1.2975 - 1.4853
Due in 2001 183.0 8.7 8.7 1.3625 - 1.5083
-------- ------ ------ ---------------
Total $1,287.9 $105.1 $105.1 1.2820 - 1.5083
======== ====== ====== ===============
</TABLE>
In 1998, the Company also purchased a South Korean newsprint mill,
subjecting it to fluctuations in the Korean won/U.S. dollar exchange rate, since
certain expenses and some purchases by the mill are denominated in won. However,
many of the cash flows for purchases and sales are in U.S. dollars, thereby
mitigating a majority of the currency risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to
pages 30-53 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors is incorporated herein by
reference to the material under the heading "Election of
Directors -- Information on Nominees and Directors" in the Company's Proxy
Statement with respect to the Annual Meeting of Shareholders scheduled to be
held May 12, 1999 (the "Proxy Statement"), filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.
Information regarding the Company's executive officers is provided under
the caption "Executive Officers of the Registrant as of March 22, 1999" on pages
9-11 of this Form 10-K.
Information regarding Section 16(a) beneficial ownership reporting
compliance is incorporated herein by reference to the material under the heading
"Executive Compensation -- Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by
reference to the material under the headings "Election of
Directors -- Information on Nominees and Directors -- Director Compensation",
"Human Resources and Compensation Committee Report on Executive Compensation",
"Total Shareholder Return" and "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning (1) any person or group known to the Company to be
the beneficial owner of more than 5 percent of the Company's voting stock, and
(2) ownership of the Company's equity securities by management is incorporated
herein by reference to the material under the heading "Certain Information
Concerning Stock Ownership" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the material under the heading "Related
Party Transactions" in the Proxy Statement.
14
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following are filed as a part of this Report on Form 10-K:
(1) The following are included at the indicated page in the Annual Report
and are incorporated by reference herein:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Consolidated Statement of Operations for Each of the Years
in the Three-Year Period Ended December 31, 1998.......... 30
Consolidated Balance Sheet at December 31, 1998 and 1997.... 31
Consolidated Statement of Capital Accounts for Each of the
Years in the Three-Year Period Ended December 31, 1998.... 32-33
Consolidated Statement of Cash Flows for Each of the Years
in the Three-Year Period Ended December 31, 1998.......... 34
Notes to Consolidated Financial Statements.................. 35-52
Management's Statement of Responsibility and Independent
Auditors' Report.......................................... 53
</TABLE>
(2) The following financial statement schedule for the year ended December
31, 1998 is submitted herewith:
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ F-1
Independent Auditors' Report on Schedule II................. F-2
</TABLE>
All other financial statement schedules are omitted because they are not
applicable, the amounts associated with them are immaterial, or because
the required information is included in the financial statements or
notes thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K):
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
2.1 Amended and Restated Arrangement Agreement, dated as of
March 9, 1998, by and between the Company and Avenor Inc.
(incorporated by reference to Exhibit 2.1 to Annex D of the
Joint Management Information Circular and Proxy Statement
filed on June 18, 1998, on Schedule 14A for the Company,
File No. 1-8712 (the "Schedule 14A")).
2.2 Asset Purchase Agreement, dated August 4, 1998, by and
between Bowater Pulp and Paper Canada Inc., the Company,
Weyerhaeuser Canada Ltd. and Weyerhaeuser Company
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated October 15, 1998, File No.
1-8712 (the "October 1998 8-K")).
2.2.1 Amending Agreement, dated September 30, 1998, by and between
Bowater Pulp and Paper Canada Inc., the Company,
Weyerhaeuser Canada Ltd. and Weyerhaeuser Company
(incorporated by reference to Exhibit 2.1.1 to the October
1998 8-K).
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B
Convertible Preferred Stock of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated February 1, 1994, File No. 1-8712 (the
"February 1994 8-K")).
3.3 Certificate of Designations of the 8.40% Series C Cumulative
Preferred Stock of the Company (incorporated by reference to
Exhibit 4.2 to the February 1994 8-K).
3.4 Certificate of Designation of the special voting stock of
the Company (incorporated by reference to Exhibit 4.11 to
Amendment No. 1 to the Company's Registration Statement No.
333-57839 (the "Amendment No. 1 to the Registration
Statement")).
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
3.5 Bylaws of the Company amended and restated as of May 20,
1998 (incorporated by reference to Exhibit 4.12 to Amendment
No. 1 to the Registration Statement).
4.1 Agreement pursuant to S-K Item 601(b)(4)(iii)(A) to provide
the Commission upon request copies of certain other
instruments with respect to long-term debt not being
registered where the amount of securities authorized under
each such instrument does not exceed 10% of the total assets
of the registrant and its subsidiaries on a consolidated
basis (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement No. 2-93455).
4.2 See Exhibits 3.1, 3.4 and 3.5.
+10.1 Employment Agreement, dated as of July 20, 1994, by and
between the Company and Arnold M. Nemirow (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1994, File No.
1-8712 (the "1994 10-K")).
+10.2 Employment Agreement, dated as of October 21, 1996, by and
between the Company and Steven G. Lanzl (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1996, File No.
1-8712 (the "1996 10-K")).
+10.3 Employment Agreement, dated as of April 1, 1995, by and
between the Company and E. Patrick Duffy (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the period ending March 31, 1995, File No.
1-8712).
+10.4 Form of Employment Agreement by and between the Company and
each of Robert A. Moran and Michael F. Nocito (incorporated
by reference to Exhibit 10.4 to the Company's Annual Report
on Form 10-K for the period ending December 31, 1993, File
No. 1-8712).
+10.5 Form of Change in Control Agreement, by and between the
Company and each of Edward Patrick Duffy, David G. Maffucci,
Donald G. McNeil, Robert A. Moran, Arnold M. Nemirow, and
Michael F. Nocito (incorporated by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-K for the period
ending December 31, 1995, File No. 1-8712 (the "1995
10-K")).
+10.6 Form of Change in Control Agreement by and between the
Company and each of Anthony H. Barash and Steven G. Lanzl
(incorporated by reference to Exhibit 10.6 to the 1996
10-K).
+10.7 Employment Agreement, dated as of May 21, 1997, by and
between the Company and Wendy C. Shiba (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending June 30, 1997, File No.
1-8712 (the "June 1997 10-Q")).
+10.8 Change in Control Agreement, dated as of May 21, 1997, by
and between the Company and Wendy C. Shiba (incorporated by
reference to Exhibit 10.2 to the June 1997 10-Q).
+10.9 Employment Agreement, dated as of August 1, 1998, by and
between the Company and James H. Dorton (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending September 30, 1998, File
No. 1-8712 (the "September 1998 10-Q")).
+10.10 Change in Control Agreement, dated as of August 1, 1998, by
and between the Company and James H. Dorton (incorporated by
reference to Exhibit 10.2 to the September 1998 10-Q).
+10.11 Employment Agreement, dated as of August 1, 1997, by and
between the Company and Arthur D. Fuller (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending September 30, 1997, File
No. 1-8712 (the "September 1997 10-Q")).
+10.12 Change in Control Agreement, dated as of August 1, 1997, by
and between the Company and Arthur D. Fuller (incorporated
by reference to Exhibit 10.2 to the September 1997 10-Q).
+10.13 Employment Agreement, dated as of November 1, 1995, by and
between the Company and David G. Maffucci (incorporated by
reference to Exhibit 10.12 to the 1995 10-K).
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
+10.14 Employment Agreement, dated as of March 1, 1995, by and
between the Company and Donald G. McNeil (incorporated by
reference to Exhibit 10.12 to the 1994 10-K).
+10.15 Employment Agreement, dated as of April 1, 1996, by and
between the Company and Anthony H. Barash (incorporated by
reference to Exhibit 10.14 to the 1995 10-K).
+10.16 Employment Agreement, dated as of August 1, 1997, by and
between the Company and Richard K. Hamilton (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1997, File No.
1-8712 (the "1997 10-K")).
+10.17 Change in Control Agreement, dated as of August 1, 1997, by
and between the Company and Richard K. Hamilton
(incorporated by reference to Exhibit 10.17 to the 1997
10-K).
+10.18 Employment Agreement, dated as of August 1, 1998, by and
between the Company and William G. Harvey (incorporated by
reference to Exhibit 10.3 to the September 1998 10-Q).
+10.19 Change in Control Agreement, dated as of August 1, 1998, by
and between the Company and William G. Harvey (incorporated
by reference to Exhibit 10.4 to the September 1998 10-Q).
+10.20 Employment Agreement, dated as of July 24, 1998, by and
between the Company and David J. Steuart (incorporated by
reference to Exhibit 10.5 to the September 1998 10-Q).
+10.21 Change in Control Agreement, dated as of July 24, 1998, by
and between the Company and David J. Steuart (incorporated
by reference to Exhibit 10.6 to the September 1998 10-Q).
+10.22* Employment Agreement, dated as of November 1, 1995, by and
between the Company and Robert D. Newman.
+10.23* Change in Control Agreement, dated as of November 1, 1995,
by and between the Company and Robert D. Newman.
+10.24* Employment Agreement, dated as of August 1, 1997, by and
between the Company and Jerry R. Gilmore.
+10.25* Change in Control Agreement, dated as of August 1, 1997, by
and between the Company and Jerry R. Gilmore.
+10.26 Compensatory Benefits Plan of the Company, as amended and
restated as of April 30, 1991 (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the period ending December 31, 1991, File No. 1-8712 (the
"1991 10-K")).
+10.26.1 Amendment, effective as of January 1, 1996, to the
Compensatory Benefits Plan of the Company (incorporated by
reference to Exhibit 10.15.1 to the 1996 10-K).
+10.26.2 Second Amendment, effective as of January 1, 1997, to the
Compensatory Benefits Plan of the Company (incorporated by
reference to Exhibit 10.18.2 to the 1997 10-K).
+10.26.3* Third Amendment, effective April 15, 1998, to the
Compensatory Benefits Plan of the Company.
+10.27 Annual Bonus Plan of the Company (incorporated by reference
to Exhibit 10.16 to the 1994 10-K).
+10.28 Deferred Compensation Plan for Outside Directors of the
Company, as amended and restated effective January 1, 1997
(incorporated by reference to Exhibit 10.18.1 to the 1996
10-K).
+10.29 Retirement Plan for Outside Directors of the Company,
effective as of July 1, 1988 (incorporated by reference to
Exhibit 10.19 to the 1995 10-K).
+10.29.1 First Amendment to Retirement Plan for Outside Directors
(incorporated by reference to Exhibit 10.19.1 to the 1995
10-K).
+10.29.2 Second Amendment to Retirement Plan for Outside Directors
(incorporated by reference to Exhibit 10.21.2 to the 1997
10-K).
+10.29.3* Third Amendment to Retirement Plan for Outside Directors.
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
+10.30 Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies, as amended
and restated effective as of November 1, 1995 (incorporated
by reference to Exhibit 10.20 to the 1995 10-K).
+10.30.1 First Amendment, dated as of March 18, 1996, to the
Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies, as amended
and restated effective as of November 1, 1995 (incorporated
by reference to Exhibit 10.20.1 to the 1995 10-K).
+10.30.2* Second Amendment, effective April 15, 1998, to the
Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies as amended and
restated effective November 1, 1995.
+10.31* Equity Participation Rights Plan, amended and restated as of
January 1, 1999.
+10.32 1988 Stock Incentive Plan of the Company (incorporated by
reference to the Company's Proxy Statement for 1988, File
No. 1-8712).
+10.32.1 Amendment to 1988 Stock Incentive Plan of the Company, dated
as of August 23, 1989 (incorporated by reference to Exhibit
10.16A to the Company's Annual Report on Form 10-K for the
period ending December 31, 1989, File No. 1-8712).
+10.32.2* Second Amendment, effective April 15, 1998, to the 1988
Stock Incentive Plan of the Company.
+10.33 Amended and Restated Benefit Plan Grantor Trust of the
Company, effective as of April 15, 1998 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending June 30, 1998, File No.
1-8712 (the "June 1998 10-Q")).
+10.34 Amended and Restated Executive Severance Grantor Trust of
the Company, effective as of April 15, 1998 (incorporated by
reference to Exhibit 10.3 to the June 1998 10-Q).
+10.35 Amended and Restated Outside Directors Benefit Plan Grantor
Trust of the Company, effective as of April 15, 1998
(incorporated by reference to Exhibit 10.2 to the June 1998
10-Q).
+10.36 Benefits Equalization Plan, dated as of August 22, 1990
(incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the period ending December
31, 1990, File No. 1-8712).
+10.36.1 First Amendment to Bowater Incorporated Benefits
Equalization Plan, effective as of January 1, 1996
(incorporated by reference to Exhibit 10.28.1 to the 1996
10-K).
+10.36.2* Second Amendment to Bowater Incorporated Benefits
Equalization Plan, effective April 15, 1998.
+10.37 1992 Stock Incentive Plan (incorporated by reference to
Exhibit 10.23 to the 1991 10-K).
+10.37.1* First Amendment, effective April 15, 1998, to the 1992 Stock
Incentive Plan.
+10.38 Bowater Incorporated 1997 Stock Option Plan, effective as of
January 1, 1997, as amended and restated (incorporated by
reference to Exhibit 10.31 to the 1996 10-K).
+10.38.1* First Amendment, effective April 15, 1998, to the Bowater
Incorporated 1997 Stock Option Plan, effective as of January
1, 1997, as amended and restated.
+10.39 Bowater Incorporated 1997-1999 Long-Term Incentive Plan,
effective as of January 1, 1997, as amended and restated
(incorporated by reference to Exhibit 10.32 to the 1996
10-K).
+10.39.1* First Amendment, effective April 15, 1998, to the Bowater
Incorporated 1997-1999 Long-Term Incentive Plan, effective
as of January 1, 1997, as amended and restated.
+10.40* Senior Executive Retirement Plan of the Company's
subsidiary, Bowater Pulp and Paper Canada Inc. (formerly
Avenor Inc.), effective as of November 28, 1997.
10.41 Licensing Agreement, dated as of December 30, 1976, as
amended, between the Company and Bowater Industries plc
(incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement No. 2-90172).
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
10.42 Trademark Agreement, dated May 8, 1984, between the Company
and Bowater Corporation plc (incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement No.
2-90172).
10.43 World-Wide Trademark Ownership, Use and Assignment
Agreement, effective as of June 30, 1997, by and between the
Company and Rexam plc (formerly Bowater plc) (incorporated
by reference to Exhibit 10.40 to the 1997 10-K).
10.44 364-Day Credit Agreement, dated as of June 24, 1998, among
the Company, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 1.1 to the Schedule 13D filed on August
3, 1998, by the Company, Bowater Canadian Holdings
Incorporated and Bowater Canada Inc. with respect to the
common shares of Avenor Inc. (the "Schedule 13D")).
10.45 Five Year Credit Agreement, dated as of June 24, 1998, among
the Company, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 1.2 to the Schedule 13D).
10.46 Support Agreement, dated as of July 24, 1998, between the
Company, Bowater Canadian Holdings Incorporated and Bowater
Canada Inc. (incorporated by reference to Annex G of the
Schedule 14A).
10.47 Voting and Exchange Trust Agreement, dated as of July 24,
1998, between the Company, Bowater Canadian Holdings
Incorporated, Bowater Canada Inc. and Montreal Trust Company
of Canada (incorporated by reference to Annex F of the
Schedule 14A).
13.1* Copy of the Company's 1998 Annual Report to Stockholders
(except for those portions that are expressly incorporated
by reference in this Report on Form 10-K, this exhibit is
furnished for the information of the Commission and is not
deemed to be filed as part hereof).
21.1* Subsidiary Listing.
23.1* Consent of Independent Auditors.
27.1* Financial Data Schedule (electronic filing only).
</TABLE>
- ---------------
* Filed herewith
+ This is a management contract or compensatory plan or arrangement.
(b) On October 15, 1998, the Company filed a Current Report on Form 8-K,
dated September 30, 1998, File No. 1-8712, including pro forma financial
information, to report the disposition of the facility known as the Dryden Mill
and related assets.
(c) The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) The response to this portion of Item 14 is submitted as a separate
section of this report.
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOWATER INCORPORATED
By: /s/ ARNOLD M. NEMIROW
------------------------------------
ARNOLD M. NEMIROW
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated, as of March 25, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ARNOLD M. NEMIROW Director, Chairman, President and Chief
- ----------------------------------------------------- Executive Officer
ARNOLD M. NEMIROW
/s/ DAVID G. MAFFUCCI Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
DAVID G. MAFFUCCI
/s/ MICHAEL F. NOCITO Vice President and Controller
- -----------------------------------------------------
MICHAEL F. NOCITO
/s/ FRANCIS J. AGUILAR Director
- -----------------------------------------------------
FRANCIS J. AGUILAR
/s/ H. DAVID AYCOCK Director
- -----------------------------------------------------
H. DAVID AYCOCK
/s/ RICHARD BARTH Director
- -----------------------------------------------------
RICHARD BARTH
/s/ KENNETH M. CURTIS Director
- -----------------------------------------------------
KENNETH M. CURTIS
/s/ CHARLES J. HOWARD Director
- -----------------------------------------------------
CHARLES J. HOWARD
/s/ JAMES L. PATE Director
- -----------------------------------------------------
JAMES L. PATE
/s/ JOHN A. ROLLS Director
- -----------------------------------------------------
JOHN A. ROLLS
/s/ ARTHUR R. SAWCHUK Director
- -----------------------------------------------------
ARTHUR R. SAWCHUK
</TABLE>
20
<PAGE> 22
BOWATER INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF YEAR EXPENSES ADDITIONS DEDUCTIONS OF YEAR
---------- ---------- --------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Restructuring Reserve $ -- $ -- $ 63.4(1) $(10.4) $53.0
======== ======== ======== ====== =====
</TABLE>
- ---------------
(1) Recorded in purchase accounting upon the acquisition of Avenor Inc.
F-1
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bowater Incorporated
Under date of February 12, 1999, we reported on the consolidated balance sheets
of Bowater Incorporated and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, capital accounts, and cash
flows for each of the years in the three-year period ended December 31, 1998, as
contained in the annual report on Form 10-K for the year 1998. In connection
with our audits of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK
Greenville, South Carolina
February 12, 1999
F-2
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
2.1 Amended and Restated Arrangement Agreement, dated as of
March 9, 1998, by and between the Company and Avenor Inc.
(incorporated by reference to Exhibit 2.1 to Annex D of the
Joint Management Information Circular and Proxy Statement
filed on June 18, 1998, on Schedule 14A for the Company,
File No. 1-8712 (the "Schedule 14A")).
2.2 Asset Purchase Agreement, dated August 4, 1998, by and
between Bowater Pulp and Paper Canada Inc., the Company,
Weyerhaeuser Canada Ltd. and Weyerhaeuser Company
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated October 15, 1998, File No.
1-8712 (the "October 1998 8-K")).
2.2.1 Amending Agreement, dated September 30, 1998, by and between
Bowater Pulp and Paper Canada Inc., the Company,
Weyerhaeuser Canada Ltd. and Weyerhaeuser Company
(incorporated by reference to Exhibit 2.1.1 to the October
1998 8-K).
3.1 Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement No. 33-51569).
3.2 Certificate of Designations of the 7% PRIDES, Series B
Convertible Preferred Stock of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated February 1, 1994, File No. 1-8712 (the
"February 1994 8-K")).
3.3 Certificate of Designations of the 8.40% Series C Cumulative
Preferred Stock of the Company (incorporated by reference to
Exhibit 4.2 to the February 1994 8-K).
3.4 Certificate of Designation of the special voting stock of
the Company (incorporated by reference to Exhibit 4.11 to
Amendment No. 1 to the Company's Registration Statement No.
333-57839 (the "Amendment No. 1 to the Registration
Statement")).
3.5 Bylaws of the Company amended and restated as of May 20,
1998 (incorporated by reference to Exhibit 4.12 to Amendment
No. 1 to the Registration Statement).
4.1 Agreement pursuant to S-K Item 601(b)(4)(iii)(A) to provide
the Commission upon request copies of certain other
instruments with respect to long-term debt not being
registered where the amount of securities authorized under
each such instrument does not exceed 10% of the total assets
of the registrant and its subsidiaries on a consolidated
basis (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement No. 2-93455).
4.2 See Exhibits 3.1, 3.4 and 3.5.
+10.1 Employment Agreement, dated as of July 20, 1994, by and
between the Company and Arnold M. Nemirow (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1994, File No.
1-8712 (the "1994 10-K")).
+10.2 Employment Agreement, dated as of October 21, 1996, by and
between the Company and Steven G. Lanzl (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1996, File No.
1-8712 (the "1996 10-K")).
+10.3 Employment Agreement, dated as of April 1, 1995, by and
between the Company and E. Patrick Duffy (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the period ending March 31, 1995, File No.
1-8712).
+10.4 Form of Employment Agreement by and between the Company and
each of Robert A. Moran and Michael F. Nocito (incorporated
by reference to Exhibit 10.4 to the Company's Annual Report
on Form 10-K for the period ending December 31, 1993, File
No. 1-8712).
+10.5 Form of Change in Control Agreement, by and between the
Company and each of Edward Patrick Duffy, David G. Maffucci,
Donald G. McNeil, Robert A. Moran, Arnold M. Nemirow, and
Michael F. Nocito (incorporated by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-K for the period
ending December 31, 1995, File No. 1-8712 (the "1995
10-K")).
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
+10.6 Form of Change in Control Agreement by and between the
Company and each of Anthony H. Barash and Steven G. Lanzl
(incorporated by reference to Exhibit 10.6 to the 1996
10-K).
+10.7 Employment Agreement, dated as of May 21, 1997, by and
between the Company and Wendy C. Shiba (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending June 30, 1997, File No.
1-8712 (the "June 1997 10-Q")).
+10.8 Change in Control Agreement, dated as of May 21, 1997, by
and between the Company and Wendy C. Shiba (incorporated by
reference to Exhibit 10.2 to the June 1997 10-Q).
+10.9 Employment Agreement, dated as of August 1, 1998, by and
between the Company and James H. Dorton (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending September 30, 1998, File
No. 1-8712 (the "September 1998 10-Q")).
+10.10 Change in Control Agreement, dated as of August 1, 1998, by
and between the Company and James H. Dorton (incorporated by
reference to Exhibit 10.2 to the September 1998 10-Q).
+10.11 Employment Agreement, dated as of August 1, 1997, by and
between the Company and Arthur D. Fuller (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending September 30, 1997, File
No. 1-8712 (the "September 1997 10-Q")).
+10.12 Change in Control Agreement, dated as of August 1, 1997, by
and between the Company and Arthur D. Fuller (incorporated
by reference to Exhibit 10.2 to the September 1997 10-Q).
+10.13 Employment Agreement, dated as of November 1, 1995, by and
between the Company and David G. Maffucci (incorporated by
reference to Exhibit 10.12 to the 1995 10-K).
+10.14 Employment Agreement, dated as of March 1, 1995, by and
between the Company and Donald G. McNeil (incorporated by
reference to Exhibit 10.12 to the 1994 10-K).
+10.15 Employment Agreement, dated as of April 1, 1996, by and
between the Company and Anthony H. Barash (incorporated by
reference to Exhibit 10.14 to the 1995 10-K).
+10.16 Employment Agreement, dated as of August 1, 1997, by and
between the Company and Richard K. Hamilton (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the period ending December 31, 1997, File No.
1-8712 (the "1997 10-K")).
+10.17 Change in Control Agreement, dated as of August 1, 1997, by
and between the Company and Richard K. Hamilton
(incorporated by reference to Exhibit 10.17 to the 1997
10-K).
+10.18 Employment Agreement, dated as of August 1, 1998, by and
between the Company and William G. Harvey (incorporated by
reference to Exhibit 10.3 to the September 1998 10-Q).
+10.19 Change in Control Agreement, dated as of August 1, 1998, by
and between the Company and William G. Harvey (incorporated
by reference to Exhibit 10.4 to the September 1998 10-Q).
+10.20 Employment Agreement, dated as of July 24, 1998, by and
between the Company and David J. Steuart (incorporated by
reference to Exhibit 10.5 to the September 1998 10-Q).
+10.21 Change in Control Agreement, dated as of July 24, 1998, by
and between the Company and David J. Steuart (incorporated
by reference to Exhibit 10.6 to the September 1998 10-Q).
+10.22* Employment Agreement, dated as of November 1, 1995, by and
between the Company and Robert D. Newman.
+10.23* Change in Control Agreement, dated as of November 1, 1995,
by and between the Company and Robert D. Newman.
+10.24* Employment Agreement, dated as of August 1, 1997, by and
between the Company and Jerry R. Gilmore.
+10.25* Change in Control Agreement, dated as of August 1, 1997, by
and between the Company and Jerry R. Gilmore.
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
+10.26 Compensatory Benefits Plan of the Company, as amended and
restated as of April 30, 1991 (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the period ending December 31, 1991, File No. 1-8712 (the
"1991 10-K")).
+10.26.1 Amendment, effective as of January 1, 1996, to the
Compensatory Benefits Plan of the Company (incorporated by
reference to Exhibit 10.15.1 to the 1996 10-K).
+10.26.2 Second Amendment, effective as of January 1, 1997, to the
Compensatory Benefits Plan of the Company (incorporated by
reference to Exhibit 10.18.2 to the 1997 10-K).
+10.26.3* Third Amendment, effective April 15, 1998, to the
Compensatory Benefits Plan of the Company.
+10.27 Annual Bonus Plan of the Company (incorporated by reference
to Exhibit 10.16 to the 1994 10-K).
+10.28 Deferred Compensation Plan for Outside Directors of the
Company, as amended and restated effective January 1, 1997
(incorporated by reference to Exhibit 10.18.1 to the 1996
10-K).
+10.29 Retirement Plan for Outside Directors of the Company,
effective as of July 1, 1988 (incorporated by reference to
Exhibit 10.19 to the 1995 10-K).
+10.29.1 First Amendment to Retirement Plan for Outside Directors
(incorporated by reference to Exhibit 10.19.1 to the 1995
10-K).
+10.29.2 Second Amendment to Retirement Plan for Outside Directors
(incorporated by reference to Exhibit 10.21.2 to the 1997
10-K).
+10.29.3* Third Amendment to Retirement Plan for Outside Directors.
+10.30 Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies, as amended
and restated effective as of November 1, 1995 (incorporated
by reference to Exhibit 10.20 to the 1995 10-K).
+10.30.1 First Amendment, dated as of March 18, 1996, to the
Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies, as amended
and restated effective as of November 1, 1995 (incorporated
by reference to Exhibit 10.20.1 to the 1995 10-K).
+10.30.2* Second Amendment, effective April 15, 1998, to the
Supplemental Benefit Plan for Designated Employees of
Bowater Incorporated and Affiliated Companies as amended and
restated effective November 1, 1995.
+10.31* Equity Participation Rights Plan, amended and restated as of
January 1, 1999.
+10.32 1988 Stock Incentive Plan of the Company (incorporated by
reference to the Company's Proxy Statement for 1988, File
No. 1-8712).
+10.32.1 Amendment to 1988 Stock Incentive Plan of the Company, dated
as of August 23, 1989 (incorporated by reference to Exhibit
10.16A to the Company's Annual Report on Form 10-K for the
period ending December 31, 1989, File No. 1-8712).
+10.32.2* Second Amendment, effective April 15, 1998, to the 1988
Stock Incentive Plan of the Company.
+10.33 Amended and Restated Benefit Plan Grantor Trust of the
Company, effective as of April 15, 1998 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ending June 30, 1998, File No.
1-8712 (the "June 1998 10-Q")).
+10.34 Amended and Restated Executive Severance Grantor Trust of
the Company, effective as of April 15, 1998 (incorporated by
reference to Exhibit 10.3 to the June 1998 10-Q).
+10.35 Amended and Restated Outside Directors Benefit Plan Grantor
Trust of the Company, effective as of April 15, 1998
(incorporated by reference to Exhibit 10.2 to the June 1998
10-Q).
+10.36 Benefits Equalization Plan, dated as of August 22, 1990
(incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the period ending December
31, 1990, File No. 1-8712).
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
+10.36.1 First Amendment to Bowater Incorporated Benefits
Equalization Plan, effective as of January 1, 1996
(incorporated by reference to Exhibit 10.28.1 to the 1996
10-K).
+10.36.2* Second Amendment to Bowater Incorporated Benefits
Equalization Plan, effective April 15, 1998.
+10.37 1992 Stock Incentive Plan (incorporated by reference to
Exhibit 10.23 to the 1991 10-K).
+10.37.1* First Amendment, effective April 15, 1998, to the 1992 Stock
Incentive Plan.
+10.38 Bowater Incorporated 1997 Stock Option Plan, effective as of
January 1, 1997, as amended and restated (incorporated by
reference to Exhibit 10.31 to the 1996 10-K).
+10.38.1* First Amendment, effective April 15, 1998, to the Bowater
Incorporated 1997 Stock Option Plan, effective as of January
1, 1997, as amended and restated.
+10.39 Bowater Incorporated 1997-1999 Long-Term Incentive Plan,
effective as of January 1, 1997, as amended and restated
(incorporated by reference to Exhibit 10.32 to the 1996
10-K).
+10.39.1* First Amendment, effective April 15, 1998, to the Bowater
Incorporated 1997-1999 Long-Term Incentive Plan, effective
as of January 1, 1997, as amended and restated.
+10.40* Senior Executive Retirement Plan of the Company's
subsidiary, Bowater Pulp and Paper Canada Inc. (formerly
Avenor Inc.), effective as of November 28, 1997.
10.41 Licensing Agreement, dated as of December 30, 1976, as
amended, between the Company and Bowater Industries plc
(incorporated by reference to Exhibit 10.13 to the Company's
Registration Statement No. 2-90172).
10.42 Trademark Agreement, dated May 8, 1984, between the Company
and Bowater Corporation plc (incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement No.
2-90172).
10.43 World-Wide Trademark Ownership, Use and Assignment
Agreement, effective as of June 30, 1997, by and between the
Company and Rexam plc (formerly Bowater plc) (incorporated
by reference to Exhibit 10.40 to the 1997 10-K).
10.44 364-Day Credit Agreement, dated as of June 24, 1998, among
the Company, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 1.1 to the Schedule 13D filed on August
3, 1998, by the Company, Bowater Canadian Holdings
Incorporated and Bowater Canada Inc. with respect to the
common shares of Avenor Inc. (the "Schedule 13D")).
10.45 Five Year Credit Agreement, dated as of June 24, 1998, among
the Company, The Chase Manhattan Bank, as Administrative
Agent, and the lenders signatory thereto (incorporated by
reference to Exhibit 1.2 to the Schedule 13D).
10.46 Support Agreement, dated as of July 24, 1998, between the
Company, Bowater Canadian Holdings Incorporated and Bowater
Canada Inc. (incorporated by reference to Annex G of the
Schedule 14A).
10.47 Voting and Exchange Trust Agreement, dated as of July 24,
1998, between the Company, Bowater Canadian Holdings
Incorporated, Bowater Canada Inc. and Montreal Trust Company
of Canada (incorporated by reference to Annex F of the
Schedule 14A).
13.1* Copy of the Company's 1998 Annual Report to Stockholders
(except for those portions that are expressly incorporated
by reference in this Report on Form 10-K, this exhibit is
furnished for the information of the Commission and is not
deemed to be filed as part hereof).
21.1* Subsidiary Listing.
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------
<C> <C> <S>
23.1* Consent of Independent Auditors.
27.1* Financial Data Schedule (electronic filing only).
</TABLE>
- ---------------
* Filed herewith
+ This is a management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 1st day of November, 1995, by and
between BOWATER INCORPORATED, a Delaware corporation having a mailing address of
55 East Camperdown Way, Greenville, South Carolina 29602 (the "Corporation"),
and Robert D. Newman, Post Office Box 4583, Cleveland, TN 37311 (the
"Executive").
WHEREAS, the Corporation desires to employ the Executive as Vice
President Operations and Resident Manager, Newsprint Division; and
WHEREAS, the Executive is desirous of serving the Corporation in such
capacity;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment. During the term of this Agreement the Corporation agrees
to continue to employ the Executive, and the Executive agrees to continue in the
employ of the Corporation, in accordance with and subject to the provisions of
this Agreement.
2. Term.
(a) Subject to the provisions of subparagraphs (b) and
(c) of this Section 2, the term of this Agreement
shall begin on the Date hereof and shall continue
thereafter until terminated by either party by
written notice given to the other party at least
thirty (30) days prior to the effective date of any
such termination. The effective date of the
termination shall be the date stated in such notice,
provided that if the Corporation specifies an
effective date that is more than (30)
1
<PAGE> 2
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:
(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 Operations and Resident Manager, Newsprint
Division, 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.
2
<PAGE> 3
4. Place of Employment. The Executive will be employed at the
Corporation's offices in Calhoun, Tennessee 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 $170,000 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 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.
3
<PAGE> 4
6. Nondisclosure. During and after the term of this Agreement, the
Executive shall not, without the written consent of the Board of Directors of
the Corporation, disclose or use directly or indirectly, (except in the course
of employment hereunder and in furtherance of the business of the Corporation or
any of its subsidiaries and affiliates) any of the trade secrets or other
confidential information or proprietary data of the Corporation or its
subsidiaries or affiliates; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same or similar
businesses.
7. Noncompetition. During the term of this Agreement, and for a period
of one (1) year after the date the Executive's employment terminates, the
Executive shall not, without the prior approval of the Board of Directors of the
Corporation in the same or a similar capacity engage in or invest in, or aid or
assist anyone else in the conduct of any business (other than the businesses of
the Corporation and its subsidiaries and affiliates) which directly competes
with the business of the Corporation and its subsidiaries and affiliates as
conducted during the term hereof. If any court of competent jurisdiction shall
determine that any of the provisions of this Section 7 shall not be enforceable
because of the duration or scope thereof, the parties hereto agree that said
court shall have the power to reduce the duration and scope of such provision to
the extent necessary to make it enforceable and this Agreement in its reduced
form shall be valid and enforceable to the extent permitted by law. The
Executive acknowledges that the Corporation's remedy at law for a breach by the
Executive of the provisions of this Section 7 will be inadequate. Accordingly,
in the event of the breach or threatened breach by the Executive of this Section
7, the Corporation shall be entitled to injunctive relief in addition to any
other remedy it may have.
8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless the Corporation shall have terminated the Executive for
"Cause", the Corporation shall pay the Executive severance pay in an amount
equal to twelve (12) months of the Executive's base salary on the effective date
of the termination, plus 1/12 of the amount of the last bonus paid to the
Executive under the Corporation's bonus plan 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,
4
<PAGE> 5
however, that any amount paid to the Executive by the Corporation for services
rendered subsequent to the thirtieth (30th) day following the communication to
the Executive of notice of termination shall be deducted from the severance pay
otherwise due hereunder. Such payment shall be made in a lump sum within ten
(10) business days following the effective date of the termination. The
severance pay shall be in lieu of all other compensation or payments of any kind
relating to the termination of the Executive's employment hereunder; provided
that the Executive's entitlement to compensation or payments under the
Corporation's retirement plans, stock option or incentive plans, savings plans
or bonus plans attributable to service rendered prior to the effective date of
the termination shall not be affected by this clause and shall continue to be
governed by the applicable provisions of such plans; and further provided that
in lieu hereof, at his election, the Executive shall be entitled to the benefits
of the Change in Control Agreement of even date hereof between the Corporation
and the Executive, if termination occurs in a manner and at a time when such
Severance Agreement is applicable. For purposes of this Agreement, the term for
"Cause" shall mean because of gross negligence or willful misconduct by the
Executive either in the course of his employment hereunder or which has a
material adverse effect on the Corporation or the Executive's ability to perform
adequately and effectively his duties hereunder.
9. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered or mailed, by registered or certified mail, return receipt requested
to the respective addresses of the parties set forth above, or to such other
address as any party hereto shall designate to the other party in writing
pursuant to the terms of this Section 9.
10. Severability. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision.
11. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the substantive laws of the State of Delaware.
12. Supersedure. This Agreement shall cancel and supersede all prior
agreements relating to employment between the Executive and the Corporation,
except the Change in Control Agreement.
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13. Waiver of Breach. The waiver by a party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
prior or subsequent breach by any of the parties hereto.
14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
---------------------
Richard F. Frisch,
Vice President - Human Resources
/s/ Robert D. Newman
--------------------------
Robert D. Newman
6
<PAGE> 1
EXHIBIT 10.23
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 1st day of November, 1995, by and
between Bowater Incorporated, a Delaware corporation having a mailing address of
55 East Camperdown Way, Greenville, South Carolina 29602 (the "Corporation"),
and Robert D. Newman, Post Office Box 4583, Cleveland, TN 37311 (the
"Executive").
WHEREAS, the Corporation considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(a) "Acquiring Person" shall mean any Person who is or becomes a
"beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of
securities of the Corporation representing twenty percent
(20%) or more of the combined voting power of the
Corporation's then outstanding voting securities, unless such
Person has filed Schedule 13G and all required amendments
thereto with respect to its holdings and continues to hold
such securities for investment in a
<PAGE> 2
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manner qualifying such Person to utilize Schedule 13G for
reporting of ownership.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date
hereof.
(c) "Cause" shall mean and be limited to the Executive's gross
negligence, willful misconduct or conviction of a felony,
which negligence, misconduct or conviction has a demonstrable
and material adverse effect upon the Corporation, provided
that, to the extent that the Corporation contends that Cause
exists by virtue of Executive's gross negligence or willful
misconduct, and such gross negligence or willful misconduct is
capable of being cured, the Corporation shall have given the
Executive written notice of the alleged negligence or
misconduct and the Executive shall have failed to cure such
negligence or misconduct within thirty (30) days after his
receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date
stated in a written notice of such termination delivered by
the Corporation to the Executive (which notice shall not be
delivered before the end of the thirty (30) day period
described in the preceding sentence, if applicable) and
accompanied by a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the
Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for the Executive's
termination, provided that the effective date shall not be
less than thirty (30) days from the date such notice is given.
(d) "Change in Control" of the Corporation shall be deemed to have
occurred if:
(i) any Person is or becomes an Acquiring Person;
(ii) less than two-thirds (2/3) of the total membership of
the Board shall be Continuing Directors; or
(iii) the stockholders of the Corporation shall approve a
merger or consolidation of the Corporation or a plan
of complete liquidation of the Corporation or an
agreement for the sale or disposition by the
Corporation of all or substantially all of the
Corporation's assets.
<PAGE> 3
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(e) "Commencement Date" shall mean the date of this Agreement,
which shall be the beginning date of the term of this
Agreement.
(f) "Continuing Directors" shall mean any member of the Board who
was a member of the Board immediately prior to the date
hereof, and any successor of a Continuing Director while such
successor is a member of the Board who is not an Acquiring
Person or an Affiliate or Associate of an Acquiring Person or
of any such Affiliate or Associate and is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors.
(g) "Disability" shall mean the Executive's total and permanent
disability as defined in the Corporation's long term
disability insurance policy covering the Executive immediately
prior to the Change in Control.
(h) "Good Reason" shall mean:
(i) an adverse change in the Executive's status, duties
or responsibilities as an executive of the
Corporation as in effect immediately prior to the
Change in Control, provided that the Executive shall
have given the Corporation written notice of the
alleged adverse change and the Corporation shall have
failed to cure such change within thirty (30) days
after its receipt of such notice;
(ii) failure of the Corporation to pay or provide the
Executive in a timely fashion the salary or benefits
to which he is entitled under any Employment
Agreement between the Corporation and the Executive
in effect on the date of the Change in Control, or
under any benefit plans or policies in which the
Executive was participating at the time of the Change
in Control (including, without limitation, any
incentive, bonus, stock option, restricted stock,
health, accident, disability, life insurance, thrift,
vacation pay, deferred compensation and retirement
plans or policies);
(iii) the reduction of the Executive's salary as in effect
on the date of the Change in Control;
(iv) the taking of any action by the Corporation
(including the elimination of a plan without
providing substitutes therefor, the reduction of the
Executive's awards thereunder or failure to continue
the Executive's participation therein) that would
substantially diminish the aggregate projected value
of the Executive's awards or benefits under the
Corporation's benefit plans or policies described in
Section 1(g)(ii) in which the Executive was
participating at the time of the Change in Control;
<PAGE> 4
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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(g) 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(g)(i), before the end of the thirty (30) day
period described therein) setting forth in reasonable detail
the facts and circumstances claimed to provide the basis for
termination, provided that the effective date may not precede,
nor be more than sixty (60) days from, the date such notice is
given. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to,
any circumstances constituting Good Reason hereunder.
(i) "Normal Retirement Date" shall have the meaning given to such
term in the Corporation's basic qualified pension plan in
which the Executive is a participant as in effect on the date
hereof or any successor or substitute plan adopted prior to a
Change in Control.
(j) "Person" shall mean any individual, corporation, partnership,
group, association or other "person" as such term is used in
Section 13(d) and 14(d) of the Exchange Act.
2. TERM OF AGREEMENT
(a) The term of this Agreement shall initially be for the period
beginning on the Commencement Date and ending on the day
before the third anniversary of the Commencement Date. The
term of this Agreement shall automatically be extended on the
first anniversary of the Commencement Date until the day
before the fourth anniversary of the Commencement Date without
further action by the parties, and shall be automatically
extended by an additional year on each succeeding anniversary
of the Commencement Date, unless either the Corporation or the
Executive shall have served notice upon the other party prior
to such anniversary of its or his intention either that the
term of this Agreement shall not be extended, or that the
Executive's Employment Agreement is terminated, provided,
however, that if a Change in Control of the Corporation shall
occur during the term of this Agreement, this Agreement shall
continue in effect until it expires in accordance
<PAGE> 5
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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 awarded under the
Corporation's bonus plan in effect immediately prior
to
<PAGE> 6
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the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation at
the same level of performance, at the same level of
salary, and in the same position as immediately prior
to the Change in Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of the termination occurs and ending on the date
of the termination, one-twelfth of the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation at
the same level of performance, at the same level of
salary, and in the same position as immediately prior
to the Change in Control.
(vi) If a payment may be increased by reference to an
alternate calculation which cannot be made by the
time the payment is due, payment of the lesser, known
amount shall be made when due, and if any additional
amount becomes due, such additional amount shall be
paid within ten (10) days after the information upon
which calculation of such payment is dependent first
becomes available.
The amount of all payments due to the Executive pursuant to
this Section 3(b) shall be reduced by 1/36 for each full
calendar month by which the date which is three (3) years from
the effective date of the Executive's termination extends
beyond the Executive's Normal Retirement Date.
<PAGE> 7
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Upon entering into this Agreement and for a period of fourteen
(14) days following each anniversary of the date hereof (the
"Election Period"), the Executive may, in writing, direct the
Corporation to pay any amounts to which he is entitled under
this Section 3(b) in equal annual installments (not to exceed
ten (10) annual installments), with the first such installment
payable within ten (10) business days of the effective date of
the termination and each successive installment payable on the
anniversary of the effective date of the termination or the
next following business day if such date is not a business day
(the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
(c) The Corporation shall pay or provide to the Executive or his
surviving spouse or children, as the case may be, such amounts
and benefits as may be required so that the pension and other
post-retirement benefits paid or made available to the
Executive, his surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
in effect immediately prior to the Change in Control, assuming
the Executive continued in the employ of the Corporation at
the same compensation until the third anniversary of the
effective date of the termination of the Executive's
employment or until his Normal Retirement Date, whichever is
earlier. Notwithstanding any conflicting restrictions in the
Plans or the fact of the termination of the Executive's
employment, until the Executive's Normal Retirement Date, the
Executive or his surviving spouse and his children shall
maintain a continuing right to receive the pension and other
benefits under the above Plans with payments to begin upon
retirement and to elect an imputed retirement on the
Executive's 50th birthdate or any of his birthdates thereafter
until his Normal Retirement Date, such election to be made by
so notifying the Corporation within one (1) year after
termination of his employment.
(d) The Corporation shall pay for or provide the Executive
individual out-placement assistance as offered by a member
firm of the Association of Out-Placement Consulting Firms.
(e) If any payment or benefit to or for the benefit of the
Executive in connection with a Change in Control of the
Corporation or termination of the Executive's employment
following a Change in Control of the Corporation (whether
pursuant to the terms of this Agreement, or any other plan or
arrangement or agreement with the Corporation, any Person
whose actions result in a Change in Control of the Corporation
or any Affiliate or Associate of the Corporation or any such
Person) is subject to the Excise Tax (as hereinafter defined),
the Corporation shall
<PAGE> 8
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pay to the Executive an additional amount such that the total
amount of all such payments and benefits (including payments
made pursuant to this Section 3(e) net of the Excise Tax and
all other applicable federal, state and local taxes) shall
equal the total amount of all such payments and benefits to
which the Executive would have been entitled, but for this
Section 3(e), net of all applicable federal, state and local
taxes except the Excise Tax. For purposes of this Section
3(e), the term "Excise Tax" shall mean the tax imposed by
Section 4999 of the Internal Revenue Code of 1986 (the "Code")
and any similar tax that may hereafter be imposed.
The amount of the payment to the Executive under this Section
3(e) shall be estimated by a nationally recognized firm of
certified public accountants, which firm may not have provided
services to the Corporation or any Affiliate of the
Corporation within the previous three years and shall not
provide services thereto in the following three years, based
upon the following assumptions:
(i) all payments and benefits to or for the benefit of
the Executive in connection with a Change in Control
of the Corporation or termination of the Executive's
employment following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" shall
be deemed to be subject to the Excise Tax except to
the extent that, in the opinion of tax counsel
selected by the firm of certified public accountants
charged with estimating the payment to the Executive
under this Section 3(e), such payments or benefits
are not subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that the
amount of the estimated payment is less than the amount
actually due to the Executive under this Section 3(e), the
amount of any such shortfall shall be paid to the Executive
within ten (10) days after the existence of the shortfall is
discovered.
(f) The Executive shall not be required to mitigate the amount of
any payment provided in this Section 3, nor shall any payment
or benefit provided for in this Section 3 be offset by any
compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
(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
<PAGE> 9
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judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all costs,
including reasonable attorney's fees and expenses of either litigation
or arbitration, incurred by the Executive in contesting or disputing
any termination of his employment following a Change in Control or in
seeking to obtain or enforce any right or benefit provided by this
Agreement.
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be enforceable by the
Executive, his heirs, executors, administrators, successors and
assigns. This Agreement shall be binding upon the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Corporation expressly to assume and agree to perform this Agreement
in accordance with its terms. The Corporation shall obtain such
assumption and agreement prior to the effectiveness of any such
succession.
6. NOTICE
Any notices and all other communications provided for herein shall be
in writing and shall be deemed to have been duly given when delivered
or mailed, by certified or registered mail, return receipt requested,
postage prepaid addressed to the respective addresses set forth on the
first page of this Agreement or to such other address as either party
may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon
receipt. All notices to the Corporation shall be addressed to the
attention of the Board with a copy to each of the General Counsel, the
Vice President-Human Resources and the Secretary of the Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or discharged
except in a writing specifically referring to such provision and signed
by the party against which enforcement of such modification, waiver or
discharge is sought. No waiver by either 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.
<PAGE> 10
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8. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the substantive laws of the State of
Delaware.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in the city nearest to the Executive's principal residence
(or, at the Executive's election, in the city within the state in which
the Executive's principal residence is located nearest to such
principal residence) which has an office of the American Arbitration
Association by one arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction. The
Corporation hereby waives its right to contest the personal
jurisdiction or venue of any court, federal or state, in an action
brought to enforce this Agreement or any award of an arbitrator
hereunder which action is brought in the jurisdiction in which such
arbitration was conducted, or, if no arbitration was elected, in which
arbitration could have been conducted pursuant to this provision.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
12. SUPERSEDURE
This Agreement shall cancel and supersede any and all prior agreements
between the Executive and the Corporation entitled "Severance
Agreement".
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
/s/ Richard F. Frisch
---------------------
By: Richard F. Frisch
Its: Vice President - Human Resources
/s/ Robert D. Newman
---------------------
Robert D. Newman
<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made as of this 1st day of August, 1997, 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, Administration & Planning, of the Newsprint and Directory Division;
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.
1
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(b) Notwithstanding Section 2(a), upon the occurrence of
a Change in Control as defined in the Change in
Control Agreement of even date herewith between the
Corporation and the Executive (the "Change in Control
Agreement"), the term of this Agreement shall be
deemed to continue until terminated, but in any
event, for a period of not less than three (3) years
following the date of the Change in Control, unless
such termination shall be at the Executive's election
for other than "Good Reason" as that term is defined
in the Change in Control Agreement.
(c) Notwithstanding Section 2(a), the term of this
Agreement shall end upon:
(i) the death of the Executive;
(ii) the inability of the Executive to perform
his duties properly, whether by reason of
ill-health, accident or other cause, for a
period of one hundred and eighty (180)
consecutive days or for periods totaling one
hundred and eighty (180) days occurring
within any twelve (12) consecutive calendar
months; or
(iii) the executive's retirement on his early or
normal retirement date.
3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as Vice President, Administration & Planning, of the Newsprint and
Directory Division (Salary Grade 32), with the duties and responsibilities
customarily attendant to that office, provided that the Executive shall
undertake such other and further assignments and responsibilities of at least
comparable status as the Board of Directors may direct. The Executive shall
diligently and faithfully devote his full working time and best efforts to the
performance of the services under this Agreement and to the furtherance of the
best interests of the Corporation.
4. Place of Employment. The Executive will be employed at the 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.
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5. Compensation and Benefits.
(a) Base Salary. The Corporation shall pay to the
Executive a base salary of $196,000 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 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
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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 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
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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.
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14. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Corporation and
the heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.
IN WITNESS WHEREOF, the Corporation and the Executive have executed
this Agreement as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Richard F. Frisch /s/ Jerry R. Gilmore
--------------------- --------------------
Richard F. Frisch, Jerry R. Gilmore
Vice President - Human Resources
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EXHIBIT 10.25
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT, made as of the 1st day of August, 1997, 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 considers it essential to the best interests
of its stockholders to foster the continued employment of key management
personnel; and
WHEREAS, the uncertainty attendant to a change in control of the
Corporation may result in the departure or distraction of management personnel
to the detriment of the Corporation and its stockholders; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of members of the Corporation's management,
including Executive, to their assigned duties in the event of a change in
control of the Corporation.
NOW THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS
The following terms when used herein shall have the meanings assigned
to them below. Whenever applicable throughout this Agreement, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural.
(a) "Acquiring Person" shall mean any Person who is or becomes a
beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") of
securities of the Corporation representing twenty percent
(20%) or more of the combined voting power of the
Corporation's then outstanding voting securities, unless such
Person has filed Schedule 13G and all required amendments
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thereto with respect to its holdings and continues to hold
such securities for investment in a manner qualifying such
Person to utilize Schedule 13G for reporting of ownership.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date
hereof.
(c) "Cause" shall mean and be limited to the Executive's gross
negligence, willful misconduct or conviction of a felony,
which negligence, misconduct or conviction has a demonstrable
and material adverse effect upon the Corporation, provided
that, to the extent that the Corporation contends that Cause
exists by virtue of Executive's gross negligence or willful
misconduct, and such gross negligence or willful misconduct is
capable of being cured, the Corporation shall have given the
Executive written notice of the alleged negligence or
misconduct and the Executive shall have failed to cure such
negligence or misconduct within thirty (30) days after his
receipt of such notice. The Executive shall be deemed to have
been terminated for Cause effective upon the effective date
stated in a written notice of such termination delivered by
the Corporation to the Executive (which notice shall not be
delivered before the end of the thirty (30) day period
described in the preceding sentence, if applicable) and
accompanied by a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board (after
reasonable notice to the Executive and an opportunity for the
Executive, with his counsel present, to be heard before the
Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct constituting Cause
hereunder and setting forth in reasonable detail the facts and
circumstances claimed to provide the basis for the Executive's
termination, provided that the effective date shall not be
less than thirty (30) days from the date such notice is given.
(d) "Change in Control" of the Corporation shall be deemed to have
occurred if:
(i) any Person is or becomes an Acquiring Person;
(ii) less than two-thirds (2/3) of the total membership of
the Board shall be Continuing Directors; or
(iii) the stockholders of the Corporation shall approve a
merger or consolidation of the Corporation or a plan
of complete liquidation of the Corporation or an
agreement for the sale or disposition by the
Corporation of all or substantially all of the
Corporation's assets.
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(e) "Commencement Date" shall mean the date of this Agreement,
which shall be the beginning date of the term of this
Agreement.
(f) "Continuing Directors" shall mean any member of the Board who
was a member of the Board immediately prior to the date
hereof, and any successor of a Continuing Director while such
successor is a member of the Board who is not an Acquiring
Person or an Affiliate or Associate of an Acquiring Person or
of any such Affiliate or Associate and is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors.
(g) "Disability" shall mean the Executive's total and permanent
disability as defined in the Corporation's long term
disability insurance policy covering the Executive immediately
prior to the Change in Control.
(h) "Good Reason" shall mean:
(i) an adverse change in the Executive's status, duties
or responsibilities as an executive of the
Corporation as in effect immediately prior to the
Change in Control, provided that the Executive shall
have given the Corporation written notice of the
alleged adverse change and the Corporation shall have
failed to cure such change within thirty (30) days
after its receipt of such notice;
(ii) failure of the Corporation to pay or provide the
Executive in a timely fashion the salary or benefits
to which he is entitled under any Employment
Agreement between the Corporation and the Executive
in effect on the date of the Change in Control, or
under any benefit plans or policies in which the
Executive was participating at the time of the Change
in Control (including, without limitation, any
incentive, bonus, stock option, restricted stock,
health, accident, disability, life insurance, thrift,
vacation pay, deferred compensation and retirement
plans or policies);
(iii) the reduction of the Executive's salary as in effect
on the date of the Change in Control;
(iv) the taking of any action by the Corporation
(including the elimination of a plan without
providing substitutes therefor, the reduction of the
Executive's awards thereunder or failure to continue
the Executive's participation therein) that would
substantially diminish the aggregate projected value
of the
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Executive's awards or benefits under the
Corporation's benefit plans or policies described in
Section 1(h)(ii) in which the Executive was
participating at the time of the Change in Control;
(v) a failure by the Corporation to obtain from any
successor the assent to this Agreement contemplated
by Section 5 hereof; or
(vi) the relocation of the principal office at which the
Executive is to perform his services on behalf of the
Corporation to a location more than thirty-five (35)
miles from its location immediately prior to the
Change in Control or a substantial increase in the
Executive's business travel obligations subsequent to
the Change in Control.
Any circumstance described in this Section 1(h) shall
constitute Good Reason even if such circumstance would not
constitute a breach by the Corporation of the terms of the
Employment Agreement between the Corporation and the Executive
in effect on the date of the Change in Control. The Executive
shall be deemed to have terminated his employment for Good
Reason effective upon the effective date stated in a written
notice of such termination given by him to the Corporation
(which notice shall not be given, in circumstances described
in Section 1(h)(i), before the end of the thirty (30) day
period described therein) setting forth in reasonable detail
the facts and circumstances claimed to provide the basis for
termination, provided that the effective date may not precede,
nor be more than sixty (60) days from, the date such notice is
given. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to,
any circumstances constituting Good Reason hereunder.
(i) "Normal Retirement Date" shall have the meaning given to such
term in the Corporation's basic qualified pension plan in
which the Executive is a participant as in effect on the date
hereof or any successor or substitute plan adopted prior to a
Change in Control.
(j) "Person" shall mean any individual, corporation, partnership,
group, association or other "person" as such term is used in
Section 13(d) and 14(d) of the Exchange Act.
2. TERM OF AGREEMENT
(a) The term of this Agreement shall initially be for the period
beginning on the Commencement Date and ending on the day
before the third anniversary of the Commencement Date. The
term of this Agreement shall automatically be extended on the
first anniversary of the Commencement Date until the day
before the fourth anniversary of the Commencement Date without
further action
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by the parties, and shall be automatically extended by an
additional year on each succeeding anniversary of the
Commencement Date, unless either the Corporation or the
Executive shall have served notice upon the other party prior
to such anniversary of its or his intention either that the
term of this Agreement shall not be extended, or that the
Executive's Employment Agreement is terminated, provided,
however, that if a Change in Control of the Corporation shall
occur during the term of this Agreement, this Agreement shall
continue in effect until it expires in accordance with the
foregoing, but in any event for a period of not less than
three (3) years from the date of the Change in Control.
(b) Notwithstanding Section 2(a), the term of this Agreement shall
end upon the termination of the Executive's employment if,
prior to a Change in Control of the Corporation, the
Executive's employment with the Corporation shall have
terminated under the provisions of any Employment Agreement
between the Corporation and the Executive then in effect.
3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A TERMINATION
If a Change in Control of the Corporation shall have occurred and,
thereafter and during the term of this Agreement, the Executive's
employment by the Corporation is terminated for any reason other than
his death, his Disability, his retirement on his Normal Retirement
Date, by the Corporation for Cause, or by the Executive without Good
Reason, the Executive shall be under no further obligation to perform
services for the Corporation and shall be entitled to receive the
following payments:
(a) The Corporation shall pay to the Executive his full base
salary through the effective date of the termination within
five (5) business days thereafter and all benefits and awards
(including both the cash and stock components) to which the
Executive is entitled under any benefit plans or policies in
which the Executive was a participant prior to the Change in
Control (or, if more favorable, at the effective date of
termination), at the time such payments are due pursuant to
the terms of such benefit plans or policies as in effect
immediately prior to the Change in Control (or, if more
favorable, at the effective date of termination).
(b) At the election of the Executive, in addition to the
entitlements set forth in Section 3(a) but in lieu of any
payment to the Executive of any salary or severance payments
or benefits to which the Executive would be entitled under the
provisions of any Employment Agreement between the Corporation
and the Executive then in effect (if any), the Corporation
shall pay to the Executive, in a lump sum not later than ten
(10) business days following the effective date of the
termination:
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(i) an amount equal to three (3) times the Executive's
annual base salary on the effective date of the
termination or, if higher, immediately prior to the
Change in Control;
(ii) an amount equal to three (3) times the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render services to the Corporation at
the same level of performance, at the same level of
salary, and in the same position as immediately prior
to the Change in Control;
(iii) an amount equal to three (3) times the greater of (x)
the largest annual contribution made by the
Corporation to the Corporation's Savings Plan on the
Executive's behalf during the five (5) fiscal years
immediately preceding the year in which the Change in
Control occurred and (y) an amount equal to the
contribution the Corporation would have made to said
Plan on the Executive's behalf for the fiscal year in
which the Change in Control occurred had he
participated in said Plan for the entire fiscal year,
received a base salary equal to the salary he was
receiving immediately prior to the Change in Control
and had he elected to contribute to the Plan the same
percentage of his base salary as he was contributing
on said date;
(iv) an amount equal to thirty percent (30%) of the
Executive's annual base salary on the effective date
of the termination or, if higher, immediately prior
to the Change in Control (as compensation for
medical, life insurance and other benefits lost as a
result of termination of the Executive's employment);
and
(v) For each full or partial month in the period
beginning on January 1st of the year in which the
date of the termination occurs and ending on the date
of the termination, one-twelfth of the greater of (x)
the highest amount of the actual bonus awarded to the
Executive in the five (5) fiscal years immediately
preceding the year in which the Change in Control
occurred and (y) an amount equal to the amount the
Executive would have been awarded under the
Corporation's bonus plan in effect immediately prior
to the Change in Control for the fiscal year in which
the Change in Control occurred had the Executive
continued to render 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.
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(vi) If a payment may be increased by reference to an
alternate calculation which cannot be made by the
time the payment is due, payment of the lesser, known
amount shall be made when due, and if any additional
amount becomes due, such additional amount shall be
paid within ten (10) days after the information upon
which calculation of such payment is dependent first
becomes available.
The amount of all payments due to the Executive pursuant to
this Section 3(b) shall be reduced by 1/36 for each full
calendar month by which the date which is three (3) years from
the effective date of the Executive's termination extends
beyond the Executive's Normal Retirement Date.
Upon entering into this Agreement and for a period of fourteen
(14) days following each anniversary of the date hereof (the
"Election Period"), the Executive may, in writing, direct the
Corporation to pay any amounts to which he is entitled under
this Section 3(b) in equal annual installments (not to exceed
ten (10) annual installments), with the first such installment
payable within ten (10) business days of the effective date of
the termination and each successive installment payable on the
anniversary of the effective date of the termination or the
next following business day if such date is not a business day
(the "Deferred Payment Election"). A Deferred Payment
Election, once made, cannot be revoked except during an
Election Period; provided, however, no Deferred Payment
Election can be made or revoked by the Executive during an
Election Period that occurs after a Change in Control or at a
time when, in the judgment of the Corporation, a Change in
Control may occur within sixty (60) days of such Election
Period.
(c) The Corporation shall pay or provide to the Executive or his
surviving spouse or children, as the case may be, such amounts
and benefits as may be required so that the pension and other
post-retirement benefits paid or made available to the
Executive, his surviving spouse, and his children are equal to
those, if any, which would have been paid under the
Corporation's Basic and Supplemental Pension (Benefit) Plans
in effect immediately prior to the Change in Control, assuming
the Executive continued in the employ of the Corporation at
the same compensation until the third anniversary of the
effective date of the termination of the Executive's
employment or until his Normal Retirement Date, whichever is
earlier. Notwithstanding any conflicting restrictions in the
Plans or the fact of the termination of the Executive's
employment, until the Executive's Normal Retirement Date, the
Executive or his surviving spouse and his children shall
maintain a continuing right to receive the pension and other
benefits under the above Plans with payments to begin upon
retirement 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.
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(d) The Corporation shall pay for or provide the Executive
individual out-placement assistance as offered by a member
firm of the Association of Out-Placement Consulting Firms.
(e) If any payment or benefit to or for the benefit of the
Executive in connection with a Change in Control of the
Corporation or termination of the Executive's employment
following a Change in Control of the Corporation (whether
pursuant to the terms of this Agreement, or any other plan or
arrangement or agreement with the Corporation, any Person
whose actions result in a Change in Control of the Corporation
or any Affiliate or Associate of the Corporation or any such
Person) is subject to the Excise Tax (as hereinafter defined),
the Corporation shall pay to the Executive an additional
amount such that the total amount of all such payments and
benefits (including payments made pursuant to this Section
3(e) net of the Excise Tax and all other applicable federal,
state and local taxes) shall equal the total amount of all
such payments and benefits to which the Executive would have
been entitled, but for this Section 3(e), net of all
applicable federal, state and local taxes except the Excise
Tax. For purposes of this Section 3(e), the term "Excise Tax"
shall mean the tax imposed by Section 4999 of the Internal
Revenue Code of 1986 (the "Code") and any similar tax that may
hereafter be imposed.
The amount of the payment to the Executive under this Section
3(e) shall be estimated by a nationally recognized firm of
certified public accountants, which firm may not have provided
services to the Corporation or any Affiliate of the
Corporation within the previous three years and shall not
provide services thereto in the following three years, based
upon the following assumptions:
(i) all payments and benefits to or for the benefit of
the Executive in connection with a Change in Control
of the Corporation or termination of the Executive's
employment following a Change in Control of the
Corporation shall be deemed to be "parachute
payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" shall
be deemed to be subject to the Excise Tax except to
the extent that, in the opinion of tax counsel
selected by the firm of certified public accountants
charged with estimating the payment to the Executive
under this Section 3(e), such payments or benefits
are not subject to the Excise Tax; and
(ii) the Executive shall be deemed to pay federal, state
and local taxes at the highest marginal rate of
taxation for the applicable calendar year.
The estimated amount of the payment due the Executive pursuant
to this Section 3(e) shall be paid to the Executive in a lump
sum not later than thirty (30) business days following the
effective date of the termination. In the event that
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the amount of the estimated payment is less than the amount
actually due to the Executive under this Section 3(e), the
amount of any such shortfall shall be paid to the Executive
within ten (10) days after the existence of the shortfall is
discovered.
(f) The Executive shall not be required to mitigate the amount of
any payment provided in this Section 3, nor shall any payment
or benefit provided for in this Section 3 be offset by any
compensation earned by the Executive as the result of
employment by another employer, by retirement benefits, or by
offset against any amount claimed to be owed by the Executive
to the Corporation, or otherwise.
(g) If any payment to the Executive required by this Section 3 is
not made within the time for such payment specified herein,
the Corporation shall pay to the Executive interest on such
payment at the legal rate payable from time to time upon
judgments in the State of Delaware from the date such payment
is payable under terms hereof until paid.
4. EXECUTIVE'S EXPENSES
The Corporation shall pay or reimburse the Executive for all costs,
including reasonable attorney's fees and expenses of either litigation
or arbitration, incurred by the Executive in contesting or disputing
any termination of his employment following a Change in Control or in
seeking to obtain or enforce any right or benefit provided by this
Agreement.
5. BINDING AGREEMENT
This Agreement shall inure to the benefit of and be enforceable by the
Executive, his heirs, executors, administrators, successors and
assigns. This Agreement shall be binding upon the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of
the Corporation expressly to assume and agree to perform this Agreement
in accordance with its terms. The Corporation shall obtain such
assumption and agreement prior to the effectiveness of any such
succession.
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
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addresses set forth on the first page of this Agreement or to such
other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt. All notices to the
Corporation shall be addressed to the attention of the Board with a
copy to each of the General Counsel, the Vice President-Human Resources
and the Secretary of the Corporation.
7. AMENDMENTS; WAIVERS
No provision of this Agreement may be modified, waived or discharged
except in a writing specifically referring to such provision and signed
by the party against which enforcement of such modification, waiver or
discharge is sought. No waiver by either party hereto of the breach of
any condition or provision of this Agreement shall be deemed a waiver
of any other condition or provision at the same or any other time.
8. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by the substantive laws of the State of
Delaware.
9. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. ARBITRATION
If the Executive so elects, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration in the city nearest to the Executive's principal residence
(or, at the Executive's election, in the city within the state in which
the Executive's principal residence is located nearest to such
principal residence) which has an office of the American Arbitration
Association by one arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having 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.
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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.
12. SUPERSEDURE
This Agreement shall cancel and supersede any and all prior agreements
between the Executive and the Corporation entitled "Severance
Agreement" or "Change in Control Agreement".
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
BOWATER INCORPORATED
By /s/ Richard F. Frisch /s/ Jerry R. Gilmore
--------------------- --------------------
Richard F. Frisch Jerry R. Gilmore
Its: Vice President - Human Resources
<PAGE> 1
EXHIBIT 10.26.3
THIRD AMENDMENT
TO THE BOWATER INCORPORATED
COMPENSATORY BENEFITS PLAN
AS AMENDED AND RESTATED
EFFECTIVE APRIL 30, 1991
WHEREAS, Bowater Incorporated, a Delaware corporation (the "Company"),
established the Bowater Incorporated Compensatory Benefits Plan (the "Plan"),
and amended and restated the Plan in its entirety, effective April 30, 1991; and
WHEREAS, the Company desires to amend the Plan, to change the
definition of "Change in Control," thereunder;
NOW, THEREFORE, the material between the first and last paragraphs of
Section 7(c) of the Plan is hereby amended, effective April 15, 1998, to read as
follows:
"Anything in this Plan to the contrary notwithstanding, upon and
following a Change in Control, the vested value of an Eligible
Employee's Book Account shall be the value of the Eligible Employee's
Book Account. The following definitions apply for purposes of this
Section 7(c):
(i) 'Acquiring Person' means, the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the
combined voting power of the Company's then outstanding
securities, not including (except as provided in clause (A) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the
combined voting power of the Company's then outstanding
securities. Notwithstanding the foregoing, (A) 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 (B) 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 Company of which the Person is a
Beneficial Owner.
(ii) 'Affiliate' and 'Associate' shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
<PAGE> 2
(iii) A 'Beneficial Owner' of Common Stock means (A) a Person who
beneficially owns such Common Stock, directly or indirectly,
or (B) 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.
(iv) 'Board' shall mean the Board of Directors of the Company.
(v) A 'Change in Control' shall occur upon:
(A) the date that any Person is or becomes an Acquiring
Person;
(B) the date that the Company's shareholders approve a
merger, consolidation or reorganization of the
Company with another corporation or other Person,
unless, immediately following such merger,
consolidation or reorganization, (I) 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 Company as
of such 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 Company,
but shall be counted as outstanding securities for
purposes of this determination), or (II) at least 50%
of the board of directors or similar body of the
resulting entity are Continuing Directors;
(C) the date the Company sells or otherwise transfers all
or substantially all of its assets to another
corporation or other Person, unless, immediately
after such sale or transfer, (I) 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 Company'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 Company,
but shall be counted as outstanding securities for
purposes of this determination), or (II) at least 50%
of the board of directors or similar body of the
resulting entity are Continuing Directors; or
(D) the date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors.
- 2 -
<PAGE> 3
(vi) 'Continuing Director' means any member of the Board who (A)
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, (B) is not an Acquiring Person or an Affiliate or
Associate of an Acquiring Person, and (C) is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors.
(vii) 'Person' means any individual, firm, corporation, partnership,
trust or other entity.
The provisions of this Section 7(c) related to a Change in Control
shall not be amended upon or following a Change in Control in any
manner that might have the effect of reducing the vested value of an
Eligible Employee's Book Account under the Plan. Nothing in this
Section 7(c) shall be construed to prohibit, prior to a Change in
Control, any amendment to the Plan, including to this Section 7(c), or
any termination of the Plan pursuant to its terms."
IN WITNESS WHEREOF, the Company has caused this Third Amendment to be
executed by its duly authorized officer this 16th day of February, 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
---------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
--------------------------------------
- 3 -
<PAGE> 1
EXHIBIT 10.29.3
THIRD AMENDMENT TO
THE RETIREMENT PLAN FOR OUTSIDE DIRECTORS
WHEREAS, the Bowater Incorporated Retirement Plan for Outside
Directors, as amended to date (the "Plan") was established, effective July 1,
1988, for the benefit of Directors of Bowater Incorporated (the "Company") who
are not employees of the Company; and
WHEREAS, the Company desires to amend the Plan, to change the
definition of "Change in Control," thereunder,
NOW, THEREFORE, pursuant to and in accordance with Section 8.06 of the
Plan, the Plan is hereby amended effective April 15, 1998, as follows:
Section 1.03 of the Plan is hereby amended to read as follows:
"1.03 CHANGE IN CONTROL:
A 'Change in Control' shall be deemed to have occurred upon:
(a) The date that any Person is or becomes an Acquiring Person.
(b) 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, (i) 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 (ii) at least 50% of the board of
directors or similar body of the resulting entity are
Continuing Directors.
(c) 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,
(i) 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 an individual or entity that is an
Acquiring Person, or who would be an
<PAGE> 2
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), 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), or (ii)
at least 50% of the board of directors or similar body of the
resulting entity are Continuing Directors.
(d) The date on which less than two-thirds (2/3) of the total
membership of the Board consists of Continuing Directors.
For purposes of this definition:
(i) '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").
(ii) 'Acquiring Person' means the Beneficial Owner,
directly or indirectly, of Common Stock representing
20% or more of the combined voting power of the
Corporation's then outstanding securities, not
including (except as provided in clause (i) of the
next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the
acquisition of up to and including 50% of such voting
power approved by two-thirds of the members of the
Board who are Board members before the Person becomes
Beneficial Owner, directly or indirectly, of Common
Stock representing 5% or more of the combined voting
power of the Corporation's then outstanding
securities. Notwithstanding the foregoing, (i)
securities acquired pursuant to an agreement
described in the preceding sentence will be included
in determining whether a Beneficial Owner is 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.
(iii) A 'Beneficial Owner' of Common Stock means (A) a
Person who beneficially owns such Common Stock,
directly or indirectly, or (B) a Person who has the
right to acquire such Common Stock (whether such
right is exercisable immediately or only with the
2
<PAGE> 3
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.
(iv) 'Continuing Directors' means any member of the Board
who (A) 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, (B) is
not an Acquiring Person or an Affiliate or Associate
of an Acquiring Person, and (C) is recommended or
elected to succeed the Continuing Director by a
majority of the Continuing Directors.
(v) 'Person' means any individual, firm, corporation,
partnership, trust or other entity."
In all other respects the Plan shall remain unchanged.
IN WITNESS WHEREOF, Bowater Incorporated has caused this Third
Amendment to be executed by its duly authorized officer this 16th day of
February 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
---------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
-------------------------------------
<PAGE> 1
EXHIBIT 10.30.2
SECOND AMENDMENT
TO THE
SUPPLEMENTAL BENEFIT PLAN
FOR DESIGNATED EMPLOYEES OF BOWATER
INCORPORATED AND AFFILIATED COMPANIES
AS AMENDED AND RESTATED
EFFECTIVE NOVEMBER 1, 1995
WHEREAS, Bowater Incorporated, a Delaware corporation (the
"Corporation"), established the Supplemental Benefit Plan For Designated
Employees of Bowater Incorporated and Affiliated Companies (the "Plan"), and
amended and restated the Plan in its entirety, effective November 1, 1995; and
WHEREAS, the Corporation desires to amend the Plan to change the
definition of "Change in Control," thereunder;
NOW, THEREFORE, the Plan is hereby amended, effective April 15, 1998,
as follows:
1. Section 1.01 of the Plan is amended to read as follows:
"1.01 'Acquiring Person' shall mean the Beneficial Owner, directly
or indirectly, of Common Stock representing 20% or more of the
combined voting power of the Corporation's then outstanding
securities, not including (except as provided in clause (i) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the
combined voting power of the Corporation's then outstanding
securities. Notwithstanding the foregoing, (i) securities
acquired pursuant to an agreement described in the preceding
sentence will be included in determining whether a Beneficial
Owner is 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."
2. A new Section 1.02 is added to the Plan to read as follows, and
succeeding subsections are redesignated accordingly:
<PAGE> 2
"1.02 '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 and Exchange Act of 1934."
3. A new Section 1.05 is added to the Plan to read as follows, and
succeeding subsections are redesignated accordingly:
"1.05 '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."
4. Section 1.08 (as redesignated) of the Plan is amended to read as
follows:
"1.08 A 'Change in Control' shall be deemed to have occurred
upon:
(a) the date that any Person is or becomes an Acquiring
Person;
(b) 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, (I) 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 such 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
(II) at least 50% of the board of directors or
similar body of the resulting entity are Continuing
Directors;
(c) 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, (I) 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
<PAGE> 3
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 (II) at least 50% of the board of
directors or similar body of the resulting entity are
Continuing Directors; or
(d) the date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors."
5. Section 1.13 (as redesignated) of the Plan is amended to read as
follows:
"1.13 'Continuing Director' shall mean any member of the Board who
(A) 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, (B) is not an Acquiring Person or an Affiliate or
Associate of an Acquiring Person, and (C) is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors."
6. Section 1.27 (as redesignated) of the Plan is amended to read as
follows:
"1.27 'Person' means any individual, firm, corporation, partnership,
trust or other entity."
IN WITNESS WHEREOF, the Corporation has caused this Second Amendment to
be executed by its duly authorized officer this 16th day of February, 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
---------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
-------------------------------------
- 3 -
<PAGE> 1
EXHIBIT 10.31
BOWATER INCORPORATED
EQUITY PARTICIPATION RIGHTS PLAN
Amended and Restated
as of January 1, 1999
<PAGE> 2
BOWATER INCORPORATED
EQUITY PARTICIPATION RIGHTS PLAN
AMENDED AND RESTATED AS OF JANUARY 1, 1999
1. PURPOSES.
The purpose of the Bowater Incorporated Equity Participation Rights
Plan (the "Plan") is to promote the interests of Bowater Incorporated (the
"Corporation") and its stockholders by attracting, retaining and stimulating the
performance of selected employees by giving such employees the opportunity to
earn additional compensation related to the success of the Corporation's
business based upon appreciation in the Company's stock price.
2. DEFINITIONS.
Unless the context clearly indicates otherwise, the following terms
have the meanings set forth below.
"Acceleration Price" means the excess over the reference price of an
Equity Participation Right of the highest of (A) through (D), on the
date of a Change in Control:
(A) The highest reported sales price of the Common Stock
within the sixty (60) days preceding the date of the
Change in Control, as reported on any securities
exchange upon which the Common Stock is listed,
(B) The highest price of the Common Stock as reported in
a Schedule 13D or an amendment thereto that is paid
within the sixty (60) days preceding the date of the
Change in Control,
(C) The highest tender offer price paid for the Common
Stock, and
(D) Any cash merger or similar price.
"Board of Directors" or "Board" means the Board of Directors of the
Corporation.
A "Change in Control" shall be deemed to have occurred upon:
(a) The date that any Person is or becomes an Acquiring
Person.
<PAGE> 3
(b) 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, (i) 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
(ii) at least 50% of the board of directors or
similar body of the resulting entity are Continuing
Directors.
(c) 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, (i) 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
(ii) at least 50% of the board of directors or
similar body of the resulting entity are Continuing
Directors.
(d) The date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors.
For purposes of this Definition:
(i) "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").
(ii) "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
2
<PAGE> 4
next sentence) securities of such Beneficial
Owner acquired pursuant to an agreement
allowing the acquisition of up to and
including 50% of such voting power approved
by two-thirds of the members of the Board
who are Board members before the Person
becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5%
or more of the combined voting power of the
Corporation's then outstanding securities.
Notwithstanding the foregoing, (i)
securities acquired pursuant to an agreement
described in the preceding sentence will be
included in determining whether a Beneficial
Owner is 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.
(iii) A "Beneficial Owner" of Common Stock means
(A) a Person who beneficially owns such
Common Stock, directly or indirectly, or (B)
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.
(iv) "Continuing Directors" means any member of
the Board who (A) 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, (B)
is not an Acquiring Person or an Affiliate
or Associate of an Acquiring Person, and (C)
is recommended or elected to succeed the
Continuing Director by a majority of the
Continuing Directors.
(v) "Person" means any individual, firm,
corporation, partnership, trust or other
entity.
"Code" means the Internal Revenue Code of 1986, as amended.
3
<PAGE> 5
"Committee" means the Human Resources and Compensation Committee of the
Board. A majority of the members of the Committee shall constitute a
quorum. All determinations of the Committee shall be made by a majority
of its members. Any decision or determination of the Committee reduced
to writing and signed by all of the members of the Committee shall be
fully as effective as if it had been made at a meeting duly called and
held.
"Common Stock" means the common stock of Bowater Incorporated, $1 par
value.
"Disability", as applied to a Grantee, shall have the meaning contained
in the Company's long-term disability plan.
"Equity Participation Right" means a contractual right to receive a
cash payment determined with reference to the increase in Fair Market
Value of a share of Common Stock subject to the terms and conditions
hereof.
"Fair Market Value" of a share of Common Stock on any particular date
is (1) the simple arithmetic mean between the highest and lowest prices
per share at which the Common Stock is traded on the New York Stock
Exchange Composite Transactions as reported in the Eastern Edition of
the Wall Street Journal for that date or, if not so traded, (2) the
simple arithmetic mean between the closing bid-and-asked prices thereof
as reported on such Exchange on that date.
"Grant Date" means the date on which an Equity Participation Right is
granted by the Committee pursuant to the Plan.
"Grantee" means the individual to whom an Equity Participation Right is
granted pursuant to the Plan.
"Plan" means the Bowater Incorporated Equity Participation Rights Plan
as set forth herein and as amended from time to time.
"Retirement" means the status of having terminated employment and being
immediately eligible for the payment of normal or early retirement
benefits under the qualified pension plan of the Company or Subsidiary
applicable to the Grantee.
"Subsidiary" means each entity with respect to which the Company owns
directly or indirectly interests embodying at least 40% of the voting
power.
Except where otherwise indicated by the context, any masculine term
used herein also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
4
<PAGE> 6
3. ADMINISTRATION.
(a) The Committee shall have all the powers vested in it by the terms
of the Plan, including exclusive authority (within the limitations described
herein) to select the employees to be granted Equity Participation Rights under
the Plan, to determine the type, size and terms of awards to be made to each
employee selected, to determine the time when Equity Participation Rights will
be granted to employees and, to establish objectives and conditions, if any, for
earning such awards. The Committee shall have full power and authority to
administer and interpret the Plan and to adopt such rules, regulations,
agreements, guidelines and instruments for the administration of the Plan and
for the conduct of its business as the Committee deems necessary or advisable.
The Committee's interpretation of the Plan and all actions taken and
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all parties concerned, including
the Corporation, its stockholders, any Grantees and any other employee of the
Corporation or any of its Subsidiaries.
(b) Equity Participation Rights shall be evidenced by written
agreements which shall contain such terms and conditions consistent with the
Plan as may be determined by the Committee.
(c) All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and conclusive.
4. ELIGIBILITY AND PARTICIPATION.
The participants in the Plan shall consist of selected employees or
officers of the Corporation or its present or future parent or Subsidiaries, who
serve in executive, administrative or professional capacities, as may from time
to time be so designated by the Committee.
5. EFFECTIVE DATE OF THE PLAN AND TERM OF EXERCISE PERIOD.
This amended and restated Plan shall become effective upon its adoption
by the Committee. Subject to the provisions of Article 12 hereof, the period
during which an Equity Participation Right granted under the Plan may be
exercised shall be the period, expiring not later than the tenth anniversary of
the Grant Date of the award, as may be determined by the Committee.
6. AWARDS.
(a) Types. Awards under the Plan shall consist of Equity Participation
Rights.
5
<PAGE> 7
(b) Performance Goals. The Committee may, but need not, establish
performance goals to be achieved within such performance periods as may be
selected by it in its sole discretion, using such measures of the performance of
the Corporation and/or its Subsidiaries as it may select.
(c) Guidelines. From time to time, the Committee may adopt written
policies implementing the Plan. Such policies may include, but need not be
limited to, the type, size and terms of awards to be made to employees and the
conditions for payment of such awards. Grantees of Equity Participation Rights
must accept such awards by execution of a written agreement with the Corporation
in such form as the Committee determines not more than sixty (60) days following
the Grant Date or such rights shall expire.
(d) Maximum Awards. A Grantee may be granted multiple awards under the
Plan.
7. EQUITY PARTICIPATION RIGHTS.
(a) An Equity Participation Right shall not be exercisable after the
expiration of the exercise period set forth in its related Equity Participation
Right Agreement. The Committee may provide in such Agreement for the lapse of
the Equity Participation Right prior to expiration of the exercise period upon
the occurrence of any event specified by the Committee.
(b) The Common Stock price referenced in an Equity Participation Right
granted under the Plan shall not be less than the Fair Market Value per share of
Common Stock on the Grant Date.
(c) Upon exercise of an Equity Participation Right, the Grantee shall
be entitled to receive, subject to the provisions of the Plan and such rules and
regulations as may be established by the Committee, a cash payment equal to the
product of (A) the excess of (i) the Fair Market Value of one share of Common
Stock at the time of such exercise over (ii) the reference price per share
specified in the related Equity Participation Rights Agreement, times (B) the
number of shares specified in such Equity Participation Rights Agreement or the
portion thereof being exercised. Except as provided in Article 10, an Equity
Participation Right held by a Grantee shall not be exercisable during the first
six months from the Grant Date of the Equity Participation Right.
8. EXERCISES.
(a) Each Equity Participation Right granted shall be exercisable in
whole or in part at any time, or from time to time, during the period as the
Committee may determine and specify in the agreement pursuant to which such
Equity Participation Right is granted, provided that the election to exercise an
Equity Participation Right shall be made in accordance with applicable Federal
laws and regulations.
6
<PAGE> 8
(b) No right may at any time be exercised with respect to a fractional
share or exercised in part with respect to fewer than one hundred shares.
9. WITHHOLDING TAXES FOR AWARDS.
The Corporation shall withhold from amounts otherwise payable hereunder
the amount, if any, required to be withheld under applicable Federal and State
income tax laws.
10. CHANGE IN CONTROL.
Upon the occurrence of a Change in Control all Equity Participation
Rights shall become immediately exercisable and shall be deemed exercised in
full for cash for the difference between the Acceleration Price and the
reference price per share, which amount shall be paid by the Corporation within
a period of thirty days following a Change in Control.
11. TRANSFER OF AWARDS.
Awards granted under the Plan may not be transferred except by will or
the laws of descent and distribution, and, during the Grantee's lifetime, may be
exercised only by said Grantee or by said Grantee's guardian or legal
representative.
12. DEATH, DISABILITY, RETIREMENT AND TERMINATION OF EMPLOYMENT.
(a) If a Grantee's employment with the Company and all of its
Subsidiaries terminates:
(i) If such employment terminates involuntarily and for good
cause (as determined by the Company), all Equity Participation Rights held by
the Grantee will expire immediately.
(ii) If such employment terminates involuntarily without cause
or voluntarily for any reason, except in the case of the Grantee's Disability,
Retirement or death, (A) all unexercisable Equity Participation Rights held by
the Grantee will expire immediately; and (B) all exercisable Equity
Participation Rights held by the Grantee will expire three months after
termination (unless their expiration date is earlier).
(iii) If such employment terminates because of Disability or
Retirement, the Grantee will be treated under all awards as if employment with
the Company or Subsidiary continued for five years.
7
<PAGE> 9
(iv) If a Grantee dies while employed or during the five-year
period described in paragraph (iii), all Equity Participation Rights held by the
Grantee will become exercisable (and remain exercisable for two years unless
their expiration date is earlier).
(b) The Committee may provide (i) that an award will not terminate or
be forfeited as a result of the termination of the Grantee's employment; and
(ii) for additional opportunities for the exercise of an Equity Participation
Right after a Grantee's termination of employment, in addition to (a), above.
(c) For all purposes of the Plan, the employment of a Grantee will not
be considered to be terminated if the Grantee is receiving periodic severance
payments from the Company or a Subsidiary. Leaves of absence for periods and
purposes conforming to the policy of the Company shall not be deemed
terminations or interruptions of employment.
13. CHANGES IN COMMON STOCK.
In the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other changes in corporate
structure or capitalization affecting the Common Stock, such appropriate
adjustment shall be made in the number, kind, exercise price, etc., of shares
subject to Equity Participation Rights granted under the Plan, as may be
determined by the Committee.
14. NO RIGHT TO EMPLOYMENT.
Nothing in the Plan or any instrument executed pursuant hereto shall
confer upon any employee any right to continue in the employ of the Corporation
nor shall anything in the Plan affect the right of the Corporation to terminate
the employment of any employee, with or without cause.
15. LEGAL RESTRICTIONS.
The Corporation will not be obligated to make any payment if counsel to
the Corporation determines that such issuance or payment would violate any law
or regulation of any governmental authority or any agreement between the
Corporation and any national securities exchange upon which the Common Stock is
listed. The Corporation shall in no event be obliged to take any action in order
to cause the exercise of any award under the Plan.
16. NO RIGHTS AS SHAREHOLDERS.
No Grantee, and no beneficiary or other person claiming through a
Grantee, shall have any interest in any shares of Common Stock allocated for the
purposes of the Plan or subject to any award. Furthermore, the existence of
awards under the Plan shall not affect the right or
8
<PAGE> 10
power of the Corporation or its stockholders to make adjustments,
recapitalizations, reorganizations or other changes in the Corporation's capital
structure; the dissolution or liquidation of the Corporation, or the sale or
transfer of any part of its assets or business; or any other corporate act,
whether of a similar character or otherwise. No shares of Common Stock may be
delivered or purchased under the Plan.
17. CHOICE OF LAW.
The validity, interpretation and administration of the Plan and of any
rules, regulations, determinations or decisions made thereunder, and the rights
of any and all persons having or claiming to have any interest therein or
thereunder, shall be determined exclusively in accordance with the laws of the
State of Delaware and without without giving effect to the choice of law
provisions thereof.
18. AMENDMENT AND DISCONTINUANCE.
The Committee may alter, suspend, or discontinue the Plan, but may not
materially and adversely affect any outstanding award without the consent of the
holder thereof.
IN WITNESS WHEREOF, this Plan has been amended and restated and
executed on behalf of the Corporation by its duly authorized officers as of the
1st day of January, 1999.
BOWATER INCORPORATED
By: /s/ Richard F. Frisch
--------------------------------------
Name: Richard F. Frisch
--------------------------------------
Title: Vice President - Human Resources
------------------------------------
Date Signed: February 5, 1999
------------------------------
9
<PAGE> 1
EXHIBIT 10.32.2
SECOND AMENDMENT
TO THE
BOWATER INCORPORATED
1988 STOCK INCENTIVE PLAN
WHEREAS, Bowater Incorporated, a Delaware corporation (the
"Corporation"), established the Bowater Incorporated 1988 Stock Incentive Plan
(the "Plan"); and
WHEREAS, the Corporation desires to amend the Plan, to change the
definition of "Change in Control," thereunder;
NOW, THEREFORE, the Plan is hereby amended, effective April 15, 1998,
as follows:
1. Section 16(c) is amended to read as follows:
"(c) A 'Change in Control' shall be deemed to have occurred upon:
(1) the date that any Person is or becomes an Acquiring
Person;
(2) 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, (i) 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 such 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
(ii) at least 50% of the board of directors or
similar body of the resulting entity are Continuing
Directors;
(3) 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, (i) 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
1
<PAGE> 2
as outstanding securities for purposes of this
determination), or (ii) at least 50% of the board of
directors or similar body of the resulting entity are
Continuing Directors; or
(4) the date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors."
2. Section 16(d) of the Plan is amended in its entirety to read as
follows:
"(1) 'Acquiring Person' means, the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the
combined voting power of the Corporation's then outstanding
securities, not including (except as provided in clause (i) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the
combined voting power of the Corporation's then outstanding
securities. Notwithstanding the foregoing, (i) securities
acquired pursuant to an agreement described in the preceding
sentence will be included in determining whether a Beneficial
Owner is 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.
(2) '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.
(3) '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.
(4) 'Continuing Director' means 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.
2
<PAGE> 3
(5) 'Person' means any individual, firm, corporation, partnership,
trust or other entity."
IN WITNESS WHEREOF, Bowater Incorporated has caused this Second
Amendment to be executed by its duly authorized officer this 16th day of
February, 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
-------------------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
-------------------------------------
3
<PAGE> 1
EXHIBIT 10.36.2
SECOND AMENDMENT
TO THE
BOWATER INCORPORATED
BENEFITS EQUALIZATION PLAN
WHEREAS, Bowater Incorporated, a Delaware corporation (the "Company"),
established the Bowater Incorporated Benefits Equalization Plan (the "Plan"),
effective August 22, 1990; and
WHEREAS, the Company desires to amend the Plan to change the definition
of "Change in Control," thereunder;
NOW, THEREFORE, Section 6 of the Plan is hereby amended, effective
April 15, 1998, by deleting the section added by the First Amendment and
replacing it with the following:
"Anything in this Plan to the contrary notwithstanding, upon and
following a Change in Control, an Eligible Employee shall have a
non-forfeitable interest in benefits payable under the Plan. The
following definitions apply for purposes of this Section 6:
(i) 'Acquiring Person' means, the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the
combined voting power of the Company's then outstanding
securities, not including (except as provided in clause (A) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the
combined voting power of the Company's then outstanding
securities. Notwithstanding the foregoing, (A) 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 (B) 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 Company of which the Person is a
Beneficial Owner.
(ii) 'Affiliate' and 'Associate' shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(iii) A 'Beneficial Owner' of Common Stock shall mean (A) a Person
who beneficially owns such Common Stock, directly or
indirectly, or (B) a Person who has the right to acquire such
Common Stock (whether such right is exercisable
<PAGE> 2
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.
(iii) 'Board' shall mean the Board of Directors of the Company.
(iv) A 'Change in Control' shall be deemed to have occurred upon:
(A) the date that any Person is or becomes an Acquiring
Person;
(B) the date that the Company's shareholders approve a
merger, consolidation or reorganization of the
Company with another corporation or other Person,
unless, immediately following such merger,
consolidation or reorganization, (I) 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 Company as
of such 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 Company,
but shall be counted as outstanding securities for
purposes of this determination), or (II) at least 50%
of the board of directors or similar body of the
resulting entity are Continuing Directors;
(C) the date the Company sells or otherwise transfers all
or substantially all of its assets to another
corporation or other Person, unless, immediately
after such sale or transfer, (I) 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 Company'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 Company,
but shall be counted as outstanding securities for
purposes of this determination), or (II) at least 50%
of the board of directors or similar body of the
resulting entity are Continuing Directors; or
(D) the date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors.
(vi) 'Continuing Director' shall mean any member of the Board who
(A) 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, (B) is not an Acquiring Person or an Affiliate or
Associate
2
<PAGE> 3
of an Acquiring Person, and (C) is recommended or elected to
succeed the Continuing Director by a majority of the
Continuing Directors.
(vii) 'Person' shall mean any individual, firm, corporation,
partnership, trust or other entity.
The provisions of this Section 6 related to a Change in Control shall
not be amended upon or following a Change in Control in any manner that
might have the effect of reducing the non-forfeitable interest of an
Eligible Employee in benefits payable under the Plan. Nothing in this
Section 6 shall be construed to prohibit, prior to Change in Control,
any amendment to the Plan, including to this Section 6, or any
termination of the Plan pursuant to its terms."
IN WITNESS WHEREOF, Bowater Incorporated has caused this Second
Amendment to be executed by its duly authorized officer this 16th day of
February, 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
---------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
-------------------------------------
3
<PAGE> 1
EXHIBIT 10.37.1
FIRST AMENDMENT
TO THE
BOWATER INCORPORATED
1992 STOCK INCENTIVE PLAN
WHEREAS, Bowater Incorporated, a Delaware corporation (the
"Corporation"), established the Bowater Incorporated 1992 Stock Incentive Plan
(the "Plan"); and
WHEREAS, the Corporation desires to amend the Plan, to change the
definition of "Change in Control," thereunder;
NOW, THEREFORE, the Plan is hereby amended, effective April 15, 1998,
as follows:
1. Section 16(c) is amended to read as follows:
"(c) A 'Change in Control' shall be deemed to have occurred upon:
(1) the date that any Person is or becomes an Acquiring
Person;
(2) 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 such 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;
(3) 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
<PAGE> 2
50% of the board of directors or similar body of the
resulting entity are Continuing Directors; or
(4) the date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors."
2. Section 16(d) of the Plan is amended to read as follows:
"(1) '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 (A) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the
combined voting power of the Corporation's then outstanding
securities. Notwithstanding the foregoing, (A) 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 (B) 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.
(2) '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.
(3) 'Beneficial Owner' of Common Stock means (A) a Person who
beneficially owns such Common Stock, directly or indirectly,
or (B) 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.
(4) 'Continuing Director' means any member of the Board who (A)
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, (B) is not an Acquiring Person or an Affiliate or
Associate of an Acquiring Person, and (C) is recommended or
elected to succeed the Continuing Director by a majority of
the Continuing Directors.
- 2 -
<PAGE> 3
(5) 'Person' means any individual, firm, corporation, partnership,
trust or other entity."
IN WITNESS WHEREOF, Bowater Incorporated has caused this First
Amendment to be executed by its duly authorized officer this 16th day of
February, 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
---------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
-------------------------------------
- 3 -
<PAGE> 1
EXHIBIT 10.38.1
FIRST AMENDMENT
TO THE
BOWATER INCORPORATED
1997 STOCK OPTION PLAN
AS AMENDED AND RESTATED JANUARY 1, 1997
WHEREAS, Bowater Incorporated, a Delaware corporation (the "Company"),
established the Bowater Incorporated 1997 Stock Option Plan (the "Plan"), and
amended and restated the Plan in its entirety, effective January 1, 1997; and
WHEREAS, the Company desires to amend the Plan, to change the
definition of "Change in Control," thereunder;
NOW, THEREFORE, the Plan is hereby amended, effective April 15, 1998,
as follows:
1. Section 1(c) of the Plan is amended to read as follows:
"(c) 'Acquiring Person' means, the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the
combined voting power of the Company's then outstanding
securities, not including (except as provided in clause (i) of
the next sentence) securities of such Beneficial Owner
acquired pursuant to an agreement allowing the acquisition of
up to and including 50% of such voting power approved by
two-thirds of the members of the Board who are Board members
before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the
combined voting power of the Company'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 Company of which the Person is a
Beneficial Owner."
2. A new Section 1(f) is added to the Plan to read as follows, and
succeeding subsections are redesignated accordingly:
"(f) '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
<PAGE> 2
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."
3. Section 1(h) (as redesignated) of the Plan is amended to read as
follows:
"(g) '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 Company's shareholders approve a
merger, consolidation or reorganization of the
Company 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 Company as
of such 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 Company 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 Company'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; or
(iv) the date on which less than two-thirds (2/3) of the
total membership of the Board consists of Continuing
Directors."
- 2 -
<PAGE> 3
4. Section 1(m) (as redesignated) of the Plan is amended to read as
follows:
"(m) 'Continuing Director' means 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."
5. Section 1(x) (as redesignated) of the Plan is amended to read as
follows:
"(x) 'Person' means any individual, firm, corporation, partnership,
trust or other entity."
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by its duly authorized officer this 16th day of February, 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
---------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
-------------------------------------
- 3 -
<PAGE> 1
EXHIBIT 10.39.1
FIRST AMENDMENT
TO THE
BOWATER INCORPORATED
1997-1999 LONG-TERM INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1997
WHEREAS, Bowater Incorporated, a Delaware corporation ("the Company"),
established the Bowater Incorporated 1997-1999 Long-Term Incentive Plan (the
"Plan"), and amended and restated the Plan in its entirety, effective January 1,
1997; and
WHEREAS, the Company desires to amend the Plan, to change the
definition of "Change in Control," thereunder;
NOW, THEREFORE, the Plan is hereby amended effective April 15, 1998, as
follows:
1. The definition of "Acquiring Person" in Section 2 of the Plan is
amended to read as follows:
"'Acquiring Person' means, the Beneficial Owner, directly or
indirectly, of Common Stock representing 20% or more of the combined
voting power of the Company's then outstanding securities, not
including (except as provided in clause (i) of the next sentence)
securities of such Beneficial Owner acquired pursuant to an agreement
allowing the acquisition of up to and including 50% of such voting
power approved by two-thirds of the members of the Board who are Board
members before the Person becomes Beneficial Owner, directly or
indirectly, of Common Stock representing 5% or more of the combined
voting power of the Company'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 Company of which the Person is a Beneficial Owner."
2. A new definition of "Beneficial Owner" is added to Section 2 of the
Plan to read as follows:
"'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
<PAGE> 2
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."
3. The definition of "Change in Control" in Section 2 of the Plan is
amended to read as follows:
"'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 Company's shareholders approve a merger,
consolidation or reorganization of the Company 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 Company as of such 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 Company 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 Company'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; or
(iv) the date on which less than two-thirds (2/3) of the total
membership of the Board consists of Continuing Directors."
2
<PAGE> 3
4. The definition of "Continuing Director" in Section 2 of the Plan is
amended to read as follows:
"'Continuing Director' means 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."
5. The definition of "Person" in Section 2 of the Plan is amended to read
as follows:
"'Person' means any individual, firm, corporation, partnership, trust
or other entity."
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by its duly authorized officer this 16th day of February, 1999.
BOWATER INCORPORATED
By: /s/ Anthony H. Barash
---------------------
Anthony H. Barash
Title: Sr. Vice President, Corporate Affairs
and General Counsel
-------------------------------------
3
<PAGE> 1
EXHIBIT 10.40
SENIOR EXECUTIVE RETIREMENT PLAN (SERP)
(EFFECTIVE AS OF NOVEMBER 28, 1997)
Approved by the Board of Directors of Avenor Inc.
on November 28, 1997
/s/ Arthur R. Sawchuk /s/ Marc Regnier
- ------------------------------------- -----------------------------
President and Chief Executive Officer Secretary
<PAGE> 2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Section 1 - Purpose .........................................................1
Section 2 - Definitions......................................................2
Section 3 - Eligibility......................................................4
Section 4 - Contributions ...................................................5
Section 5 - Normal Retirement Date and Retirement Benefits...................6
Section 6 - Early Retirement Dates and Retirement Benefits...................8
Section 7 - Postponed Retirement Date and Retirement Benefits ..............10
Section 8 - Total and Permanent Disability .................................11
Section 9 - Payment of Retirement Income....................................12
Section 10 - Death Prior to Retirement.......................................14
Section 11 - Benefits on Termination of Employment...........................16
Section 12 - Increase in Benefits............................................17
Section 13 - General Provisions..............................................18
Section 14 - Administration..................................................21
Section 15 - Future of the Plan..............................................22
Appendix A - Service with an Employer other than the Corporation
Appendix B - Pension from an Employer other than the Corporation
<PAGE> 3
SECTION 1 - PURPOSE
- --------------------------------------------------------------------------------
1.01 The purpose of the Senior Executive Retirement Plan (SERP) (hereinafter
the "Supplemental Plan") is to provide to the eligible employees
retirement benefits in addition to those payable from any registered
plan of the Corporation.
1.02 This Supplemental Plan is effective as of November 28, 1997 and as of
such date replaces and cancels the application of any prior plan or
agreement, whether oral or written, between a participant therein and
the Corporation and providing for supplemental retirement benefits to
be paid to such participant in addition to those payable from any
registered pension plan of the Corporation. However, this Supplemental
Plan shall not apply to or otherwise modify benefits payable or the
terms and conditions for payment of such benefits to any former
employee who has retired from or otherwise terminated his employment
with Avenor Inc. or its predecessors or their affiliates prior to the
effective date of this Supplemental Plan.
-1-
<PAGE> 4
SECTION 2 - DEFINITIONS
- --------------------------------------------------------------------------------
In this Supplemental Plan, the following words and phrases shall have the
following meaning, respectively, unless a different meaning is specifically
required by the context:
2.01 CONTINUOUS SERVICE shall have the same meaning as defined in the
Registered Plan of which the Participant is a member, provided that:
a) for the purpose of Subsections 5.02, 6.02, 8.01, 10.01, 11.01
and 11.02 of this Supplemental Plan, it shall exclude any
period of service with a prior employer other than the
Corporation, whether or not such period of service with a
prior employer is recognized under the Registered Plan;
b) for the purpose of Subsections 6.03, 6.04 and 8.02 of this
Supplemental Plan, it shall include such additional service
with a prior employer other than the Corporation as defined in
Appendix A hereto and which is not recognized for the purpose
of the Registered Plan.
2.02 PARTICIPANT shall mean an Employee who is eligible to participate in
this Supplemental Plan in accordance with Section 3 herein.
2.03 PRIOR SUPPLEMENTAL PLAN shall mean the Supplementary Retirement Benefit
Plan established by the Corporation effective July 16, 1993, which is
being replaced by this Supplemental Plan in respect of a Participant
herein.
2.04 REGISTERED PLAN shall mean any of the following:
a) the "Executive Staff Retirement Plan (1976) of Avenor Inc."
-2-
<PAGE> 5
b) the "Supervisory Employees' Retirement Plan (1976) of Avenor
Inc.", and
c) the "Employees' Retirement Plan (1988) of Avenor Inc."
Any reference to the Registered Plan shall, in respect of a given
Participant, be deemed to be a reference to the Registered Plan of
which he is a member.
2.05 SENIOR EXECUTIVE POSITION shall mean the President and CEO of the
Corporation or a position reporting directly to it and considered as
such by the Corporation.
2.06 The terms ACTUARIAL EQUIVALENT, AVERAGE STIP TARGET, COMMUTED VALUE,
CORPORATION, EMPLOYEE, FINAL AVERAGE EARNINGS, SPOUSE AND TOTAL AND
PERMANENT DISABILITY when used herein, shall have the same meaning as
defined in the Registered Plan of which the Participant is a member.
The term CREDITED SERVICE, when used in relation to a Participant who
is a member of a Registered Plan which is either the "Executive Staff
Retirement Plan (1976) of Avenor Inc." or the "Supervisory Employees'
Retirement Plan (1976) of Avenor Inc." shall have the same meaning as
defined in the applicable Registered Plan, and when used in relation to
a Participant who is a member of the Registered Plan which is the
"Employees' Retirement Plan (1988) of Avenor Inc." shall have the same
meaning as the term Creditable Service as defined in such Registered
Plan. CREDITED SERVICE shall also include such additional service with
a prior employer other than the Corporation which is not recognized for
the purpose of the Registered Plan, but which is recognized as such for
the purpose of this Supplemental Plan, as defined in Appendix A hereto.
In this Supplemental Plan, reference to the male gender will include the female
gender unless the context requires otherwise and words importing the singular
number may be construed to extend to and include the plural number and vice
versa.
-3-
<PAGE> 6
SECTION 3 - ELIGIBILITY
- --------------------------------------------------------------------------------
3.01 An Employee shall automatically become a Participant in this
Supplemental Plan if he occupies a Senior Executive Position with the
Corporation.
3.02 The Vice President, Human Resources, of the Corporation shall inform
such Employee as soon as practical of his having become a Participant
under this Supplemental Plan.
3.03 Such Employee shall remain a Participant as long as he continues to be
entitled to receive benefits under this Supplemental Plan.
3.04 In the event that a Participant remains an employee of the Corporation
but no longer occupies a Senior Executive Position, and unless he is
otherwise designated by the Corporation as eligible to continue to
accrue Credited Service under this Supplemental Plan, the benefits
otherwise payable to or in respect of such Participant under this
Supplemental Plan shall be payable as of the Participant's retirement
date, date of death or date of termination of employment, as the case
may be, but shall be based on such Participant's Credited Service up to
the date as of which he no longer occupies a Senior Executive position
or as of such later date specified by the Corporation.
-4-
<PAGE> 7
SECTION 4 - CONTRIBUTIONS
- --------------------------------------------------------------------------------
4.01 No contribution shall be required from a Participant in respect of
benefits payable under this Supplemental Plan.
4.02 The benefits payable under this Supplemental Plan shall, unless decided
otherwise by Avenor Inc. at its entire discretion, be payable by the
Corporation out of its operating funds as they become due and the
Corporation shall be under no obligation whatsoever to pay
contributions in advance to fund such benefits.
4.03 Notwithstanding Subsection 4.02, the Corporation will arrange for the
payment of benefits provided under the Supplemental Plan to be secured
through a letter of credit from a financial institution.
-5-
<PAGE> 8
SECTION 5 - NORMAL RETIREMENT DATE AND RETIREMENT BENEFITS
- --------------------------------------------------------------------------------
5.01 For the purpose of this Supplemental Plan, the Normal Retirement Date
of a Participant will be the first day of the month coinciding with or
next following his attainment of age 65.
5.02 Each Participant who retires on his Normal Retirement Date shall,
provided he has completed 2 or more years of Continuous Service, be
entitled to receive an annual supplementary retirement allowance
payable in equal monthly instalments and commencing on his Normal
Retirement Date in an amount equal to the excess, if any, of (a) over
(b) below:
(a) the aggregate of 2% of his Final Average Earnings and 2% of
his Final Average Earnings times 50% of his Average STIP
Target, multiplied by his number of years and fractions of
year of Credited Service, provided that with respect to such
portion of a Participant's Credited Service which relates to
service with an employer other than the Corporation, whether
it is recognized or not under the Registered Plan as defined
in Appendix A hereto, the percentage of 2% shall be replaced
by a percentage of 1.6% in respect of such portion of the
Participant's Credited Service,
over
(b) the aggregate of
(i) the annual amount of the lifetime pension or
equivalent value thereof payable to the Participant
under the Registered Plan of which he is a member,
determined as if the Participant had elected that
such lifetime pension be paid on a lifetime basis
with a 60% survivor pension, in the
-6-
<PAGE> 9
case of a Participant who has a surviving Spouse or
with a 120 month guarantee in the case of a
Participant who does not have a surviving Spouse or,
where applicable, the annual amount of such lifetime
pension that would have been so payable to the
Participant under such Registered Plan if there had
not been a division between the Participant and his
Spouse or former spouse of retirement benefits
otherwise payable thereunder as a result of divorce,
separation or annulment of marriage; and
(ii) the annual amount or the aggregate of the annual
amounts, as the case may be, of the other lifetime
pension or equivalent value thereof, if any, that the
Participant is entitled to receive under any pension
plan or plans, or similar arrangement if any, of the
Corporation or of a prior employer on account of
service recognized for the purpose of calculating the
supplementary retirement allowance payable under this
Supplemental Plan and before election by the
Participant of any prescribed optional form of
payment as provided under such pension plan or plans
or, where applicable, the annual amount or the
aggregate of the annual amounts, as the case may be,
of such other lifetime pension or pensions that would
have been so payable to the Participant if there had
not been a division between the Participant and his
Spouse or former Spouse of retirement benefits
otherwise payable thereunder as a result of divorce,
separation or annulment of marriage. For sake of
clarity, these amounts are described in Appendix B.
In the event that the difference in the ages of the Participant and the
Participant's Spouse exceeds 10 years, the amount in 5.02 (a) shall be
adjusted on an actuarial equivalent basis, taking into account the form
of payment specified in Section 9.01 (i), on account of the excess of
this difference over a difference of 10 years.
-7-
<PAGE> 10
SECTION 6 - EARLY RETIREMENT DATES AND RETIREMENT BENEFITS
- --------------------------------------------------------------------------------
6.01 A Participant may retire on the first day of any month during the 10
year period preceding his Normal Retirement Date. For the purpose of
this Supplemental Plan, his Early Retirement Date shall be the first
day of the month in which such retirement occurs.
6.02 Each Participant who retires early in accordance with Subsection 6.01
shall, provided he has completed 2 or more years of Continuous Service,
be entitled to receive an annual supplementary retirement allowance,
payable in equal monthly instalments and commencing on his Early
Retirement Date, equal to the amount determined in accordance with
Section 5 where the amount in 5.02 (a) is reduced in the same manner
and subject to the same conditions of payment as the lifetime pension
payable from the Registered Plan of which such Participant is a member,
notwithstanding the maximum pension rules, taking into consideration
all service with an employer other than the Corporation recognized as
per Appendix A, whether such service has been recognized under the
Registered Plan or not.
6.03 Notwithstanding anything in the Supplemental Plan to the contrary, in
the case of a Corporation initiated termination of employment, the
Corporation reserves the right to retire a Participant at any age,
provided the sum of his age and number of years of Continuous Service,
each calculated in years and months, shall total 80 or more.
Each such Participant shall retire on the first day of any month
preceding his Normal Retirement Date and receive an annual
supplementary allowance equal to the full normal retirement
supplementary allowance accrued to his early retirement date and
calculated in accordance with Subsection 5.02, without reduction on
account of early retirement.
-8-
<PAGE> 11
6.04 In the event a Participant's Credited Service includes service with a
prior employer other than the Corporation as defined in Appendix A
hereto and which is not recognized for purposes of the Registered Plan
of which he is a member, such Participant who retires early in
accordance with subsection 6.01 after completion of 15 years of
Continuous Service shall receive, in respect of such portion of his
Credited Service, an annual supplementary retirement allowance equal to
1/35 of the maximum annual retirement pension payable under the Canada
or Quebec Pension Plan in effect in the year of retirement, multiplied
by the number of years and fraction of year of such portion of his
Credited Service, for a maximum of 35 years including the portion of
his Credited Service in respect of which a supplementary pension
benefit is payable under the Registered Plan of which he is a member,
and payable in equal monthly instalments commencing on the later of his
Early Retirement Date or age 60 and ceasing with the payment
immediately preceding or coincident with the earlier of:
(a) his Normal Retirement Date, and
(b) the date of his death.
-9-
<PAGE> 12
SECTION 7 - POSTPONED RETIREMENT DATES AND RETIREMENT BENEFITS
- --------------------------------------------------------------------------------
7.01 In the event a Participant remains in the employ of the Corporation
after his Normal Retirement Date, he shall be entitled to receive an
annual supplementary retirement allowance, payable in equal monthly
instalments and commencing on the first day of the month following his
actual retirement date, equal to the amount determined in accordance
with Section 5 based on his Credited Service up to his actual
retirement date.
-10-
<PAGE> 13
SECTION 8 - TOTAL AND PERMANENT DISABILITY
- --------------------------------------------------------------------------------
8.01 A Participant who retires on an early retirement date for Total and
Permanent Disability shall, provided he has completed 2 or more years
of Continuous Service, be entitled to receive an annual supplementary
disability allowance, payable in equal monthly instalments and
commencing on such early retirement date, which shall be equal to the
Actuarial Equivalent of the amount of the supplementary retirement
allowance determined in accordance with Section 5 and computed on the
basis of his Final Average Earnings and Credited Service to such early
retirement date.
8.02 If, however, such Participant has completed 15 years of Continuous
Service at the time he suffers a Total and Permanent Disability, he
shall be entitled to receive an annual supplementary disability
allowance, payable in equal monthly instalments and commencing on such
early retirement date, in an amount which shall be equal to the amount
of the supplementary retirement allowance determined in accordance with
Section 5 and computed on the basis of his Final Average Earnings and
Credited Service to such early retirement date, without reduction on
account of early retirement.
-11-
<PAGE> 14
SECTION 9 - PAYMENT OF RETIREMENT INCOME
- --------------------------------------------------------------------------------
9.01 The annual supplementary allowance payable to the Participant under
Sections 5, 6, 7 or 8, as the case may be, of this Supplemental Plan
shall be paid during the lifetime of the Participant. Following the
death of the Participant, the Participant's Spouse shall be entitled to
receive during his or her lifetime an annual supplementary survivor
allowance, payable in equal monthly instalments and commencing on the
first day of the month following the month in which the Participant
dies, equal to the excess of (i) over (ii) below:
(i) 60% of the annual supplementary allowance that would have been
paid to the Participant at the time of his death if the annual
supplementary allowance calculated pursuant to Subsection
5.02(a) did not have to be reduced by the amount determined
under Subsection 5.02(b),
over
(ii) any survivor pension payable to the Spouse under the
Registered Plan following the death of the Participant.
9.02 In the event of there being no Spouse at time of retirement, should the
Participant die before 120 monthly payments of the supplementary
allowance have been made to him, his estate shall receive a lump sum
equal to the Commuted Value of the excess of (i) over (ii) below:
-12-
<PAGE> 15
(i) the balance of the 120 monthly payments of the supplementary
allowance determined as if such supplementary allowance
calculated pursuant to Subsection 5.02(a) did not have to be
reduced by the amount determined in Subsection 5.02(b)
over
(ii) any amount still payable under the Registered Plan following
the death of the Participant.
9.03 If the form of pension received by the Participant under the Registered
Plan of which he is a member is different than the form described in
Subsection 9.01 above, or 9.02, as the case may be, he shall be deemed
to have elected the same form of pension for purposes of this
Supplemental Plan. In such case, the supplementary allowance payable
under this Supplemental Plan shall be the Actuarial Equivalent of the
form of pension described in Subsection 9.01 or 9.02 above, as
applicable.
9.04 In the case of a Participant who was a participant (as defined therein)
in the Prior Supplemental Plan on June 30, 1995, the portion of the
annual supplementary allowance payable to such Participant under
Section 5, 6 or 7, as the case may be, of this Supplemental Plan and
which can reasonably be considered to relate to his Credited Service up
to June 30, 1995 shall be augmented, if required, so as not to be less
than the annual supplementary benefit accrued to such Participant up to
June 30, 1995 under the terms of the Prior Supplemental Plan, taking
into account that under such Prior Supplemental Plan, the annual
supplementary benefit was payable for life with a five year guarantee.
-13-
<PAGE> 16
SECTION 10 - DEATH PRIOR TO RETIREMENT
- --------------------------------------------------------------------------------
10.01 In the event that a Participant dies while in service of the
Corporation prior to having reached age 55 and after having completed 2
years of Continuous Service, his Spouse or, in the absence of a Spouse,
his estate, shall be entitled to receive a death benefit equal to the
Commuted Value of the deferred supplementary retirement allowance
accrued to such Participant under this Supplemental Plan and determined
as if the Participant had terminated his employment pursuant to Section
11 hereunder on the day of his death. Such death benefit shall, subject
to applicable legislation, be paid in the same manner and subject to
same conditions as the death benefit payable in similar circumstances
under the Registered Plan of which the Participant is a member,
provided that any such benefit payable in a lump sum basis shall be
paid in cash to the person entitled to such benefit.
10.02 (a) In the event that a Participant dies while in service of the
Corporation after having reached age 55, his Spouse shall be
entitled to receive an annual supplementary survivor allowance
equal to 60% of the annual lifetime supplementary retirement
allowance that would have been payable to the Participant in
accordance with Section 5, 6 or 7 as the case may be,
determined as if he had retired on the date of his death, such
supplementary survivor allowance to be actuarially adjusted,
notwithstanding the last paragraph of Section 5.02, to reflect
any age difference between Participant and his Spouse. Such
supplementary survivor allowance shall commence on the first
day of the month following the date of the Participant's death
and shall be payable in equal monthly instalments until the
date of the Spouse's death.
(b) Notwithstanding anything to the contrary, the surviving Spouse
of such a Participant shall receive a death benefit equal to
the greater of that provided under this Section 10.02 (a) and
that which would have been provided under Section 10.01 had
the Participant not attained age 55 prior to his death.
-14-
<PAGE> 17
(c) Without a Surviving Spouse
In the event such Participant had no surviving Spouse at his
date of death, the Participant's estate will receive a death
benefit as described under Subsection 10.01, as if the
Participant had not attained age 55 prior to his death.
10.03 In the event a Participant entitled to a deferred supplementary
retirement allowance following his termination of employment pursuant
to Section 11 of this Supplemental Plan dies prior to the commencement
of payment of such deferred supplementary retirement allowance, his
Spouse, or in absence of a Spouse, his estate, shall be entitled to
receive a death benefit equal to the Commuted Value of the deferred
supplementary retirement allowance accrued to such Participant under
this Supplemental Plan. Such death benefit shall, subject to applicable
legislation, be paid in the same manner and subject to the same
conditions as the death benefit payable in similar circumstances under
the Registered Plan of which the Participant is a member, provided that
any such benefit payable in a lump sum basis shall be paid in cash to
the person entitled to such benefit.
-15-
<PAGE> 18
SECTION 11 - BENEFITS ON TERMINATION OF EMPLOYMENT
- --------------------------------------------------------------------------------
11.01 A Participant who terminates his service with the Corporation for any
reason, other than retirement pursuant to Subsection 6.03 of this
Supplemental Plan, prior to his 55th birthday and who has completed 2
or more years of Continuous Service as of the date of such termination
of service shall be entitled to receive a deferred supplementary
retirement allowance commencing on the date he could have taken Normal
Retirement, in an amount calculated as specified in Subsection 5, based
upon his Credited Service as at the date of such termination of his
service. Such supplementary retirement allowance shall, subject to
applicable legislation, be payable in the same manner and subject to
the same condition as the deferred retirement benefit payable in
similar circumstances under the Registered Plan of which such
Participant is a member, provided that any such benefit payable in a
lump sum basis shall be paid in cash to the person entitled to such
benefit.
11.02 No benefit shall be payable under this Supplemental Plan to a
Participant who terminates his service with the Corporation prior to
his 55th birthday and who has not completed 2 or more years of
Continuous Service as of the date of such termination of service.
-16-
<PAGE> 19
SECTION 12 - INCREASE IN BENEFITS
- --------------------------------------------------------------------------------
12.01 If and when the pension benefits paid to the Participant (or, in the
case of death, to the Spouse of the Participant) from the Registered
Plan are increased, the same proportional increase shall also apply to
the supplementary allowance payable hereunder to the Participant or
following his death, to his Spouse.
-17-
<PAGE> 20
SECTION 13 - GENERAL PROVISIONS
- --------------------------------------------------------------------------------
13.01 PROOF OF AGE
Any Participant or Spouse of such Participant entitled to benefits
hereunder shall, upon request, furnish proof of age satisfactory to the
Corporation. In the case that the age of the Participant or his Spouse
is found to be inexact, the Corporation is authorized to adjust
benefits accordingly.
13.02 EMPLOYEE RIGHTS
The implementation of this Supplemental Plan shall not constitute an
enlargement of any rights which a Participant had apart from his
membership in the Supplemental Plan. The benefits conferred herein
shall not be used to increase damages in respect of the dismissal or
termination of employment of any Employee.
13.03 NON-ALIENATION
Subject to any applicable legal requirement, all benefits payable under
the terms of this Supplemental Plan are for the Participant's own use
and are subject to the following restrictions:
1) Non-Enforceable Transactions
Any transaction that purports to assign, charge, anticipate,
surrender, or give as security any right of a person under the
Supplemental Plan or benefit payable under the Supplemental
Plan shall not be enforceable against the Supplemental Plan;
and
-18-
<PAGE> 21
2) Exemption from Seizure
Any benefit payable under the Supplemental Plan is exempt from
execution, seizure or attachment.
13.04 NON-COMMUTABILITY OF BENEFITS
The benefits provided under the terms of this Supplemental Plan shall
not be capable of surrender or commutation except as provided in the
Supplemental Plan.
13.05 RECORDS
Wherever the records of the Corporation are used for the purpose of
this Supplemental Plan, such records shall be considered conclusive of
the facts with which they are concerned unless and until they are
proven to be in error.
13.06 INCOMPETENCY
If, in the opinion of the Corporation, any person receiving a benefit
under the terms of this Supplemental Plan is, as a result of physical
or mental infirmity, incapable of managing his affairs and no guardian,
committee or other representative of the estate of such person has been
duly appointed by a court of competent jurisdiction, the Corporation
may authorize any payment to which such person is entitled be made to
his Spouse, child or other person on his behalf and such payment shall
be a complete discharge of the obligation of the Corporation under this
Supplemental Plan to make such payment.
13.07 NOTICES
Any notice or election to be given, made or communicated pursuant to or
for any purpose of the Supplemental Plan shall be given, made or
communicated, as the case may be, in such manner as the Corporation
shall determine.
-19-
<PAGE> 22
13.08 INTERPRETATION
a) This provision of this Supplemental Plan shall be interpreted
in accordance with the laws of the Province of Quebec and
shall be binding upon and enure to the benefit of the
Corporation and its successors and assigns.
b) Headings wherever used herein are for reference purposes only,
and do not limit or extend the meaning of any of the
provisions of this Supplemental Plan.
13.09 SEVERABILITY
Should any of the provisions of this Supplemental Plan and/or its
conditions be illegal or not enforceable, it or they shall be
considered severable and the Supplemental Plan and the remaining
conditions shall remain in full force and effect and be binding upon
the parties as though the said provision or provisions had never been
included.
13.10 TAXIBILITY OF BENEFITS
All benefits under this Supplemental Plan are expressed on a pre-tax
basis and shall be subject to applicable withholding tax and reporting
pursuant to the Income Tax Act (Canada) and any other applicable law.
-20-
<PAGE> 23
SECTION 14 - ADMINISTRATION
- --------------------------------------------------------------------------------
14.01 The Corporation shall decide on all matters relating to the
interpretation, administration and application of this Supplemental
Plan, consistently with the text of the Supplemental Plan.
14.02 To facilitate any action required to be taken by the Corporation under
the Supplemental Plan, the Board of Directors of the Corporation may,
at its discretion, delegate the responsibility for administration of
the Supplemental Plan to any person(s) appointed specifically for this
purpose to act on behalf of the Corporation.
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<PAGE> 24
SECTION 15 - FUTURE OF THE PLAN
- --------------------------------------------------------------------------------
15.01 Notwithstanding anything to the contrary herein, the Corporation
reserves the right to make amendments to this Supplemental Plan. Any
such amendment shall be communicated in writing by the Corporation to
the Participants indicating the effective date of such amendment which,
subject to Subsection 15.02 below, shall not precede the date that such
communication is deemed to have been received by the Participants
pursuant to Subsection 13.07 hereunder. Furthermore, the Corporation
will not have the right to make such amendment only in respect of one
or more Participants but such amendment shall have to be made in
respect of all Participants, excluding those Participants who have
already commenced to receive benefits hereunder.
15.02 When an amendment is made to this Supplemental Plan pursuant to
Subsection 15.01 above as a result of a corresponding amendment to the
Registered Plan, such amendment shall take effect as of the same
effective date as applicable in respect of the corresponding amendment
to the Registered Plan.
15.03 No amendment made to this Supplemental Plan by the Corporation pursuant
to this Section 15 can have the effect of reducing the amount or value
of the benefits accrued by the Participants under this Supplemental
Plan prior to the effective date of such amendment.
15.04 In the event that an amendment is made pursuant to this Section 15 to
the effect that only the Participants' Credited Service before a given
date (hereinafter called "Cessation Date") will be used in the
calculation of supplementary benefits payable under this Supplemental
Plan, the benefits provided herein will be payable in respect of a
Participant as of his retirement date or following his termination of
employment or death in accordance with the rules of this Supplemental
Plan, and shall be based on the Participant's final Average Earnings
and Average STIP Target as of the date of his retirement, termination
of employment or death, as the case may be, and on his Credited Service
up to the Cessation Date only.
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<PAGE> 25
APPENDIX A - SERVICE WITH AN EMPLOYER OTHER THAN THE CORPORATION
- --------------------------------------------------------------------------------
NOT RECOGNIZED UNDER THE REGISTERED PLAN
Collin, Emmanuelle 14 years and 6 months
Madill, Darrell 10.4 years
Marchant, James R. 30 years and 6 months
Regnier, Marc C. 11 years and 6 months
Roy, Francois 17.3 years
Vrooman, Wallace 18 years and 4 months
RECOGNIZED UNDER THE REGISTERED PLAN
Aubin, Denis 7 years and 2 months
Madill, Darrell 4.5833 years
Steuart, David J. 23 years and 8 months
-A-1-
<PAGE> 26
APPENDIX B - PENSION FROM AN EMPLOYER OTHER THAN THE CORPORATION
- --------------------------------------------------------------------------------
Collin, Emmanuelle none
Madill, Darrell pension which is actuarially equivalent to
$112,157.02 as at June 30, 1996 accumulated with
interest at 7% per year to date of retirement, plus
$6,362 per year
Marchant, James R. $21,762 per year
Regnier, Marc C. none
Roy, Francois pension which is actuarially equivalent to $27,868 as
at June 20, 1990 accumulated with interest at 7% per
year to date of retirement, plus an estimated pension
of $24,816 per year
Vrooman, Wallace $19,943 per year
* These pensions are deemed payable from age 65 under the normal form,
i.e. joint and 60% survivor or life with 10 year guarantee as the case
may be. If this is not the case, an actuarial equivalent will be sued
to calculate the offset referred to in 5.02 (b)(ii).
-B-1-
<PAGE> 1
EXHIBIT 13
[LOGO]BOWATER
Incorporated
[Graphic of roll of paper with embossed Bowater logo.]
1998 Annual Report
<PAGE> 2
Bowater Incorporated, headquartered in Greenville, South Carolina, is a global
leader in the production of newsprint used by publishers around the world. In
addition, we make coated and uncoated groundwood papers including directory
papers, bleached kraft pulp and lumber products. Bowater has 10 pulp and paper
mills and three sawmills in the United States, Canada and South Korea. These
operations are supported by more than 2.4 million acres of timberlands owned or
leased in the United States and Canada and over 14 million acres of timber
cutting rights in Canada. The company is one of the world's largest recyclers
of old newspapers and magazines. Bowater employs about 8,300 people. We have
sales offices located throughout North America and in Brazil, England, Japan,
Singapore and South Korea and ship our products to customers on every
continent.
Newsprint & Directory Division
This Division operates nine manufacturing sites in the United States, Canada
and South Korea. The principal product line at these sites is newsprint, but
the sites also produce directory paper, market pulp, coated groundwood paper
and uncoated groundwood specialties. The Division is responsible for the
worldwide marketing and sales of newsprint, directory paper and uncoated
groundwood specialties and the operation of its designated manufacturing sites.
Coated Paper Division
This Division operates one site in Catawba, South Carolina, which produces
coated groundwood paper, newsprint, market pulp and uncoated groundwood
specialties. This Division is responsible for the marketing and sales of coated
groundwood paper and the operation of the Catawba site.
Pulp Division
This Division markets and distributes market pulp produced at the Calhoun,
Tennessee, Catawba, South Carolina, and Thunder Bay, Ontario, sites.
Forest Products Division
This Division manages 2.4 million acres of timberland owned or leased in the
United States and Canada and 14 million acres of Crown-owned land in Canada on
which the company has cutting rights. The Division also operates three softwood
sawmills, supplies wood over to Bowater's pulp and paper production sites and
markets and sells timber and lumber in North America.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Financial Highlights 1
Letter to Shareholders 2
Q&A with Arnold M. Nemirow 5
Newsprint & Directory Division 8
Coated Paper Division 10
Pulp Division 12
Forest Products Division 14
The Environment 16
Index to Financials 18
Board of Directors 58
Corporate Officers 60
</TABLE>
<PAGE> 3
MANUFACTURING FACILITIES
[GRAPHIC - Map of North America and South Korea identifying location of Bowater
manufacturing facilities.]
Bowater is a growing, global supplier of newsprint, coated and uncoated
groundwood papers including directory papers, market pulp and wood products.
Sales Offices
Brazil
Canada
England
Japan
Singapore
South Korea
United States
[Photo of Inside of Mill at Usk, Washington.]
9. Usk, Washington
The mill's yearly capacity is 240,000 metric tons of newsprint with 20 percent
recycled content. The mill has one paper machine.
<PAGE> 4
[Photo of Mersey Mill at Liverpool, Nova Scotia.]
1. Liverpool, Nova Scotia
The Mersey mill has two twin-wire machines that have the annual capacity to
produce 241,000 metric tons of newsprint from 100 percent thermomechanical
pulp.
[Photo of man standing on finished lumber at sawmill at Bridgewater, Nova
Scotia]
2. Bridgewater, Nova Scotia
The sawmill has the yearly capacity to produce more than 35 million board feet
of northern softwood lumber. The mill sells its wood chips to the Mersey mill.
[Photo of mill at Dalhousie, New Brunswick.]
3. Dalhousie, New Brunswick
This facility's two newsprint machines have the capacity to produce 227,000
metric tons of newsprint each year.
[Photo of inside of mill at Gastineau, Quebec.]
4. Gatineau, Quebec
The Gatineau mill operates three newsprint machines and has the annual capacity
to produce 450,000 metric tons of recycled-content newsprint.
[Aerial photo of sawmill at Maniwaki, Quebec.]
5. Maniwaki, Quebec
The sawmill has the yearly capacity to produce 70 million board feet of
northern softwood lumber. This sawmill sells its wood chips to the
Gatineau mill.
[Photo of mill at Millinocket, Maine.]
6. Millinocket, Maine
With four paper machines, the mill has the annual capacity to produce 132,000
short tons of directory paper and uncoated groundwood specialties and 138,000
short tons of coated groundwood paper.
[Photo of paper machine at East Millinocket, Maine.]
7. East Millinocket, Maine
The mill's two paper machines have the capacity to produce a total of 168,000
metric tons of newsprint and 114,000 short tons of directory paper on an annual
basis.
[Photo of mill at Thunder Bay, Ontario.]
8. Thunder Bay, Ontario
The Thunder Bay mill, the largest newsprint mill in Canada, has the annual
capacity to produce 544,000 metric tons of recycled-content newsprint and
550,000 metric tons of hardwood and softwood pulp. The mill operates
three newsprint and two pulp machines.
[Aerial photo of Calhoun, Tennessee.]
10. Calhoun, Tennessee
As the largest newsprint mill in the United States, the facility operates five
machines that have an annual production capacity of over 774,000 metric tons of
newsprint and uncoated groundwood specialties. In addition, the mill has the
annual capacity to produce 147,000 metric tons of hardwood market pulp.
[Aerial photo of mill at Catawba, South Carolina.]
11. Catawba, South Carolina
The Catawba mill has the annual capacity to produce 356,000 short tons of
coated groundwood papers on two machines and 244,000 metric tons of fully
bleached softwood kraft market pulp. In addition, the newsprint machine has the
capacity to produce 236,000 metric tons each year.
[Photo of sawmill at Albertville, Alabama.]
12. Albertville, Alabama
Bowater Lumber has the annual capacity to produce 95 million board feet of
southern yellow pine lumber. The mill's wood chips are sold to the Calhoun
paper mill and other markets.
[Photo of paper machine at Mokpo, South Korea.]
13. Mokpo, South Korea
The mill's one machine has an annual capacity of 250,000 metric tons of recycled
newsprint for South Korea and other Asian markets.
<PAGE> 5
Financial Highlights
<TABLE>
<CAPTION>
(In millions, except per-share amounts) 1998(1) 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 1,995.0 $ 1,484.5
Operating income 142.2 135.7
Net income (loss) (18.5)(2) 53.7
Diluted earnings (loss) per common share $ (0.44) $ 1.25
Average common and common equivalent
shares outstanding 47.6(3) 40.8
Dividends declared per common share $ 0.80 $ 0.80
Total assets 5,091.4 2,745.8
Total shareholders' equity $ 1,777.0 $ 1,154.2
Percent return on average common equity (1.4)% 4.5%
Total debt $ 1,830.8 $ 758.9
Total debt as a percentage of total capitalization 46.3%(4) 37.2%
Current ratio 0.90x 3.69x
Capital expenditures, including timberlands $ 223.2 $ 99.6
- -------------------------------------------------------------------------------------------------------------
Registered shareholders 6,100 5,200
Common stock price range $ 32.81-59.56 $ 37.00-55.62
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts include Avenor Inc. and the South Korean newsprint mill from
the dates of acquisition in July 1998.
(2) Includes non-operating charges of $88.0 million to write down the
Millinocket, Maine, mill and a long-term note receivable to net
realizable value.
(3) The average shares include 16.1 million of Bowater common and
Exchangeable shares issued in conjunction with the Avenor acquisition.
(4) This ratio excludes the revaluation of Avenor's debt totaling $190.6
million.
[Bar chart appears below with [Bar chart appears below with
the following information:] the following information:]
Net Sales Net Income
in millions in millions
98 $1,995.0 98 $(18.5)
97 $1,484.5 97 $ 53.7
96 $1,718.3 96 $200.2
95 $2,001.1 95 $246.9
94 $1,359.0 94 $ (4.8)
[Bar chart appears below with [Bar chart appears below with
the following information:] the following information:]
Return on Average Total Debt as a % of Total
Common Equity Capitalization
98 (1.4%) 98 46.3%
97 4.5% 97 37.2%
96 18.6% 96 36.5%
95 27.5% 95 38.7%
94 (3.0%) 94 50.3%
Bowater 1998 Annual Report
1
<PAGE> 6
Fellow Shareholders
We welcome our new shareholders to a company that is making great progress.
Bowater's years of planning and preparation paved the way for significant
accomplishments in 1998. With the acquisitions of Avenor Inc. and our South
Korean newsprint mill in July, followed by the divestiture of certain
non-strategic assets, Bowater's increased global presence makes us a
significantly stronger and more competitive company.
Financial and Operating Performance
Bowater achieved excellent financial results despite the fact that 1998 was a
year in which we integrated two major acquisitions and faced difficult market
conditions. Excluding special charges, our return on equity was near the top of
the list for North American paper and forest products companies. Moreover, The
Wall Street Journal in its February 25, 1999 edition reported that Bowater
ranked first among the top 16 U.S. paper and forest products companies in total
shareholder return for the past five years. Our debt ratios are at comfortable
levels, allowing us to renew our stock repurchase program in the fourth quarter
of 1998, under which we acquired 2.4 million shares, or 4.3 percent of our
outstanding stock. However, concern over the impact of the Asian economic
crisis on pulp and paper demand negatively impacted our stock performance in
1998, resulting in a 7 percent decline in price.
Net income for the full year of 1998 was $69.5 million, or $1.41 per diluted
share, before non-operating charges of $88.0 million (after-tax), or $1.85 per
diluted share, attributable to the write-down of our Millinocket, Maine, mill
and a long-term note receivable to net realizable value.
[Photo of Arnold M. Nemirow.]
Arnold M. Nemirow,
Chairman, President and
Chief Executive Officer
Including these charges, the company had a net loss of $18.5 million, or $.44
per diluted share, for the full year of 1998. For 1997, the company had net
income of $53.7 million, or $1.25 per diluted share. Net income before
non-operating charges improved compared to 1997 due primarily to the inclusion
of approximately five months of operating results from our acquisitions, both
of which were accretive to earnings per share in 1998. Our results, however,
were dampened by declining prices throughout the year, which stemmed largely
from the Asian crisis. The economic outlook for Asia shows signs of
improvement. As a result, we expect world demand to increase, and prices should
begin to recover from their cyclical lows. We anticipate that this improvement
could occur in the second half of 1999.
Bowater's order book remained firm throughout 1998, again signifying our unique
and powerful customer relationships. Last year, while some competitors were
cutting back on production, selling excess production in the spot markets, or
building
Bowater 1998 Annual Report
2
<PAGE> 7
inventories, Bowater was shipping most of its production to stable, core
accounts that are the hallmark of our customer relations strategy. Bowater is
generally regarded as a preferred supplier in terms of product, price, service
and customer recognition. I'd like to take this opportunity to thank those
customers who supported Bowater during a year of significant change. We renew
our pledge to provide high-quality products and superior customer service.
Bowater's Markets
The economic crisis in Asia resulted in lower prices for all of Bowater's
products in 1998. I view this to be a temporary phenomenon.
The fundamental drivers for newsprint consumption in Asia remain in place - a
growing, literate population, urbanization and a hunger for news - giving rise
to optimism that newsprint demand will recover ahead of the overall economies
of the region. Since we acquired our newsprint mill in Mokpo, South Korea, we
have seen positive signs of a turnaround. I believe that the long-term
opportunities in Asia are the most promising of any region of the world.
Worldwide, newspapers have a positive future for a healthy coexistence with
other media, such as television and the Internet. We expect the newsprint
market to be characterized by modest growth in developed regions such as North
America and Europe, with much faster growth in developing markets such as Asia
and Latin America.
Prices were relatively stable in the directory market, falling only slightly
during the year. Our U.S. market share remained constant at 27 percent, and we
retained our position as a top-rated supplier in major press rooms.
After a strong start, prices for coated groundwood paper fell primarily due to
imports and competition from other grades of paper. Magazine ad pages and the
catalogue business continued to grow, which should result in a very healthy
long-term balance between supply and demand.
As with the paper products, recovery in Asia will eventually balance the market
for pulp. We have already seen industry inventories returning to more normal
levels, influenced by the closure of several high-cost production facilities,
including Bowater's Gold River, British Columbia, pulp mill, which eliminated
255,000 metric tons of production.
Although housing starts in North America are at historic highs, reduced demand
in Asia (primarily Japan) caused a slump in North American prices for lumber
and logs. Again, this appears to be a temporary situation, and we expect a
healthy long-term market for solid wood products.
Our Achievements
In my letter last year, I identified two clear goals for 1998. They were:
- Optimize our existing production assets by creating
value-added strategies for timberlands, selling
underperforming facilities and investing in high-return
capital projects to continually improve our asset base, and
- Grow our production and marketing capabilities through the
successful integration of our pending acquisitions.
We accomplished what we set out to do. We now have strategically placed and
geographically diverse operations. Bowater's assets are complementary and
competitive. Our customer relations remain strong.
Bowater 1998 Annual Report
3
<PAGE> 8
The integration of the Avenor facilities and the South Korean mill has been
impressively swift and seamless. On "Day One" of the combined company, the
sales organization was fully integrated, with every customer assigned to one
Bowater representative, new product labels were ready, and invoices were issued
under the Bowater name. Since that time, we have converted all business and
information systems and implemented cost savings.
We are well ahead of our stated objective to achieve half of the synergies goal
by year-end 1998. In fact, we now believe that we have already secured more than
the planned $75 million in annualized savings, so we have increased our goal to
$100 million in expected synergies from the Avenor acquisition by year-end
1999.
The corporate organization has been realigned for more efficient management of
our expanded company, including the formation of a separate division to focus
on pulp products.
Other accomplishments include the announced sale of 1.6 million acres of
timberland in Maine. The construction of a new thermomechanical pulping
facility at the Calhoun, Tennessee, complex nears completion.
All in all, 1998 was indeed a year of major achievements.
Strategic Priorities
Looking forward, we have a firm set of operating priorities to build
shareholder value:
- Remain a customer-focused company,
- Enhance performance by optimizing existing assets, achieving
synergies and reducing costs,
- Exploit opportunities for growth by acquisition in the
consolidating, global marketplace,
- Maintain financial strength and flexibility through
disciplined use of capital, and
- Provide proper incentive and development programs for
employees.
Our extraordinary achievements can be attributed to our management structure
and philosophy. Future success depends on our ability to keep our management
process simple, direct and decisive, despite our increased size.
In closing, I would like to thank our shareholders, our customers and our 8,300
employees for making 1998 a successful year for Bowater. With your continued
support, 1999 will be even better.
Sincerely,
/s/ Arnold M. Nemirow
Arnold M. Nemirow
Chairman, President and Chief Executive Officer
March 19, 1999
Bowater 1998 Annual Report
4
<PAGE> 9
Bowater Today
A Q&A with Arnold M.Nemirow
During 1998 Bowater grew its newsprint business significantly. What is the
future of newsprint?
Newspapers remain a vital part of the flow of information around the world,
even with all of the existing and emerging alternatives for the delivery of
news and advertising. In developed markets like the U.S. and Europe, the rate
of growth is modest but demand is solid. In the developing markets of Asia and
Latin America, there is still tremendous growth potential for newsprint.
This is a time of industry consolidation, and our modern, low-cost mills give
us a global competitive advantage with customers and in regions with growing
newspaper readership and newsprint consumption. Newsprint is a commodity and,
as a low-cost, high-service producer, Bowater can remain profitable in down
markets.
What are the prospects for growing other parts of the business?
Doubling the size of our newsprint business was a major step for Bowater. We
have quickly integrated our acquisitions. Now, we are ready to explore
additional opportunities.
The investment in South Korea was a bold move considering the state of the
Asian economy. Has this investment met your expectations?
Our newsprint mill in Mokpo has exceeded my expectations. The mill is a
world-class operation with new state-of-the-art equipment and a dedicated work
force. Even in distressed economic times, the mill has generated significant
cash flow. Performance is expected to improve as the Asian economy continues to
recover.
Bowater 1998 Annual Report
5
<PAGE> 10
What is Bowater's position concerning market downtime?
Bowater has taken and will take "market downtime" when our order book so
dictates. We will not produce just to build inventories, and we will not
produce just to sell excess production in the spot market. This is the basis
for our recent decision to curtail production in Canada.
How will consolidation in the forest products industry affect Bowater?
Consolidation benefits everyone by helping to flatten the volatility in the
market. As a consolidator, Bowater will benefit by having a larger share of a
less volatile market. Consolidation is not a panacea for a non-competitive
producer. For an efficient producer such as Bowater, however, consolidation will
lead to a more stable, and ultimately a more profitable, market.
What has Bowater done to ensure Y2K compliance?
Bowater's efforts to ensure Year 2000 compliance began with the completion of a
formal review of all internally developed computer software. Systemwide testing
was successfully conducted during 1998. We expect to complete all of our major
Year 2000 work by mid-year 1999.
Our current focus is on our production facilities, customers and the supply
chain. At each mill site, efforts are underway to certify process control
systems in production, environmental and safety areas. We are working with
critical suppliers to verify that they will be able to meet our supply
requirements.
Bowater is developing a contingency plan, including all business functions and
sites, in the event any aspect of the program proves to be ineffective in
solving Year 2000 compliance problems. We expect to complete this plan in
October 1999.
Bowater 1998 Annual Report
6
<PAGE> 11
What is Bowater doing to recruit and retain the next generation of management?
Our successful business performance supports our recruiting and retention
efforts. Bowater provides compensation and benefit opportunities that compare
favorably to those of our peers. Employees at all levels participate in various
incentive plans designed to reward employee efforts while enhancing business
performance.
Bowater provides learning and development opportunities for all employees,
including technical training programs, tuition reimbursement programs, and
company developed and sponsored degree programs in papermaking technology.
Providing opportunities for employees to enhance their talents and skills helps
us develop and retain a quality work force.
It is also important to note that, as part of our acquisitions, we identified
and retained top talent with management potential.
What policies and programs does Bowater use to promote good corporate
citizenship?
Bowater supports health and human services, culture and arts, education,
environmental, and civic initiatives within the communities that surround its
offices and mills. Bowater and its employees are generous supporters of
consolidated campaigns in the U.S. and Canada such as the United Way and
Centraide.
To encourage personal donations to qualifying educational institutions, Bowater
matches contributions of employees and Directors.
In addition, employees are encouraged to participate in community life by
volunteering time to civic and charitable organizations. The company provides a
number of college and university students with internship opportunities, and
Bowater forest lands are made available to our neighbors for recreational
opportunities.
Bowater 1998 Annual Report
7
<PAGE> 12
[Photo of Newsprint & Directory Division management team.]
In the foreground is Arthur D. Fuller, President, Newsprint &
Directory Division. Standing (from left to right) are:
R. Donald Newman, Vice President of Canadian Newsprint
Operations, Jerry R. Gilmore, Vice President of U.S. and South
Korea Newsprint Operations, Donald L. Wheeler, Vice President of
Human Resources, Larry G. Green, Vice President of Purchasing
and Transportation, and William C. Morris, Vice President of
International Newsprint & Directory Sales. Seated (from left to
right) are: C. Randy Ellington, Vice President of North American
Newsprint & Directory Sales, and Craig B. Stevens, Vice President
of Administration and Planning.
[Photo of man inside paper mill.]
[Photo of large roll of paper.] [Photo of wrapped rolls of paper.]
<PAGE> 13
Newsprint & Directory Division
With the integration of the mills in Canada, South Korea and the United States,
acquired in July 1998, the Newsprint & Directory Division doubled its ability
to deliver top quality products and exceptional service to growing numbers of
newsprint customers worldwide. While maintaining steadfast attention to
customers, costs and operating efficiencies, the Division is further leveraging
the combined knowledge and best practices of its individual operations.
Bowater has sharpened its competitive edge through an expanded distribution
network. We have refocused our Tennessee and South Carolina mills to serve the
growing U.S. markets in the South and Southwest. Our Canadian mills have
augmented U.S. market presence by filling gaps in Bowater's Northeast markets
and increasing our position in the Midwest. The Ponderay mill in Washington
establishes a West Coast presence. The coordination of sales from our New
Brunswick, Nova Scotia and South Korean mills under one international sales
management team better positions Bowater to accelerate its growth in Latin
America, Europe and Asia. With sales offices in the United States, Brazil, South
Korea, Japan, Singapore and England, Bowater continues to extend its global
reach, while enhancing service to its customers.
We have prudently managed our assets and initiated high-return capital
investments to strengthen our competitive position. The construction of a
thermomechanical pulp mill at Calhoun, Tennessee, is nearing completion.
[Bar chart appears below with the following information:]
1998 Newsprint & Directory Shipments
by Mill*
in metric tons
Calhoun (Tennessee) 703,000
Thunder Bay (Ontario) 535,000
Gatineau (Quebec) 434,000
GNP (Maine) 366,000
Ponderay (Washington) 243,000
Mokpo (South Korea) 240,000
Mersey (Nova Scotia) 229,000
Dalhousie (New Brunswick) 217,000
Catawba (South Carolina) 216,000
*Tonnage reflects shipments for the full 12 months
ending December 31, 1998.
[Bar chart appears below with the following information:]
Newsprint & Directory Shipments
by Destination
in metric tons
Export/Domestic
---------------
98 732,000*/2,449,000
97 252,000/1,300,000
96 244,000/1,260,000
95 204,000/1,276,000
94 234,000/1,262,000
*Tonnage reflects shipments for the full 12 months
ending December 31, 1998.
[Bar chart appears below with the following information:]
World Market Share of
Newsprint & Directory
98 8.4%*
97 4.1%
96 4.2%
95 4.0%
94 4.2%
*Tonnage reflects shipments for the full 12 months
ending December 31, 1998.
Bowater 1998 Annual Report
8/9
<PAGE> 14
Coated Paper Division
[Bar chart appears below with the following information:]
1998 Coated Paper Shipments by Mill
In short tons
Catawba (South Carolina) 351,000
Millinocket (Maine) 135,000
[Bar chart appears below with the following information:]
Coated Paper Shipments by Destination
In short tons
Export/Domestic
98 7,000/479,000
97 14,000/466,000
96 27,000/405,000
95 9,000/466,000
94 14,000/443,000
[Bar chart appears below with the following information:]
North American Market Share
98 8.8%
97 9.1%
96 8.8%
95 9.4%
94 9.5%
In 1998, the Coated Paper Division continued to emphasize cost containment and
reduction. The Catawba mill is rated among the lowest-cost producers in North
America.
Our continuous quality initiatives complement our low cost position. We formed
a Research and Development group to forge new product development and invested
$32 million in high-return capital projects to increase production, enhance
product quality and lower overall cost. An example of capital investment is the
addition of new wood chip thickness screening equipment at the Catawba mill,
which reduces the chemicals, energy and wood needed to improve kraft pulp
quality and production rates. Quality improvement initiatives include the
installation of new Excel coater heads.
While world-class machines offer the technology to manufacture paper, it is
people who add value to the process and the product. A major initiative
involving line and staff employees, the High Performance Organization program,
hones leadership, structure, systems, teams, skills and safety. Over 75 hours
of on-the-job and classroom training were invested in each employee in 1998.
Safe work practices are paramount. The Division reduced Occupational Safety and
Health Administration incidence rates by 51 percent over the past two years.
This significant improvement is driven, in part, by employee ownership in
identifying and correcting safety hazards. Employees perform peer safety
observations and log their perceptions into a database. This data is used to
identify trends requiring remedial action. Additionally, improved safety
performance is recognized and rewarded through gain sharing and other incentive
programs.
Bowater 1998 Annual Report
10/11
<PAGE> 15
[Photo of man checking roll of paper.] [Photo of inside of paper mill.]
[Photo of Coated Paper Division management team.]
E. Patrick Duffy (center), President of the Coated Paper Division, with (left
to right) Denis Tontodonato, Vice President of Administration and Planning,
Stephen L. Naman, Vice President of Coated Paper Sales, Barre R. Mitchell,
Director, Technology, and Gaynor L. "Bud" Nash, Vice President and Resident
Manager - Catawba Operations.
[Photo of newstand displaying magazines printed on coated paper.]
<PAGE> 16
[Photo of Pulp Division management team.]
David J. Steuart, President of the Pulp Division (right), and
John C. Adams, Vice President of North American Sales (left).
[Photo of pulp dryer.]
<TABLE>
<S> <C> <C>
[Photo of person handling sheet of market pulp.] [Photo of inside of pulp mill.] [Photo of wet pulp.]
</TABLE>
<PAGE> 17
Pulp Division
The acquisition of Avenor in July significantly increased Bowater's position in
North American pulp production, prompting the creation of a new Pulp Division
to manage the worldwide marketing of Bowater's market pulp products. A highly
capable team of management, marketing and production professionals enhances
Bowater's competitive position.
Bowater's Pulp Division minimizes exposure to a typical commodity marketing
strategy by differentiating itself with high-quality products and exceptional
customer service, with a goal to become the preferred market pulp supplier to
the North American paper industry.
The recent volatility in Asian financial markets has had a direct effect on
market pulp pricing and an impact on Bowater, as Asian demand for market pulp
declined 14 percent in 1998 versus 1997. After we reviewed the economic
viability of the Gold River, British Columbia, pulp mill, further deterioration
in market conditions as well as a high cost structure, caused us to announce
the permanent closure of the mill.
We are the only North American supplier with a mix of four grades of market
pulp, including the low-cost southern and high-quality northern grades, both
softwood and hardwood, demanded by premium tissue producers and lightweight
coated paper producers. Our mills are in close proximity to papermaking markets
in the Midwest and Southern United States. As a result of these competitive
advantages, Bowater is recognized by the marketplace as one of the premier
market pulp suppliers in North America.
[Bar chart appears below with the following information:]
1998 Pulp Shipments by Mill*
in metric tons
Thunder Bay (Ontario) 531,000
Catawba (South Carolina) 215,000
Calhoun (Tennessee) 141,000
Gold River (British Columbia) 139,000
* Tonnage reflects shipments for the full 12 months
ending December 31, 1998.
[Bar chart appears below with the following information:]
Pulp Shipments by Destination
in metric tons
Export/Domestic
98 832,000*/195,000
97 231,000/138,000
96 267,000/88,000
95 173,000/122,000
94 181,000/91,000
* Tonnage reflects shipments for the full 12 months
ending December 31, 1998.
[Bar chart appears below with the following information:]
North American Market Share
98 9.5%
97 2.0%
96 1.5%
95 1.9%
94 1.5%
*Tonnage reflects shipments for the full 12 months
ending December 31, 1998.
Bowater 1998 Annual Report
12/13
<PAGE> 18
Forest Products Division
[Bar chart appears below with the following information:]
1998 Lumber Shipments by Mill*
in thousands of board feet
Bowater Lumber (Alabama) 96,000
Pinkham Lumber (Maine) 75,000
Manifor Inc. (Quebec) 61,000
Oakhill Sawmill (Nova Scotia) 37,000
* Lumber volume reflects shipments for the full 12 months
ending December 31, 1998.
[Bar chart appears below with the following information:]
1998 Timber Sales Volume*
in thousands of tons
Calhoun Woodlands (Tennessee) 1,700
Catawba Woodlands (South Carolina) 1,600
GNP Woodlands (Maine) 1,600
Dalhousie Woodlands (New Brunswick) 400
Mersey Woodlands (Nova Scotia) 300
* Timber volume reflects shipments for the full 12 months
ending December 31, 1998.
1998 was a formative year for the Forest Products Division, which was organized
as a stand-alone unit in mid-1997. This realignment enables us to measure more
precisely how well the Division has improved yields, efficiencies, profitability
and asset returns.
Operating income generated from our timberlands was well above initial
expectations. Well-defined value-enhancement programs for the woodlands
operations and high-return capital investment plans for the sawmills are
designed to generate even more significant opportunities to improve the
financial contributions of these two groups in the future.
The creation of the Forest Products Division gave us an opportunity to realign
woodlands and sawmill staff for maximum productivity and to better focus our
gainsharing incentives as they apply to woodlands personnel. Bowater's
gainsharing program is a comprehensive, incentive-based compensation structure
to align employee interests at all levels with those of shareholders. The
program measures performance in the areas of cost reduction, productivity,
quality and safety improvements. A new component of the gainsharing plan
encourages better wood utilization, higher operating income and increased total
return on net assets.
Improved safety performance is another result of the enhanced gain-sharing
plan and our sustained focus on improving workplace safety. In 1998, we
surpassed the excellent safety record set in 1997, ending the year with an
improved incident rate of 24 percent year-over-year.
Bowater 1998 Annual Report
14/15
<PAGE> 19
[Photo of tree.]
[Photo of Forest Products Division management team.]
[Photo of Bowater lumber.]
Richard K. Hamilton, President of the Forest Products Division (right) is shown
with (left to right): Colin R. Wolfe, Vice President of Administration and
Planning, George W. Flanders, Vice President of Catawba Woodlands Operations,
Jon M. Porter, Vice President of Mersey Woodlands Operations, J. Frank Pickle,
Vice President of Calhoun Woodlands Operations, Marcia M. McKeague, Vice
President of Great Northern Woodlands Operations, Jean Beaulieu, Vice President
of Lumber and Quebec Woodlands Operations, and Roger Barber, Vice President of
Ontario and New Brunswick Woodlands Operations.
[Photo of saw timber being unloaded from truck.]
<PAGE> 20
[Photo of recreational pathway on Bowater land.]
Some of Bowater's employees are papermakers, but some are also foresters,
biologists, wildlife managers, environmentalists, engineers and recreational
land managers, all of whom are committed to environmental stewardship while
making high-quality paper for the global market.
[Photo of forester planting seedling.]
[Photo of recreational lake area on Bowater land.]
<PAGE> 21
The Environment
Bowater has a well-established record of sound stewardship of its natural
resources. We believe that a "good neighbor" policy is good business and
subscribe to this policy in practice. Bowater has been entrusted with the
stewardship of extensive renewable natural resources and manages these
resources on a sustainable basis to ensure their productive use and enjoyment
by future generations.
Bowater supports the American Forest & Paper Association (AF&PA) and Canadian
Pulp and Paper Association (CPPA) environmental, health and safety principles
as well as AF&PA's Sustainable Forestry Initiative(SM) and CPPA's Sustainable
Forest Management Certification. Bowater is an active participant in voluntary
environmental programs, such as Canada's Accelerated Reduction, Elimination of
Toxics (ARET) program and the Canadian federal government's Voluntary Challenge
and Registry for climate change.
We have long recognized the need to improve environmental management systems
and performance. Our Thunder Bay, Ontario, mill is the largest pulp and paper
complex - and the first newsprint facility - in North America to achieve ISO
14001 certification for environmental management systems. In 1998, the Gatineau,
Quebec, mill received certification under ISO 14001. The Mersey, Dalhousie, New
Brunswick, and Usk, Washington, mills are developing environmental management
systems, following the ISO 14001 standards.
Bowater is one of the world's largest users of recycled newspapers and
magazines. Bowater has recycling facilities at its mills in Calhoun, Tennessee;
East Millinocket, Maine; Gatineau, Quebec; Thunder Bay, Ontario; Usk,
Washington; and Mokpo, South Korea. These facilities annually consume
approximately 1.2 million tons of old newspapers, old magazines and old
telephone directories, much of which would have been sent to landfills in the
past.
Improving air quality is a Bowater priority. We have instituted numerous
controls and enhanced our processes in an effort to minimize our impact on the
air of our surrounding communities.
The Thunder Bay, Ontario, kraft mill has produced elemental chlorine-free pulp
since 1994. At our Catawba, South Carolina, and Calhoun, Tennessee, mills, we
will replace elemental chlorine and sodium hypochlorite with chlorine dioxide
in the pulp-bleaching process in compliance with the Cluster Rule issued by the
U.S. Environmental Protection Agency in 1998.
The water we use may be reused three or four times on its journey through our
mills. We are diligent about returning the water in good condition, as would
any responsible neighbor. We settle out the solids, aerate the water to restore
oxygen, cool the water so it will not harm fish or other marine life, and then
we monitor and test continuously to ensure the process is working.
In 1998, the Calhoun, Tennessee, mill completed the conversion of an idle
recovery boiler to a waste fired boiler. The converted boiler produces steam by
burning sludge, bark and tire-derived fuel. Bowater mills converted into energy
a total of 2.5 million tons of bark, wood waste, sawdust, sludge and
tire-derived fuel. This fuel replaced more than 750,000 barrels of oil, nearly
11,000 million cubic feet of natural gas and 118,000 tons of coal, while
eliminating landfill disposal.
Bowater 1998 Annual Report
16/17
<PAGE> 22
Financial Report 1998
<TABLE>
<CAPTION>
Contents:
<S> <C>
Business and Financial Review 19
Consolidated Financial Statements 30
Notes to Consolidated Financial Statements 35
Management's and Auditors' Statements 53
Financial and Operating Record 54
</TABLE>
Bowater 1998 Annual Report
18
<PAGE> 23
Business and Financial Review
Overview
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.
Newsprint & Directory Division: This Division operates nine manufacturing sites
in the United States, Canada and South Korea. The principal product line at
these sites is newsprint, but the sites also produce directory paper, market
pulp, coated groundwood paper and uncoated groundwood specialties. The Division
is responsible for the worldwide marketing and sales of newsprint, directory
paper and uncoated groundwood specialties and the operation of its designated
manufacturing sites.
Coated Paper Division: This Division operates one site in Catawba, South
Carolina, which produces coated groundwood paper, newsprint, market pulp and
uncoated groundwood specialties. This Division is responsible for the marketing
and sales of coated groundwood paper and the operation of the Catawba site.
Pulp Division: This Division markets and distributes market pulp produced at the
Calhoun, Tennessee, Catawba, South Carolina, and Thunder Bay, Ontario, sites.
Financial results for the production and sale of market pulp are included in the
Newsprint & Directory Division and the Coated Paper Division. Previously,
the Division operated a market pulp manufacturing site in British Columbia.
This site was permanently closed in February 1999.
Forest Products Division: This Division manages 2.4 million acres of timberland
owned or leased in the United States and Canada (after the pending 1999
timberlands sale transactions) and 14 million acres of Crown-owned land in
Canada on which the company has cutting rights. The Division also operates three
softwood sawmills, supplies wood fiber to Bowater's pulp and paper production
sites and markets and sells timber and lumber in North America.
Results of Operations: 1998 Compared with 1997
The company's net loss for 1998 was $18.5 million, or $0.44 per diluted share,
compared to net income of $53.7 million, or $1.25 per diluted share, in 1997.
Included in the net loss for 1998 were after-tax non-operating charges of
$88.0 million, or $1.85 per diluted share, to reduce the book value of assets at
the company's Millinocket, Maine, mill in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets," and to record a reserve
against a long-term note receivable. Operating income was $142.2 million ($261.8
million before non-operating charges) in 1998 on net sales of $2.0 billion,
compared with $135.7 million on net sales of $1.5 billion in 1997. The increases
in operating income and net sales were primarily due to the inclusion of two
newly acquired operations for a portion of the year. The company acquired Avenor
Inc. ("Avenor") on July 24, 1998, and a South Korean newsprint mill on July 15,
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
[Bar chart appears below with the following information:]
Operating Income $ in millions
98 142
97 136
96 301
95 549
94 42
[Bar chart appears below with the following information:]
Newsprint
Average Transaction Price ($ per short ton/Shipments (thousands of short tons)
98 513/2,160
97 493/1,482
96 585/1,446
95 600/1,402
94 414/1,460
[Bar chart appears below with the following information:]
Coated Groundwood
Average Transaction Price ($ per short ton/Shipments (thousands of short tons)
98 804/486
97 705/479
96 824/432
95 975/476
94 677/453
Bowater 1998 Annual Report
19
<PAGE> 24
Business and Financial Review
[Bar chart appears below with the following information:]
Directory Paper
Average Transaction Price ($ per short ton)/Shipments (thousands of short tons)
98 769/226
97 784/228
96 871/211
95 709/229
94 679/189
[Bar chart appears below with the following information:]
Market Pulp
Average Transaction Price ($ per short ton)/Shipments (thousands of short tons)
98 403/674
97 424/407
96 393/393
95 717/325
94 436/300
[Bar chart appears below with the following information:]
Capital Expenditures $ in millions
98 223
97 100
96 107
95 96
94 216
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.
Newsprint
In 1998, conditions in the newsprint market were affected by labor strikes in
Canada and financial and economic difficulties in key Asian markets.
Approximately 1.0 million metric tons of newsprint capacity was impacted in 1998
by labor strikes at Abitibi-Consolidated and Fletcher Challenge Canada, two
large Canadian newsprint producers. The reduction in supply caused by these
strikes was offset by the economic problems that plagued Asia throughout the
year. This resulted in North American newsprint exports that were down 22
percent for the year and newsprint imports to the U.S. that were more than
double the 1997 level as U.S. producers for the Asian market redirected their
tonnage to other regions. Total U.S. demand for newsprint and U.S. consumption
increased in 1998 compared to last year. Despite this, North American newsprint
producer inventories at year-end also increased when compared to the end of
1997, while year-end inventories at U.S daily newspapers decreased slightly. A
company price increase announced for April 1998 was postponed to later in the
year, and, although partially implemented by the fourth quarter, it was
rescinded after settlement of labor strikes at competitors' mills in Canada. The
company's average newsprint transaction price in 1998 was 4 percent higher than
in 1997, reflecting a full year of the price increases that were implemented in
1997. Shipments for the company were 46 percent higher in 1998 versus 1997, and
inventories were also higher due to the inclusion, beginning in the third
quarter, of Avenor and the South Korean newsprint mill.
Coated Groundwood
In the first half of 1998, the coated paper market continued to benefit from the
improved environment of 1997. During the year, end-use markets grew with the
catalogue segment increasing 6 percent (measured by standard A mail weight) and
magazine publishers increasing advertising pages by 2 percent. The second half
of 1998, however, was marked by declines in coated paper pricing, as the supply
of coated paper outpaced demand due to a higher volume of coated paper imports
and increased capacity among producers of competing printing and writing papers.
Comparing the full year of 1998 to 1997, U.S. coated groundwood shipments for
the industry decreased 4 percent while U.S. coated groundwood producer inventory
levels increased an average of 3 percent. In January 1998, the company
successfully implemented a $60 per ton price increase. The company's quarterly
average coated groundwood transaction price for the first three quarters of 1998
was relatively unchanged following the January price increase, while the fourth
quarter average price declined due to the higher supply versus demand. Compared
to 1997, the company's average transaction price for 1998 was 14 percent higher,
while shipments increased slightly. The company's coated groundwood inventory at
the end of 1998 was at its lowest level since 1992.
Bowater 1998 Annual Report
20
<PAGE> 25
Directory Paper
Sales of the company's directory products in 1998 were at essentially the same
levels as in 1997. The company's average directory paper transaction price
decreased 2 percent compared to 1997, reflecting the relatively stable market
environment for directory papers in 1998. Directory prices generally trend
similarly to newsprint pricing, but with a lag due to the contractual nature of
the directory business.
Market Pulp
World pulp markets experienced difficult conditions during 1998 as the effect of
the Asian economic crisis impacted operating rates, shipments and prices. During
the first quarter, demand for market pulp was unchanged compared to the first
quarter of 1997. In the second and third quarters, the full impact of the Asian
crisis reduced demand, as NORSCAN (United States, Canada, Finland, Norway and
Sweden) shipments to the Asian region decreased approximately 30 percent
compared to the respective quarters in 1997. Despite reduced operating rates in
the industry of 87 percent during the second and third quarters of 1998,
inventories at the end of the third quarter increased by 230,000 metric tons
compared to the third quarter of 1997. In the fourth quarter, demand from the
Asian region increased; however, this demand did not make up the shortfall
created in the previous quarters. NORSCAN shipments for 1998 decreased 4 percent
compared to 1997, with the majority of the decrease coming from the Asian
region. NORSCAN inventories ended the year at 1.6 million metric tons, or a 27
day supply down from a 31 day supply in December 1997. As a result of these
market conditions, the company's market pulp average transaction price in 1998
decreased 5 percent compared to 1997. The company's shipments increased 66
percent in 1998, compared to last year, primarily due to the Avenor acquisition.
Lumber
U.S. lumber prices declined throughout 1998 as supply outpaced demand.
Indicators for the U.S. market were positive, with 1998 housing starts
increasing to 1.6 million units from 1.4 million units in 1997, and expenditures
for the repair and remodeling markets also increasing in 1998. These positive
indicators were offset by a steep decline in Japanese housing construction
caused by the Asian economic crisis. This decrease in export demand resulted in
a 36 percent reduction in exports through the first 10 months of 1998 compared
to the year ago period and a reduction in export lumber prices as well. U.S.
consumption in 1998, although strong, has not been able to absorb the excess
supply. The company's average lumber transaction price declined throughout the
year and was 18 percent lower in 1998 than in 1997. Shipments were 17 percent
higher in 1998 versus 1997, primarily due to the inclusion of lumber from the
newly acquired Canadian operations and higher production rates.
Timber
Demand for the company's timber products remained strong in 1998. Average
transaction prices for our primary species of southern pine and spruce-fir
increased compared to 1997. This increase was partially offset by a change in
mix that caused 1998 pricing in total to be only slightly higher compared to
1997. The company's shipments in 1998 also increased compared to 1997, mainly
from the inclusion of timber products from the Avenor acquisition and the
application of intensive forest management practices. Operating income per acre
increased 14 percent in 1998 compared to 1997.
Divisional Performance:
Net Sales by Division:
<TABLE>
<CAPTION>
- --------------------------------------------------
(US Dollars in
Millions) 1998 1997
==================================================
<S> <C> <C>
Division:(1)
Newsprint &
Directory $ 1,356.6 $ 886.8
Coated Paper 474.1 458.4
Forest Products 147.1 139.8
Corporate/
Other Eliminations 17.2 (0.5)
- --------------------------------------------------
Total Net Sales $ 1,995.0 $ 1,484.5
==================================================
</TABLE>
Operating Income by Division:
<TABLE>
<CAPTION>
- -----------------------------------------------
(US Dollars in
Millions) 1998 1997
===============================================
<S> <C> <C>
Division:(1)
Newsprint &
Directory $ 32.8 $ 30.0
Coated Paper 107.4 91.2
Forest Products 45.9 57.4
Corporate/
Other Eliminations (43.9) (42.9)
- -----------------------------------------------
Total Operating
Income $ 142.2 $ 135.7
===============================================
</TABLE>
(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.
Bowater 1998 Annual Report
21
<PAGE> 26
Business and Financial Review
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 53 percent during the year, from $886.8 million in 1997 to
$1.4 billion in 1998, primarily as a result of adding the new sites, aided by
slightly higher average prices for newsprint and coated groundwood paper, and
offset by slightly lower average prices for market pulp and directory paper. See
the previous discussion of product line results. Operating costs in 1998
increased from $856.8 million in 1997 to $1.3 billion, primarily as a result of
adding the new sites. Operating income in 1998 increased 9 percent from $30.0
million in 1997 to $32.8 million, primarily as a result of increased shipments
of newsprint and market pulp from the acquisitions, offset by a $119.6 million
pre-tax charge to reduce the book value of assets at the Division's Millinocket,
Maine, mill.
Coated Paper Division
Net sales increased by 3 percent in 1998 compared to 1997, from $458.4 million
to $474.1 million, primarily the result of marginally higher average prices for
newsprint and coated groundwood paper and offset by lower average prices for
market pulp. See the previous discussion of product line results. Comparing the
same periods, operating costs decreased slightly, while operating income
increased 18 percent from $91.2 million to $107.4 million, primarily as a result
of higher average coated paper prices.
Forest Products Division
This Division was formed in mid-1997. Financial results for 1997 have been
restated on a pro forma basis for comparative purposes. Prior to 1997, the
woodlands operations were part of the other Divisions. In July 1998, the Avenor
acquisition added approximately 475,000 acres of freehold timberland, three
sawmills and over 18 million acres of cutting rights in Canada.
In the third quarter of 1998, a white paper mill and two sawmills were sold
along with 4.3 million acres of cutting rights. In the fourth quarter of 1998,
the Division entered into contracts to sell approximately 1.6 million acres of
land and a sawmill in Maine for approximately $370.0 million. Net sales for the
Division in 1998 increased 5 percent compared to 1997, from $139.8 million to
$147.1 million. See the previous discussion of product line results. Comparing
the same periods, operating costs increased primarily due to the inclusion of
the Avenor operations. Operating income decreased 20 percent, from $57.4 million
to $45.9 million, primarily due to lower sawmill profitability.
Corporate/Other Eliminations
Included in this category are general and administrative expenses, as well as
market pulp sales from the Gold River pulp mill, which was permanently closed in
February 1999. Losses on the sales of market pulp were partially offset by lower
general and administrative expenses.
Interest and Other Income and Expenses: Interest expense increased 46 percent in
1998, from $67.5 million to $98.4 million, due to the increase in debt related
to the Avenor acquisition. Interest income decreased from $21.6 million in 1997
to $17.5 million in 1998, due to a lower amount of average investment balances
in 1998. The cash from the maturity of marketable securities was used to
partially fund the acquisitions of Avenor and the South Korean newsprint mill.
During 1998, the company incurred pre-tax foreign exchange losses of $29.7
million compared with $2.1 million in 1997. This loss primarily relates to
marking to market foreign exchange contracts that were acquired upon the
acquisition of Avenor. Also in 1998, the company incurred a net pre-tax charge
of $20.1 million related to currency options and forward contracts on the
Canadian dollar and Korean won that were purchased to hedge a substantial
portion of the acquisition price of Avenor and the South Korean newsprint mill.
Both of these charges are included in "Other, net" in the Consolidated Statement
of Operations along with a charge of $15.0 million for a reserve against a
long-term note receivable.
In the first quarter of 1998, the company sold approximately 26,000 acres of
timberlands resulting in a pre-tax gain of $21.1 million. In the fourth quarter
of 1998, the company entered into contracts to sell 1.6 million acres of
timberlands and a sawmill in Maine, for approximately $370.0 million. These
sales are expected to close in the first quarter of 1999. In 1997, the company
sold 1,000 acres of timberlands resulting in a pre-tax gain of $0.8 million.
The effective tax rate in 1997 was 37 percent. In 1998, the effective tax rate
was much higher due to adjustments made to the tax provision to reflect the
non-deductibility of certain charges and allowances for tax benefits not
currently expected to be realized.
Fourth Quarter of 1998: Net income in the fourth quarter of 1998 was $25.9
million, or $0.45 per diluted share, on net sales of $639.2 million. This
compares to net income in the fourth quarter of 1997 of $30.1 million, or $0.72
per diluted share, on net sales of $401.0 million.
Operating income for the fourth quarter of 1998 was $76.3 million, an increase
of 23 percent compared to operating income for the fourth quarter of 1997 of
$61.9 million. The increase in operating income was primarily due to the
inclusion of Avenor and the South Korean
Bowater 1998 Annual Report
22
<PAGE> 27
newsprint mill operations. Fourth quarter 1998 operating income was the highest
since the second quarter of 1996. The company's fourth quarter average
transaction price was 3 percent lower for newsprint and 2 percent lower for
coated paper compared to the fourth quarter of 1997. The average transaction
prices for market pulp and directory paper were also lower by 14 percent and 2
percent, respectively. Comparing the same periods, tonnage shipments for
newsprint and market pulp significantly increased, reflecting the inclusion of
the newly acquired operations, while the company's shipments for coated and
directory papers decreased slightly. The company's cost of sales was higher in
the fourth quarter of 1998, increasing 65 percent, again reflecting the
inclusion of the newly acquired operations.
Liquidity and Capital Resources: 1998 Compared with 1997
The company's cash, cash equivalents and marketable securities balance at
year-end 1998 was $59.5 million, a decrease of $346.0 million from $405.5
million at year-end 1997.
Cash and cash equivalents decreased to $58.3 million at year-end 1998, from
$228.7 million at year-end 1997, a decrease of $170.4 million. The company
generated $274.1 million of cash from operations while it used $408.0 million
for investing activities and $36.5 million for financing activities. Aside from
cash flow from operations, capital expenditures, and changes in investments and
borrowings, the company had several other significant cash transactions since
December 31, 1997. These transactions include: cash paid of $675.0 million for
the purchase of Avenor; cash paid of $201.0 million for the purchase of the
South Korean newsprint mill; the sale of the white paper mill and related assets
(formerly owned by Avenor) with cash proceeds of $532.5 million; the sale of
26,000 acres of non-strategic timberlands with cash proceeds of $30.9 million;
the purchase of currency options on the Canadian dollar for $22.7 million to
hedge the company's acquisition of Avenor; cash of $27.9 million paid on the
maturity of hedging contracts; cash of $24.3 million for quarterly dividend
payments to the minority shareholder of Calhoun Newsprint Company (CNC); cash of
$75.9 million for the tender offer of the 10.25% Debentures, and common stock
purchases requiring cash of $98.1 million.
Cash from Operating Activities: The company generated cash of $274.1 million
from operating activities in 1998, compared to $195.6 million in 1997. The
increase of $78.5 million reflects the additional volumes of product sold as a
result of the acquisitions, offset by $25.5 million of higher working capital
needs.
Cash from Investing Activities: Cash used for investing activities in 1998 was
$408.0 million versus a cash inflow of $72.7 million in 1997. Excluding the
acquisition of Avenor and the South Korean newsprint mill, capital expenditures
in 1998 totaled $223.2 million. This was significantly higher than the year ago
spending of $99.6 million, primarily due to the modernization of the Calhoun,
Tennessee, newsprint facility. The company anticipates capital spending of
approximately $300.0 million in 1999, which includes approximately $140.0
million for the mill modernizations at Calhoun and East Millinocket, Maine. In
July 1998, the company acquired Avenor and the South Korean newsprint mill,
requiring total cash outflows of $876.0 million. During the third quarter, the
company sold the white paper mill and related assets formerly owned by Avenor
for $532.5 million. Earlier in the year, the company also sold 26,000 acres of
non-strategic timberlands resulting in proceeds of $30.9 million. In 1998, the
company realized a net cash flow of $175.5 million from the maturity of
marketable securities compared to $168.6 million in 1997. Offsetting this was a
cash outflow of $22.7 million for the purchase of currency options on the
Canadian dollar to hedge the company's acquisition of Avenor and $27.9 million
of cash paid upon the maturity of hedging contracts with a nominal value of
$359.0 million, which were part of a $1.6 billion hedging program maintained by
Avenor prior to the acquisition.
Several years ago, the company undertook an initiative to eliminate
non-strategic assets, including non-strategic timberland tracts. Since 1995, the
company has sold 148,000 acres of timberlands throughout the United States and
Canada with gross proceeds totaling approximately $153.9 million. Currently, the
company owns or leases 2.4 million acres of timberlands in the U.S. and Canada
(after the pending 1999 timberlands sale transactions) and has timber cutting
rights on an additional 14 million acres in Canada. Sales of non-strategic
timberlands are processed through the company's Forest Products Division. This
Division periodically reviews timberland holdings and makes decisions to sell
certain non-strategic tracts.
Cash from Financing Activities: Cash flow used for financing activities was
$36.5 million in 1998, $88.4 million lower than the amount spent in 1997. During
1998, the company borrowed $766.3 million, net of financing fees, from its $1.0
billion credit facility mainly to fund the acquisition of Avenor. During the
year, the company repaid $560.0 million of the borrowing. On December 31, 1998,
the amount outstanding
Bowater 1998 Annual Report
23
<PAGE> 28
Business and Financial Review
on the credit facility totaled $210.0 million. Cash dividends in 1998 of $62.1
million were slightly higher than 1997. 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 December 31, 1998, the company had purchased 2.6 million
shares at a total cost of $107.7 million, of which 2.4 million shares were
purchased at a cost of $98.1 million in 1998. As of March 1, 1999, an additional
622,700 shares were purchased at a cost of $24.8 million. In 1997, the company
purchased a total of 1.6 million shares at a cost of $66.8 million. Cash
received from the exercise of stock options in 1998 was $17.7 million lower than
in 1997. Also in 1997, the company redeemed for cash the remaining 500,000
outstanding shares of LIBOR Preferred Stock at a cost of $25.0 million. 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.
During 1998, the company repaid $91.1 million of its long-term borrowings versus
$1.8 million in 1997. On December 18, 1998, Bowater Pulp and Paper Canada Inc.
("BPPCI") (formerly Avenor Inc.), a subsidiary of Bowater Incorporated,
completed an offer to purchase its outstanding 10.25% Debentures due 2003. The
company accepted for purchase approximately $65.0 million of the $72.0 million
principal amount of Debentures previously outstanding, for an aggregate purchase
price of $75.9 million ($1,169.31 per $1,000 principal amount, plus accrued
interest). Additionally, BPPCI received the required number of consents of
holders of the remaining outstanding Debentures to execute an amendment that
eliminates a covenant that limited BPPCI's ability to pay cash dividends. BPPCI
has executed a supplemental indenture effecting the elimination of this
covenant. These actions will allow for more flexible management of cash across
the entire Bowater organization.
In February 1999, the company redeemed for $26.6 million in cash all of the
remaining outstanding shares (and related 1.06 million Depositary Shares) of its
8.40% Series C Cumulative Preferred Stock, par value $1 per share. The Series C
Stock was redeemed for cash of $100.56 per share of Series C Stock ($25.14 per
Depositary Share), which is equal to $100 per share of Series C Stock ($25.00
per Depositary Share) plus accrued and unpaid dividends to, but not including,
February 8, 1999.
Also in February 1999, BPPCI redeemed for cash all of its outstanding 7.50%
Convertible Unsecured Subordinated Debentures, due February 8, 2004 (originally
issued in the aggregate principal amount of C$125,400,000). The company will
benefit from the reduction of interest expense associated with the Debentures.
Prior to redemption and at the option of each holder, each C$100 principal
amount of the Debentures were convertible into either (1) 2.191 Exchangeable
shares of Bowater Canada Inc. or (2) C$79.54 together with 1.0955 of the
Exchangeable shares. As a result of the redemption and conversions immediately
prior to the redemption, BPPCI paid $65.9 million in cash, and Bowater Canada
Inc. issued 1.4 million Exchangeable shares.
Acquisitions/Dispositions
On July 15, 1998, the company completed the acquisition of a Korean newsprint
mill, which is located on the southwest coast of South Korea. Using its existing
cash reserves, the company purchased the production assets of the mill for
$201.0 million and prepaid the majority of the current accounts payable for
$22.0 million as required by the court in the seller's bankruptcy proceedings.
Upon acquisition, the South Korean newsprint mill was free and clear of all
indebtedness.
On July 24, 1998, the company completed the acquisition of Avenor. The purchase
price, including assumed debt totaled $2.37 billion (C$3.54 billion) or $23.46
(C$35.00) per Avenor common share. The company utilized approximately $168.0
million of its existing cash reserves and approximately $625.0 million of its
new $1.0 billion credit facility to fund the cash portion of the transaction. In
addition, the company issued 12.3 million common shares, and its indirect
wholly-owned subsidiary, Bowater Canada Inc., issued 3.8 million Exchangeable
shares to fund the equity portion of the transaction. Exchangeable shares are
exchangeable on a one-for-one basis for Bowater Incorporated common stock.
On September 30, 1998, the company sold the white paper mill and related assets
in Dryden, Ontario, which were acquired as part of the acquisition of Avenor. A
substantial portion of the proceeds of $532.5 million was used to repay the
company's borrowings under the $1.0 billion credit facility.
With the completion of the acquisitions, the white paper mill disposition and
the permanent closure of the Gold River pulp mill (see the following page), the
company consists of 10 pulp and paper mills in the United States, Canada and
South Korea. These operations are currently supported by 2.4 million acres of
timberlands (after the pending 1999 timberlands sale transactions) owned or
leased in the United States and Canada
Bowater 1998 Annual Report
24
<PAGE> 29
and 14 million acres of Crown-owned land in Canada on which the company has
cutting rights. The company has doubled its annual newsprint and groundwood
papermaking capacity and is now the second largest newsprint producer in the
world and the sixth largest market pulp producer in North America.
Great Northern Paper
In October 1998, the company reported that it would proceed with its previously
announced $220.0 million modernization program for Great Northern Paper at its
East Millinocket, Maine, pulp and paper mill complex. Earlier, the company
reported that it had received unsolicited offers to buy its Great Northern Paper
assets in Maine. However, after thoroughly reviewing the proposals following
completion of its Avenor acquisition, the company concluded that its investment
plans for the East Millinocket facility will bring the most value to the company
and its shareholders. The Millinocket mill, however, remains available for sale.
In the third quarter of 1998, the company recorded an impairment charge of
$119.6 million to write down the book value of the Millinocket mill.
Also in October, the company announced that it would pursue timber monetization
opportunities for a substantial amount of its acreage in Maine. Subsequently,
the company announced the sale of approximately 1.6 million acres of its Maine
timberlands and the Pinkham Lumber company sawmill for an aggregate purchase
price of approximately $370.0 million. As part of these sale transactions, the
company and the prospective buyers will enter into agreements to supply the
company's Great Northern Paper papermaking operations with wood fiber from the
purchased timberlands. The company plans to use the proceeds for the reduction
of debt, repurchase of common shares and other strategic purposes. The company
expects to close these transactions in the first quarter of 1999.
Gold River Mill Closure
In October 1998, the company announced that its Gold River pulp mill in British
Columbia, which had been shut down due to market conditions since August 1998,
would be permanently closed effective February 16, 1999. The costs associated
with closing this facility ($40.0 million after-tax), which was acquired as part
of the Avenor acquisition, were recorded as an adjustment to the cost of the
acquisition by increasing goodwill.
Environmental Items
The company is subject to a variety of federal, state and provincial
environmental laws and regulations in the jurisdictions in which it operates.
The company believes its operations are currently in substantial compliance with
applicable environmental laws and regulations.
In April 1998, the U.S. Environmental Protection Agency (EPA) promulgated new
air and water quality regulations for the paper industry. These regulations,
known as the "Cluster Rule," are aimed at further reductions of pollutants.
These new regulations will require capital expenditures at the Calhoun,
Tennessee, Catawba, South Carolina, and Millinocket, Maine, facilities. The
compliance period begins in April 1999 and extends to April 2006. The company
anticipates spending approximately $120.0 to $150.0 million during this period
to comply with both the new effluent guidelines and the new air quality
standards, with a majority of the capital to be spent at the Catawba, South
Carolina, facility. Engineering studies are currently under way to further
define the capital requirements and timing of these investments. As part of
these studies, the company is evaluating an alternative that would modernize a
portion of the kraft pulp mill at Catawba, which was built in 1954. In addition
to allowing the company to comply with the new air and water standards, this
project would also improve the quality of all products as well as operating
efficiencies. This alternative would delay any significant capital spending for
environmental compliance until 2002 and generate an attractive financial return
on the incremental spending over what would be required just for compliance
purposes. The current estimate for this alternative is approximately $200.0
million of which $100.0 million (included in the estimate of $120.0 to $150.0
million) would have been spent to meet the new air and water standards at this
mill site.
Other than the aforementioned issues, the company anticipates spending
approximately $15.0 million to $20.0 million of capital per year for all its
facilities for the foreseeable future to maintain compliance with existing
environmental regulations. While it is difficult to predict with certainty the
nature of future environmental regulations, the company believes that it will
not be at a competitive disadvantage in meeting future U.S., Canadian or Korean
standards.
The company is not involved in any proceeding under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, that
it believes will result in liabilities that will have a material adverse effect
on the company's future cash flow, financial condition or results of operations.
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
Bowater 1998 Annual Report
25
<PAGE> 30
Business and Financial Review
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 $4.0 million. As of December 31, 1998, approximately $2.0
million has been spent. The readiness percentage for items in this category is
approximately 90 percent as of March 1, 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 $5.0 million. As of December 31, 1998, approximately $2.0
million has been spent. The readiness percentage for this category is
approximately 84 percent as of March 1, 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 1, 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 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.
Adoption of 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.
Historical Reference: Overview
In 1996, the company operated through three Divisions: the Newsprint, Coated
Paper and Pulp and Great Northern Paper Divisions. In 1997, the Great Northern
Paper Division was combined with the Newsprint Division and the Forest Products
Division was formed. Due to the impracticality of restating and re-analyzing
these Divisions on a comparable basis, results of operations for 1997 compared
with 1996 are discussed below on a product line basis only.
Bowater 1998 Annual Report
26
<PAGE> 31
Results of Operations: 1997 Compared with 1996
The company's operating income was $135.7 million in 1997 on net sales of $1.5
billion, compared to $301.2 million on net sales of $1.7 billion in 1996. Annual
average transaction prices for all of the company's products, except market pulp
and lumber, were lower in 1997. These lower selling prices accounted for the
majority of the operating income decline. Net income for 1997 was $53.7 million,
compared to $200.2 million in 1996.
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; 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.
Newsprint
In contrast to 1996, conditions in the newsprint market improved throughout
1997. In 1996, newsprint consumption declined as high prices in 1995 caused many
newspaper and commercial printers to reduce usage. Lower demand caused prices to
decline and producer inventories to increase during 1996. By the end of the
year, consumption began to increase, causing a recovery in the newsprint market.
This recovery continued throughout 1997 as consumption of newsprint by U.S.
daily newspapers and total U.S. newsprint consumption increased compared to
1996. North American newsprint producer inventory levels decreased, while U.S.
daily newspapers' newsprint inventory increased slightly at the end of the
comparable periods. The newsprint export market experienced a similar recovery.
These improved market conditions enabled the company to increase prices in 1997.
In March, the company announced a $75 per metric ton domestic price increase,
and in October, it announced a $35 per metric ton domestic price increase. The
company realized slightly less than the anticipated increases from these
announcements. Although the company's average transaction price was 16 percent
lower in 1997 compared to 1996, improved market conditions in 1997 led to
quarterly average transaction price increases in the second, third and fourth
quarters. Shipments were slightly higher comparing 1997 to 1996, while the
company's newsprint inventory at the end of 1997 was at its lowest level in the
company's history. In January 1998, the company announced a $40 per metric ton
domestic price increase effective April 1.
Coated Groundwood
The coated paper market also improved in 1997 compared to 1996, when coated
groundwood paper demand declined due to conservation measures and inventory
reductions initiated by commercial printers and publishers. During the first
quarter of 1997, consumption began to increase and market conditions improved.
Comparing the full year of 1997 to 1996, U.S. coated groundwood shipments and
magazine ad pages increased while U.S. coated groundwood producer inventory
levels decreased. These favorable market conditions allowed the company to
increase coated groundwood transaction prices four times. In April 1997, the
company increased prices $60 per ton; in July it increased prices between $50
and $80 per ton; in October it increased prices up to $40 per ton; and in
January 1998, it increased prices $60 per ton. The realization of these price
increases varied, however, according to market segment and the timing of
implementation. The company's average transaction price for the second, third
and fourth quarters of 1997 was higher than the respective prior quarters.
Compared to 1996, the average transaction price for 1997 was 15 percent lower,
while shipments increased 11 percent.
Directory Paper
Sales of the company's directory products in 1997 decreased compared to 1996.
The company's average transaction price decreased 10 percent compared to 1996,
partially offset by an increase in shipments of 8 percent. During 1996, demand
decreased in the directory paper market caused by conservation measures
initiated by telephone directory publishers, which had the effect of lowering
prices. This also affected the company's prices in 1997, since a large portion
of the company's sales are based on contracts, the pricing of which was
determined in 1996. In addition, the company sold more higher priced grades of
directory paper in 1996 compared to 1997.
Market Pulp
The pulp market showed signs of improvement in 1997 in comparison to the
conditions and pricing that existed in 1996. In 1997, NORSCAN (United States,
Canada, Finland, Norway and Sweden) softwood
Bowater 1998 Annual Report
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<PAGE> 32
Business and Financial Review
market pulp shipments increased compared to 1996, while NORSCAN inventory levels
decreased at the end of the comparable periods. Beginning in the second quarter
of 1997, the company's average transaction price began to improve, and for the
full year, it was $34 per metric ton, or 8 percent higher compared to the
average transaction price for 1996. Shipments increased 4 percent over 1996
levels. Late in the fourth quarter of 1997, the devaluation of Asian currencies
negatively affected pulp pricing, particularly in the export market. The
company's market pulp transaction prices and shipments were not materially
affected.
Lumber
In the first half of 1997, favorable conditions in the lumber market
carried over from 1996, as demand from U.S. housing starts, low producer
inventories and strong foreign consumption kept market prices at or above prior
year levels. During the balance of 1997, however, prices decreased as supply
outpaced demand. In the United States, housing starts totaled 1.4 million in
1997, slightly less than 1996. In addition, a slowdown in the Japanese housing
market caused some producers to divert lumber to the U.S. market. The company's
average transaction price increased in the first three quarters of 1997 compared
to the same 1996 quarters. The company's fourth quarter 1997 average transaction
price, however, was 8 percent lower than the fourth quarter of 1996. For the
full year of 1997, the company's average transaction price was 10 percent higher
than 1996, while shipments were 3 percent higher.
Cost of Sales and Other Income and Expenses: Cost of sales decreased 4 percent
in 1997 compared to 1996. This decrease was due to the absence of costs relating
to Star Forms (the company's communication papers business, which was sold in
November 1996), partially offset by higher costs due to increased shipments in
1997.
Selling and administrative expenses decreased 22 percent comparing 1997 to 1996.
This decrease was also due to the absence of expenses relating to Star Forms. In
addition, administrative costs in 1996 included the major portion of expense
associated with a three-year incentive compensation plan established in 1994.
Interest expense decreased 5 percent in 1997, due to lower average debt balances
in 1997 compared to 1996. Interest income increased 2 percent, comparing the
same periods, due to higher average investment balances.
In 1997, the company sold 1,000 acres of timberlands, resulting in a pre-tax
gain of $0.8 million. In 1996, the company sold 121,000 acres of timberlands,
resulting in a pre-tax gain of $81.0 million, and sold Star Forms, resulting in
a gain of $17.0 million. The company did not incur any extraordinary charges in
1997. In 1996, the extraordinary charge of $3.9 million, net of taxes of $2.2
million, represented the fees and expenses incurred to retire long-term debt.
Liquidity and Capital Resources: 1997 Compared with 1996
The company's cash, cash equivalents and marketable securities balance at
year-end 1997 was $405.5 million, a decrease of $25.2 million from $430.7
million at year-end 1996.
Cash and cash equivalents increased to $228.7 million at year-end 1997, from
$85.3 million at year-end 1996, an increase of $143.4 million. The company
generated $195.6 million of cash from operations and $72.7 million from
investing activities, while it used $124.9 million of cash for financing
activities. Significant transactions for the year included: the maturity of
$168.6 million of marketable securities, the purchase of 1.6 million shares of
the company's common stock at a cost of $66.8 million, the redemption of the
remaining 500,000 shares of LIBOR Series A (LIBOR) Preferred Stock for $25.0
million and the payment of cash dividends of $21.2 million to the minority
shareholder of Calhoun Newsprint Company (CNC).
Cash from Operating Activities: The company's operations generated $195.6
million of cash in 1997, $140.6 million less than the cash generated from
operations in 1996. This decrease was largely the result of lower operating
income of $165.5 million due to lower selling prices for most of the company's
products. Working capital changes, excluding taxes, were unfavorable by $114.1
million. Tax payments in 1997 were $135.7 million lower than in 1996, due to the
lower level of income in 1997. In addition, 1996 tax payments included payments
for the company's 1995 liability, which it was able to defer for one year.
Cash from Investing Activities: Cash inflow from investing activities in 1997
was $72.7 million versus a cash outflow of $271.7 million in 1996. Capital
expenditures in 1997 totaled $99.6 million, slightly less than the $106.9
million spent in 1996. Pre-tax cash proceeds from the disposal of fixed assets,
timber
Bowater 1998 Annual Report
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<PAGE> 33
and timberlands totaled $3.7 million in 1997 versus $126.7 million in 1996.
In 1996, the company sold 121,000 acres of timberlands for $122.0 million. Also
in 1996, the company sold Star Forms resulting in net cash proceeds of $53.9
million. In 1997, the company realized $168.6 million from net maturities of
marketable securities, while in 1996, it made net investments of $345.4 million.
Several years ago, the company undertook an initiative to eliminate
non-strategic assets, including non-strategic timberland tracts. Since 1993, the
company has sold 434,000 acres of timberlands throughout the United States and
Canada. This includes the sale of 19,000 acres in January 1998 with gross
proceeds of approximately $30.0 million. As of December 31, 1997, the company
owned and leased a total of 3.5 million acres of timberlands. Sales of
non-strategic timberlands are processed through the company's Forest Products
Division.
In September 1997, the company announced its plan to invest approximately $180.0
million over the next two years to modernize its Calhoun, Tennessee, newsprint
facility. The plan calls for a new thermomechanical pulp facility, an upgraded
woodyard and conversion of an idle recovery boiler. In addition to reducing
operating costs, these changes will have a positive environmental impact by
burning a variety of waste products that would otherwise be sent to landfills.
In January 1998, the company announced its plan to invest approximately $220.0
million to modernize its East Millinocket, Maine, pulp and paper mill. The plan
encompasses a new thermomechanical pulp mill facility, modernization of two
paper machines, which produce newsprint and directory paper, and other
improvements to the site's energy and electrical systems. Although the project
will not increase the company's papermaking capacity, it is expected to reduce
operating costs and improve productivity. Construction is anticipated to begin
in early 1999 and take up to two years to complete. The company also announced
its intention to seek a buyer for its Millinocket, Maine, paper mill, which
includes four paper machines and related assets. This facility no longer meets
the company's long-term objectives.
The company anticipates capital spending of approximately $250.0 million in
1998, which includes approximately $100.0 million for the Calhoun modernization.
In 1998, the company completed negotiations for the acquisitions of Avenor Inc.,
an international forest products company, and a South Korean newsprint mill
owned by Halla Pulp & Paper Co. Ltd. The acquisition of these operations is
discussed in this document under the heading "Acquisitions/Dispositions."
CASH FROM FINANCING ACTIVITIES: Cash flow used for financing activities was
$124.9 million in 1997, $118.9 million lower than the amount spent in 1996. In
1997, the company's cash dividends were $12.9 million lower due to reduced
dividend payments to the minority shareholder of CNC. The company also paid
lower preferred stock dividends due to the conversion of the company's 7 percent
PRIDES Series B Convertible Preferred Stock ("PRIDES") into common stock and the
redemption of the company's remaining shares of LIBOR Preferred Stock. In 1997,
the company used $1.8 million for current payments on long-term debt
obligations, while in 1996 it used $63.5 million to repurchase and extinguish
outstanding debt in addition to normal long-term debt payments. Common stock
repurchases were also lower in 1997 by $32.0 million, while the company received
an additional $12.2 million from the exercise of stock options in 1997 compared
to 1996.
In January 1997, the company converted all of its PRIDES, resulting in the
issuance of 4,012,765 common shares, which was reflected in the Consolidated
Balance Sheet on December 31, 1996.
In February 1997, the company completed the repurchase of approximately 10
percent of its outstanding common stock, purchasing 4,000,000 shares at a cost
of $156.0 million, as part of a previously announced stock repurchase program.
During January and February 1997, the company purchased 1,400,000 common shares
at a cost of $57.2 million. In November 1997, the company announced a new stock
repurchase program, authorizing it to purchase up to 10 percent of the company's
outstanding common stock in the open market, subject to normal trading
restrictions. In December 1997, the company purchased 220,000 shares under the
new program at a total cost of $9.6 million.
In May 1997, the company redeemed for $25.0 million the remaining 500,000
outstanding shares of LIBOR Preferred Stock at its par value of $50 per share,
plus accrued and unpaid dividends.
In January 1998, the Board of Directors of CNC declared a $31.4 million
dividend. As a result, $15.4 million was paid to the minority shareholder of CNC
in February 1998.
Bowater 1998 Annual Report
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<PAGE> 34
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(In millions, except per-share amounts)
Years ended December 31, 1998 1997 1996
================================================================================================================
<S> <C> <C> <C>
Sales $ 2,142.7 $ 1,598.9 $ 1,839.2
Distribution costs 147.7 114.4 120.9
- ----------------------------------------------------------------------------------------------------------------
Net sales 1,995.0 1,484.5 1,718.3
Cost of sales 1,422.2 1,106.8 1,149.6
Depreciation, amortization and cost of timber harvested 229.6 169.8 174.4
Impairment of assets 119.6 -- --
- ----------------------------------------------------------------------------------------------------------------
Gross profit 223.6 207.9 394.3
Selling and administrative expense 81.4 72.2 93.1
- ----------------------------------------------------------------------------------------------------------------
Operating income 142.2 135.7 301.2
Other expense (income):
Interest income (17.5) (21.6) (21.1)
Interest expense, net of capitalized interest 98.4 67.5 71.3
Gain on sale of timberlands (21.1) (0.8) (81.0)
Other, net 65.6 1.1 (21.2)
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes, minority interests
and extraordinary charge 16.8 89.5 353.2
Provision for income tax expense 27.1 33.1 124.4
Minority interests in net income of subsidiaries 8.2 2.7 24.7
- ----------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge (18.5) 53.7 204.1
Extraordinary charge from early extinguishment of debt,
net of income tax benefit of $2.2 in 1996 -- -- (3.9)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) (18.5) 53.7 200.2
- ----------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (4.1) (2.5) (0.3)
Minimum pension liability adjustments, net of taxes of
$6.0, $0.4 and $(0.7), respectively (9.3) (0.6) 1.0
- ----------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (31.9) $ 50.6 $ 200.9
================================================================================================================
Earnings per share:
Basic earnings per common share:
Income (loss) before extraordinary charge $ (0.44) $ 1.26 $ 5.07
Extraordinary charge -- -- (0.10)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.44) $ 1.26 $ 4.97
- ----------------------------------------------------------------------------------------------------------------
Average common shares outstanding 47.6 40.3 37.7
- ----------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Income (loss) before extraordinary charge $ (0.44) $ 1.25 $ 4.64
Extraordinary charge -- -- (0.09)
- ----------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.44) $ 1.25 $ 4.55
- ----------------------------------------------------------------------------------------------------------------
Average common and common equivalent shares outstanding 47.6 40.8 42.9
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Bowater 1998 Annual Report
30
<PAGE> 35
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
(In millions, except share amounts)
At December 31, 1998 1997
===============================================================================================================
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 58.3 $ 228.7
Marketable securities 1.2 176.8
Accounts receivable, net 372.4 190.6
Inventories 186.3 105.5
Other current assets 77.2 16.8
- ---------------------------------------------------------------------------------------------------------------
Total current assets 695.4 718.4
- ---------------------------------------------------------------------------------------------------------------
Timber and timberlands 472.8 394.0
Fixed assets, net 2,885.2 1,554.5
Goodwill 921.7 --
Other assets 116.3 78.9
- ---------------------------------------------------------------------------------------------------------------
Total assets $5,091.4 $2,745.8
===============================================================================================================
Liabilities and shareholders' equity
Current liabilities:
Current installments of long-term debt $ 86.2 $ 1.8
Revolver credit 210.0 --
Accounts payable and accrued liabilities 464.4 168.3
Income taxes payable -- 15.9
Dividends payable 11.9 8.7
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 772.5 194.7
- ---------------------------------------------------------------------------------------------------------------
Long-term debt, net of current installments 1,534.6 757.1
Other long-term liabilities 356.3 169.5
Deferred income taxes 522.2 345.1
Minority interests in subsidiaries 128.8 125.2
Commitments and contingencies (See note 15) -- --
Shareholders' equity:
Cumulative preferred stock, $1 par value. Issued, 8.40% Series C, 264,318 shares
(liquidation value $26.4) 25.5 25.5
Common stock, $1 par value. Authorized 100,000,000 shares; issued 58,981,998
and 44,927,890 shares at December 31, 1998 and 1997, respectively 59.0 44.9
Exchangeable shares, no par value. Unlimited shares authorized; outstanding
and held by non-affiliates, 2,270,525 at December 31, 1998 110.8 --
Additional paid-in capital 1,230.2 563.1
Retained earnings 657.4 717.0
Accumulated other comprehensive income (loss) (28.9) (15.5)
Loan to ESOT (2.6) (4.5)
Treasury stock at cost, 7,046,397 and 4,606,785 shares at December 31, 1998
and 1997, respectively (274.4) (176.3)
- ---------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,777.0 1,154.2
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $5,091.4 $2,745.8
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Bowater 1998 Annual Report
31
<PAGE> 36
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Series B
LIBOR Convertible
Preferred Preferred
(In millions, except per-share amounts) Stock Stock
=================================================================================================================
<S> <C> <C>
Balance at December 31, 1995 $ 49.6 $ 111.3
Net income -- --
Dividends on:
Common ($0.80 per share) -- --
LIBOR ($2.42 per share) -- --
Series B ($6.58 per share) -- --
Series C ($8.40 per share) -- --
Increase in stated value of LIBOR preferred stock 0.1 --
Reduction in loan to ESOT -- --
Foreign currency translation -- --
Stock options exercised -- --
Tax benefit on exercise of stock options -- --
Partial redemption of LIBOR preferred stock (25.0) --
Conversion of Series B preferred into common stock -- (111.3)
Pension plan additional minimum liability, net of taxes of $0.7 -- --
Purchase of common stock -- --
Use of treasury stock -- --
===============================================================================================================
Balance at December 31, 1996 $ 24.7 $ --
Net income -- --
Dividends on:
Common ($0.80 per share) -- --
LIBOR ($0.79 per share) -- --
Series C ($8.40 per share) -- --
Increase in stated value of LIBOR preferred stock 0.3 --
Reduction in loan to ESOT -- --
Foreign currency translation -- --
Stock options exercised -- --
Tax benefit on exercise of stock options -- --
Redemption of LIBOR preferred stock (25.0) --
Pension plan additional minimum liability, net of tax benefit of $0.4 -- --
Purchase of common stock -- --
===============================================================================================================
Balance at December 31, 1997 $ -- $ --
Net loss -- --
New issuance of stock -- --
Retraction of Exchangeable shares -- --
Debt conversions to Exchangeable shares -- --
Dividends on:
Common ($0.80 per share) -- --
Series C ($8.40 per share) -- --
Reduction in loan to ESOT -- --
Foreign currency translation -- --
Stock options exercised -- --
Tax benefit on exercise of stock options -- --
Pension plan additional minimum liability, net of tax benefit of $6.0 -- --
Purchase of common stock -- --
===============================================================================================================
Balance at December 31, 1998 $ -- $ --
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
Bowater 1998 Annual Report
32
<PAGE> 37
CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
<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>
$ 25.5 $ 39.5 $ -- $ 410.0 $ 541.2 $ (13.1) $ (8.0) $ (10.9)
-- -- -- -- 200.2 -- -- --
-- -- -- -- (30.1) -- -- --
-- -- -- -- (2.5) -- -- --
-- -- -- -- (8.1) -- -- --
-- -- -- -- (2.2) -- -- --
-- -- -- -- (0.1) -- -- --
-- -- -- -- -- -- 1.7 --
-- -- -- -- -- (0.3) -- --
-- 0.5 -- 11.8 -- -- -- --
-- -- -- 2.4 -- -- -- --
-- -- -- -- -- -- -- --
-- 4.0 107.3 -- -- -- --
-- -- -- -- -- 1.0 -- --
-- -- -- -- -- -- -- (98.8)
-- -- -- 0.1 -- -- -- 0.2
=========================================================================================================================
$ 25.5 $ 44.0 $ -- $ 531.6 $ 698.4 $ (12.4) $ (6.3) $ (109.5)
-- -- -- -- 53.7 -- -- --
-- -- -- -- (32.2) -- -- --
-- -- -- -- (0.4) -- -- --
-- -- -- -- (2.2) -- -- --
-- -- -- -- (0.3) -- -- --
-- -- -- -- -- -- 1.8 --
-- -- -- -- -- (2.5) -- --
-- 0.9 -- 23.6 -- -- -- --
-- -- -- 7.9 -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- (0.6) -- --
-- -- -- -- -- -- -- (66.8)
=========================================================================================================================
$ 25.5 $ 44.9 $ -- $ 563.1 $ 717.0 $ (15.5) $ (4.5) $ (176.3)
-- -- -- -- (18.5) -- -- --
-- 12.3 183.6 586.4 -- -- -- --
-- 1.5 (73.1) 71.6 -- -- -- --
-- -- 0.3 -- -- -- -- --
-- -- -- -- (38.9) -- -- --
-- -- -- -- (2.2) -- -- --
-- -- -- -- -- -- 1.9 --
-- -- -- -- -- (4.1) -- --
-- 0.3 -- 6.5 -- -- -- --
-- -- -- 2.6 -- -- -- --
-- -- -- -- -- (9.3) -- --
-- -- -- -- -- -- -- (98.1)
=========================================================================================================================
$ 25.5 $ 59.0 $ 110.8 $1,230.2 $ 657.4 $ (28.9) $ (2.6) $ (274.4)
==========================================================================================================================
</TABLE>
Bowater 1998 Annual Report
33
<PAGE> 38
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(In millions)
Years ended December 31, 1998 1997 1996
==============================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(18.5) $ 53.7 $200.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and cost of timber harvested 229.6 169.8 174.4
Deferred income taxes (33.3) (3.3) 36.9
Minority interests in net income of subsidiaries 8.2 2.7 24.7
Gain on sale of timberlands (21.1) (0.8) (81.0)
Gain on sale of Star Forms -- -- (17.0)
Write-down of assets due to impairment 119.6 -- --
Write-down of option contracts 22.7 -- --
Reserve for long-term note receivable 15.0 -- --
Extraordinary charge, net of taxes -- -- 3.9
Changes in working capital:
Accounts receivable, net 5.2 (4.9) 39.9
Inventories 13.8 18.2 13.9
Accounts payable and accrued liabilities (39.9) (42.7) 30.9
Income taxes payable (27.9) 6.1 (78.6)
Other, net 0.7 (3.2) (12.0)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 274.1 195.6 336.2
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of Avenor, net of cash acquired of $118.0 (675.0) -- --
Acquisition of South Korean newsprint mill (201.0) -- --
Cash invested in fixed assets, timber and timberlands (223.2) (99.6) (106.9)
Disposition of fixed assets, timber and timberlands 33.8 3.7 126.7
Disposition of Dryden white paper mill 532.5 -- --
Disposition of Star Forms -- -- 53.9
Cash invested in option contracts (22.7) -- --
Cash paid on maturity of hedging contracts (27.9) -- --
Cash invested in marketable securities (41.9) (291.0) (797.7)
Cash from maturity of marketable securities 217.4 459.6 452.3
- ------------------------------------------------------------------------------------------------------------------------------
Net cash from (used for) investing activities (408.0) 72.7 (271.7)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends, including minority interests (62.1) (57.6) (70.5)
Purchase of common stock (98.1) (66.8) (98.8)
Short-term financing 766.3 -- --
Short-term financing repayments (560.0) -- --
Purchases/payments of long-term debt (91.1) (1.8) (63.5)
Stock options exercised 6.8 24.5 12.3
Redemption of LIBOR preferred stock -- (25.0) (25.0)
Other 1.7 1.8 1.7
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (36.5) (124.9) (243.8)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (170.4) 143.4 (179.3)
Cash and cash equivalents:
Beginning of year 228.7 85.3 264.6
- ------------------------------------------------------------------------------------------------------------------------------
End of year $ 58.3 $228.7 $ 85.3
==============================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest $(82.1) $(66.5) $(72.6)
Income taxes $(63.2) $(30.3) $(166.0)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
Bowater 1998 Annual Report
34
<PAGE> 39
Notes to Consolidated Financial Statements
1 Summary of Significant Accounting Policies
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Bowater Incorporated and Subsidiaries (the company). These financial statements
are expressed in U.S. dollars except where noted, and have been prepared in
accordance with accounting principles generally accepted in the United States.
All consolidated subsidiaries are wholly owned with the exception of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Percent
Ownership
- -----------------------------------------------------------
<S> <C>
Avenor Maritimes Inc. 67
Calhoun Newsprint Company (CNC) 51
Bowater Mersey Paper Company, Ltd. (Mersey) 51
- -----------------------------------------------------------
</TABLE>
All significant intercompany transactions and balances have been eliminated.
The company also has a 40 percent interest in an unconsolidated subsidiary,
Ponderay Newsprint Company, which is accounted for using the equity method.
CASH EQUIVALENTS
Cash equivalents generally consist of direct obligations of the United States
and Canadian governments and their agencies, investment-grade commercial paper,
auction-rate preferred stock, tax-exempt municipal bonds and other short-term
investment-grade securities with original maturities of three months or less.
These investments are stated at cost, which approximates market value.
MARKETABLE SECURITIES
Marketable securities generally consist of direct obligations of the United
States and Canadian governments and their agencies, investment-grade commercial
paper, auction-rate preferred stock, tax-exempt municipal bonds and other
short-term investment-grade securities with original maturities of greater than
three months but less than one year. These investments are considered to be
held-to-maturity securities and are therefore stated at cost which approximates
market value.
DERIVATIVE FINANCIAL INSTRUMENTS
The company manages certain foreign currency risks and interest rate risks
through the use of derivative financial instruments, which may include forward
exchange contracts, currency options and interest rate swaps. For derivative
instruments designated as hedges and having a high correlation with the
underlying exposures, gains and losses from changes in derivative fair
values are deferred. Gains or losses upon settlement of derivative positions
when the underlying transaction occurs are recognized in the Consolidated
Statement of Operations. For derivative instruments lacking high correlation
characteristics necessary to qualify as hedges, gains and losses from changes in
derivative fair values are recognized in the Consolidated Statement of
Operations upon remeasurement at the close of each reporting period. Amounts
receivable or payable from derivative financial instruments would be reported as
"Other assets," or "Accounts payable and accrued liabilities" and "Other
long-term liabilities" in the Consolidated Balance Sheet. The company's
derivatives have various terms, none of which exceeds three years. The company
does not use derivatives for trading purposes.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
using the average cost and last-in, first-out (LIFO) methods.
TIMBER AND TIMBERLANDS
The acquisition cost of land and timber as well as real estate taxes, lease
payments, site preparation and other costs related to the planting and growing
of timber are capitalized. Such costs, excluding land, are charged against
revenue at the time the timber is harvested.
FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
computed generally on the straight-line basis. Repairs and maintenance are
charged to operations as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The company accounts for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less cost to sell.
Bowater 1998 Annual Report
35
<PAGE> 40
Notes to Consolidated Financial Statements
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over 40 years, which is
the expected period to be benefited. The company assesses the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows using a
discount rate reflecting the company's average cost of funds.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the Consolidated Statement of Operations in the period that includes the
enactment date. The company has not provided income taxes on the undistributed
earnings of certain of its subsidiaries, as it has specific plans for
reinvestment of such earnings.
FOREIGN OPERATIONS
Financial statements of the majority of the company's Canadian and South Korean
operations are prepared using the U.S. dollar as its functional currency. Gains
and losses from non-U.S. dollar foreign currency transactions, such as those
resulting from the settlement of foreign receivables or payables, are reported
in the Consolidated Statement of Operations.
Translation of other foreign operations to U.S. dollars occurs using the current
exchange rate for balance sheet accounts and an average exchange rate for
results of operations. Translation gains or losses are recognized as a component
of equity in "Accumulated other comprehensive income (loss)."
STOCK OPTIONS
The company records stock option compensation on an intrinsic value basis in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees." The company also provides pro forma disclosures
of stock option compensation recorded on a fair value basis in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation."
PENSION, SAVINGS AND OTHER POSTRETIREMENT PLANS
On January 1, 1998, the company adopted SFAS No. 132, "Employers' Disclosure
about Pension and Other Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS No. 132 does not change the method of accounting for such plans.
The company has contributory and noncontributory pension plans that cover
substantially all employees. The company's cash contributions to the plans are
sufficient to provide pension benefits to participants and meet the funding
requirements of ERISA. The company also sponsors defined benefit health care and
life insurance plans for substantially all retirees. Net periodic costs are
recognized as employees render the services necessary to earn postretirement
benefits.
In addition to the pension plans, the company sponsors savings plans for
substantially all employees. Contributions by the company to these defined
contribution plans are expensed as incurred.
COMPREHENSIVE INCOME (LOSS)
On January 1, 1998, the company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and presentation
of comprehensive income and its components in a full set of financial
statements. Comprehensive income (loss) consists of net income (loss), foreign
currency translation adjustments and pension plan additional minimum liability
adjustments and is presented in the Consolidated Statement of Operations. The
statement requires additional disclosures in the consolidated financial
statements, and it does not affect the company's financial position or results
of operations. Prior year financial statements have been reclassified to conform
to the requirements of SFAS No. 130.
REVENUE RECOGNITION
The company recognizes revenue from product sales upon shipment to its customers
or when customers assume risk of ownership.
BASIC AND DILUTED EARNINGS PER SHARE
The company calculates earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." This statement requires the presentation of basic and
diluted earnings per common share. Basic earnings per common share is calculated
assuming no dilution. Diluted earnings per common share is computed using the
weighted average number of outstanding common shares adjusted for the
incremental shares attributed to common share equivalents (stock options and
convertible debt).
Bowater 1998 Annual Report
36
<PAGE> 41
ENVIRONMENTAL COSTS
The company expenses environmental costs related to existing conditions
resulting from past or current operations and from which no current or future
benefit is discernible. Expenditures that extend the life of the related
property are capitalized. The company determines its liability on a site-by-site
basis and records a liability at the time when it is probable and can be
reasonably estimated.
SEGMENT INFORMATION
On January 1, 1998, the company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement changed the
way the company reports information about its operating segments. 1997
information has been restated to conform with SFAS No. 131.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements. In addition, they affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates and assumptions.
2 Acquisitions
On July 24, 1998, the company completed its acquisition of Avenor Inc.
(Avenor), a Canadian pulp and paper company. The total purchase price, including
assumed debt of approximately $800.0 million, totaled $2.37 billion (C$3.54
billion). The company utilized existing cash reserves of $168.0 million and
$625.0 million of its new $1.0 billion credit facility to fund the cash portion
of the transaction. The company also issued 12.3 million common shares, and its
indirect wholly owned subsidiary, Bowater Canada Inc., issued 3.8 million
Exchangeable shares to fund the equity portion of the transaction. At the option
of the holder, the Exchangeable shares may be exchanged for Bowater common stock
on a one-for-one basis. The company accounted for the transaction using the
purchase method of accounting. Accordingly, the assets and liabilities of the
acquired business were included in the Consolidated Balance Sheet at December
31, 1998. In addition, the operating results of Avenor for the period July 24,
1998 to December 31, 1998 were included in the company's Consolidated Statement
of Operations for the period ended December 31, 1998.
The purchase price to Avenor shareholders of $1,575.2 million was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(In millions) 1998
====================================================================
<S> <C>
Cash from cash and cash equivalents $ 168.0
Proceeds from $1.0 billion short-term credit facility 625.0
Issuance of 12.3 million Bowater shares at
$48.66 per share 598.6
Issuance of 3.8 million Exchangeable shares
exchangeable into Bowater shares at $48.66
per share 183.6
- --------------------------------------------------------------------
$ 1,575.2
====================================================================
</TABLE>
The purchase price to Avenor shareholders, plus transaction costs and other
accrued liabilities, the excess of fair value of liabilities assumed over the
historical book value and the deferred tax effect of applying purchase
accounting at July 24, 1998, over the historical net assets of Avenor was
calculated as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
(In millions) 1998
===================================================================
<S> <C>
Purchase price to Avenor shareholders $ 1,575.2
Estimated transaction costs 30.0
Additional accrued liabilities 124.7
Excess of fair value of long-term debt assumed
over historical value 154.3
Excess of fair value of convertible debt over
historical value 52.2
Deferred tax effect of applying purchase accounting 134.9
Less historical net assets (539.3)
- -------------------------------------------------------------------
$ 1,532.0
===================================================================
</TABLE>
The above calculation of excess purchase price is preliminary. The company will
finalize this allocation by July 24, 1999. As of July 24, 1998, the excess
purchase price was allocated as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(In millions) 1998
====================================================================
<S> <C>
Timber and timberlands $ 75.0
Fixed assets 425.0
Assets held for sale 100.5
Goodwill 931.5
- -------------------------------------------------------------------
$ 1,532.0
===================================================================
</TABLE>
Bowater 1998 Annual Report
37
<PAGE> 42
Notes to Consolidated Financial Statements
The timber and timberlands and fixed assets are being amortized/depreciated over
20 years. The goodwill is being amortized on a straight-line basis over 40
years. Additional depreciation on the increase to fair market value of fixed
assets acquired, the amortization of goodwill, the amortization of the increase
to the fair market value of debt assumed, and the amortization of the deferred
tax benefit relating to these charges totaled $13.4 million through December 31,
1998.
On September 30, 1998, the company completed the sale of its Dryden white paper
mill and related assets, which were part of the Avenor acquisition, for $532.5
million. Upon acquisition, the Dryden assets were accounted for as assets held
for sale. Therefore, no gain or loss was recorded upon the sale of such assets.
In October 1998, the company announced that its Gold River pulp mill, which was
acquired as part of the Avenor acquisition, would be permanently closed in the
first quarter of 1999. The costs associated with closing this facility totaled
$40.0 million after-tax, and were recorded as an adjustment to the cost of the
acquisition by increasing goodwill. These costs included asset impairment
charges, employee termination and other costs. As of December 31, 1998, $1.5
million has been paid.
Also, on July 16, 1998, the company completed the purchase of a South Korean
newsprint mill for approximately $201.0 million and prepaid a majority of the
current accounts payable for approximately $22.0 million. The company utilized
its existing cash reserves to fund the acquisition. The investment was recorded
at cost.
The following summarized unaudited pro forma financial information assumes the
acquisitions and divestiture had occurred on January 1 of each of the following
years:
Pro Forma Information
(Unaudited)
<TABLE>
<CAPTION>
(In millions, except per-share amounts)
Years Ended December 31, 1998 1997
===============================================================
<S> <C> <C>
Net sales $ 2,509.2 $ 2,661.4
Net loss $ (109.5) $ (195.5)
Diluted loss per share $ (2.00) $ (3.36)
- --------------------------------------------------------------
</TABLE>
3 Impairment Of Assets
In January 1998, the company announced a capital investment program of
approximately $220.0 million at its Great Northern Paper (GNP) East Millinocket
site to transform that site into a world-class mill. Concurrent with the
decision to invest capital in the East Millinocket mill, the company also
decided that the GNP Millinocket mill no longer met the company's long-term
objectives, and it was put up for sale along with related assets, which could
have also included timberlands. After this announcement, the company received
unsolicited offers to buy all of its Great Northern Paper assets. In October
1998, the company reconfirmed that it would proceed with the previously
announced capital investment program at the East Millinocket site and that the
Millinocket site was still available for sale. Also in October, the company
announced that it would separately pursue monetization of timberland holdings in
Maine. This change prompted a re-evaluation of the assets at the Millinocket
mill in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets." The company determined fair value using undiscounted future
cash flows. Accordingly, in the third quarter of 1998, the company recorded a
pre-tax impairment charge in its newsprint segment totaling $119.6 million
consisting of a write-down of fixed assets of $108.8 million, a mill stores
inventory reserve of $7.0 million and an increase to other long-term liabilities
of $3.8 million.
4 Sales of Real Property
In the first quarter of 1998, the company sold 26,000 acres of timberlands
primarily in South Carolina for gross proceeds of $30.9 million. The company
realized a pre-tax gain of $21.1 million, or $0.16 per diluted share, after tax
and minority interest.
In October and November 1998, the company announced agreements to sell
approximately 1.6 million acres of timberlands and a sawmill in Maine, for
$370.0 million. The company expects to close these transactions during the first
quarter of 1999.
During 1997, the company sold 1,000 acres of timberlands, primarily in North and
South Carolina. The proceeds from these sales were $1.3 million, resulting in a
pre-tax gain of $0.8 million, or $0.01 per diluted share, after tax and minority
interest. In 1996, the company sold 121,000 acres of timberlands, primarily in
Alabama, South Carolina and Maine. The proceeds from these sales were $121.8
million, resulting in a pre-tax gain of $81.0 million, or $0.94 per diluted
share, after tax and minority interest.
Bowater 1998 Annual Report
38
<PAGE> 43
5 Other Expense (Income)
Other expense (income) includes non-operating items such as foreign
exchange gains and losses, and other non-operating expense and income items.
The breakdown of the components of "Other, net" in the Consolidated Statement
of Operations for the three years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(In millions) 1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Foreign exchange loss
(gain) $ 29.7 $ 2.1 $ (0.1)
Write-down of Canadian
option dollar contracts
to fair value 22.7 -- --
Reserve for a long-term
note receivable 15.0 -- --
Gain on sale of Star Forms -- -- (17.0)
Other (1.8) (1.0) (4.1)
- -------------------------------------------------------------
$ 65.6 $ 1.1 $ (21.2)
=============================================================
</TABLE>
In November 1996, the company completed the sale of Star Forms for $80.0
million, including $60.0 million in cash and a $20.0 million 13% Junior
Subordinated Note. The company recognized a gain on the sale of $17.0 million,
or $0.40 per diluted share. Net cash proceeds totaled $53.9 million after
working capital adjustments and fees and expenses relating to the sale. The
$20.0 million 13% Junior Subordinated Note requires semi-annual interest
payments and four $5.0 million annual principal payments beginning in 2002.
During 1998, the company recorded a reserve of $15.0 million against the Note.
The Note was fully reserved as of December 31, 1998.
6 Earnings Per Share
The company adopted SFAS No. 128, "Earnings per Share," in December
1997, which replaces the presentation of primary earnings per common share with
basic earnings per common share. Basic earnings per common share is calculated
assuming no dilution. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
The reconciliation between basic and diluted earnings per common share for
"Income (loss) before extraordinary charge" is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(In millions, except
per-share amounts) 1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Basic computation:
Income (loss) before
extraordinary charge $ (18.5) $ 53.7 $ 204.1
Less:
LIBOR dividends -- (0.4) (2.5)
Series B dividends -- -- (8.1)
Series C dividends (2.2) (2.2) (2.2)
LIBOR accretion -- (0.3) (0.1)
- ------------------------------------------------------------------
Basic income (loss)
available to common
shareholders $ (20.7) $ 50.8 $ 191.2
- ------------------------------------------------------------------
Basic weighted average
shares outstanding 47.6 40.3 37.7
- ------------------------------------------------------------------
Basic earnings (loss) per
common share $ (0.44) $ 1.26 $ 5.07
- ------------------------------------------------------------------
Diluted computation:
Basic income (loss)
available to common
shareholders $ (20.7) $ 50.8 $ 191.2
Effect of dilutive securities:
Series B dividends -- -- 8.1
- ------------------------------------------------------------------
Diluted income (loss)
available to common
shareholders $ (20.7) $ 50.8 $ 199.3
- ------------------------------------------------------------------
Basic weighted average
shares outstanding 47.6 40.3 37.7
Effect of dilutive securities:
Series B convertible
preferred stock (1) -- -- 4.7
Options (2) -- 0.5 0.5
- ------------------------------------------------------------------
Diluted weighted average
shares outstanding 47.6 40.8 42.9
- ------------------------------------------------------------------
Diluted earnings (loss)
per common share $ (0.44) $ 1.25 $ 4.64
- ------------------------------------------------------------------
</TABLE>
(1) In the interim period of 1996, a one-for-one conversion factor was
assumed in computing the common stock equivalents related to the
Series B convertible preferred stock. The shares were actually
converted at a factor of .82 to 1 in December 1996.
(2) The dilutive effect of options outstanding is computed using the
treasury stock method.
Bowater 1998 Annual Report
39
<PAGE> 44
Notes to Consolidated Financial Statements
Due to the net loss incurred for the year ended December 31, 1998, all common
stock equivalents were excluded to prevent antidilution. Included in the common
stock equivalents at December 31, 1998, were Exchangeable shares that the
company issued on February 15, 1999, due to the redemption of its 7.50%
Convertible Unsecured Subordinated Debentures. In 1997, all options were
included in the calculation of diluted earnings per share. Options to purchase
69,800 shares at approximately $38 were outstanding at December 31, 1996, but
were not included in the computation of diluted earnings per common share
because the options' exercise price was greater than the average market price
of the common shares.
7 Inventories
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(In millions) 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
At lower of cost or market:
Raw materials $ 39.5 $ 15.2
Work in process 3.8 3.1
Finished goods 56.8 33.2
Mill stores and other supplies 95.6 64.1
- ------------------------------------------------------------
195.7 115.6
Excess of current cost over LIFO
inventory value (9.4) (10.1)
- ------------------------------------------------------------
$186.3 $105.5
============================================================
</TABLE>
Inventories valued using the LIFO method comprised 16.4 percent and 33.8
percent, respectively, of total inventories at December 31, 1998 and 1997.
8 Fixed Assets
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Range of
Estimated
Useful Lives
(In millions) 1998 1997 in Years
- -------------------------------------------------------------------
<S> <C> <C> <C>
Land and land
improvements $ 61.8 $ 33.0 10-20
Buildings 364.7 286.4 20-40
Machinery and equipment 4,040.1 2,713.5 5-20
Leasehold improvements 4.1 2.6 10-20
Construction in progress 131.4 24.1 --
- -------------------------------------------------------------------
4,602.1 3,059.6
Less accumulated
depreciation and
amortization 1,716.9 1,505.1
- -------------------------------------------------------------------
$ 2,885.2 $ 1,554.5
- -------------------------------------------------------------------
</TABLE>
9 Accounts Payable and Accrued Liabilities
The following table summarizes the balances in "Accounts payable and
accrued liabilities" as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(In millions) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Trade accounts payable $ 196.4 $ 78.6
Payroll, bonuses and severance 65.2 29.3
Unrealized losses on hedging contracts 54.3 --
Restructuring costs(1) 43.4 --
Employee benefits 27.0 23.8
Accrued interest 25.0 16.6
Property and franchise taxes payable 11.1 12.4
Other 42.0 7.6
- -------------------------------------------------------------
$ 464.4 $ 168.3
=============================================================
</TABLE>
(1) In connection with the acquisition of Avenor, costs were established
for exiting activities at the company's Gold River mill as well as
other sales and administrative offices. These reserves of $63.4
million covered expenses associated with payroll, severance, pensions
and other costs. As of December 31, 1998, $10.4 million was paid. Of
the remaining balance of $53.0 million, $43.4 million is included in
"Accounts payable and accrued liabilities," and $9.6 million is
included in "Other long-term liabilities" in the Consolidated Balance
Sheet at December 31, 1998.
10 Long-term Debt, Net of Current Installments
In connection with the purchase of Avenor in July 1998, the company
assumed approximately $800.0 million of debt. As required in the purchase
accounting for this transaction, the company recorded the debt at fair value
using current interest rate assumptions as of the acquisition date. The
revaluation component of the outstanding debt balance is being amortized over
the remaining life of the related debt securities. The following table sets
forth both the historical and revalued debt balances as of December 31, 1998
and 1997:
Bowater 1998 Annual Report
40
<PAGE> 45
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Revaluation due
to Avenor
Historical acquisition, net Revalued Historical
values of amortization balances values
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unsecured:
9.00% Debentures due 2009 $ 250.0 $ -- $ 250.0 $ 250.0
9.38% Debentures due 2021, net of unamortized
discount of $1.1 in 1998 and $1.2 in 1997 198.8 -- 198.8 198.8
10.62% Notes due 2010 98.0 32.3 130.3 --
10.50% Notes due at various dates from 2001 to 2010 102.0 25.1 127.1 --
9.50% Debentures due in 2012, net of unamortized
discount of $0.3 in 1998 and $0.3 in 1997 124.7 -- 124.7 124.7
10.85% Debentures due 2014 81.5 34.5 116.0 --
9.25% Debentures due 2002 92.1 9.6 101.7 --
9.86% Notes due 2001 87.2 8.0 95.2 --
10.60% Notes due 2011 70.0 23.5 93.5 --
7.50% Convertible Subordinated Debentures 40.4 28.3 68.7 --
7.75% recycling facilities revenue bonds due 2022 62.0 -- 62.0 62.0
7.40% recycling facilities revenue bonds due 2022 39.5 -- 39.5 39.5
7.62% recycling facilities revenue bonds due 2016 30.0 -- 30.0 30.0
10.26% Notes due at various dates from 2001 to 2011 22.0 5.5 27.5 --
Pollution control revenue bonds due at various dates
from 2001 to 2010 with interest at varying
rates from 6.85% to 7.62% 23.3 -- 23.3 23.3
8.50% Notes due 2001 18.1 -- 18.1 18.1
Bank term loan at floating rates due 2000-2001 15.2 -- 15.2 --
10.25% Debenture due 2003 7.4 -- 7.4 --
11.00% subordinated debt due 2003 3.9 -- 3.9 --
ESOT Note due 2000 0.9 -- 0.9 2.8
8.25% Notes due 1999 -- -- -- 7.9
Other 0.8 -- 0.8 --
- ----------------------------------------------------------------------------------------------------------------------
$ 1,367.8 $ 166.8 $1,534.6 $ 757.1
======================================================================================================================
</TABLE>
Long-term debt maturities for the next five years are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(In millions)
- -------------------------------------------------------
<S> <C>
1999 $ 86.2
2000 $ 5.7
2001 $ 136.8
2002 $ 104.5
2003 $ 23.6
- -------------------------------------------------------
</TABLE>
In 1998, the company entered into a new $1.0 billion syndicated credit
facility. This facility replaces the company's previous $150.0 million
facility, and consists of two separate components: i) a $650.0 million, 364-day
facility; and ii) a $350.0 million, five-year facility. Borrowings under the
facility will incur interest based, at the option of the company, on specified
market interest rates plus a margin tied to the credit rating of the company's
long-term debt. The $210.0 million balance outstanding on the facility at
December 31, 1998, has been classified as a current liability in the
Consolidated Balance Sheet as management intends to repay this debt during
1999.
During 1998, the company repaid approximately $65.0 million of the $72.0
million principal amount of its 10.25% Debentures due 2003. The cash price paid
was approximately $75.9 million, including premium and accrued interest. 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.
Bowater 1998 Annual Report
41
<PAGE> 46
Notes to Consolidated Financial Statements
The company has guaranteed payment of debt related to its unconsolidated
subsidiary of up to $50.0 million.
During 1996, the company repurchased approximately $50.0 million of its $300.0
million 9.00% Debentures due 2009 and $5.0 million of other long-term
obligations. This resulted in an extraordinary charge of $3.9 million after
tax, or $0.09 per diluted share for premium and expenses related to the
repurchases.
11 Financial Instruments
At December 31, 1998, the company had foreign currency forward and range
forward contracts with a notional value of $1.3 billion maturing from 1999
through 2001. The notional amount of these contracts represents the amount of
foreign currencies to be purchased or sold at maturity, and does not represent
the company's exposure on these contracts. The majority of these contracts were
acquired in July 1998 with the acquisition of Avenor. The contracts serve as
economic hedges against the company's Canadian operations; however, because the
costs hedged are not firm commitments, these contracts are marked to market,
with gains and losses recognized in the Consolidated Statement of Operations.
For contracts that meet the requirements for hedge accounting, the gains and
losses are deferred and recognized as a part of the hedged transaction.
The company also acquired with the Avenor purchase an interest rate swap
agreement that matures in 1999. This instrument no longer hedges an exposure to
the company and therefore has been recorded in the Consolidated Balance Sheet
at its fair value.
The carrying amounts of the company's short-term financial assets and
liabilities (excluding derivatives) approximate fair value. The company
estimates the fair value of its long-term debt using rates currently available
for debt with similar terms and remaining maturities. The fair value of
derivative financial instruments is based on current termination values or
quoted market prices of comparable contracts. A summary of the company's
derivative financial instruments and long-term debt at December 31, 1998 and
1997 follows:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
Asset (Liability) Asset (Liability)
Notional --------------------- Notional --------------------
Amount of Carrying Fair Amount of Carrying Fair
(In millions) Derivatives Amount Value Derivatives Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foreign currency exchange
agreements and options:
Buy currency:
Canadian dollar $ 1,287.9 $ (105.1) $(105.1) $ -- $ -- $ --
Sell currency:
British pound 1.9 -- -- 0.6 -- --
French franc 1.3 -- -- 0.8 -- --
Italian lira 2.7 -- -- 0.7 -- (0.1)
Other 0.2 -- -- 0.3 -- --
- ----------------------------------------------------------------------------------------------------------------
Interest rate swap $ 100.0 $ (4.4) $ (4.4) $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------
Long-term debt, net of
current installments $ -- $(1,534.6) $(1,603.3) $ -- $(757.1) $(916.0)
================================================================================================================
</TABLE>
The counterparties to the company's derivative financial instruments are
substantial and creditworthy multi-national financial institutions that are
recognized market makers. The risk of counterparty nonperformance is considered
to be remote.
12 Pension and Other Nonpension Postretirement Benefits
The company has multiple defined benefit pension plans and other
nonpension postretirement plans (the Plans) covering substantially all
employees. Benefits are based upon years of service and, depending on the Plan,
average compensation earned by employees either during their last years of
employment or over their careers. During 1998, the company acquired several
pension and nonpension postretirement benefit Plans covering employees of
Bowater Pulp and Paper Canada, Inc. (formerly Avenor). The effect of these Plans
on the benefit obligations and assets are included in the reconciliations on the
following page.
Bowater 1998 Annual Report
42
<PAGE> 47
The following tables include both foreign and domestic Plans at December 31,
1998 and 1997. The benefit obligations of the Plans outside the United States
are significant relative to the total benefit obligation; however, the
assumptions used to measure the obligations of those Plans are similar to those
used for the United States Plans.
<TABLE>
<CAPTION>
Pension Plans Other Postretirement Plans
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 501.3 $ 460.9 $ 134.6 $ 118.7
Acquisition 619.2 -- 33.6 --
Service cost 18.1 12.5 3.5 2.9
Interest cost 51.5 35.0 10.2 9.0
Amendments -- -- (0.9) --
Actuarial loss 50.5 26.8 8.4 8.0
Participant contributions 1.9 1.1 0.9 0.9
Benefits paid (34.8) (31.6) (8.7) (4.9)
Effect of foreign currency exchange rate changes (6.1) (3.4) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 1,201.6 501.3 181.6 134.6
===============================================================================================================================
Change in Plan assets:
Fair value of Plan assets at beginning of year 569.4 471.3 0.0 0.0
Acquisition 568.4 -- -- --
Actual return on Plan assets (32.5) 114.8 -- --
Employer contributions 8.2 18.7 7.8 4.0
Participant contributions 1.9 1.1 0.9 0.9
Benefits paid (34.8) (31.6) (8.7) (4.9)
Effect of foreign currency exchange rate changes (7.4) (4.9) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Fair value of Plan assets at end of year 1,073.2 569.4 -- --
===============================================================================================================================
Reconciliation of funded status:
Funded status (128.4) 68.1 (181.6) (134.6)
Unrecognized actuarial loss (gain) 125.5 (23.7) 22.9 15.3
Unrecognized transition amount (8.2) (11.8) -- --
Unrecognized prior service cost 5.3 5.8 4.0 5.2
- -------------------------------------------------------------------------------------------------------------------------------
Net amount recognized (5.8) 38.4 (154.7) (114.1)
===============================================================================================================================
Amounts recognized in the Consolidated Balance Sheet consist of:
Prepaid benefit cost 61.8 48.5 -- --
Accrued benefit liability (104.5) (31.4) (154.7) (114.1)
Intangible asset 4.6 4.3 -- --
Accumulated other comprehensive loss (income) 32.3 17.0 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (5.8) $ 38.4 $ (154.7) $ (114.1)
===============================================================================================================================
Weighted average assumptions:
Discount rate 6.50% 7.00% 6.50% 7.00%
Expected return on Plan assets 9.50% 9.50% -- --
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
- -------------------------------------------------------------------------------------------------------------------------------
Components of net periodic benefit cost:
Service cost, net of employee contributions $ 18.1 $ 12.5 $ 3.5 $ 2.9
Interest cost 51.5 35.0 10.2 9.0
Expected return on Plan assets (65.5) (40.4) -- --
Amortization of transition amount (3.4) (3.4) -- --
Amortization of prior service cost 0.6 0.6 0.3 0.4
Recognized net actuarial loss (gain) 2.6 1.6 0.4 (0.1)
- -------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 3.9 $ 5.9 $ 14.4 $ 12.2
===============================================================================================================================
</TABLE>
Bowater 1998 Annual Report
43
<PAGE> 48
Notes to Consolidated Financial Statements
As of December 31, 1998, the company decreased the Plans' discount rate from
7.0 percent to 6.5 percent to more closely approximate interest rates on
high-quality long-term obligations on the measurement date. In 1998, the
assumed inflationary health care cost trend rate used to determine cost was 7.5
percent decreasing to 7.0 percent in 1999 and gradually decreasing to an
ultimate rate of 5.0 percent in 2004. The rate used to determine 1997 cost was
8.0 percent, gradually decreasing to an ultimate rate of 5.5 percent in 2003.
Variations in this health care cost trend rate can have a significant effect on
the amounts reported. An increase of 1.0 percent in this assumption would
increase the accumulated postretirement benefit obligation (APBO) by
approximately $30.5 million, or 17.0 percent, and would increase the annual
service cost and interest cost by approximately $2.9 million, or 21.0 percent.
A decrease of 1.0 percent in this assumption would decrease the APBO by
approximately $24.4 million, or 13.0 percent, and would decrease the annual
service cost and interest cost by approximately $2.2 million, or 16.0 percent.
The sum of projected benefit obligations and fair value of Plan assets for
pension Plans with projected benefit obligations in excess of Plan assets were
$858.6 million and $713.0 million, respectively, as of December 31, 1998, and
were $96.1 million and $63.4 million, respectively, as of December 31, 1997.
The sum of the accumulated benefit obligations and fair value of Plan assets for
pension Plans with accumulated benefit obligations in excess of Plan assets were
$444.7 million and $351.1 million, respectively, as of December 31, 1998, and
were $92.3 million and $63.4 million, respectively, as of December 31, 1997.
The provisions of SFAS No. 87, "Employers' Accounting for Pensions," required
the company to record an additional minimum liability of $36.9 million and $21.3
million at December 31, 1998 and 1997, respectively. This liability represents
the amount by which the accumulated benefit obligation exceeds the sum of the
fair market value of Plan assets and accrued amounts previously recorded. The
additional liability may be offset by an intangible asset to the extent of
previously unrecognized prior service cost. The intangible assets of $4.6
million and $4.3 million at December 31, 1998 and 1997, respectively, are
included on the line item entitled "Other assets" in the Consolidated Balance
Sheet. The remaining amounts of $19.6 million and $10.3 million, net of related
tax benefits, are recorded as a component of shareholders' equity on the line
item entitled "Accumulated other comprehensive income (loss)," in the
Consolidated Balance Sheet at December 31, 1998 and 1997, respectively.
In addition to the previously described pension and nonpension postretirement
Plans, the company also sponsors defined contribution Plans within the United
States and for certain sites outside of the United States. Employees are
allowed to contribute to the Plan, and the company makes a matching
contribution between 3.6 percent and 7.2 percent of the employees'
compensation. The company's expense for the defined contribution plans totaled
$7.0 million in 1998, $7.3 million in 1997 and $7.4 million in 1996.
13 Income Taxes
The components of "Income before income taxes, minority interests and
extraordinary charge" consist of U.S. income (loss) of $(17.1) million, $95.8
million and $331.2 million, and foreign income (loss) of $33.9 million, $(6.3)
million and $22.0 million, in 1998, 1997 and 1996, respectively.
The provision for income tax expense consists of:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 42.3 $ 30.4 $ 73.7
Deferred (49.6) 2.2 30.7
- -----------------------------------------------------------
(7.3) 32.6 104.4
- -----------------------------------------------------------
State:
Current 10.5 5.2 13.1
Deferred (6.4) (1.9) (1.0)
- -----------------------------------------------------------
4.1 3.3 12.1
- -----------------------------------------------------------
Foreign:
Current 7.6 0.8 0.7
Deferred 22.7 (3.6) 7.2
- -----------------------------------------------------------
30.3 (2.8) 7.9
- -----------------------------------------------------------
Total:
Current 60.4 36.4 87.5
Deferred (33.3) (3.3) 36.9
- -----------------------------------------------------------
$ 27.1 $ 33.1 $ 124.4
===========================================================
</TABLE>
Bowater 1998 Annual Report
44
<PAGE> 49
The components of deferred income taxes at December 31, 1998 and 1997, in the
accompanying Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Timber and timberlands (1) $ (65.1) $ (38.7)
Fixed assets, net (691.6) (390.1)
Other assets (5.8) (21.1)
- ------------------------------------------------------------------------
Deferred tax liabilities (762.5) (449.9)
- ------------------------------------------------------------------------
Accounts receivable (2) -- 0.1
Inventories (2) 3.2 1.9
Other current assets (2) 0.1 1.2
Current liabilities (2) 59.0 7.0
Other long-term liabilities 130.0 46.3
U.S. tax credit carryforwards,
primarily alternative minimum
tax credit carryforwards 24.4 35.4
Canadian investment tax
credit carryforwards 20.3 26.8
Ordinary loss carryforwards 77.1 --
Capital loss carryforwards 3.0 --
Valuation allowance (14.5) (3.7)
- ------------------------------------------------------------------------
Deferred tax assets 302.6 115.0
- ------------------------------------------------------------------------
Net deferred tax liability $ (459.9) $ (334.9)
========================================================================
</TABLE>
(1) Includes the deferred tax impact of the capitalization of lease
payments, management fees and property taxes of approximately $198.7
million and $123.6 million at December 31, 1998 and 1997,
respectively.
(2) Included in "Other current assets" in the accompanying Consolidated
Balance Sheet.
The following is a reconciliation of the U.S. federal statutory and effective
tax rates as a percentage of income before income taxes, minority interests and
extraordinary charge:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory
income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
income tax benefit 15.9 2.4 2.2
Foreign taxes 86.6 (0.7) 0.1
Goodwill 22.7 -- --
Other, net 1.1 0.3 (2.1)
- -----------------------------------------------------------------------
Effective income tax rate 161.3% 37.0% 35.2%
=======================================================================
</TABLE>
The large increase in the company's effective income tax rate in 1998 was due
to the expiration of Canadian investment tax credits and the non-deductible
amortization of the goodwill recorded upon the acquisition of Avenor.
At December 31, 1998, the company had Canadian federal and provincial net
operating loss carryforwards of $93.2 million and $923.4 million, respectively,
and U.S. net operating loss carryforwards of $34.3 million. In addition, $20.3
million of Canadian investment tax credit carryforwards and $24.4 million of
U.S. tax credit carryforwards were available to reduce future income taxes. The
Canadian non-capital loss and investment tax credit carryforwards expire at
various dates between 1999 and 2007. The majority of the U.S. tax credit
carryforwards have no expiration. The company believes that deferred tax
assets, net of the existing valuation allowance of $14.5 million at December
31, 1998, will be ultimately realized. The company increased the valuation
allowance in 1998 by $10.8 million from the $3.7 million balance at December
31, 1997 and 1996.
The cumulative amount of CNC's undistributed earnings through 1992, on which
the company has not provided income taxes, was $64.4 million as of December 31,
1998. Distribution of these earnings would qualify for the 80 percent dividend
exclusion. The company has also not provided deferred income taxes on the
cumulative amount of undistributed earnings related to its 51 percent
investment in Mersey since that investment is considered permanent in duration
and determination of such liability is not practicable.
Bowater 1998 Annual Report
45
<PAGE> 50
Notes to Consolidated Financial Statements
14 Dividends to Minority Interest Shareholders
In 1998 and 1997, the Board of Directors of CNC declared dividends of
$49.6 million and $3.2 million, respectively. As a result, $24.3 million and
$1.6 million were paid to the minority shareholders during the years 1998 and
1997, respectively. In 1996, the Board of Directors of CNC declared dividends of
$100.0 million, resulting in payments of $49.0 million to the minority
shareholders.
15 Commitments and Contingencies
The company is involved in various legal proceedings relating to
contracts, commercial disputes, taxes, environmental issues, employment and
workers' compensation claims and other matters. The company 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.
16 Redeemable Preferred Stock
In 1985, the company sold $75.0 million principal amount of redeemable
preferred stock with cumulative quarterly dividends equal to 85 percent of the
arithmetic mean of three-month LIBOR for United States dollar deposits.
The company was required to redeem 500,000 shares per year from 1996 through
1998 at a redemption price of $50.00 per share plus any accrued and unpaid
dividends. In 1995 and 1996, the company redeemed 1,000,000 shares for $50.6
million, including accrued dividends. In 1997, the company redeemed the
remaining 500,000 shares for $25.1 million, including accrued dividends.
The company is authorized to issue 10,000,000 shares of Serial Preferred Stock,
$1 par value, of which the LIBOR Preferred Stock constituted Series A. See Note
17 for a discussion of Series B and C Preferred Stock.
17 Convertible and Cumulative Preferred Stock
In 1994, the company completed two public offerings of preferred stock.
The company sold 4,893,616 depositary shares, priced at $23.50 per share, each
representing one-fourth of a share of 7% Series B Convertible Preferred Stock
referred to as Preferred Redeemable Increased Dividend Equity Securities
(PRIDES). The company also sold 3,400,000 depositary shares, priced at $25.00
per share, each representing one-fourth of a share of 8.40% Series C Cumulative
Preferred Stock. The Series C Cumulative Preferred Stock has a liquidation value
of $25.00 per depositary share.
In December 1996, pursuant to an optional redemption provision, the company
called for redemption on January 9, 1997, all of its outstanding depositary
shares relating to the PRIDES. The PRIDES were redeemed using Bowater common
stock at a conversion rate of .82 of a common share for each depositary share,
resulting in the issuance of 4,012,765 common shares. The company reflected this
transaction in the Consolidated Financial Statements at December 31, 1996.
In 1995, the company repurchased 585,682 shares of the Series C Cumulative
Preferred Stock leaving a balance of 264,318 preferred shares. On February 8,
1999, the company redeemed all of the remaining outstanding shares for $26.6
million, including accrued dividends.
18 Stock Option Plans
The company has three stock option plans - 1988, 1992 and 1997. These
plans authorized the grant of up to 6,000,000 shares of the company's common
stock in the form of incentive stock options, non-qualified stock options, stock
appreciation rights, performance stock and restricted stock awards. The option
price for options granted under the 1988 and 1992 plans was based on the fair
market value of the company's common stock on the date of grant, or the average
fair market value of the company's common stock for the 20 business days
immediately preceding the date of grant. The option price for options granted
under the 1997 plan was based on the fair market value of the company's common
stock on the date of grant.
All options granted through December 31, 1996, were exercisable at December 31,
1998. Options granted in 1998 and 1997 generally become exercisable over a
period of two years. Unless terminated earlier in accordance with their terms,
all options expire 10 years from the date of grant. The plans provide that any
outstanding options will become immediately exercisable upon a change in control
of the company. In such event, grantees of options have the right to require the
company to purchase such options for cash in lieu of the issuance of common
stock. The company received $6.8 million in 1998, $24.5 million in 1997 and
$12.3 million in 1996 from the exercise of stock options. The exercise of stock
options also generated tax benefits for the company of $2.6 million in 1998,
$7.9 million in 1997 and $2.4 million in 1996.
Bowater 1998 Annual Report
46
<PAGE> 51
The company records compensation expense resulting from stock option grants
based on intrinsic value in accordance with APB Opinion No. 25. In accordance
with SFAS No. 123, the following pro forma disclosures present the effects on
income had the fair value based method been chosen. These disclosures are shown
below for 1998, 1997 and 1996, and have no impact on the company's reported
financial position or results of operations.
<TABLE>
<CAPTION>
(In millions,
except per-share amounts) 1998 1997 1996
===========================================================================
<S> <C> <C> <C>
Net income (loss):
As reported $ (18.5) $ 53.7 $ 200.2
Pro forma (22.0) 50.8 196.3
Earnings (loss) per share - basic:
As reported (0.44) 1.26 4.97
Pro forma (0.51) 1.19 4.87
Earnings (loss) per share - diluted:
As reported (0.44) 1.25 4.55
Pro forma $ (0.51) $ 1.17 $ 4.46
===========================================================================
</TABLE>
The pro forma net income effects of SFAS No. 123 in 1998, 1997 and 1996 may not
be representative of the pro forma net income effects in future years due to
changes in assumptions and the number of options granted in future years.
The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for 1998, 1997 and 1996, respectively: dividend yield of 1.6
percent, 1.9 percent and 2.3 percent; expected volatility of 29.1 percent, 29.5
percent and 30.9 percent; risk-free interest rate of 5.6 percent, 6.4 percent
and 5.4 percent; and expected option lives of 5.6 years, 5.5 years and 5.6
years. The weighted average fair value of each option granted during 1998, 1997
and 1996 was $15.68, $13.65 and $10.67, respectively.
Information with respect to options granted under the stock option plans is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
========================================================================================================================
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares (000's) Price Shares (000's) Price Shares (000's) Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,907 $ 31 2,477 $ 27 2,576 $ 26
Granted during the year 388 $ 49 404 $ 42 398 $ 35
Exercised during the year (250) $ 27 (934) $ 26 (480) $ 25
Canceled during the year (5) $ 42 (40) $ 35 (17) $ 28
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,040 $ 35 1,907 $ 31 2,477 $ 27
- ------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,470 $ 30 1,371 $ 26 1,805 $ 25
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
at December 31, 1998 at December 31, 1998
==========================================================================================================
Weighted
Weighted Average Weighted
Average Remaining Average
Number of Exercise Contractual Number of Exercise
Range of Exercise Prices Shares (000) Price Life (years) Shares (000) Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21 to $30 921 $ 26 4.6 921 $ 26
$30 to $40 359 $ 35 6.9 359 $ 35
$40 to $50 760 $ 45 8.5 190 $ 42
- ----------------------------------------------------------------------------------------------------------
2,040 $ 35 6.5 1,470 $ 30
==========================================================================================================
</TABLE>
Bowater 1998 Annual Report
47
<PAGE> 52
Notes to Consolidated Financial Statements
19 Exchangeable Shares
In conjunction with the acquisition of Avenor, the company's indirect
wholly owned subsidiary, Bowater Canada Inc. (BCI), issued 3,773,547 shares of
no par value Exchangeable shares. The Exchangeable shares are exchangeable at
any time, at the option of the holder, on a one-for-one basis for shares of
Bowater common stock. Holders of Exchangeable shares have voting rights
substantially equivalent to holders of Bowater common stock and are entitled to
receive dividends equivalent, on a per share basis, to dividends paid by Bowater
on shares of Bowater common stock. On December 31, 1998, 2,270,525 Exchangeable
shares were outstanding and held by non-affiliates. In February 1999, BCI issued
an additional 1,359,620 Exchangeable shares upon the redemption of its 7.50%
Convertible Unsecured Subordinated Debentures.
20 Employee Stock Ownership Plan
The company has an Employee Stock Ownership Plan (ESOP) as a component
of the company's Salaried Employees' Savings Plan. The ESOP was funded by a
$17.5 million loan, the proceeds of which were lent to an Employee Stock
Ownership Trust (ESOT). The ESOT purchased 574,160 shares of the company's
common stock at an average purchase price of $30.59. As of December 31, 1998,
approximately 505,000 shares have been distributed to participants' accounts.
The remaining shares serve as security for the balance of the loan.
21 Treasury Stock
In November 1997, the Board of Directors authorized the repurchase of
up to 4.1 million shares of the company's outstanding common stock in the open
market, subject to normal trading restrictions. Under this program, the company
purchased 2,441,100 shares at a cost of $98.1 million in 1998, and purchased
220,000 shares at a cost of $9.6 million in 1997. As of March 1, 1999, the
company purchased an additional 622,700 shares at a total cost of $24.8 million.
In February 1997, the company completed a previously announced stock repurchase
program, purchasing 1,408,300 shares of common stock at a cost of $57.2 million
in 1997 and 2,591,700 shares of common stock at a cost of $98.8 million in 1996.
The company purchased a total of 4,000,000 shares of common stock, or 10 percent
of the outstanding shares at a cost of $156.0 million.
The company uses shares of its treasury stock to pay employee/ director benefits
and to fund the company's Dividend Reinvestment Plan.
22 Timberland Leases and Operating Leases
The company controls timberlands under long-term leases expiring 1999
to 2058, for which aggregate lease payments were $0.7 million in 1998, $0.7
million in 1997, and $0.6 million in 1996. In addition, the company leases
certain office premises, office equipment and transportation equipment under
operating leases. Total rental expense for these operating leases was $8.5
million in 1998, $5.5 million in 1997, and $8.0 million in 1996.
Bowater 1998 Annual Report
48
<PAGE> 53
At December 31, 1998, the future minimum rental payments under timberland leases
and operating leases are:
<TABLE>
<CAPTION>
--------------------------------------------------------
Timberland Operating
Lease Leases,
(In millions) Payments net
--------------------------------------------------------
<S> <C> <C>
1999 $ 0.7 $ 11.0
2000 0.7 8.6
2001 0.7 8.2
2002 0.7 7.8
2003 0.6 7.6
Thereafter 19.0 37.1
--------------------------------------------------------
$ 22.4 $ 80.3
========================================================
</TABLE>
In conjunction with the Avenor acquisition, the company manages 14 million acres
of Crown-owned land in Canada on which the company has cutting rights. The
company makes payments to various Canadian provinces based on the amount of
timber harvested. There are no minimum rental payments associated with the
cutting rights.
23 Segment Information
Description of the types of products and services from which each
reportable segment derives its revenues:
The company has three reportable segments: 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 or leased
timberlands in the United States and Canada (after the pending 1999 timberlands
sale transactions), 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 and Coated Paper Divisions, 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.
Factors management used to identify the company's reportable segments:
The company's reportable segments are business units responsible for the
marketing and sales of different products. They are managed separately because
of the different products that they are responsible for manufacturing and
distributing.
The following tables summarize information about segment profit and loss and
segment assets for the three years ended December 31, 1998, 1997 and 1996:
Bowater 1998 Annual Report
49
<PAGE> 54
Notes to Consolidated Financial Statements
23 Segment Information - continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Newsprint Coated Forest Corporate/
& Directory Paper Products Other
1998 (In millions) Division Division Division Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales - including internal sales $1,356.6 $474.1 $ 517.4 $ 17.2 $2,365.3
Eliminations of intersegment sales -- -- (370.3) -- (370.3)
- ---------------------------------------------------------------------------------------------------------------------
Net sales - external customers $1,356.6 $474.1 $ 147.1 $ 17.2(1) $1,995.0
- ---------------------------------------------------------------------------------------------------------------------
Depreciation, amortization and cost of timber harvested $ 154.9 $ 51.0 $ 21.7 $ 2.0 $ 229.6
- ---------------------------------------------------------------------------------------------------------------------
Operating income $ 32.8 $107.4 $ 45.9 $(43.9)(1) $ 142.2
- ---------------------------------------------------------------------------------------------------------------------
Total assets $3,869.3 $488.3 $ 590.4 $143.4(1) $5,091.4
- ---------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 170.8 $ 29.6 $ 17.0 $ 5.8 $ 223.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Newsprint Coated Forest Corporate/
& Directory Paper Products Other
1997 (In millions) Division Division Division(2) Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales - including internal sales $ 886.8 $458.4 $ 428.0 $ (0.5) $1,772.7
Eliminations of intersegment sales -- -- (288.2) -- (288.2)
- ---------------------------------------------------------------------------------------------------------------------
Net sales - external customers $ 886.8 $458.4 $ 139.8 $ (0.5) $1,484.5
- ---------------------------------------------------------------------------------------------------------------------
Depreciation, amortization and cost of timber harvested $ 98.6 $ 51.3 $ 18.5 $ 1.4 $ 169.8
- ---------------------------------------------------------------------------------------------------------------------
Operating income $ 30.0 $ 91.2 $ 57.4 $(42.9) $ 135.7
- ---------------------------------------------------------------------------------------------------------------------
Total assets $1,198.7 $496.3 $ 572.2 $478.6 $2,745.8
- ---------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 52.4 $ 23.0 $ 22.4 $ 1.8 $ 99.6
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Newsprint Coated Forest Corporate/
& Directory Paper Products Other
1996 (In millions) Division Division Division(2) Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales - including internal sales $1,102.6 $499.3 $ -- $147.7 $1,749.6
Eliminations of intersegment sales (26.1) (5.2) -- -- (31.3)
- ---------------------------------------------------------------------------------------------------------------------
Net sales - external customers $1,076.5 $494.1 $ -- $147.7(3) $1,718.3
- ---------------------------------------------------------------------------------------------------------------------
Depreciation, amortization and cost of timber harvested $ 110.5 $ 56.1 $ -- $ 7.8(3) $ 174.4
- ---------------------------------------------------------------------------------------------------------------------
Operating income $ 203.6 $134.1 $ -- $(36.5)(3) $ 301.2
- ---------------------------------------------------------------------------------------------------------------------
Total assets $1,796.4 $599.0 $ -- $470.1 $2,865.5
- ---------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 73.2 $ 32.6 $ -- $ 1.1 $ 106.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes Gold River pulp mill, closed in 1998, with net sales, operating
loss and total assets of $17.0 million, $4.6 million, and $28.3 million,
respectively.
(2) Segment information for the Forest Products Division, established in
mid-1997, is included with the Newsprint & Directory Division and Coated
Paper Division for 1996. Due to the unavailability of the data, it was
impracticable to re-state 1996. Information for the full year 1997 has
been re-stated on a pro forma basis for comparative purposes only.
(3) Includes Star Forms Inc., sold in 1996, with net sales, depreciation and
amortization and operating income of $153.3 million, $6.5 million and
$9.5 million, respectively.
Bowater 1998 Annual Report
50
<PAGE> 55
23 Segment Information - continued
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Net Sales by Product
- ----------------------------------------------------------------------
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Newsprint $ 1,108.8 $ 730.8 $ 845.3
Coated Groundwood 391.0 337.7 356.3
Directory paper 173.5 178.9 183.9
Market pulp 272.1 172.7 154.3
Uncoated groundwood
specialties 49.3 44.0 191.4
Lumber and other
wood products 148.0 134.8 108.0
Less: distribution costs (147.7) (114.4) (120.9)
- ----------------------------------------------------------------------
$ 1,995.0 $ 1,484.5 $ 1,718.3
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Net Sales by Country (1)
- ----------------------------------------------------------------------
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 1,750.6 $ 1,331.3 $ 1,526.0
Canada 28.1 20.2 20.2
Japan 44.6 21.5 22.4
Korea 44.1 18.8 21.3
Brazil 37.0 37.4 33.1
Italy 31.9 26.0 18.9
United Kingdom 22.9 9.1 11.6
Other countries (2) 183.5 134.6 185.7
Less: distribution costs (147.7) (114.4) (120.9)
- ----------------------------------------------------------------------
$ 1,995.0 $ 1,484.5 $ 1,718.3
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Long-Lived Assets by Country
- ----------------------------------------------------------------------
(In millions) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 1,773.1 $ 1,790.7 $ 1,867.8
Canada 2,334.5 157.7 164.5
Korea 195.3 0.1 --
- ----------------------------------------------------------------------
$ 4,302.9 $ 1,948.5 $ 2,032.3
- ----------------------------------------------------------------------
</TABLE>
(1) Revenues are attributed to countries based on the location of the customer.
No one customer represented 10 percent or more of consolidated net sales.
(2) No country in this group exceeded 10 percent of consolidated net sales.
Bowater 1998 Annual Report
51
<PAGE> 56
Notes to Consolidated Financial Statements
24 Quarterly Information (unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(In millions, except per-share amounts)
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 383.1 $ 395.8 $ 576.9 $ 639.2 $ 1,995.0
Gross profit (loss) 63.6 72.3 (19.5) 107.2 223.6
Operating income (loss) 46.4 58.5 (39.0) 76.3 142.2
Income (loss) before extraordinary charge 24.8 18.9 (88.1) 25.9 (18.5)
Net income (loss) 24.8 18.9 (88.1) 25.9 (18.5)
Basic earnings (loss) per common share 0.60 0.45 (1.69) 0.46 (0.44)
Diluted earnings (loss) per common share $ 0.59 $ 0.44 $ (1.69) $ 0.45 $ (0.44)
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
Net sales $ 348.5 $ 356.4 $ 378.6 $ 401.0 $ 1,484.5
Gross profit 25.4 43.0 59.2 80.3 207.9
Operating income 10.1 23.2 40.5 61.9 135.7
Income (loss) before extraordinary charge (0.3) 7.1 16.8 30.1 53.7
Net income (loss) (0.3) 7.1 16.8 30.1 53.7
Basic earnings (loss) per common share (0.03) 0.16 0.40 0.73 1.26
Diluted earnings (loss) per common share $ (0.03) $ 0.16 $ 0.40 $ 0.72 $ 1.25
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
Net sales $ 468.9 $ 454.0 $ 423.2 $ 372.2 $ 1,718.3
Gross profit 163.7 114.1 83.5 33.0 394.3
Operating income 142.7 90.4 59.9 8.2 301.2
Income before extraordinary charge 112.9 44.3 28.3 18.6 204.1
Net income 112.9 42.4 26.7 18.2 200.2
Basic earnings per common share 2.84 1.04 0.63 0.41 4.97
Diluted earnings per common share $ 2.53 $ 0.96 $ 0.60 $ 0.41 $ 4.55
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Bowater 1998 Annual Report
52
<PAGE> 57
Management's Statement of Responsibility
The management of the company is responsible for the information contained in
the financial statements and in the other parts of this report. The accompanying
consolidated financial statements of Bowater Incorporated and Subsidiaries have
been prepared in accordance with generally accepted accounting principles. In
preparing these statements, management has made judgments based upon available
information. To ensure that this information will be as accurate and factual as
possible, management has communicated to all appropriate employees the
requirements for accurate recordkeeping and accounting.
The company maintains a system of internal accounting controls designed to
provide reasonable assurances for the safeguarding of assets and the reliability
of financial records. The system is subject to continuous review through a
corporatewide internal audit program with appropriate management follow-up
action. Management believes that through the careful selection of employees, the
division of responsibilities and the application of formal policies and
procedures, the company has an effective and responsive system of internal
accounting controls.
The company's independent auditors, KPMG Peat Marwick LLP, are responsible for
conducting an audit of the company's consolidated financial statements in
accordance with generally accepted auditing standards and for expressing their
opinion as to whether these consolidated financial statements present fairly, in
all material respects, the financial position, results of operations and cash
flows of the company and its subsidiaries in conformity with generally accepted
accounting principles. Their report appears on this page.
There is an Audit Committee of the Board of Directors composed of three
nonemployee directors who meet regularly with management, the internal auditors
and KPMG Peat Marwick LLP to discuss specific accounting, reporting and internal
control matters. Both the independent auditors and internal auditors have full
and free access to the Audit Committee.
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of Bowater
Incorporated and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, capital accounts and cash flows for each
of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bowater Incorporated
and Subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
February 12, 1999
Greenville, South Carolina
KPMG Peat Marwick LLP
Bowater 1998 Annual Report
53
<PAGE> 58
Financial and Operating Record(*)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per-share amounts) 1998 (1) 1997 1996 (1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Statement Data
Net sales $ 1,995.0 $ 1,484.5 $ 1,718.3
Operating income (loss) 142.2 135.7 301.2
Income (loss) from continuing operations before cumulative effect
of changes in accounting principles and extraordinary charge (2) (18.5) 53.7 204.1
Net income (loss) (18.5) 53.7 200.2
Diluted earnings (loss) per common share (0.44) 1.25 4.55
Dividends declared per common share (3) 0.80 0.80 0.80
- ------------------------------------------------------------------------------------------------------------------------
Product Sales Information
Newsprint $ 1,108.8 $ 730.8 $ 845.3
Coated groundwood 391.0 337.7 356.3
Directory paper 173.5 178.9 183.9
Market pulp 272.1 172.7 154.3
Uncoated groundwood specialties 49.3 44.0 38.0
Lumber and other wood products 148.0 134.8 108.0
Communication papers -- -- 153.4
Distribution costs (147.7) (114.4) (120.9)
- ------------------------------------------------------------------------------------------------------------------------
$ 1,995.0 $ 1,484.5 $ 1,718.3
- ------------------------------------------------------------------------------------------------------------------------
Financial Position
Timber and timberlands $ 472.8 $ 394.0 $ 395.7
Fixed assets, net 2,885.2 1,554.5 1,636.7
Total assets 5,091.4 2,745.8 2,865.5
Total debt 1,830.8 758.9 760.6
Total debt and redeemable preferred stock 1,830.8 758.9 785.4
Total capitalization (4) 3,736.6 2,038.3 2,082.8
Additional Information
Percent return on average common equity (1.4)% 4.5% 18.6%
Income from continuing operations as a percentage of net sales (0.9)% 3.6% 11.9%
Total debt as a percentage of total capitalization (5) 46.3% 37.2% 36.5%
Total debt and redeemable preferred stock as
a percentage of shareholders' equity (5) 92.3% 65.8% 67.1%
Effective tax rate 161.3% 37.0% 35.2%
Cash flow from (used for) operations $ 274.1 $ 195.6 $ 336.2
Cash invested in fixed assets, timber and timberlands $ 223.2 $ 99.6 $ 106.9
Book value - common shareholders' equity per common share $ 32.31 $ 27.99 $ 27.97
Common stock price range $32.81-59.56 $37.00-55.62 $31.75-41.25
Sales (thousands of short tons)
Newsprint 2,160 1,482 1,446
Coated groundwood 486 479 432
Directory paper 226 228 211
Market pulp 674 407 393
Uncoated groundwood specialties 90 83 64
Registered shareholders 6,100 5,200 5,600
Employees 8,300 5,000 5,000
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) This table should be used in conjunction with the financial statements and
notes to the financial statements.
(1) In 1998, the company acquired Avenor and the South Korean newsprint mill.
In 1996, the company sold Star Forms. In 1991, the company acquired GNP.
(2) Extraordinary charge relates to debt retirements in 1996, 1995 and 1990.
The changes in accounting principles relate to the adoption of SFAS No.
106 and SFAS No. 109 in 1992.
Bowater 1998 Annual Report
54
<PAGE> 59
Financial and Operating Record(*)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 (1) 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,001.1 $ 1,359.0 $ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0 $ 1,330.8
549.3 42.1 (63.3) (74.1) 103.7 174.9 280.5 334.1
258.2 (4.8) (64.5) (92.9) 45.6 87.4 144.6 164.3
246.9 (4.8) (64.5) (82.0) 45.6 78.4 144.6 164.3
5.22 (0.59) (1.84) (2.34) 1.15 2.05 3.86 4.37
0.60 0.60 0.60 1.20 1.20 1.20 1.14 0.97
- -------------------------------------------------------------------------------------------------------------------------------
$ 841.6 $ 604.0 $ 607.6 $ 649.6 $ 601.4 $ 617.2 $ 645.3 $ 671.3
463.8 307.0 316.2 296.1 259.9 279.0 279.2 269.7
162.4 128.6 138.6 90.2 -- -- -- --
233.3 130.6 98.9 136.4 138.0 170.7 182.6 153.2
41.2 37.3 39.9 34.5 -- -- -- --
116.8 87.9 103.1 79.5 34.3 32.6 32.7 37.2
248.9 190.7 191.8 207.5 254.9 280.9 310.2 279.0
(106.9) (127.1) (142.4) (133.0) (98.1) (91.3) (89.0) (79.6)
- -------------------------------------------------------------------------------------------------------------------------------
$ 2,001.1 $ 1,359.0 $ 1,353.7 $ 1,360.8 $ 1,190.4 $ 1,289.1 $ 1,361.0 $ 1,330.8
- -------------------------------------------------------------------------------------------------------------------------------
$ 430.4 $ 426.4 $ 422.5 $ 432.6 $ 414.1 $ 297.9 $ 285.7 $ 273.5
1,711.0 1,785.0 1,750.7 1,821.7 1,858.8 1,604.7 1,529.5 1,223.8
2,908.2 2,851.4 2,726.2 2,881.6 2,780.0 2,297.9 2,284.2 1,880.5
818.1 1,118.5 1,120.2 1,134.3 864.5 498.2 532.4 293.2
867.8 1,193.0 1,194.6 1,208.5 938.6 572.2 606.4 367.1
2,113.9 2,222.5 2,071.8 2,186.4 2,061.7 1,694.5 1,700.5 1,368.0
27.5% (3.0)% (8.6)% (9.6)% 4.4% 7.9% 16.0% 20.7%
12.9% (0.4)% (4.8)% (6.8)% 3.8% 6.8% 10.6% 12.4%
38.7% 50.3% 54.1% 51.9% 41.9% 29.4% 31.3% 21.4%
79.2% 134.4% 163.1% 147.7% 99.6% 61.2% 66.9% 44.4%
39.4% 70.0% 32.0% 37.0% 37.0% 37.0% 36.0% 36.5%
$ 607.7 $ 80.9 $ (30.6) $ 109.5 $ 156.6 $ 238.4 $ 327.3 $ 324.3
$ 96.0 $ 216.1 $ 121.8 $ 139.5 $ 159.7 $ 214.1 $ 423.4 $ 214.3
$ 24.52 $ 18.92 $ 20.10 $ 22.55 $ 26.21 $ 26.24 $ 25.37 $ 23.07
$26.50-53.50 $20.50-29.38 $18.00-24.63 $17.63-27.25 $18.63-30.38 $16.13-28.50 $25.75-34.13 $25.25-36.88
1,402 1,460 1,437 1,604 1,244 1,266 1,278 1,233
476 453 454 447 346 352 343 337
229 189 202 126 -- -- -- --
325 300 312 318 317 300 261 250
60 76 76 65 -- -- -- --
5,900 6,600 7,300 8,200 9,500 14,000 15,600 17,000
5,500 6,000 6,600 6,900 7,200 5,100 5,100 5,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Dividends are declared quarterly.
(4) Total capitalization includes total debt, minority interests in
subsidiaries, redeemable preferred stock and shareholders' equity.
(5) In 1998, this ratio excludes the revaluation of Avenor's debt totaling
$190.6 million.
Bowater 1998 Annual Report
55
<PAGE> 60
Nominal Annual Capacity and Production by Product Line and Mill
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Annual 1998
(In short tons) Capacity Production (2)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Newsprint, directory and uncoated groundwood specialties
Calhoun, Tennessee 853,500 847,894
Catawba, South Carolina 260,500 238,286
Liverpool, Nova Scotia 267,800 260,274
Millinocket, Maine (1) 132,000 131,888
East Millinocket, Maine 300,000 285,606
Thunder Bay, Ontario 599,600 257,408
Gatineau, Quebec 496,000 220,135
Dalhousie, New Brunswick 250,200 107,023
Usk, Washington (3) 264,500 119,246
Mokpo, Korea 275,600 123,281
Coated groundwood paper
Catawba, South Carolina 356,000 351,756
Millinocket, Maine (1) 138,000 134,413
Market pulp
Catawba, South Carolina 268,500 250,095
Calhoun, Tennessee 162,500 144,942
Gold River, British Columbia (4) 281,100 21,706
Thunder Bay, Ontario 606,300 256,234
Lumber (5) 282,500 232,000
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Capacity at Millinocket, Maine, based on current production mix.
(2) 1998 production includes Avenor and the South Korean newsprint mill from
date of acquisition (July 1998).
(3) Represents the Ponderay Newsprint Company, which is 40 percent owned.
Capacity is shown at 100 percent, and production is shown at 100 percent
from date of acquisition.
(4) The Gold River Mill was shut down in August 1998.
(5) Figures are in MBF (thousands of board feet).
Bowater 1998 Annual Report
56
<PAGE> 61
Management and
Shareholder Information
[PHOTO]
<PAGE> 62
Board of Directors
Arnold M. Nemirow
Chairman, President and Chief
Executive Officer of the Company
Director since 1994
Mr. Nemirow became Chief Executive Officer of Bowater in 1995 and became
Chairman of the Board in 1996. He has served as President of the company since
September 1994 and served as Chief Operating Officer from 1994 to 1995. Mr.
Nemirow was President, Chief Executive Officer and a Director of Wausau Paper
Mills Company from 1990 to 1994; Chairman, President and Chief Executive Officer
and a Director of Nekoosa Papers, Inc., the business papers division of Great
Northern Nekoosa Corporation, from 1988 to 1990. He also is a Director of
Interstate Energy Corporation, the successor company to three Midwest utility
companies.
Francis J. Aguilar
Professor Emeritus
Harvard University Graduate School
of Business
Director since 1984
Dr. Aguilar was a faculty member of the Harvard University Graduate School of
Business from 1965 to 1995. Since 1994, he has served as Executive Director of
the Management Education Alliance, a non-profit education corporation. Dr.
Aguilar is a Director of Dynamics Research Corporation and Burr-Brown
Corporation and also acts as an independent business consultant.
H. David Aycock
Chairman
Nucor Corporation
Director since 1987
Mr. Aycock has been Chairman of Nucor Corporation, a steel and steel products
company, since January 1999. He served as President and Chief Operating Officer
of Nucor Corporation from 1984 to 1991. He previously held various management
positions, including that of General Manager, at Nucor Corporation operating
units.
Richard Barth
Retired Chairman, President and Chief
Executive Officer
Ciba-Geigy Corporation
Director since 1991
Mr. Barth became Chairman of Ciba-Geigy Corporation, a diversified chemical
products company, in 1990 and served in that capacity until its merger into
Novartis Corporation in 1996. He was President and Chief Executive Officer of
Ciba-Geigy Corporation from 1986 to 1996; Chief Financial Officer from 1979 to
1986; Secretary from 1974 to 1986; and General Counsel from 1970 to 1986. Mr.
Barth also is a Director of The Bank of New York, Novartis Corporation (USA) and
Imclone Systems, Inc.
Kenneth M. Curtis
Attorney At Law and Senior Member
Curtis, Thaxter, Stevens, Broder & Micoleau
Limited Liability Company, P.A.
Director since 1993
Mr. Curtis was a partner in the Portland, Maine, law firm from 1975 to 1979 and
from 1981 to 1995, when the firm became a limited liability company, of which he
currently is a member. Mr. Curtis also served as President of the Maine Maritime
Academy from 1986 to 1994. He was Secretary of State of Maine from 1965 to 1966,
Governor of Maine from 1967 to 1975 and U.S. Ambassador to Canada from 1979
to 1981. He also is a Director of KeyCorp.
Charles J. Howard
Chairman
Howard, Barclay & Associates Ltd.
Director since 1997
Mr. Howard has been Chairman of Howard, Barclay & Associates Ltd., an investment
counseling firm, since 1994. He also has been President, Chief Executive
Officer, a Director and the largest shareholder of Ausnoram Holdings Limited, an
investment holding company with mining, oil and gas interests, since 1989. Mr.
Howard also is a Director of Anderson Exploration Limited, Petromet Resources
Limited, Southern Africa Minerals Corporation and Unicorp Energy Corporation.
James L. Pate
Chairman and Chief
Executive Officer
Pennzoil-Quaker State Company
Director since 1996
Mr. Pate has been Chairman of the Board and Chief Executive Officer of
Pennzoil-Quaker State Company, an automotive consumer products company, since
December 1998. He has served as Chairman of the Board of PennzEnergy Company
(formerly Pennzoil Company), an oil exploration and production company, since
1994, was Chief Executive Officer from 1990 to 1998 and President from 1990 to
1997. Mr. Pate has served as a director of PennzEnergy Company since 1989.
John A. Rolls
President and Chief Executive Officer
Thermion Systems International
Director since 1990
Mr. Rolls has served as President and Chief Executive Officer of Thermion
Systems International, an aerospace and industrial heating systems company,
since 1996. He was President and Chief Executive Officer of Deutsche Bank North
America, an international banking company, from 1992 to 1996. Mr. Rolls was
Executive Vice President and Chief Financial Officer of United Technologies
Corporation, a diversified aerospace and industrial products company, from 1986
to 1992. Prior to that, he was Senior Vice President and Chief Financial Officer
of RCA Corporation. Mr. Rolls also is a Director of MBIA, Inc., Thermion Systems
International and Arguss Holdings, Inc., formerly Conceptronic, Inc.
Arthur R. Sawchuk
Chairman
The Manufacturers Life Insurance Company
Director since 1998
Mr. Sawchuk has been Chairman of The Manufacturers Life Insurance Company, an
insurance and financial services company, since April 1998. He served as acting
President and Chief Executive Officer of Avenor Inc., a forest products company,
from November 1997 until its acquisition by Bowater in July 1998. Previously he
held various positions with DuPont Canada Inc., a chemical and plastics company,
serving as Executive Chairman from September 1997 until his retirement in
December 1997, Chairman of the Board from 1995 to 1997, and President, Chief
Executive Officer and a Director from 1992 to 1997. Mr. Sawchuk also is a
Director of Manitoba Telecom Services, Inc., Ontario Hydro, OntarioPower
Generation Inc., and Trimac Corporation.
Bowater 1998 Annual Report
58
<PAGE> 63
[LOGO] BOWATER
Incorporated
Corporate Headquarters
Bowater Incorporated
55 East Camperdown Way
P.O. Box 1028
Greenville, South Carolina
29602
864-271-7733
864-282-9482 (Fax)
http://www.bowater.com
Division Headquarters
Newsprint & Directory Division
55 East Camperdown Way
P.O. Box 1028
Greenville, South Carolina
29602
864-271-7733
Coated Paper Division
11440 Carmel Commons Blvd.
Suite 201
Charlotte, North Carolina
28226
704-540-2667
Pulp Division
5420 North Service Road
Burlington, Ontario L7L6C7
800-205-PULP
Forest Products Division
5020 Highway 11 South
Calhoun, Tennessee
37309
423-336-7195
Division Sales Offices
Newsprint &
Directory Division
3155 Route 10
Denville, New Jersey
07834
973-537-1070
2000 Regency Parkway
Suite 380
Cary, North Carolina
27511
919-467-6422
547 West Jackson Boulevard
Suite 1505
Chicago, Illinois
60661
312-588-2301
100 Merchant Street
Suite 195
Cincinnati, Ohio
45246
513-772-2744
55 East Camperdown Way
P.O. Box 1028
Greenville, South Carolina
29602
864-271-7733
5068 West Plano Parkway
Suite 300
Plano, Texas
75093
972-381-4260
2033 Sixth Avenue
Suite 320
Seattle, Washington
98121
206-728-0175
15310 Amberly Drive
Suite 250-50
Tampa, Florida
33647
813-977-4945
Bowater S. America Ltda.
Rua Engenheiro Carlos
Estevenson, #80
Sala #51 Lyon Office Center
Nova Campinas, Sao Paulo
Brazil CEP 13092310
5519-251-9088
300 March Road
Suite 444
Kanata, Ontario K2K 2E2
Canada
888-333-9933
Bowater Europe Limited
40 Lowndes Street
London SW1X 9HX
England
44-171-245-9421
Bowater Japan Limited
Imperial Hotel Main Building
5F, Room 504
1-1-1 Uchisaiwai-cho
Chiyoda-ku, Tokyo 100-8558
Japan
81-3-5521-2560
Bowater-Halla Paper
Company Ltd.
11F Hong Woo Building
945-1 Daechi-Dong
Kangnam-Ku, Seoul, Korea
822-567-1576
Bowater Asia Pte Ltd
260 Orchard Road, #08-09
The Heeren
Singapore 238855
65-835-0488
Coated Paper Division
11440 Carmel Commons Blvd.
Suite 201
Charlotte, North Carolina
28226
704-540-2667
650 Warrenville Road
Suite 410
Lisle, Illinois
60532
630-960-9797
Park 80 West, Plaza 1
3rd Floor
Saddle Brook, New Jersey
07663
201-368-3611
Pulp Division
11440 Carmel Commons Blvd.
Suite 201
Charlotte, North Carolina
28226
877-236-5837
Canadian Newsprint
Operations
1250 Rene-Levesque
Boulevard West
Montreal, Quebec H3B 4Y3
514-846-4811
<PAGE> 64
[PHOTO of BOARD OF DIRECTORS]
Seated (left to right) are: H. David Aycock, Kenneth M. Curtis, James L. Pate
and Francis J. Aguilar
Standing(left to right) are: John A. Rolls, Charles J. Howard, Arnold M.
Nemirow, Richard Barth and Arthur R. Sawchuk
Board Committees
<TABLE>
<CAPTION>
Executive Audit Finance Human Resources Nominating
Committee Committee Committee and Compensation and Governance
Committee Committee
<S> <C> <C> <C> <C>
Arnold M. Nemirow Kenneth M. Curtis John A. Rolls
Chairman Chairman Chairman H. David Aycock Richard Barth
Chairman Chairman
Francis J. Aguilar Charles J. Howard Richard Barth
Francis J. Aguilar Francis J. Aguilar
H. David Aycock Arthur R. Sawchuk James L. Pate
James L. Pate Kenneth M. Curtis
John A. Rolls
</TABLE>
Bowater 1998 Annual Report
59
<PAGE> 65
Officers
<TABLE>
<CAPTION>
Corporate Officers Division Officers
<S> <C> <C>
Arnold M. Nemirow Newsprint & Directory Division William C. Morris
Chairman, President and Chief Vice President, International
Executive Officer Arthur D. Fuller Newsprint and Directory Sales
President, Newsprint &
Arthur D. Fuller Directory Division Craig B. Stevens
Executive Vice President and Vice President, Administration
President, Newsprint & Jerry R. Gilmore and Planning
Directory Division Vice President, U.S. and Korea
Newsprint Operations Donald L. Wheeler
Anthony H. Barash Vice President, Human Resources
Senior Vice President, Corporate S.Y. Han
Affairs and General Counsel President, Bowater-Halla Paper Coated Paper Division
Company Ltd.
James H. Dorton E. Patrick Duffy
Vice President, Corporate Howard G. Johnson President, Coated Paper Division
Development and Strategy Vice President and Resident
Manager - Calhoun Operations Stephen L. Naman
E. Patrick Duffy Vice President, Coated Paper Sales
Senior Vice President and President, Donald G. McNeil
Coated Paper Division President, Great Northern Gaynor L. "Bud" Nash
Paper, Inc. Vice President and Resident
Jerry R. Gilmore Manager - Catawba Operations
Vice President, U.S. and Korea William G. Meany
Newsprint Operations Vice President and Resident Denis Tontodonato
Manager - Ponderay Operations Vice President, Administration
Richard K. Hamilton and Planning
Vice President and President, Forest R. Donald Newman
Products Division Vice President, Canadian Pulp Division
Newsprint Operations
William G. Harvey David J. Steuart
Vice President and Treasurer Edward J. Broadhurst President, Pulp Division
Vice President, Operations
Steven G. Lanzl Technology John C. Adams
Vice President, Information Vice President, North American Sales
Technology Don P. Campbell
Vice President and Resident Forest Products Division
David G. Maffucci Manager - Thunder Bay Operations
Senior Vice President and Chief Richard K. Hamilton
Financial Officer Patrice Cayouette President, Forest Products Division
Vice President and Resident
Donald G. McNeil Manager - Gatineau Operations Roger Barber
Senior Vice President and President, Vice President - Ontario and New
Great Northern Paper, Inc. Richard G. Gilbert Brunswick Woodlands Operations
Vice President and Resident
Robert A. Moran Manager - Mersey Operations Jean Beaulieu
Vice President, Manufacturing Vice President - Lumber and Quebec
Services Luc Lachapelle Woodlands Operations
Vice President and Resident
R. Donald Newman Manager - Dalhousie Operations George W. Flanders
Vice President, Canadian Vice President - Catawba
Newsprint Operations Marc Regnier Woodlands Operations
Vice President and General
Michael F. Nocito Counsel, Canadian Marcia A. McKeague
Vice President and Controller Newsprint Operations Vice President - Great Northern
Woodlands Operations
Wendy C. Shiba C. Randy Ellington
Vice President, Secretary and Vice President, North American J. Frank Pickle
Assistant General Counsel Newsprint and Directory Sales Vice President - Calhoun
Woodlands Operations
David J. Steuart Larry G. Green
Vice President and President, Vice President, Purchasing and Jon M. Porter
Pulp Division Transportation Vice President - Mersey
Woodlands Operations
James T. Wright
Vice President, Human Resources Colin R. Wolfe
Vice President, Administration
and Planning
</TABLE>
Bowater 1998 Annual Report
60
<PAGE> 66
Shareholder Information
Annual Meeting
The company's annual meeting of shareholders will be held on Wednesday, May 12,
1999, at 11 a.m. at the Gunter Theatre of the Peace Center for the Performing
Arts, Greenville, South Carolina.
Stock Listings
Bowater Incorporated common stock is listed on the New York Stock Exchange
(stock symbol BOW), U.S. regional exchanges and the London Stock Exchange. A
special class of stock exchangeable into Bowater common stock is listed on the
Toronto and Montreal exchanges (stock symbol BWX).
Common Stock Registrars and
Transfer Agents (BOW)
The Bank of New York
Shareholder Relations Department - 11E
P.O. Box 11258
Church Street Station
New York, New York 10286
888-269-8845
e-mail: [email protected]
website: http://stock.bankofny.com
CIBC Mellon Trust Company
Balfour House
390 High Road
Ilford, Essex, 1G1 1NQ England
081-478-1888
Exchangeable Share Stock Registrar
and Transfer Agent (BWX)
Montreal Trust
1800 McGill College Avenue
Montreal, Quebec H3A 3K9 Canada
800-564-6253
Investor Information
Investor inquiries about Bowater should be directed to the Investor Relations
Department at Bowater's headquarters.
10-K Report
Bowater files an annual report on Form 10-K with the Securities and Exchange
Commission. A free copy (without exhibits) may be obtained by writing to the
Investor Relations Department at Bowater's headquarters.
Dividend Reinvestment and Stock Purchase Plan
The company has a Dividend Reinvestment and Stock Purchase Plan. Information is
available from the Investor Relations Department at Bowater's headquarters.
Auditors
KPMG Peat Marwick LLP
One Insignia Financial Plaza, Suite 600
P.O. Box 10529
Greenville, South Carolina 29603
864-250-2600
Common Stock Prices
Price ranges of the company's common stock during 1998 and 1997 as reported on
the New York Stock Exchange were:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------
High Low High Low
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter $56.44 $41.56 $43.38 $37.00
Second quarter $59.56 $46.75 $50.50 $37.75
Third quarter $49.75 $35.62 $55.62 $46.62
Fourth quarter $43.50 $32.81 $51.62 $41.69
</TABLE>
<PAGE> 1
EXHIBIT 21.1
BOWATER INCORPORATED
SUBSIDIARY LISTING
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- ---------------
<C> <S>
Avenor America Inc. Delaware
Avenor Maritimes Inc.(1) New Brunswick
Bowater Asia Pte Ltd Singapore
Bowater Canada Inc. Canada
Bowater Canadian Holdings Incorporated Nova Scotia
Bowater Canadian Limited Canada
Bowater Europe Limited United Kingdom
Bowater Foreign Sales Corporation Barbados
Bowater-Halla Paper Co., Ltd. Korea
Bowater Japan Limited Japan
Bowater Mersey Paper Company Limited(2) Nova Scotia
Bowater Pulp and Paper Canada Inc. Canada
Bowater S. America Ltda. Brazil
Bowater South American Holdings Incorporated Delaware
Calhoun Newsprint Company(3) Delaware
Calhoun Energy, Inc. Delaware
Great Northern Paper, Inc. Delaware
Lake Superior Forest Products Inc. Delaware
Lake Superior Holdings Inc. Delaware
Manifor Inc. Quebec
</TABLE>
Note: Except as otherwise indicated, each of the above entities is a wholly
owned direct or indirect subsidiary of the Company. The names of certain
other direct and indirect subsidiaries of the Company have been omitted
from the list above because such unnamed subsidiaries considered in the
aggregate as a single subsidiary would not constitute a significant
subsidiary.
(1) 67 percent owned.
(2) 51 percent owned.
(3) Approximately 51 percent owned.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Bowater Incorporated:
We consent to incorporation by reference in the following Registration
Statements, of our reports dated February 12, 1999, relating to the
consolidated balance sheet of Bowater Incorporated and Subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, capital accounts, and cash flows for each of the years in the
three-year period ended December 31, 1998, and all related schedules, which
reports are incorporated by reference or included in the December 31, 1998,
annual report on Form 10-K of Bowater Incorporated:
<TABLE>
<CAPTION>
Filing
Date
--------
<S> <C> <C> <C>
Form S-1
- --------
No. 33-2444 - Dividend Reinvestment and Stock Purchase Plan 12/27/85
of Bowater Incorporated
Form S-3
- --------
No. 333-57839 - Bowater Incorporated common stock offered in 6/26/98
exchange for Exchangeable shares of Bowater
Canada Inc.
Form S-8
- --------
No. 33-16277 - Bowater Southern Hourly Employees' Profit- 8/25/87
Sharing Plan
No. 33-25166 - Bowater Incorporated 1988 Stock Incentive Plan 10/27/88
No. 33-50152 - Bowater Incorporated 1992 Stock Incentive Plan 7/28/92
No. 33-61219 - The Deferred Compensation Plan for Outside
Directors of Bowater Incorporated 7/21/95
No. 33-64371 - Great Northern Paper, Inc. Hourly 401(k) Savings
Plan 11/17/95
No. 333-00555 - Bowater Incorporated Salaried Employees'
Savings Plan 1/30/96
No. 333-00587 - Great Northern Paper, Inc. Savings and Capital
Growth Plan for Salaried Employees 1/31/96
</TABLE>
<PAGE> 2
Page 2
<TABLE>
<S> <C> <C> <C>
No. 333-02989 - Bowater Incorporated/Carolina Division Hourly
Employees' Savings Plan 4/30/96
No. 333-16941 - Great Northern Paper, Inc. Savings and Capital
Growth Plan for Salaried Employees 11/27/96
No. 333-16943 - Great Northern Paper, Inc. Hourly 401(k)
Savings Plan 11/27/96
No. 333-41471 - Bowater Incorporated Salaried Employees'
Savings Plan 12/4/97
No. 333-41473 - Bowater Incorporated 1997 Stock Option Plan 12/4/97
No. 333-41475 - Bowater Incorporated/Coated Paper and Pulp
Division Hourly Employees' Savings Plan 12/4/97
</TABLE>
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greenville, South Carolina
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BOWATER, INC. FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 58
<SECURITIES> 1
<RECEIVABLES> 372
<ALLOWANCES> 0
<INVENTORY> 186
<CURRENT-ASSETS> 695
<PP&E> 4,602
<DEPRECIATION> 1,717
<TOTAL-ASSETS> 5,091
<CURRENT-LIABILITIES> 773
<BONDS> 1,535
0
26
<COMMON> 59
<OTHER-SE> 1,693
<TOTAL-LIABILITY-AND-EQUITY> 5,091
<SALES> 1,995
<TOTAL-REVENUES> 1,995
<CGS> 1,422
<TOTAL-COSTS> 1,771
<OTHER-EXPENSES> 27
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 17
<INCOME-TAX> 27
<INCOME-CONTINUING> (19)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
</TABLE>
