-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tlg4HAFB7xSrb5mYeU59DoPmrR1kcWp8ut1txcV+9nhswhEjFOyjdQ3lNUvbpXR3 ahWH/2ajLN4pbvvjRFtuZw== 0000950168-96-001515.txt : 19960816 0000950168-96-001515.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950168-96-001515 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOWATER INC CENTRAL INDEX KEY: 0000743368 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 620721803 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08712 FILM NUMBER: 96613356 BUSINESS ADDRESS: STREET 1: 55 EAST CAMPERDOWN WAY STREET 2: P O BOX 1028 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032717733 MAIL ADDRESS: STREET 1: 55 EAST CAMPERDOWN WAY STREET 2: P O BOX 1028 CITY: GREENVILLE STATE: SC ZIP: 29602 10-Q 1 BOWATER INCORPORATED 10-Q #44830.1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8712 BOWATER INCORPORATED (Exact name of registrant as specified in its charter) Delaware 62-0721803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 East Camperdown Way, P.O. Box 1028, Greenville, SC 29602 (Address of principal executive offices) (Zip Code) (864) 271-7733 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 1996. Class Outstanding at July 31, 1996 Common Stock, $1.00 Par Value 37,415,537 Shares BOWATER INCORPORATED I N D E X Page Number PART I FINANCIAL INFORMATION 1. Financial Statements: Consolidated Balance Sheet at June 30, 1996 and December 31, 1995 3 Consolidated Statement of Operations for the Three and Six Months Ended June 30, 1996 and June 30, 1995 4 Consolidated Statement of Capital Accounts for the Six Months Ended June 30, 1996 5 Consolidated Statement of Cash Flows for the Six Months Ended June 30, 1996 and June 30, 1995 6 Notes to Consolidated Financial Statements 7-8 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14 PART II OTHER INFORMATION 4. Submission of Matters to a Vote of Security Holders 15 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 (2) PART I BOWATER INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited, in thousands)
June 30, December 31, 1996 1995 --------------- -------------- ASSETS Current assets: Cash and cash equivalents (Note 2) $ 142,894 $ 264,571 Marketable securities (Note 2) 191,016 - Accounts receivable, net 241,499 241,847 Inventories (Note 3) 167,732 154,662 Other current assets 14,622 12,943 --------------- -------------- Total current assets 757,763 674,023 --------------- -------------- Timber and timberlands 394,260 430,400 Fixed assets, net 1,656,387 1,711,003 Intangible assets, net 21,361 23,733 Other assets 63,492 69,006 =============== ============== $ 2,893,263 $ 2,908,165 =============== ============== LIABILITIES AND CAPITAL Current liabilities: Current installments of long-term debt $ 1,604 $ 1,600 Accounts payable and accrued liabilities 182,758 189,424 Income taxes payable 13,141 85,472 Dividends payable 10,205 8,826 --------------- -------------- Total current liabilities 207,708 285,322 --------------- -------------- Long-term debt, net of current installments (Note 4) 786,996 816,532 Other long-term liabilities 190,000 181,411 Deferred income taxes 354,689 329,101 Minority interests in subsidiaries 144,080 150,768 Commitments and contingencies (Note 5) Redeemable LIBOR preferred stock 49,683 49,619 Shareholders' equity: Series B convertible preferred stock 111,333 111,333 Series C cumulative preferred stock 25,465 25,465 Common stock 39,862 39,501 Additional paid-in capital 420,885 410,007 Retained earnings 675,179 541,205 Equity adjustments (13,117) (13,128) Loan to ESOT (7,188) (8,033) Treasury stock, at cost (Note 6) (92,312) (10,938) --------------- -------------- Total shareholders' equity 1,160,107 1,095,412 =============== ============== $ 2,893,263 $ 2,908,165 =============== ==============
See accompanying notes to consolidated financial statements. (3) BOWATER INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited, in thousands except per share amounts)
Three Months Ended Six Months Ended ---------------------------------------------------------- June 30, June 30, June 30, June 30, 1996 1995 1996 1995 ------------ ------------ ------------- ------------ Net sales $ 453,951 $ 486,836 $ 922,834 $ 936,314 Cost of sales (Note 7) 297,432 297,815 557,438 582,592 Depreciation, amortization and cost of timber harvested 42,477 42,754 87,682 87,392 ------------ ------------ ------------- ------------ Gross profit 114,042 146,267 277,714 266,330 Selling and administrative expense (Note 7) 23,703 28,587 44,654 51,397 ------------ ------------ ------------- ------------ Operating income 90,339 117,680 233,060 214,933 Other expense (income): Interest income (Note 8) (5,191) (1,393) (10,043) (3,242) Interest expense, net of capitalized interest (Note 8) 18,223 20,310 36,570 43,614 Gain on sale of timberlands (Note 9) (1,838) (21) (76,701) (385) Other, net (1,919) (4,163) (2,353) (4,815) ------------ ------------ ------------- ------------ 9,275 14,733 (52,527) 35,172 ------------ ------------ ------------- ------------ Income before income taxes and minority interests 81,064 102,947 285,587 179,761 Provision for income taxes (Note 10) 29,994 36,935 105,668 66,512 Minority interests in net income of subsidiaries 6,727 6,181 22,671 8,365 ------------ ------------ ------------- ------------ Income before extraordinary charge 44,343 59,831 157,248 104,884 Extraordinary charge, net of taxes of $1,222 in 1996 and $3,808 in 1995 (Note 4) (1,931) - (1,931) (6,084) ------------ ------------ ------------- ------------ Net income $ 42,412 $ 59,831 $ 155,317 $ 98,800 ============ ============ ============= ============ Earnings per common share - primary (Note 11): Income before extraordinary charge $ 1.03 $ 1.35 $ 3.63 $ 2.37 Extraordinary charge (0.05) - (0.05) (0.15) ============ ============ ============= ============ Net income $ 0.98 $ 1.35 $ 3.58 $ 2.22 ============ ============ ============= ============ Average common and common equivalent shares outstanding 42,273 42,331 42,781 41,903 ============ ============ ============= ============ Earnings per common share - fully diluted (Note 11): Income before extraordinary charge $ 1.00 $ 1.31 $ 3.54 $ 2.30 Extraordinary charge (0.04) - (0.04) (0.14) ============ ============ ============= ============ Net income $ 0.96 $ 1.31 $ 3.50 $ 2.16 ============ ============ ============= ============ Average common and common equivalent shares outstanding 43,154 43,428 43,662 43,175 ============ ============ ============= ============
See accompanying notes to consolidated financial statements. (4) BOWATER INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS Six Months Ended June 30, 1996 (Unaudited, in thousands except per share amounts)
Redeemable Series B Series C LIBOR Convertible Cumulative Additional Preferred Preferred Preferred Common Paid in Stock Stock Stock Stock Capital --------------------------------------------------------- Balance at December 31, 1995 $ 49,619 $ 111,333 $ 25,465 $ 39,501 $ 410,007 Net income - - - - - Dividends on common stock($.40 per share) - - - - - Dividends on preferred stock: LIBOR ($1.20 per share) - - - - - Series B ($3.30 per share) - - - - - Series C ($4.20 per share) - - - - - Increase in stated value of LIBOR preferred stock 64 - - - - Common stock issued for exercise of stock options - - - 361 8,906 Tax benefit on exercise of stock options 1,918 Reduction in loan to ESOT - - - - - Purchase of common stock (Note 6) - - - - - Treasury stock used for employee benefit and dividend reinvestment plans - - - - 54 Foreign currency translation - - - - - ========================================================== Balance at June 30, 1996 $ 49,683 $ 111,333 $ 25,465 $ 39,862 $ 420,885 ========================================================== Retained Equity Loan to Treasury Earnings Adjustments ESOT Stock -------------------------------------------- Balance at December 31, 1995 $ 541,205 $ (13,128)$ (8,033)$ (10,938) Net income 155,317 - - - Dividends on common stock($.40 per share) (14,944) - - - Dividends on preferred stock: LIBOR ($1.20 per share) (1,200) - - - Series B ($3.30 per share) (4,025) - - - Series C ($4.20 per share) (1,110) - - - Increase in stated value of LIBOR preferred stock (64) - - - Common stock issued for exercise of stock options - - - - Tax benefit on exercise of stock options Reduction in loan to ESOT - - 845 - Purchase of common stock (Note 6) - - - (81,433) Treasury stock used for employee benefit and dividend reinvestment plans - - - 59 Foreign currency translation - 11 - - ============================================ Balance at June 30, 1996 $ 675,179 $ (13,117)$ (7,188)$ (92,312) ============================================
See accompanying notes to consolidated financial statements. (5) BOWATER INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in thousands)
Six Months Ended -------------------------- June 30, June 30, 1996 1995 -------------- ---------- Cash flows from (used for) operating activities: Net income $ 155,317 $ 98,800 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and cost of timber harvested 87,682 87,392 Deferred income taxes 30,187 31,009 Minority interests 22,671 8,365 Gain from sale of timberlands (76,701) (385) Extraordinary charge, net of taxes 1,931 6,084 Change in working capital: Accounts receivable, net 348 (17,090) Inventories (13,070) (9,143) Accounts payable and accrued liabilities (5,203) 23,903 Income taxes payable (68,436) 31,933 Other, net 5,458 (2,808) --------- --------- Net cash from operating activities 140,184 258,060 --------- --------- Cash flows from (used for) investing activities: Cash invested in fixed assets, timber and timberlands (34,893) (43,770) Disposition of fixed assets, timber and timberlands 116,999 1,273 Cash invested in marketable securities (191,016) -- --------- --------- Net cash used for investing activities (108,910) (42,497) --------- --------- Cash flows from (used for) financing activities: Cash dividends, including minority interests (49,037) (20,778) Purchase of common stock (Note 6) (81,433) -- Purchases / payments of long-term debt (32,599) (191,672) Stock options exercised 9,267 27,199 Redemption of preferred stock of subsidiary -- (15,000) Other 851 809 --------- --------- Net cash used for financing activities (152,951) (199,442) --------- --------- Net increase(decrease) in cash and cash equivalents (121,677) 16,121 Cash and cash equivalents at beginning of year 264,571 154,768 --------- --------- Cash and cash equivalents at end of period $ 142,894 $ 170,889 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest, net of capitalized interest $ (37,447) $ (43,969) Income taxes $(143,918) $ (3,562)
See accompanying notes to consolidated financial statements. (6) BOWATER INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) The accompanying consolidated financial statements include the accounts of Bowater Incorporated and Subsidiaries (the Company). The consolidated balance sheets, statements of operations, capital accounts and cash flows are unaudited. However, in the opinion of Company management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation of the interim financial statements have been made. The results of the interim period ended June 30, 1996, are not necessarily indicative of the results to be expected for the full year. (2) Cash equivalents consist of investment grade commercial paper and government obligations with original maturities of three months or less. Marketable securities consist of the same type of investments, however, original maturities extend beyond three months but less than one year. The Company has both the ability and intent to hold these securities to maturity and has recorded them at cost, which approximates market value. (3) The composition of inventories at June 30, 1996, and December 31, 1995, was as follows (in thousands): June 30, 1996 December 31, 1995 (Unaudited) At lower of cost or market: Raw materials $ 29,667 $ 39,520 Work in process 2,716 3,014 Finished goods 72,494 48,854 Mill stores and other supplies 75,940 81,301 180,817 172,689 Excess of current cost over LIFO inventory value (13,085) (18,027) $167,732 $154,662 (4) During the second quarter of 1996, the Company repurchased $27.8 million of its $300 million 9% debentures due 2009. This resulted in an extraordinary charge of $1.9 million or $.04 per fully diluted share for the premium and expenses related to the repurchase. The extraordinary charge in 1995 related to the repurchase of $182 million of the Company's $200 million 8 1/2% notes due 2001. (5) The Company is involved in various legal proceedings relating to contracts, commercial disputes, taxes, environmental issues, employment and workers' compensation claims, and other matters. The Company's management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company's operations or its financial condition taken as a whole. (7) BOWATER INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (6) During the second quarter of 1996, the Company repurchased approximately 450,000 shares of common stock as part of a previously announced stock repurchase plan. Since initiation of the program in February 1996, the Company has repurchased approximately 2.1 million shares, at a total cost of approximately $81.4 million. The shares are recorded in the Shareholders' equity section of the Consolidated Balance Sheet at June 30, 1996 on the line entitled, "Treasury stock, at cost". (7) Selling and administrative expense includes charges of $5.4 million and $7.1 million for the quarter and six months ended June 30, 1996, respectively, for an estimated payment under the Company's Long-Term Cash Incentive Plan, established in January 1994. In the second quarter and six months ended June 30, 1995, Cost of sales and Selling and administrative expense include charges of $18.0 million and $6.0 million, respectively, relating to personnel reductions. (8) The increase in interest income for the second quarter and six months ended June 30, 1996, compared to the same periods last year is a result of a higher level of investment in short-term marketable securities and cash equivalents in 1996. The decrease in interest expense, comparing the same periods, is a result of lower debt balances in 1996 due to debt repurchases made primarily during 1995. (9) During the second quarter of 1996, the Company sold approximately 2,000 acres of timberlands located in South Carolina resulting in a pre-tax gain of $1.8 million or $.01 per fully diluted share, after tax. During the first quarter of 1996, the Company sold approximately 104,000 acres resulting in a pre-tax gain of $74.9 million or $.84 per fully diluted share, after tax. (10) The effective tax rate for the second quarter of 1996 was 37.0 percent versus 35.9 percent for the second quarter of 1995. On a year to date basis, the effective rate for both periods was 37.0 percent. (11) The calculation of earnings per share for the second quarter and six months ended June 30, 1996, includes a deduction of $1.2 million and $2.4 million, respectively, for the dividend requirements of the Company's LIBOR and Series C preferred stock and the amortization of the difference between the net proceeds from the LIBOR preferred stock and its mandatory redemption value. For the second quarter and six months ended June 30, 1995, the calculation of earnings per share included a deduction of $2.9 million and $5.7 million, respectively, for the same items. (8) BOWATER INCORPORATED AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Summary Earnings for the second quarter of 1996 totaled $44.3 million, or $1.00 per fully diluted share, before an extraordinary charge of $1.9 million, or $.04 per fully diluted share, for premium and expenses related to the repurchase of $27.8 million of the Company's outstanding 9% debentures due 2009. This compares to net income of $59.8 million, or $1.31 per fully diluted share, for the same period last year. Included in 1995's second quarter earnings is a pre-tax charge of $24.0 million, or $.33 per fully diluted share after tax, related to personnel reductions. Net sales for the second quarter of 1996 totaled $454.0 million, compared to $486.8 million for the second quarter of 1995. For the first six months of 1996, the Company's net income was $155.3 million, or $3.50 per fully diluted share, on net sales of $922.8 million. In addition to the second quarter charge mentioned above, net income for the first six months of 1996 includes a first quarter $37.0 million after tax gain, or $.84 per fully diluted share, from the sale of approximately 104,000 acres of timberlands. Net income for the first six months of 1995 was $98.8 million, or $2.16 per fully diluted share, on net sales of $936.3 million. Product Line Information: (Unaudited, $ in thousands) Quarter Ended Six Months Ended June 30, June 30, June 30, June 30, 1996 1995 1996 1995 Net sales: Newsprint $225,189 $197,173 $460,872 $365,686 Directory and uncoated specialties 54,042 47,237 113,825 92,613 Coated groundwood 93,091 114,308 191,846 209,580 Pulp 50,197 63,387 68,773 120,123 Communication papers 44,290 69,683 95,263 136,750 Lumber, stumpage and other products 21,050 22,309 49,432 63,738 Distribution costs (33,908) (27,261) (57,177) (52,176) $453,951 $486,836 $922,834 $936,314 Operating income $90,339 $117,680 $233,060 $214,933 (9) BOWATER INCORPORATED AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Second Quarter Ended June 30, 1996 versus June 30, 1995 For the second quarter of 1996, the Company's operating income of $90.3 million decreased $27.4 million compared to $117.7 million in the second quarter of 1995. Lower market pulp transaction prices and lower coated paper shipments were partially offset by higher newsprint transaction prices. The Company's average newsprint transaction price for the second quarter of 1996 increased 9 percent compared to the same period last year. The Company was able to increase transaction prices for newsprint during the latter part of 1995 due to strong demand coupled with a lack of significant capacity growth. However, consumption of newsprint by U. S. daily newspapers began to decline in early 1995 and continued to decline into 1996. During the second quarter of 1996, consumption of newsprint by U. S. daily newspapers declined 3 percent compared to the second quarter of 1995. This decline was a result of reduced advertising lineage and conservation measures taken by the newspapers to reduce newsprint usage. As a result, publishers' newsprint inventory levels increased. As overall U. S. demand decreased, many North American suppliers increased export shipments, which in turn had a downward effect on those transaction prices. In addition, two new newsprint machines began production in Korea during the second quarter of 1996, with a third machine scheduled for startup during the second half of the year. Reduced U. S. consumption, coupled with globally high inventories and new foreign capacity, caused newsprint producers to cancel the April 1, 1996, newsprint price increase previously announced. The Company's average transaction prices for the second quarter of 1996 decreased 9 percent compared to the first quarter of 1996. Prices continue to be under pressure. Future newsprint price changes will depend on global economic conditions, publisher inventory levels, and capacity changes. Coated groundwood paper average transaction prices decreased during the second quarter of 1996 compared to the second quarter of 1995 and the first quarter of 1996 by 4 and 11 percent, respectively. At the present time, prices continue to be under pressure. Since the beginning of the year, coated groundwood paper demand has weakened. Several factors caused this to happen: Magazine and catalog publishers continued to decrease inventory levels from the prior year, which were built up in anticipation of higher prices; orders from commercial printers were below prior year and the expected additional demand from the Olympics and presidential election has been minimal while competition from other paper grades has increased. U. S. coated groundwood paper shipments for the second quarter of 1996 decreased 21 percent compared to the same quarter last year. In addition, the Company's shipments declined 15 percent comparing the second quarters. Future coated paper price changes will depend on inventory levels and demand increases. (10) BOWATER INCORPORATED AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Second Quarter Ended June 30, 1996 versus June 30, 1995 During the second quarter of 1996, the Company's market pulp average transaction prices declined 52 percent compared to the same period last year and 25 percent compared to the first quarter of 1996. The decline in softwood market pulp prices, which was first evident in late 1995, was a result of lower global paper demand and rising producer inventories. During the second quarter of this year, however, the pulp market began to strengthen. NORSCAN (U.S., Canada, Finland, Norway, and Sweden) inventories of softwood market pulp began to decline; May 1996 inventory levels were 18 percent below April, and June levels were 16 percent below May. Second quarter 1996 NORSCAN shipments of softwood market pulp increased 9 percent compared to the same period last year. The Company's pulp shipments increased significantly comparing the second quarter periods. The increased demand led major pulp producers to announce a $60 per metric ton price increase on June 1, and a $50 per metric ton price increase on July 1, which has been partially implemented. The full amount of the $50 increase is expected to be implemented by the end of the third quarter. The ability to effect price changes in the pulp market is dependent upon many factors including global economic conditions and producer inventory levels. The Communication Papers Division operating results decreased in the second quarter of 1996 compared to the second quarter of last year. Average transaction prices decreased 28 percent comparing these periods, offset in part by lower raw material costs. Operating results for the Company's directory products increased in the second quarter of 1996 compared to the second quarter of 1995. The Company implemented a January 1996 price increase and average transaction prices increased 26 percent comparing second quarter 1996 to the same quarter last year. The directory market experienced strong demand and no capacity growth during 1995 and early 1996, similar to the newsprint market, causing prices to rise. Currently, demand has weakened. The Company's average transaction prices declined 5 percent in the second quarter of 1996 compared to the first quarter of 1996. Operating results for the Company's lumber products were higher in the second quarter of 1996 versus the year ago period. Until recently, lumber prices were depressed due to the decreased levels of new housing starts experienced in 1995 and early 1996. During the second quarter of 1996, an increased volume of new housing starts, lower producer inventories, and higher foreign demand has helped to increase prices compared to the second quarter last year. (11) BOWATER INCORPORATED AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Six Months Ended June 30, 1996 versus June 30, 1995 For the first six months of 1995, the Company's operating income was $233.1 million, compared to $214.9 million in the first six months of 1995, an $18.2 million improvement. Higher newsprint, coated, and directory transaction prices were partially offset by lower market pulp transaction prices and lower shipments of coated paper. The Company's average newsprint transaction price for the first six months of 1996 increased 23 percent compared to the same period last year. The Company was able to increase transaction prices for newsprint during the second half of 1995 due to strong demand coupled with a lack of significant capacity growth. During the first six months of 1996, the Company's coated groundwood average transaction prices improved 8 percent compared to the same period last year. This improvement was more than offset by lower shipments, which decreased 15 percent comparing the same periods. Average transaction prices for market pulp decreased 45 percent in the first six months of 1996 compared to the first six months of 1995. Weak demand and high producer inventories caused prices to decline in late 1995 and the first six months of 1996. During the second quarter of 1996, however, NORSCAN reported lower producer inventories and higher shipments compared to the same period last year. Major pulp producers announced a $60 per metric ton price increase on June 1 and a $50 per metric ton price increase on July 1 due to the increased demand. The Company's average transaction prices for directory paper increased 30 percent for the first six months of 1996 compared to the prior year period. The Company implemented a price increase in January 1996, as a result of increased demand in 1995 which was also experienced by the newsprint market and other related paper grades. Liquidity and Capital Resources During the first six months of 1996, the Company's operations generated $140.2 million of cash compared to $258.1 million of cash during the first six months of 1995, a decrease of $117.9 million. This decrease arose primarily as a result of significantly higher tax payments of $140.4 million. The Company was able to defer payment of its 1995 tax liability of $73.5 million until this year and the balance represents estimated tax payments on its 1996 liability. Working capital needs were also higher by $12.2 million. Reducing the effects of this were higher operating income of $18.1 million; higher interest income of $6.8 million due to increased cash and marketable security balances; and lower interest paid of $6.5 million resulting from debt prepayments completed in 1995. (12) BOWATER INCORPORATED AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Capital expenditures for the first six months of 1996 decreased $8.9 million compared to the first six months of 1995. The decrease reflects the completion of two large projects in 1995, specifically, a new waste treatment plant at the Company's Mersey Operation and a new lime kiln at the Company's Catawba mill. The Company expects total capital expenditures for 1996 to approximate $140 million and will fund these expenditures from internal cash flow. During the first six months of 1996, the Company sold approximately 106,000 acres of timberlands located in Alabama and South Carolina resulting in proceeds of approximately $117.0 million. Currently, the Company has no plans to transact significant timberland sales for the balance of this year. On January 4, 1996, the Board of Directors of CNC (a joint venture in which the Company owns 51 percent) declared a $60.0 million dividend. As a result, $29.4 million was paid to the minority shareholder on January 5, 1996. This transaction accounted for the large increase in cash dividends in the first six months of 1996 versus the same period last year. Also, in February 1996, the Company announced a 33 percent increase in its quarterly common dividend from $.15 per share to $.20 per share, effective with the April 1, 1996, dividend payment. On February 9, 1996, the Company's Board of Directors authorized management to repurchase up to 10 percent of the Company's outstanding common stock within the next twelve months. During the first six months, the Company repurchased 2.1 million shares at a cost of $81.4 million, representing 53 percent of the total shares authorized. During the second quarter of 1996, the Company repurchased $27.8 million of its $300 million 9% debentures due 2009 at a total cost of $30.8 million for payment of principal, premium and expenses related to the transaction. In July 1996, the Company repurchased an additional $22.2 million of the same issue. During the first six months of 1995, the Company similarly reduced its capital by repurchasing $182 million of its 8.5% Notes due December, 2001, at a total cost of $191.1 million. Depending on cash availability, its alternative uses, and the general level of interest rates, the Company may, through various means, repurchase additional debt during the remainder of 1996. As a result of the foregoing, the combined balance of cash, cash equivalents, and marketable securities at June 30, 1996, was $333.9 million, an increase of $69.3 million since December 31, 1995. This compares to an increase in those balances in the previous year period of $16.1 million, resulting in a balance of $170.9 million at the end of June 1995. (13) BOWATER INCORPORATED AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Environmental Issues A referendum measure entitled, "Initiated Bill to Promote Forest Rehabilitation and Eliminate Clearcutting" (the "Referendum") has been initiated and qualified for the November 1996 Maine ballot. The Referendum, if passed, would limit wood harvesting on privately-owned woodlots in Maine's unorganized townships, where the Company is a landowner. The Company has actively opposed the Referendum through a coalition called "Citizens for a Healthy Forest and Economy" for a variety of reasons including, but not limited to, the Company's belief that the Referendum imposes restrictions that lack a sound basis in scientific forest management practices. On September 5, 1996, the Maine Legislature will meet in a special session called by the Governor of Maine to consider a proposal offered as a compromise to the Referendum and captioned the "Compact for Maine's Forests" (the "Compact"). The Compact is supported by landowners, including the Company, and various environmental groups. If passed by the legislature, the Compact will appear on the November 1996 ballot as an alternative choice to the Referendum. The Company's management cannot make a determination of whether the Referendum, the Compact, or neither will pass, nor has it evaluated all the various operational alternatives in the event of the possible outcomes. Accordingly, the Company cannot assess their impact on its financial condition or results of operations. (14) BOWATER INCORPORATED AND SUBSIDIARIES PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. On May 21, 1996, at the Company's Annual Meeting of Shareholders, the following matters were submitted to a vote of the shareholders: A resolution electing the following class of directors for a term of three years: Francis J. Aguilar (35,892,495 votes in favor; 100,712 votes withheld); Kenneth M. Curtis (35,394,999 votes in favor; 598,208 votes withheld); and John A. Rolls (35,898,457 votes in favor; 94,750 votes withheld). The names of each other director whose term of office as a director continued after the meeting are: H. David Aycock, Richard Barth, H. Gordon MacNeill, Donald R. Melville, Arnold M. Nemirow, and James L. Pate. A resolution ratifying the appointment of KPMG Peat Marwick as independent auditors for the Company. The resolution was passed by a vote of 35,946,598 votes in favor; 18,429 votes against; and 28,180 abstentions. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K): Exhibit No. Description 10.1 Form of Indemnification Agreement, by and between the Company and each of James H. Dorton, Richard F. Frisch, David G. Maffucci, and Wendy C. Shiba. 10.2 Change in Control Agreement, dated as of August 6, 1996, by and between the Company and James H. Dorton. 10.3 Employment Agreement, dated as of August 6, 1996, by and between the Company and James H. Dorton. 27.1 Financial Data Schedule (electronic filing only). (b) Reports on Form 8-K: None. (15) BOWATER INCORPORATED AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. BOWATER INCORPORATED By D. G. Maffucci D. G. Maffucci Senior Vice President - Chief Financial Officer By M. F. Nocito M. F. Nocito Vice President - Controller Dated: August 14, 1996 (16) INDEX TO EXHIBITS Exhibit No. Description 10.1 Form of Indemnification Agreement, by and between the Company and each of James H. Dorton, Richard F. Frisch, David G. Maffucci, and Wendy C. Shiba. 10.2 Change in Control Agreement, dated as of August 6, 1996, by and between the Company and James H. Dorton. 10.3 Employment Agreement, dated as of August 6, 1996, by and between the Company and James H. Dorton. 27.1 Financial Data Schedule (electronic filing only). EX-10 2 EXHIBIT 10.1 EXHIBIT 10.1 INDEMNIFICATION AGREEMENT THIS AGREEMENT, by and between Bowater Incorporated, a Delaware corporation ("Bowater"), and the undersigned executive employee of Bowater ("Executive") is dated as of this ______ day of ___________, 199___. W I T N E S S E T H WHEREAS, Executive serves in connection with various employee compensation and benefits arrangements of Bowater ("Arrangements") listed on Exhibit A; and WHEREAS, to induce Executive's continued service in such capacity, Bowater desires to extend certain protection to Executive in connection with potential related liabilities and expenses; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt of which is acknowledged, Bowater and Executive agree as follows: A. Right to Indemnification. Bowater shall indemnify, hold harmless, and advance expenses to Executive (and Executive's heirs, executors, administrators, or other legal representatives), to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, if Executive is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that Executive, or a person for whom Executive is the legal representative, is or was serving at the request of Bowater as a trustee, fiduciary, administrator or agent, or in any other capacity with respect to the Arrangements, against all liability and loss suffered and expenses reasonably incurred by Executive. For purposes of the foregoing, expenses shall include, without limitation, reasonable attorney's fees incurred by Executive in connection with counsel selected by Executive. B. Advancement of Expenses. The right of indemnity afforded by paragraph A above shall include the right to have Bowater pay the expenses incurred by Executive in defending any proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by Executive in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by Executive to repay all amounts advanced if it should be ultimately determined that Executive is not entitled to be indemnified under this Agreement or otherwise. C. Claims. If a claim for indemnification or advancement of expenses under this Agreement is not paid in full within sixty days after a written claim therefor has been received by Bowater, Executive may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense, including reasonable attorneys' fees, of prosecuting such claim. In any such action Bowater shall have the burden of proving that Executive was not entitled to the requested indemnification or advancement of expenses under applicable law. D. Non-Exclusivity of Rights. The rights conferred on Executive by this Agreement shall not be exclusive of any other rights that Executive may have or hereafter acquire under any statute, provision of the certificate of incorporation or the by-laws of Bowater, agreement, vote of stockholders or disinterested directors or otherwise. E. Non-Duplication. Bowater's obligation, if any, to indemnify Executive hereunder shall be reduced by any amount Executive actually collects as indemnification from any other source. F. Amendment. This Agreement may be modified or amended only by means of a writing signed by Bowater and Executive. G. Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the substantive laws of the State of Delaware. IN WITNESS WHEREOF, this Agreement has been executed on behalf of Executive and by Bowater as of the date first written above. BOWATER INCORPORATED EXECUTIVE By: /s/ Anthony H. Barash ______________________ Name: Anthony H. Barash Name: Title: Sr. Vice President, Corporate Affairs Date Signed: __________ and General Counsel Date signed: ______________________ 1099122-1 Exhibit A Bowater Incorporated Benefit Plan Grantor Trust Bowater Incorporated Executive Severance Grantor Trust Bowater Incorporated Outside Directors Benefit Plan Grantor Trust SCHEDULE TO EXHIBIT 10.1 INDEMNIFICATION AGREEMENTS NAME DATE OF AGREEMENT James H. Dorton 8/06/96 Richard F. Frisch 7/24/96 David G. Maffucci 7/24/96 Wendy C. Shiba 7/24/96 EX-10 3 EXHIBIT 10.2 EXHIBIT 10.2 CHANGE IN CONTROL AGREEMENT THIS AGREEMENT, made as of the 6th day of August, 1996, by and between Bowater Incorporated, a Delaware corporation having a mailing address of 55 East Camperdown Way, Greenville, South Carolina 29602 (the "Corporation"), and James H. Dorton of 4103 Kenyon Avenue, Huntsville, AL 35802 (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 manner qualifying such Person to utilize Schedule 13G for reporting of ownership. - 2 - (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. (e) "Commencement Date" shall mean the date of this Agreement, which shall be the beginning date of the term of this Agreement. - 3 - (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(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 - 4 - (vi) the relocation of the principal office at which the Executive is to perform his services on behalf of the Corporation to a location more than thirty-five (35) miles from its location immediately prior to the Change in Control or a substantial increase in the Executive's business travel obligations subsequent to the Change in Control. Any circumstance described in this Section 1(h) shall constitute Good Reason even if such circumstance would not constitute a breach by the Corporation of the terms of the Employment Agreement between the Corporation and the Executive in effect on the date of the Change in Control. The Executive shall be deemed to have terminated his employment for Good Reason effective upon the effective date stated in a written notice of such termination given by him to the Corporation (which notice shall not be given, in circumstances described in Section 1(h)(i), before the end of the thirty (30) day period described therein) setting forth in reasonable detail the facts and circumstances claimed to provide the basis for termination, provided that the effective date may not precede, nor be more than sixty (60) days from, the date such notice is given. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. (i) "Normal Retirement Date" shall have the meaning given to such term in the Corporation's basic qualified pension plan in which the Executive is a participant as in effect on the date hereof or any successor or substitute plan adopted prior to a Change in Control. (j) "Person" shall mean any individual, corporation, partnership, group, association or other "person" as such term is used in Section 13(d) and 14(d) of the Exchange Act. 2. TERM OF AGREEMENT (a) The term of this Agreement shall initially be for the period beginning on the Commencement Date and ending on the day before the third anniversary of the Commencement Date. The term of this Agreement shall automatically be extended on the first anniversary of the Commencement Date until the day before the fourth anniversary of the Commencement Date without further action by the parties, and shall be automatically extended by an additional year on each 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. - 5 - (b) Notwithstanding Section 2(a), the term of this Agreement shall end upon the termination of the Executive's employment if, prior to a Change in Control of the Corporation, the Executive's employment with the Corporation shall have terminated under the provisions of any Employment Agreement between the Corporation and the Executive then in effect. 3. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY A TERMINATION If a Change in Control of the Corporation shall have occurred and, thereafter and during the term of this Agreement, the Executive's employment by the Corporation is terminated for any reason other than his death, his Disability, his retirement on his Normal Retirement Date, by the Corporation for Cause, or by the Executive without Good Reason, the Executive shall be under no further obligation to perform services for the Corporation and shall be entitled to receive the following payments: (a) The Corporation shall pay to the Executive his full base salary through the effective date of the termination within five (5) business days thereafter and all benefits and awards (including both the cash and stock components) to which the Executive is entitled under any benefit plans or policies in which the Executive was a participant prior to the Change in Control (or, if more favorable, at the effective date of termination), at the time such payments are due pursuant to the terms of such benefit plans or policies as in effect immediately prior to the Change in Control (or, if more favorable, at the effective date of termination). (b) At the election of the Executive, in addition to the entitlements set forth in Section 3(a) but in lieu of any payment to the Executive of any salary or severance payments or benefits to which the Executive would be entitled under the provisions of any Employment Agreement between the Corporation and the Executive then in effect (if any), the Corporation shall pay to the Executive, in a lump sum not later than ten (10) business days following the effective date of the termination: (i) an amount equal to three (3) times the Executive's annual base salary on the effective date of the termination or, if higher, immediately prior to the Change in Control; (ii) an amount equal to three (3) times the greater of (x) the highest amount of the actual bonus awarded to the Executive in the five (5) fiscal years immediately preceding the year in which the Change in Control occurred and (y) an amount equal to the amount the Executive would have been awarded under the Corporation's bonus plan in effect immediately prior to the Change in Control for the fiscal year in which the Change in Control occurred had the Executive continued to render services to the Corporation - 6 - 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. - 7 - 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 pay to the Executive an additional amount such that the total amount of all such - 8 - 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 - 9 - 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. - 10 - 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". - 11 - 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/ James H. Dorton James H. Dorton EX-10 4 EXHIBIT 10.3 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT, is made as of this 6th day of August, 1996, by and between BOWATER INCORPORATED, a Delaware corporation having a mailing address of 55 East Camperdown Way, Greenville, South Carolina 29602 (the "Corporation"), and James H. Dorton, of 4103 Kenyon Avenue, Huntsville, AL 35802 (the "Executive"). WHEREAS, the Corporation desires to employ the Executive as Vice President - Treasurer; and WHEREAS, the Executive is desirous of serving the Corporation in such capacity; NOW, THEREFORE, the parties hereto agree as follows: 1. Employment. During the term of this Agreement the Corporation agrees to continue to employ the Executive, and the Executive agrees to continue in the employ of the Corporation, in accordance with and subject to the provisions of this Agreement. 2. Term. (a) Subject to the provisions of subparagraphs (b) and (c) of this Section 2, the term of this Agreement shall begin on the date the Executive reports for duty hereunder (the "Commencement Date") and shall continue thereafter until terminated by either party by written notice given to the other party at least thirty (30) days prior to the effective date of any such termination. The effective date of the termination shall be the date stated in such notice, provided that if the Corporation specifies an effective date that is more than (30) days following the date of such notice, the Executive may, upon thirty (30) days' written notice to the Corporation, accelerate the effective date of such termination. 1 (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 - Treasurer, 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. The Executive will be entitled to relocation assistance for his move to Greenville, South Carolina, in accordance with the terms of the 2 Corporation's current relocation policy, except that he shall be entitled to a miscellaneous relocation allowance in the amount of $10,000, which shall be grossed up for taxes in accordance with the gross-up method described in the current relocation policy. 5. Compensation and Benefits. (a) Base Salary. The Corporation shall pay to the Executive a base salary of $140,000 (salary grade 31) payable in substantially equal periodic installments on the Corporation's regular payroll dates. The Executive's base salary shall be reviewed at least annually and from time to time may be increased (or reduced, if such reduction is effected pursuant to across-the-board salary reductions similarly affecting all management personnel of the Corporation). (b) Bonus Plan. In addition to 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. The Executive shall be eligible for a bonus for calendar year 1996 equal to 50% of the amount he would have received if he had been employed as of January 1, 1996. (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. The Executive and his family will be covered under the Corporation's medical and dental plans as of August 1, 1996, subject to the Executive's obligation to contribute the employee share of the cost of such coverage. As of the Commencement Date, the Executive shall be awarded Equity Participation Rights ("EPR"s) for 5,000 units subject to the same terms and conditions as were applicable to other Executives in the same salary grade receiving EPRs in the calendar year 1996, at a reference price per unit equal to the "Fair Market Value" of a share of common stock of Bowater Incorporated on the Commencement Date, in accordance with the definition of "Fair Market Value" in the Bowater Incorporated Equity Participation Rights Plan. 3 (d) Vacations. The Executive shall be entitled to paid vacation, in keeping with the Corporate policy as in effect from time to time, to be taken at such time or times as may be approved by the Corporation. (e) Expenses. The Corporation shall reimburse the Executive for all reasonable expenses properly incurred, and appropriately documented, by the Executive in connection with the business of the Corporation. (f) Perquisites. The Corporation shall make available to the Executive all perquisites to which he is entitled by virtue of his position. 6. Nondisclosure. During and after the term of this Agreement, the Executive shall not, without the written consent of the Board of Directors of the Corporation, disclose or use directly or indirectly, (except in the course of employment hereunder and in furtherance of the business of the Corporation or any of its subsidiaries and affiliates) any of the trade secrets or other confidential information or proprietary data of the Corporation or its subsidiaries or affiliates; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same or similar businesses. 7. Noncompetition. During the term of this Agreement, and for a period of one (1) year after the date the Executive's employment terminates, the Executive shall not, without the prior approval of the Board of Directors of the Corporation in the same or a similar capacity engage in or invest in, or aid or assist anyone else in the conduct of any business (other than the businesses of the Corporation and its subsidiaries and affiliates) which directly competes with the business of the Corporation and its subsidiaries and affiliates as conducted during the term hereof. If any court of competent jurisdiction shall determine that any of the provisions of this Section 7 shall not be enforceable because of the duration or scope thereof, the parties hereto agree that said court shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable and this Agreement in its reduced form shall be valid and enforceable to the extent permitted by law. The Executive acknowledges that the Corporation's remedy at law for a breach by the Executive of the provisions of this Section 7 will be inadequate. Accordingly, in the event of the breach or threatened breach by the Executive of this Section 7, the Corporation shall be entitled to injunctive relief in addition to any other remedy it may have. 4 8. Severance Pay. If the Executive's employment hereunder is involuntarily terminated for any reason other than those set forth in Section 2(c) hereof, then unless the Corporation shall have terminated the Executive for "Cause", the Corporation shall pay the Executive severance pay in an amount equal to twelve (12) months of the Executive's base salary on the effective date of the termination, plus 1/12 of the amount of the last bonus paid to the Executive under the Corporation's bonus plan applicable to the Executive for each month in the period beginning on January 1 of the year in which the date of the termination occurs and ending on the date of the termination and for each months' base salary to which the Executive is entitled under this Section 8, provided, however, that any amount paid to the Executive by the Corporation for services rendered subsequent to the thirtieth (30th) day following the communication to the Executive of notice of termination shall be deducted from the severance pay otherwise due hereunder. Such payment shall be made in a lump sum within ten (10) business days following the effective date of the termination. The severance pay shall be in lieu of all other compensation or payments of any kind relating to the termination of the Executive's employment hereunder; provided that the Executive's entitlement to compensation or payments under the Corporation's retirement plans, stock option or incentive plans, savings plans or bonus plans attributable to service rendered prior to the effective date of the termination shall not be affected by this clause and shall continue to be governed by 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. 5 11. Governing Law. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Delaware. 12. Supersedure. This Agreement shall cancel and supersede all prior agreements relating to employment between the Executive and the Corporation, except the Change in Control Agreement. 13. Waiver of Breach. The waiver by a party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by any of the parties hereto. 14. Binding Effect. The terms of this Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Corporation and the heirs, executors, administrators and successors of the Executive, but this Agreement may not be assigned by the Executive. IN WITNESS WHEREOF, the Corporation and the Executive have executed this Agreement as of the day and year first above written. BOWATER INCORPORATED By /s/ Richard F. Frisch /s/ James H. Dorton Richard F. Frisch, James H. Dorton Vice President - Human Resources 6 EX-27 5 EXHIBIT 27
5 0000743368 BOWATER INCORPORATED 1,000 3-MOS 6-MOS DEC-31-1996 DEC-31-1996 APR-01-1996 JAN-01-1996 JUN-30-1996 JUN-30-1996 142,894 142,894 191,016 191,016 241,499 241,499 0 0 167,732 167,732 757,763 757,763 3,010,931 3,010,931 1,354,544 1,354,544 2,893,263 2,893,263 207,708 207,708 786,996 786,996 39,862 39,862 49,683 49,683 136,798 136,798 983,447 983,447 2,893,263 2,893,263 453,951 922,834 453,951 922,834 297,432 557,438 339,909 645,120 (8,948) (89,097) 0 0 18,223 36,570 81,064 285,587 29,994 105,668 44,343 157,248 0 0 (1,931) (1,931) 0 0 42,412 155,317 $0.98 $3.58 $0.96 $3.50
-----END PRIVACY-ENHANCED MESSAGE-----