SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BOWATER INCORPORATED
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
(BOWATER LOGO)
March 18, 2002
Dear Shareholders:
We cordially invite you to attend the Annual Meeting of Shareholders of
Bowater Incorporated, which will be held at The Gunter Theatre, 300 South Main
Street, Greenville, South Carolina, on Wednesday, May 8, 2002, at 11:00 a.m. We
will be able to discuss each item of business described in the accompanying
Notice of Annual Meeting and Proxy Statement.
During the meeting, I will review highlights of the past year and report on
Bowater's business operations. Afterwards, you will have an opportunity to ask
questions and to confer informally with a number of our directors and officers.
We hope that you will attend the Annual Meeting. Whether or not you plan to
attend, please sign, date and return your proxy (or voting instruction card)
promptly in the envelope provided in order to make certain that your shares will
be represented at the Annual Meeting.
Bowater's Annual Report for 2001 is included in this package, and we urge
you to read it carefully.
Sincerely yours,
/s/ ARNOLD M. NEMIROW
ARNOLD M. NEMIROW
Chairman, President and
Chief Executive Officer
BOWATER INCORPORATED
----------------------------
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
May 8, 2002
----------------------------
The 2002 Annual Meeting of Shareholders of Bowater Incorporated will be
held at The Gunter Theatre, 300 South Main Street, Greenville, South Carolina,
on Wednesday, May 8, 2002, at 11:00 a.m. for the following purposes:
(1) To elect three directors, each for a term of three years;
(2) To vote on a proposal to approve Bowater's 2002 Stock Option
Plan; and
(3) To transact any other business that may properly come before
the Annual Meeting and any adjournment.
Holders of common stock and special voting stock of record at the close
of business on March 14, 2002, are entitled to notice of and to vote at the
Annual Meeting.
By order of the Board of Directors,
/s/ Anthony H. Barash
Anthony H. Barash
Senior Vice President - Corporate Affairs,
General Counsel and Secretary
Greenville, South Carolina
March 18, 2002
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SHAREHOLDERS ARE URGED TO SIGN AND RETURN THE PROXY OR VOTING
INSTRUCTION CARD PROMPTLY IN THE ENVELOPE PROVIDED.
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BOWATER INCORPORATED
55 EAST CAMPERDOWN WAY
POST OFFICE BOX 1028
GREENVILLE, SC 29602-1028
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PROXY STATEMENT
-------------------
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 8, 2002, AT 11:00 A.M.
AT THE GUNTER THEATRE, 300 SOUTH MAIN STREET, GREENVILLE, SC 29601
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GENERAL INFORMATION
---------------------
This Proxy Statement and the enclosed proxy materials relate to
Bowater's Annual Meeting of Shareholders to be held on May 8, 2002, at 11:00
a.m. at The Gunter Theatre, 300 South Main Street, Greenville, South Carolina.
These proxy materials are being furnished by Bowater in connection with a
solicitation of proxies by Bowater's Board of Directors and are being mailed on
or about April 1, 2002.
WHO MAY VOTE AT THE ANNUAL MEETING
These proxy materials are provided to holders of Bowater's Common Stock
("Common Shareholders") and holders of Exchangeable Shares issued by Bowater's
subsidiary, Bowater Canada Inc., who were holders of record on March 14, 2002
(the "Record Date"). Common Shareholders of record on the Record Date and
Computershare Trust Company of Canada (the "Trustee"), as holder of one share of
special voting stock issued in connection with the issuance of the Exchangeable
Shares, are entitled to vote at the Annual Meeting.
The Trustee will vote this share of special voting stock under the
provisions of a Voting and Exchange Trust Agreement. Under this agreement, each
holder of Exchangeable Shares (an "Exchangeable Shareholder") is entitled to
instruct the Trustee how to vote at Bowater shareholder meetings. The Trustee
will cast votes equal to the number of outstanding Exchangeable Shares not owned
by Bowater and as to which the Trustee has timely received voting instructions
from the Exchangeable Shareholders.
The Common Shareholders and the Trustee (acting for the Exchangeable
Shareholders) will vote together as a single class on all matters. On the Record
Date, 55,125,639 shares of Common Stock and 1,686,406 Exchangeable Shares
entitled to give voting instructions were outstanding.
VOTING AND PROXY PROCEDURES
Each share of Common Stock outstanding on the Record Date is entitled
to one vote at the Annual Meeting. An Exchangeable Shareholder (other than
Bowater) is entitled to give instructions for votes equal to the number of
Exchangeable Shares held by such shareholder.
Proxy cards are enclosed for Common Shareholders and voting instruction
cards are enclosed for Exchangeable Shareholders. Signing the enclosed proxy or
voting instruction card will not affect a shareholder's right to attend the
Annual Meeting. Shares of Common Stock represented by proxies in the
accompanying form will be voted in accordance with the holder's instructions.
If no contrary instruction is indicated, shares represented by the
proxies will be voted:
(1) for the election of the three nominees named below to serve as
directors for the three-year term indicated;
(2) for the proposal to approve Bowater's 2002 Stock Option Plan;
and
(3) in the discretion of the proxy holders on any other business
that may properly come before the Annual Meeting and any
adjournment.
1
Should any nominee named for the office of director become unable or
unwilling to accept nomination or election, the proxyholders intend to vote for
the election of another person recommended by the Nominating and Governance
Committee of the Board of Directors and nominated by the Board. Bowater has no
reason to believe that any of the three nominees will be unable or unwilling to
serve if elected to office.
Aside from the election of three directors and the proposal to approve
the 2002 Stock Option Plan, Bowater does not know of any other matters that will
be presented at the Annual Meeting. However, if any other matters properly come
before the Annual Meeting and any adjournment, the person or persons voting the
proxies will vote them in accordance with their best judgment.
REVOCATION OF PROXIES AND INSTRUCTIONS
Any Bowater Common Shareholder giving a proxy has the right to revoke
it by giving written notice of revocation to Bowater's Secretary at any time
before the proxy is voted, or by executing and delivering to Bowater a
later-dated proxy at any time before the earlier proxy is voted, or by attending
the Annual Meeting and voting his or her shares in person (although attendance
at the Annual Meeting will not, in and of itself, revoke a proxy). No notice of
revocation or later-dated proxy will be effective until received by Bowater's
Secretary at or prior to the Annual Meeting. Instructions regarding the
revocation of voting instructions are included in the Notice to Exchangeable
Shareholders that is being provided to holders of Exchangeable Shares.
QUORUM AND VOTE REQUIREMENTS FOR APPROVAL
Holders of shares representing one-third of the voting power entitled
to vote at the Annual Meeting, present in person or by proxy, are necessary to
constitute a quorum. Directors are elected by a plurality of votes of the shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting. The 2002 Stock Option Plan must be approved by an affirmative vote of
holders of a majority of the shares voting on the issue at the Annual Meeting.
In the election of directors, votes may be cast for or votes may be
withheld from each nominee. Abstentions may not be specified with respect to the
election of directors. Regarding the proposal to approve the 2002 Stock Option
Plan, abstentions have the same effect as a vote against the matter. Broker
non-votes (which occur when a broker or other nominee holding shares for a
beneficial owner reports those shares as present for quorum purposes but does
not vote on a proposal) will have no effect upon the vote on any matter
submitted for shareholder vote.
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TABLE OF CONTENTS
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General Information ....................................................... 1
Item No. 1 - Election of Directors; Information on Nominees and Directors.. 3
Board and Committee Meetings............................................... 5
Director Compensation ..................................................... 6
Stock Ownership ........................................................... 7
Human Resources and Compensation Committee Report on Executive
Compensation............................................................. 9
Total Shareholder Return .................................................. 11
Executive Compensation .................................................... 12
Item No. 2 - Approval of Bowater's 2002 Stock Option Plan ................. 16
Section 16(a) Beneficial Ownership Reporting Compliance.................... 20
Related Party Transactions ................................................ 20
Report of the Audit Committee of the Board of Directors ................... 21
Appointment of Independent Auditors ....................................... 21
Proposals by Shareholders ................................................. 22
Expenses of Solicitation .................................................. 22
Financial Information ..................................................... 22
Charter of the Audit Committee of the Board of Directors................... A-1
2
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ITEM NO. 1 - ELECTION OF DIRECTORS
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INFORMATION ON NOMINEES AND DIRECTORS
The Board of Directors is divided into three classes: Class I, Class II
and Class III. Each class consists as nearly as possible of one-third of the
total number of directors, and one class is elected each year for a three-year
term. The term of the Class III directors expires this year, and the successors
are to be elected at the Annual Meeting for a three-year term expiring in 2005.
The terms of the Class I and Class II directors expire in 2003 and 2004,
respectively.
The following information is provided for the three nominees who are
the Class III directors, and also for the Class I and Class II directors.
NOMINEES FOR DIRECTORS TO BE ELECTED AT THE 2002 ANNUAL MEETING
OF SHAREHOLDERS (CLASS III)
FRANCIS J. AGUILAR PROFESSOR EMERITUS OF HARVARD UNIVERSITY GRADUATE SCHOOL
Age: 69 OF BUSINESS -- Dr. Aguilar was a faculty member at the
Director since 1984 Harvard University Graduate School of Business from 1965
to 1995. Since 1994, he has served as Executive Director
of the Management Education Alliance, a nonprofit
educational corporation. Dr. Aguilar is also a director
of Dynamics Research Corporation and also acts as an
independent business consultant.
JOHN A. ROLLS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THERMION SYSTEMS
Age: 60 INTERNATIONAL -- Mr. Rolls has served as President and
Director since 1990 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 is also a director of MBIA Inc., Thermion
Systems International and FuelCell Energy, Inc.
L. JACQUES MENARD CHAIRMAN OF BMO NESBITT BURNS AND PRESIDENT OF THE BANK
Age: 56 OF MONTREAL GROUP OF COMPANIES, QUEBEC -- Mr. Menard has
Director since 2002 served as Chairman of BMO Nesbitt Burns and President of
the Bank of Montreal Group of Companies, Quebec, an
investment banking company, since 2001. From 1994 until
2001, Mr. Menard served in various executive capacities
with BMO Nesbitt Burns including as Deputy Chairman from
1997 until 2001. Prior to 1994, he was Chairman of the
Executive Committee of Burns Fry, one of BMO Nesbitt
Burns' predecessor firms. Mr. Menard is also a director
of N. Stein Tecknologie, RONA Groupe, Inc. and Gaz
Metropolitain and Company, Limited Partnership.
DIRECTORS WHOSE TERMS END AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS (CLASS I)
RICHARD BARTH RETIRED CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Age: 70 OF CIBA-GEIGY CORPORATION -- Mr. Barth became Chairman of
Director since 1991 Ciba-Geigy Corporation, a diversified chemical products
company, in 1990 and served in that capacity until its
merger into Novartis Corporation in 1996. Mr. Barth 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 is also a
director of The Bank of New York and ImClone Systems,
Incorporated.
3
DIRECTORS WHOSE TERMS END AT THE 2003 ANNUAL MEETING
OF SHAREHOLDERS (CLASS I) (continued)
JAMES L. PATE CHAIRMAN OF PENNZOIL-QUAKER STATE COMPANY -- Mr. Pate has
Age: 66 been Chairman of the Board of Pennzoil-Quaker State
Director since 1996 Company, an automotive consumer products company, since
December 1998, and served as Chief Executive Officer from
December 1998 to May 2000. He was Chairman of the Board
of Pennzoil Company from 1994 to December 1998, Chief
Executive Officer from 1990 to 1998 and President from
1990 to 1997. Mr. Pate is also a director of Crown Cork &
Seal Company, Inc.
CHARLES J. HOWARD CHAIRMAN OF HOWARD, BARCLAY & ASSOCIATES LTD. --
Age: 59 Mr. Howard has been Chairman of Howard, Barclay &
Director since 1997 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 is also a director of Turbo Genset, Inc. and
Unicorp Inc.
TOGO D. WEST, JR. OF COUNSEL, COVINGTON & BURLING -- Mr. West has been Of
Age: 59 Counsel to Covington & Burling, a law firm headquartered
Director since 2002 in Washington, D.C., since 2000. From 1998 until 2000, he
served as Secretary of Veterans Affairs in the Clinton
Administration. From 1993 until 1998, he was Secretary of
the Army, a period during which he also served as
Chairman of the Panama Canal Commission. Mr. West is also
a director of Krispy Kreme Doughnuts, Inc.
DIRECTORS WHOSE TERMS END AT THE 2004 ANNUAL MEETING OF SHAREHOLDERS (CLASS II)
ARNOLD M. NEMIROW CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF
Age: 58 BOWATER -- Mr. Nemirow became Chief Executive Officer of
Director since 1994 Bowater in 1995 and became Chairman in 1996. He has
served as President of Bowater since September 1994 and
served as Chief Operating Officer of Bowater from
September 1994 through February 1995.
ARTHUR R. SAWCHUK CHAIRMAN OF MANULIFE FINANCIAL CORPORATION -- Mr. Sawchuk
Age: 66 has been Chairman of Manulife Financial Corporation, a
Director since 1998 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 is also a director of
Manitoba Telecom Services Inc. and Ontario Power
Generation Inc.
CINDA A. HALLMAN PRESIDENT AND CHIEF EXECUTIVE OFFICER OF SPHERION
Age: 57 CORPORATION -- Ms. Hallman has served as President and
Director since 2000 Chief Executive Officer of Spherion Corporation, a
recruitment, outsourcing and technology services company,
since April 2001. From March 1998 until April 2001,
Ms. Hallman served as Senior Vice President, Global
Systems & Processes of E.I. du Pont de Nemours and
Company, a science and technology company. She served as
DuPont's Senior Vice President of Functioning
Effectiveness and Global Services from 1997 to 1998, and
Vice President of Global Information Systems and Chief
Information Officer from 1992 to 1997. Ms. Hallman is
also a director of Spherion Corporation.
4
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BOARD AND COMMITTEE MEETINGS
--------------------------------
COMMITTEE MEMBERSHIP
The following table sets forth the membership of the standing
committees of Bowater's Board of Directors.
COMMITTEES
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HUMAN RESOURCES NOMINATING AND
DIRECTOR AUDIT EXECUTIVE FINANCE AND COMPENSATION GOVERNANCE
--------------------------------------------------------------------------------
Francis J. Aguilar X X
Richard Barth X X X
Kenneth M. Curtis * X
Cinda A. Hallman X
Charles J. Howard X X
L. Jacques Menard
Arnold M. Nemirow X
James L. Pate X X
John A. Rolls X X
Arthur R. Sawchuk X X
Togo D. West, Jr.
--------------------------------------------------------------------------------
* Mr. Curtis' term as a director will expire at this Annual Meeting.
DESCRIPTION OF BOARD COMMITTEES
Audit Committee. This Committee met four times in 2001. It reviews the
scope and results of Bowater's annual audit, approves the non-audit services
rendered by Bowater's independent auditors and considers the effect of such
services on the independence of such auditors, recommends to the Board
independent auditors for the ensuing year and reviews Bowater's accounting
policies and systems of internal controls and internal auditing procedures. For
further information concerning the work of the Audit Committee, see "Report of
the Audit Committee of the Board of Directors" on page 21 of this Proxy
Statement and the Audit Committee Charter attached to this Proxy Statement as
Appendix A.
Executive Committee. This Committee did not meet during 2001. It meets
from time to time to make decisions between meetings of the Board under
authority delegated by the Board of Directors.
Finance Committee. This Committee met four times in 2001. It reviews
and oversees Bowater's financial affairs. The Committee also provides financial
oversight and direction of Bowater's pension and savings plans, including
approving the selection of trustees and the amount of contributions to be made
by Bowater under these plans. In addition, the Committee reviews and approves
the adoption of actuarial and accounting methods and assumptions under these
plans and reviews the action of management in establishing investment policy and
administering the plans.
Human Resources and Compensation Committee. This Committee met four
times in 2001. It approves the adoption, amendment and termination of all
employee pension and savings benefit plans, administers executive bonus plans
and awards and stock option plans and grants under the plans, reviews programs
employed by management in developing executive resources for current and future
operations and reviews and approves the compensation of Bowater's executive
officers.
Nominating and Governance Committee. This Committee met three times in
2001. It recommends nominees for election to the Board and addresses issues of
corporate governance for Board consideration. The Nominating and Governance
Committee will consider recommendations for director nominees from shareholders.
Shareholders who wish to make a recommendation to the Nominating and Governance
Committee of a director nominee proposed for election at the 2003 Annual Meeting
should comply with the procedure described in "Proposals by Shareholders" on
page 22. The Committee also serves in an oversight capacity with respect to
Bowater's compliance with environmental, health and safety regulations.
The Board of Directors met seven times during 2001. All members
attended 100% of the Board meetings and 100% of the meetings of committees on
which they served.
5
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DIRECTOR COMPENSATION
-------------------------
Each director who is not a Bowater employee (an "Outside Director") is
entitled to receive an annual retainer of $35,000, a fee of $1,500 per day for
each Board meeting attended and a fee of $1,000 per day for each Board committee
meeting attended. Each director is also reimbursed for reasonable expenses
incurred in attending meetings. Outside Directors also are eligible to receive
annual awards under the 2000 Stock Option Plan and the 2002 Stock Option Plan
being presented for approval at this Annual Meeting. In January 2001, each
Outside Director (serving at that time), except Ms. Hallman, was granted options
to purchase 2,000 shares of Common Stock. Ms. Hallman, who became a director on
November 1, 2000, was granted options to purchase 2,333 shares of Common Stock.
On March 2, 2001, the 2000 Stock Option Plan was amended to provide
that Outside Directors may elect to receive a single option grant in lieu of
three years of director compensation (the "Directors' Plan"). The compensation
waived includes the annual cash retainer, the board and committee meeting fees,
and the annual stock option grant, but does not include annual retirement
accruals or expense reimbursements. The participating directors will not receive
any increases in director compensation or the benefits of any new director
compensation arrangements during the three-year period. All participating
directors received on May 9, 2001, options to purchase 20,000 shares of Common
Stock with a per-share exercise price of $48.19 (the fair market value on that
date). A director's right to exercise these options vests over a three-year
period, one-third on each anniversary of the grant, assuming the director
continues to serve on the Board. The Directors' Plan also provides that if a
director leaves the Board during the three-year vesting period for any reason
other than death or disability, the director forfeits all rights to unvested
options. In accordance with the terms of Bowater's 2000 Stock Option Plan, if a
change in control occurs, Bowater will purchase the options at the acceleration
price defined in the 2000 Stock Option Plan. The 2002 Stock Option Plan being
presented for approval at this Annual Meeting contains these same provisions.
All Outside Directors except for Messrs. Curtis, Barth and West have elected to
participate in the Directors' Plan. Mr. West was elected to the Board on March
1, 2002 and has made no elections with respect to director compensation. Messrs.
Curtis and Barth each received on January 30, 2002, options to purchase 2,000
shares. Also on that date, Mr. Menard, who became a director on January 1, 2002,
and elected to participate in the Directors' Plan, was granted an option to
purchase 15,555 shares (which is 20,000 shares pro-rated for the period from
January 2002 through April 2004).
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
Bowater's Deferred Compensation Plan for Outside Directors (the
"Deferred Plan") permits Outside Directors to elect irrevocably to defer receipt
of all or a part of their annual retainer and meeting fees. Compensation that a
director has elected to defer under the Deferred Plan can be allocated to a cash
account, a Bowater Common Stock account or both accounts, in increments of 10%,
as elected by the director. On the date on which compensation to be deferred
would have been payable, participating directors who have elected to allocate
all or part of their deferred compensation to their Deferred Plan stock accounts
will be credited with the number of shares of Common Stock, including fractional
shares, having a value (with a 5% discount) equivalent to the amount of deferred
compensation that they allocated to their stock accounts. Deferred compensation
that is allocated to a cash account will be credited on the date on which such
compensation would have been payable. Whenever dividends are paid on shares of
Common Stock, each participant's stock account will be credited with additional
shares having an undiscounted value equal to the amount of the dividend paid on
a single share of such stock, multiplied by the number of shares of Common
Stock, including fractional shares, credited to the participant's account on the
dividend record date. Amounts credited to a Deferred Plan cash account will
accrue interest on the average monthly balance of that account at a rate equal
to the rate for the Fixed Income Fund maintained for Bowater's Salaried
Employees' Savings Plan (the "Savings Plan"). Outside Directors can elect to
transfer balances between the cash and stock accounts subject to certain
conditions set forth in the Deferred Plan. Participants in the Deferred Plan may
elect at the time of deferral to have their Deferred Plan accounts distributed
to them in (a) either Common Stock or cash as soon as possible or in a stated
number of years after they cease to be Outside Directors or (b) cash in either
five or ten installments. All of the Outside Directors, except Directors Curtis,
Menard, Howard, West and Hallman, have accounts under the Deferred Plan.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
Bowater also has a Retirement Plan for Outside Directors (the
"Retirement Plan"). All of Bowater's current Outside Directors participate in
the Retirement Plan. The Retirement Plan provides for normal retirement benefits
equal to 10% of the participant's annualized retainer at the termination of
service multiplied by the participant's years of service as an Outside Director
of Bowater up to a maximum of ten years. Normal retirement benefits may begin at
age 65 after the completion of five or more years of service, although early
retirement is permitted (with Bowater's consent) upon attaining age 55 and
completing five years of service. Participants who elect early commencement of
benefit payments after retirement receive a reduced benefit. The Retirement Plan
provides that a participant who was an Outside Director immediately prior to a
change in control of Bowater and who is removed from or not renominated to his
or her directorship by reason of the change in control is entitled to the early
retirement benefits provided by the plan regardless of whether the plan
requirements for early retirement have been satisfied. The calculation of these
benefits will include fees paid for attending Board and committee meetings for
the year preceding the change in control.
6
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STOCK OWNERSHIP
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----------------------
5% BENEFICIAL OWNERS
----------------------
Bowater knows of no person who, or group that, owns beneficially more
than 5% of the outstanding voting power as of March 14, 2002, except as set
forth in the table below. Information in the table is based solely on Schedule
13G filings made by beneficial owners with the Securities and Exchange
Commission.
VOTING POWER INVESTMENT POWER TOTAL AMOUNT
NAME AND ADDRESS OF -------------------- -------------------- OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER SOLE SHARED SOLE SHARED OWNERSHIP CLASS(1)
------------------------------------- --------- --------- --------- --------- ------------- ----------
FMR Corp.(2) 376,759 -- 5,782,414 -- 5,782,414 10.20%
82 Devonshire Street
Boston, MA 02109
Lord, Abbett & Co. 4,813,304 -- 4,813,304 -- 4,813,304 8.49%
90 Hudson Street
Jersey City, NJ 07302
Wellington Management Company LLP(3) -- 3,657,247 -- 4,642,827 4,642,827 8.19%
75 State Street
Boston, MA 02109
Franklin Resources, Inc.(4) 3,179,852 -- 3,179,852 -- 3,179,852 5.33%
One Franklin Parkway
San Mateo, CA 94403
---------------------
(1) On all matters submitted for shareholder vote, the Common Stock vote
together as a single class with the special voting stock held by the
Trustee. Under the Voting and Exchange Trust Agreement, the Trustee is
entitled to cast a number of votes equal to the number of outstanding
Exchangeable Shares not owned by Bowater and as to which the Trustee has
timely received voting instructions from the Exchangeable Shareholders.
Accordingly, percentages have been calculated based upon the total number
of shares of Common Stock (55,128,639 shares) and Exchangeable Shares
(1,686,406 shares) outstanding as of March 14, 2002. These numbers do not
include any treasury shares.
(2) In an amendment dated February 13, 2002 to Schedule 13G, FMR Corp. ("FMR")
reported that: (a) Edward C. Johnson 3d ("Johnson"), FMR's chairman, shares
with FMR dispositive power over all of the shares listed; (b) FMR's
wholly-owned subsidiary, Fidelity Management & Research Company (same
address as FMR), acts as an investment adviser to various investment
companies and, as a result, is the beneficial owner of 5,403,055 shares of
Common Stock shown in the table and shares with FMR and Johnson the power
to dispose of the 5,403,055 shares owned by the investment companies; (c)
FMR's wholly-owned subsidiary, Fidelity Management Trust Company (same
address as FMR), beneficially owns 292,159 shares of Common Stock as a
result of its serving as investment manager of institutional accounts; (d)
Fidelity Management Trust Company shares dispositive power over those
shares with FMR and Johnson, has sole investment power regarding 292,159
shares of Common Stock, but has no power to vote or to direct the voting of
3,100 shares of these shares owned by the institutional accounts; (e)
members of Johnson's family (including Abigail P. Johnson, having the same
address as FMR), through their ownership of voting common stock and voting
agreements, may be deemed to form a controlling group with respect to FMR;
(f) Fidelity International Limited, Pembroke Hall, 42 Crowlane, Hamilton,
Bermuda, has sole voting and dispositive power with respect to 87,200
shares of Common Stock, by virtue of providing investment advisory and
management services to a number of non-U.S. investment companies and
institutional investors.
(3) In a Schedule 13G dated February 14, 2002, Wellington Management Company,
LLP ("WMC") reported that these shares are owned of record by clients of
WMC for which it serves as investment advisor. Those clients have the right
to receive, or the power to direct the receipt of, dividends from, or the
proceeds from the sale of, such securities. No such client is known to have
such right or power with respect to more than 5% of this class of
securities.
(4) In a Schedule 13G dated February 14, 2002, Franklin Resources, Inc. ("FRI")
reported that these securities are beneficially owned by investment
companies or other managed accounts that are advised by investment advisory
subsidiaries of FRI (which have investment and/or voting power over the
securities owned by their investment advisory clients). Accordingly, such
subsidiaries may be deemed to be the beneficial owners of the referenced
securities. Charles B. Johnson and Rupert H. Johnson, Jr. (the "FRI
Principal Shareholders") (each with the same business address as FRI) each
owns in excess of 10% of the outstanding common stock of FRI. FRI and the
FRI Principal Shareholders may be deemed to be the beneficial owners of
securities held by persons and entities advised by FRI subsidiaries. The
Schedule 13G reported that (a) one of the investment adviser subsidiaries,
Templeton Global Advisors Limited (for which the business address is Lyford
Cay, P.O. Box N-7759, Nassau, Bahamas), has sole voting power and sole
dispositive power with respect to 3,020,200 of the shares shown; (b)
Franklin Advisers, Inc. (same address as FRI) has sole voting power and
sole dispositive power with respect to 156,000 of the shares shown; and (c)
Templeton Investment Counsel, LLC (same address as FRI) has sole voting
power and sole dispositive power with respect to 3,652 of the shares shown.
Each of FRI, the FRI Principal Shareholders and the investment advisory
subsidiaries disclaims any economic interest or beneficial ownership in the
shares shown in the table above and are of the view that they are not
acting as a "group" for purposes of the Securities Exchange Act of 1934, as
amended, and that they are not otherwise required to attribute to each
other the beneficial ownership of securities held by any of them or by any
persons or entities advised by subsidiaries of FRI.
7
----------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
----------------------------------
As of March 14, 2002, ownership of Common Stock and Exchangeable Shares
by each of the directors and nominees for director, by each of the executive
officers named in the Summary Compensation Table, and by all directors and
executive officers of Bowater as a group was as follows:
% OF OUTSTANDING
COMMON STOCK AND
EXCHANGEABLE SHARES
AMOUNT AND NATURE OF ENTITLED TO GIVE
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) VOTING INSTRUCTIONS(2)
------------------------ ----------------------- ----------------------
Arnold M. Nemirow 590,176 (1) *
Arthur D. Fuller 185,144 (1) *
E. Patrick Duffy 168,007 (1) *
David G. Maffucci 136,600 (1) *
Richard K. Hamilton 86,622 (1) *
Francis J. Aguilar 36,501 (1) *
Richard Barth 16,620 (1) *
Kenneth M. Curtis 7,500 (1) *
Cinda A. Hallman 8,503 (1) *
Charles J. Howard 20,917 (1) *
L. Jacques Menard 2,000 (1) *
James L. Pate 18,132 (1) *
John A. Rolls 27,731 (1) *
Arthur R. Sawchuk 14,104 (1) *
Togo D. West, Jr. -- (1) *
Directors/Executive Officers
as a group (25 persons) 1,881,047 (1) 2.8%
------------
* Represents holdings of less than 1% of the outstanding shares of Common
Stock and Exchangeable Shares.
(1) Beneficial ownership consists of shares owned directly or indirectly, and
shares underlying options or other rights to acquire shares that are
currently exercisable or that will be exercisable on or before May 13, 2002.
The beneficial ownership stated above represents sole voting and investment
power, except that 7,000 of Mr. Howard's shares are owned by Ausnoram
Holdings Limited, of which Mr. Howard is a principal. Common Stock held in
the Savings Plan is allocated to the accounts of Bowater's officers who
participate in the plan. The number of shares of Common Stock allocated to
officers is provided by the Savings Plan administrator in a statement for
the period ending December 31, 2001, based on the market value of the
applicable plan units held by the officer. This table also includes shares
of Common Stock allocated under Bowater's Compensatory Benefits Plan (the
"Compensatory Plan") based on a statement for the period ending December 31,
2001. Additional shares of Common Stock may have been allocated to the
accounts of participants in the Savings Plan or Compensatory Plan since the
date of the last statements from the plan administrators. Participants in
the Compensatory Plan have no voting power with respect to share allocations
but receive cash payouts based on the number of shares allocated to their
accounts under the plan upon their retirement from Bowater, death,
disability or other termination of employment (if they have three years of
service), and do not have investment power over share allocations prior to
that time. The number of shares allocated under each of the Savings Plan and
the Compensatory Plan is subject to revision in order to comply with
requirements respecting nondiscrimination standards and limitations on
contributions under the Internal Revenue Code of 1986, as amended. The
following table indicates the nature of Common Stock ownership of each
individual listed in the table.
DIRECT OWNERSHIP SUBJECT TO OPTIONS
---------------------- DEFERRED SAVINGS COMPENSATORY EXERCISABLE CURRENTLY
COMMON EXCHANGEABLE PLAN PLAN PLAN OR BEFORE MAY 13, 2002
------ ------------ -------- ------- ------------ ----------------------
Arnold M. Nemirow 39,000 -- -- 1,161 4,015 546,000
Arthur D. Fuller 10,000 -- -- 2,850 2,294 170,000
E. Patrick Duffy 8,000 -- -- 767 1,740 157,500
David G. Maffucci 3,627 -- -- 3,652 1,421 127,900
Richard K. Hamilton 4,700 -- -- 3,828 594 77,500
Francis J. Aguilar 12,997 -- 10,337 -- -- 13,167
Richard Barth -- -- 10,120 -- -- 6,500
Kenneth M. Curtis 1,000 -- -- -- -- 6,500
Cinda A. Hallman 670 -- -- -- -- 7,833
Charles J. Howard 8,000 -- -- -- -- 12,917
L. Jacques Menard 2,000 -- -- -- -- --
James L. Pate 1,000 -- 3,965 -- -- 13,167
John A. Rolls -- -- 14,564 -- -- 13,167
Arthur R. Sawchuk -- 1,577 1,360 -- -- 11,167
Togo D. West, Jr. -- -- -- -- -- --
Directors/Executive Officers
as a group (25 persons) 116,355 4,841 40,346 36,729 15,558 1,667,218
(2) The Common Stock votes together with the special voting stock held by the
Trustee on all matters. Under the Voting and Exchange Trust Agreement, the
Trustee is entitled to cast a number of votes equal to the number of
outstanding Exchangeable Shares not owned by Bowater and as to which it has
timely received voting instructions from Exchangeable Shareholders.
Accordingly, percentages of total beneficial ownership have been calculated
based upon the total number of shares of Common Stock and Exchangeable
Shares outstanding as of March 14, 2002. In addition, under Rule 13d-3 of
the Exchange Act, percentages have been computed on the assumption that
shares of Common Stock that can be acquired within 60 days of March 14,
2002, upon the exercise of options by a given person are outstanding, but no
other shares similarly subject to acquisition by other persons are
outstanding.
8
----------------------------------------------
HUMAN RESOURCES AND COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
----------------------------------------------
The Human Resources and Compensation Committee (the "Committee")
develops and administers the compensation programs for Bowater's executive
officers. The Committee's goal is to develop and monitor executive compensation
programs that are consistent with strategic business objectives and shareholder
interests.
The Committee is composed entirely of independent, Outside Directors
who have not served as officers of Bowater and have no interlocking
relationships, as contemplated in the Securities and Exchange Commission's
regulations.
KEY ELEMENTS AND POLICIES FOR COMPENSATION OF EXECUTIVE OFFICERS
Bowater's basic policy for executive officers is that compensation
should vary depending on Bowater's success in the following areas:
o Performance versus Bowater's financial and strategic
objectives, and
o Creation of shareholder value.
The key elements of Bowater's 2001 executive compensation program were
base salary, the Annual Incentive Plan, the 2000-2002 Long-Term Incentive Plan
and stock-based incentive compensation.
o To determine appropriate compensation levels within each pay
component, the Committee considered all elements of the
executive compensation program. Base salaries and targeted
annual incentive payouts for executive officers generally were
set above the median of comparable executives employed by a
number of other companies in the paper and forest products
industry (the "Comparable Group"). Actual total compensation
depended on Bowater's performance.
o Competitive market data was provided by an independent
compensation consultant. Bowater reviewed the pay practices of
Comparable Group companies. The Comparable Group includes many
of Bowater's peer companies included in the Dow Jones Paper
Products Group listed in the Total Shareholder Return chart on
page 11 of this Proxy Statement, as well as other paper and
forest products companies. The Committee believed this
criteria provided reasonable pay comparisons, enabling Bowater
to assure that executives were being paid fairly while
assuring shareholders and Bowater that executive pay levels
were reasonable.
BASE SALARY
Executive officers' salaries are generally set to place them above
median levels of executive compensation at comparable companies as described
above, considering the scope of the individual's responsibilities relative to
the responsibilities of executives at comparable companies. Competitive market
considerations form the primary basis for setting base salary levels, since
performance plays such a large role in determining annual and long-term
incentives. However, in setting base salary levels, the Committee also considers
the officer's performance against individual objectives during the preceding
year, the profits of the individual's business unit, and Bowater's profits
during the preceding year for officers with corporate-wide responsibilities.
ANNUAL INCENTIVE PLAN
The Annual Incentive Plan used six performance measures in 2001: return
on net assets ("RONA"), return on capital spending, operating unit performance,
operating unit profit improvement, coated paper project completion and sales
performance. Each executive's annual incentive award was based on at least three
of these measures, each weighted from 5% to 80%, depending on the executive's
responsibility and function.
o RONA was measured at the divisional and corporate levels, with
awards based on performance relative to goals established at
the beginning of the year. The capital-intensive nature of
Bowater's business means that it is critical to evaluate
earnings in the context of the resources required to generate
them. In addition, there has been a strong historical
relationship between RONA and market valuation for companies
in the paper and forest products industry.
o Return on capital spending targets were set to reflect
Bowater's priority to spend capital dollars on the highest
return capital projects.
9
o Operating unit performance goals were established to reflect
Bowater's desire to improve performance in one or more of the
areas of safety, productivity, quality, cost reduction and
operating income. These goals mirror the performance criteria
established for Bowater's gainsharing programs, which
generally apply to employees not in the Annual Incentive Plan.
o Operating unit profit improvement goals were set based on
successful implementation of cost savings initiatives.
o Coated paper project completion targets were set for the
expansion of the Nuway coating facility in Benton Harbor,
Michigan, the establishment of a new coating facility in
Covington, Tennessee, and the conversion of a newsprint
machine to produce coated paper at the Catawba, South Carolina
mill.
o Sales performance goals were established to reflect Bowater's
focus on improving operating efficiencies through optimizing
product mix and reducing sales and distribution costs for both
Bowater and its customers.
Bowater's performance during 2001 resulted in annual incentive awards
ranging from 35.8% to 173.4% of target levels.
LONG-TERM INCENTIVE PLAN ("LTIP")
The 2000-2002 LTIP is designed to link rewards of key executives with
Bowater's Common Stock performance. The three-year plan rewards executives based
on total shareholder return for the period from January 1, 2000, through
December 31, 2002, relative to a peer group. It also permits an additional
payment to be made at the discretion of the Board of Directors based on its
evaluation of Bowater's strategic progress. The maximum total payment from both
portions is 250 percent of a participant's salary on December 31, 2002. All
executive officers participate in the 2000-2002 LTIP.
STOCK OPTIONS
Stock options continue to play an important role in linking executives'
compensation to Bowater's Common Stock performance, and thus to the interests of
shareholders. The number of options granted to each executive officer is based
on the executive's position rank. In 2001 stock options were granted with an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Accordingly, the options have value to the option holder only if the
stock price appreciates.
The Committee believes this design focuses executives on the creation
of shareholder wealth over the long term.
POLICY WITH RESPECT TO CORPORATE TAX DEDUCTION LIMIT
In order to maintain flexibility to attract and retain qualified
executives, the Committee may allow for compensation that is not deductible
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Bowater paid certain non-deductible compensation to Mr. Nemirow in
2001, the impact of which was not material to Bowater.
COMPENSATION OF THE CEO DURING 2001
The Committee annually reviews Mr. Nemirow's salary level and considers
such factors as individual performance and contribution to Bowater's success
when contemplating future salary adjustments. Mr. Nemirow's 2001 salary was
determined on the same basis as the base salaries for all executive officers, as
described above. Mr. Nemirow's 2001 payout under the Annual Incentive Plan was
based on the measures described above, weighted as follows: RONA - 50%, Return
on Capital Spending - 25%, and Operating Unit Performance - 25%. In addition,
stock options for 100,000 shares of Common Stock were granted to Mr. Nemirow in
2001. These options have terms identical to, and were determined on the same
basis as, those of all executive officers as described above.
All members of the Human Resources and Compensation Committee concur in
this report.
Francis J. Aguilar (Chairman)
James L. Pate
Arthur R. Sawchuk
10
----------------------------
TOTAL SHAREHOLDER RETURN
----------------------------
BOWATER VS. DOW JONES PAPER PRODUCTS GROUP AND S&P 500 - 1996-2001
The table below compares the cumulative shareholder return of the
Common Stock for the last five years with the cumulative total return of the Dow
Jones Paper Products Group* and the S&P 500, assuming a $100 investment on
December 31, 1996.
[PERFORMANCE GRAPH]
12/1996 12/1997 12/1998 12/1999 12/2000 12/2001
------- ------- ------- ------- ------- -------
Bowater Incorporated............................... $100.00 120.23 114.17 152.17 160.51 138.20
S&P 500............................................ $100.00 133.35 171.45 207.52 188.61 166.20
Dow Jones Paper Products Group*.................... $100.00 107.92 113.09 151.18 119.11 119.20
----------
* Companies include: Boise Cascade Corporation, Bowater Incorporated,
Caraustar Industries, Inc., International Paper Company, The Mead Corporation,
Pope & Talbot, Inc., Wausau-Mosinee Paper Corporation, and Westvaco
Corporation.
11
--------------------------
EXECUTIVE COMPENSATION
--------------------------
The following table sets forth information concerning all compensation
paid by Bowater and its subsidiaries during the 1999, 2000 and 2001 fiscal years
to the Chief Executive Officer and the four executive officers other than the
Chief Executive Officer with the highest salaries and bonuses during fiscal year
2001, for services rendered in all capacities to Bowater and its subsidiaries
during these fiscal years. These officers are referred to collectively herein as
the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Awards
Annual Compensation ------------
--------------------------------------- Securities
Other Annual Underlying
Name and Principal Compensation Options/SARs All Other
Position During 2001 Year Salary ($) Bonus ($) ($)(1) (#) Compensation ($)
--------------------------------- ---- ---------- --------- ------------ ------------ ----------------
Arnold M. Nemirow 2001 941,539(2) 648,499 -- 100,000 42,319(2)
Chairman, President and 2000 860,000 750,298 -- 217,000 37,597
Chief Executive Officer Officer 1999 800,000 559,232 -- 101,000 33,720
Arthur D. Fuller 2001 468,000 351,721 -- 35,000 21,984(3)
Executive Vice President and 2000 450,000 350,834 -- 89,100 25,489
President-Newsprint Division 1999 427,345(3) 354,551 -- 36,000 18,356
E. Patrick Duffy 2001 435,692(4) 324,210 -- 30,000 19,581(4)
Senior Vice President and 2000 407,115(4) 311,000 -- 68,800 22,726
President-Coated and 1999 376,535(4) 260,665 -- 26,000 16,680
Specialty Papers Division
David G. Maffucci 2001 400,000 206,200 -- 30,000 18,300(5)
Senior Vice President 2000 375,000 240,563 -- 68,800 21,631
and Chief Financial Officer 1999 356,055(5) 209,900 -- 26,000 16,550
Richard K. Hamilton 2001 335,000 186,763 -- 25,000 18,535(6)
Vice President and President- 2000 302,500 226,421 -- 59,500 18,448
Forest Products Division 1999 275,000 182,325 -- 26,000 11,592
------------
(1) Perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the total salary and bonus of any Named Executive Officer
for the years shown.
(2) Amounts included under "Salary" for Mr. Nemirow for 2001 include $16,539
from the sale of earned vacation days back to Bowater. Amounts included
under "All Other Compensation" for 2001 consist of Bowater contributions of
$7,800 under the Savings Plan and $34,519 under the Compensatory Plan.
(3) Amounts included under "Salary" for Mr. Fuller for 1999 include $7,345 from
the sale of earned vacation days back to Bowater. Amounts included under
"All Other Compensation" for 2001 consist of Bowater contributions of
$7,800 under the Savings Plan and $14,184 under the Compensatory Plan.
(4) Amounts included under "Salary" for Mr. Duffy for 2001, 2000 and 1999
include $7,692, $7,115 and $6,535, respectively, from the sale of earned
vacation days back to Bowater. Amounts included under "All Other
Compensation" for 2001 consist of Bowater contributions of $108 under the
Savings Plan and $19,473 under the Compensatory Plan.
(5) Amounts included under "Salary" for Mr. Maffucci for 1999 include $6,055
from the sale of earned vacation days back to Bowater. Amounts included
under "All Other Compensation" for 2001 consist of Bowater contributions of
$7,800 under the Savings Plan and $10,500 under the Compensatory Plan.
(6) Amounts included under "All Other Compensation" for Mr. Hamilton for 2001
consist of $2,135 of excess healthcare benefits and Bowater contributions
of $10,070 under the Savings Plan and $6,330 under the Compensatory Plan.
12
----------------------
STOCK OPTIONS GRANTS
----------------------
The following table sets forth information regarding options and stock
appreciation rights ("SARs") granted with respect to Common Stock made by
Bowater to the Named Executive Officers during 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
---------------------------------------------------------------------------------------------------
Number of Securities % of Total Options/ Exercise Grant Date
Underlying Options/SARs(1) SARs(1) Granted to Price Expiration Present Value
Name Granted (#) Employees in 2001 $/Share Date(2) ($)(3)
------------------- -------------------------- ------------------- -------- ---------- -------------
Arnold M. Nemirow 100,000(4) 10.71 51.93 1/30/2011 1,793,000
Arthur D. Fuller 35,000(4) 3.75 51.93 1/30/2011 627,550
E. Patrick Duffy 30,000(4) 3.21 51.93 1/30/2011 537,900
David G. Maffucci 30,000(4) 3.21 51.93 1/30/2011 537,900
Richard K. Hamilton 25,000(4) 2.68 51.93 1/30/2011 448,250
----------------
(1) SARs consist of equity participation rights ("EPRs") under Bowater's Equity
Participation Rights Plan.
(2) The plan under which the options were granted and the option agreements set
forth earlier expiration dates under certain circumstances.
(3) The present values of these options were calculated using the Black-Scholes
option pricing model and assuming volatility of 32.04%, a risk free return
rate of 5.09%, dividends at the rate of $0.80 per share and an average
expected option life of 5.95 years. The ultimate values of the options will
depend on the future market price of the Common Stock. The actual value, if
any, an optionee will realize upon exercise of an option will depend on the
excess of the market value of the Common Stock over the exercise price on
the date the option is exercised.
(4) Options with respect to 50% of the covered shares of Common Stock became
exercisable on January 30, 2002, and options with respect to the remaining
50% of the shares of Common Stock will become exercisable on January 30,
2003, if certain conditions are met. In addition, the plan under which the
options were granted provides that the exercisability date is accelerated
and Bowater is required to repurchase outstanding options at a defined
acceleration price upon the occurrence of a change in control event as
defined in the plan.
------------------------
STOCK OPTION EXERCISES
------------------------
The table below sets forth information concerning (1) Common Stock options
exercised by Named Executive Officers during 2001 and (2) the value at December
31, 2001 of SARs and unexercised Common Stock options held by the Named
Executive Officers.
AGGREGATED OPTION EXERCISES IN 2001 AND 2001 YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-the-Money Options/SARs
Shares 12/31/2001 (#) at 12/31/2001 ($)(1)
Acquired on Value ------------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable / Unexercisable Exercisable / Unexercisable
------------------- ------------ ------------ ------------- --------------- ----------- -------------
Arnold M. Nemirow 8,000 125,875 505,500 / 208,500 4,590,717 / --
Arthur D. Fuller -- -- 163,050 / 79,550 918,889 / --
E. Patrick Duffy -- -- 147,900 / 64,400 954,826 / --
David G. Maffucci -- -- 120,400 / 64,400 547,639 / --
Richard K. Hamilton -- -- 95,750 / 54,750 361,139 / --
---------------------
(1) Based on the difference between the option exercise price and the closing
price of Bowater's Common Stock on the New York Stock Exchange on
December 31, 2001, of $47.70.
13
-------------------------
STOCK RETENTION PROGRAM
-------------------------
Bowater has established stock ownership guidelines for directors and
senior executives as a way to better align their financial interests with those
of shareholders. In order to be eligible for future bonus payments, senior
executives are required to own stock with a value equal to a specified multiple
of their base salaries. The requisite multiples are three for the Chief
Executive Officer, two for executive and senior vice presidents and certain vice
presidents and one-half to one for certain corporate vice presidents, divisional
vice presidents and others, depending on their respective position ranks. In
addition, directors are expected to own stock having a value equal to three
times their annual retainers. Up to one-half of the ownership requirement must
be satisfied through Common Stock or Exchangeable Shares owned outright or
through Bowater benefit plans; the remainder may be met through vested stock
options or vested equity participation rights. Covered individuals are expected
to comply fully with these guidelines within three to four years after the
executive's employment with Bowater or promotion to a covered position, or the
director's election to the Board. As of the Record Date, all covered individuals
who were required to comply with the Stock Retention Program were in full
compliance.
---------------------------------------------
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
---------------------------------------------
Each Named Executive Officer (collectively, the "Executives") is party
to an employment agreement (collectively, the "Agreements"). Each Agreement
continues until death, disability, retirement or written notice of termination
by either Bowater or the Executive. In the event of a "change in control," as
defined in the CIC Agreements described below, the term of the Agreements
continues for not less than three years unless the Executive terminates his
employment for other than "good reason" (as defined in the CIC Agreements). The
Agreements provide for payment to each Executive of an annual base salary and
for the Executive's participation in Bowater's various bonus and benefit plans
in effect from time to time while the Agreements are in effect. In the event the
Executive's employment is involuntarily terminated for reasons other than death,
disability, retirement or "cause" (defined in the Agreements as gross negligence
or willful misconduct by the Executive either in the course of his employment or
that has a material adverse effect on Bowater or on the Executive's ability to
perform his duties adequately and effectively), the Agreements provide for
payments equal to two years of annual base salaries and annual incentive awards,
plus a prorated annual incentive award for the year of termination. Mr.
Nemirow's Agreement provides that, for purposes of determining the benefits due
under Bowater's benefits plans, he will receive credit for continuous employment
at an accelerated rate.
Each Executive is also a party to a change in control agreement with
Bowater (collectively, the "CIC Agreements"). The CIC Agreements continue until
an Executive's employment is terminated and all obligations thereunder have been
satisfied. Following a change in control of Bowater, if an Executive's
employment is terminated within 36 months (except for a termination due to
death, disability, or for "cause" (defined as gross negligence that has not been
cured, willful misconduct that has not been cured, or conviction of a felony,
which action has a demonstrable and material adverse effect upon Bowater)), or
if the Executive elects to terminate his employment either (a) for good reason
or (b) during a 30-day period after the first anniversary of the change in
control, the Executive will receive his accrued salary, a prorated annual
incentive award and all benefits under Bowater's benefit plans and policies to
which he is entitled through his date of termination.
In addition, the Executive will receive, in lieu of any severance
payments provided in his employment agreement described above, an amount equal
to the sum of: (a) three times the Executive's annual base salary in effect when
the Executive is terminated or, if higher, the Executive's annual base salary in
effect immediately prior to the change in control; (b) three times the highest
possible annual incentive award that could have been awarded to the Executive
under the annual incentive plan in effect when the Executive is terminated, or,
if higher, during the year of the change in control; (c) three times the largest
annual contribution that could have been made by Bowater to its savings plans on
the Executive's behalf for the year in which the Executive is terminated or, if
higher, for the year of the change in control; (d) thirty percent of the
Executive's annual base salary in effect when the Executive is terminated, or,
if higher, the Executive's annual base salary in effect immediately prior to the
change in control (as compensation for certain other benefits lost as a result
of the termination of employment); (e) an amount equal to the present value of
the additional retirement benefits the Executive would have earned for the three
years following the Executive's termination date; and (f) retiree health care
and life insurance coverage on substantially the same terms as would have been
provided to Executive retirees as of the date of the change in control. If an
Executive's employment is terminated within 36 months following a change in
control due to death, disability, or for cause, the Executive will receive his
accrued compensation and all benefits to which he is entitled through the date
of termination, and, if the termination is not due to cause, a prorated annual
incentive award.
The CIC Agreements define a "change in control" as occurring if: (a)
any person becomes beneficial owner of an amount of Bowater stock representing
20% or more of the combined voting power of Bowater's then outstanding voting
securities, unless the Board has approved the acquisition of up to 50% of these
securities or the person has filed a Schedule 13G indicating the person's intent
to hold the securities for investment; (b) less than 50% of the total membership
of the Board are continuing directors (as defined in the CIC Agreements); or (c)
Bowater's shareholders approve a merger or consolidation of Bowater, or
reorganization of Bowater or an agreement for the sale or other
14
disposition of substantially all of Bowater's assets unless at least 50% of the
voting power of the resulting entity is still owned by previous Bowater
shareholders or at least 50% of the board of directors of the resulting entity
are previous Bowater directors.
The CIC Agreements define "good reason" as: (a) an adverse change in
the Executive's status, title, position or responsibilities (including a change
in reporting relationships) as in effect within 180 days prior to the change in
control or any time thereafter; the assignment to the Executive of any duties or
responsibilities that, in the Executive's reasonable judgment, are inconsistent
with the Executive's status, title, position or responsibilities as in effect at
any time within 180 days preceding the date of a change in control or any time
thereafter; or any removal of the Executive from or failure to reappoint or
reelect the Executive to any office or position held prior to the change in
control, except in connection with the termination of the Executive's employment
due to death, disability, or for "cause" (as defined above), or by the Executive
other than for good reason; or (b) failure to pay or provide the Executive the
salary and benefits, in the aggregate, at least comparable to those to which he
was entitled within 180 days preceding the change in control; or (c) the
reduction of the Executive's salary as in effect on the date of the change in
control or any time thereafter; or (d) Bowater's failure to obtain from any
successor its assumption of the CIC Agreement; or (e) the relocation of the
Executive's principal office to a location more than 35 miles from its location
immediately prior to the change in control or a substantial increase in the
Executive's travel obligations following the change in control.
The CIC Agreements also generally provide a terminated Executive with:
(a) either a cash payment of $20,000 or outplacement assistance; (b) a grossed
up reimbursement of certain excise taxes that may be levied on "excess parachute
payments;" and (c) the right to receive a lump sum payment equal to the present
value of any non-statutory retirement benefits to which the Executive is
entitled. A terminated Executive will also be entitled to be paid or reimbursed
for all costs incurred (or to be incurred): (x) in connection with confirming
the Executive's rights to and amounts of payments due under the CIC Agreement;
(y) to dispute or contest any termination of the Executive's employment
following a change in control or to enforce the terms of the CIC Agreement; or
(z) in connection with any audit relating to any payment or benefit provided
under the CIC Agreement.
---------------------
RETIREMENT BENEFITS
---------------------
The following table shows the total estimated annual pension benefits
payable to the Named Executive Officers under Bowater's qualified, nonqualified
benefits restoration and nonqualified supplemental retirement plans upon
retirement at age 65, calculated on a straight life annuity basis. Benefits to
the Named Executive Officers are not reduced by any offset for Social Security
benefits.
COMBINED RETIREMENT PLANS TABLE OF ESTIMATED BENEFITS
FINAL AVERAGE 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 OR MORE
EARNINGS* SERVICE SERVICE SERVICE SERVICE SERVICE YEARS SERVICE
-------- ------- -------- -------- -------- -------- -------------
$ 450,000 $ 56,250 $112,500 $168,750 $225,000 $247,500 $270,000
500,000 62,500 125,000 187,500 250,000 275,000 300,000
550,000 68,750 137,500 206,250 275,000 302,500 330,000
600,000 75,000 150,000 225,000 300,000 330,000 360,000
650,000 81,250 162,500 243,750 325,000 357,500 390,000
700,000 87,500 175,000 262,500 350,000 385,000 420,000
750,000 93,750 187,500 281,250 375,000 450,000 450,000
1,400,000 175,000 350,000 525,000 700,000 770,000 840,000
1,500,000 187,500 375,000 562,500 750,000 825,000 900,000
* Average annual earnings for best three non-overlapping twelve consecutive
month periods in the 60 months preceding retirement.
Retirement benefits are payable under one or more of the following plans: a
qualified plan covering all salaried employees, which provides pension benefits
based on earnings; a nonqualified benefits restoration plan, which provides a
make-up of qualified plan benefits limited by the imposition of statutory Code
limitations; and a nonqualified supplemental plan covering designated senior
executives including the Named Executive Officers (the "Supplemental Plan"),
which provides benefits in addition to those under the other two plans. The
definition of compensation under the Supplemental Plan includes those categories
of compensation under the salary and bonus headings in the Summary Compensation
Table and does not include compensation in any of the other headings of the
Summary Compensation Table. The Supplemental Plan provides for vesting of
accrued benefits in the event of a change in control followed by termination of
employment of a covered employee not for cause. The Supplemental Plan also
provides that benefits payable to a participant who retires before age 60 are
subject to a reduction of .5% for each full month of retirement before age 60.
The two other plans described above provide that in the event of a change in
control, each participant in the plans will become 100% vested in his accrued
benefits. This table assumes retirement in 2001 with payments beginning at age
65. At that time, the individuals listed in the Summary Compensation Table above
had the following final average earnings (as defined above) and credited number
of years of service: Mr. Nemirow, $1,451,897, 14.7 years (Mr. Nemirow received
additional years of service after his fifth year employment anniversary under
the terms of his employment agreement); Mr. Fuller, $737,596, 6.9 years; Mr.
Duffy, $650,272, 6.8 years; Mr. Maffucci, $561,270, 24.5 years; and Mr.
Hamilton, $483,039, 6.5 years.
15
-------------------------------------------------------------
ITEM NO. 2 - APPROVAL OF BOWATER'S 2002 STOCK OPTION PLAN
-------------------------------------------------------------
Bowater has established the 2002 Stock Option Plan in order to secure
for itself and its shareholders the benefits arising from (a) providing
long-term incentive compensation opportunities to those key employees and
officers of Bowater and its subsidiaries who will be responsible for its future
growth and continued success, and (b) aligning the interests of the Board
members with Bowater's shareholders. The Plan provides a means whereby these key
employees, officers and Outside Directors may (x) be awarded restricted or
nonrestricted stock awards, (y) acquire shares of Common Stock pursuant to stock
options, and (z) be awarded stock appreciation rights ("SARs"). The Plan is
being adopted because no shares are currently available to be granted under
Bowater's other existing stock option plans.
Key features of the Plan include:
o a prohibition against the repricing or reloading of stock
options or SARs;
o a prohibition against granting options with an exercise price
less than the fair market value of Common Stock on the date of
grant;
o authorization of 2,600,000 shares subject to the Plan (4.6% of
both the outstanding Common Stock and Exchangeable Shares
entitled to give voting instructions, and 4.7% of all
outstanding Common Stock, all as of the record date for the
Annual Meeting);
o limits on the number of awards (generally 200,000 shares) that
may be granted to any individual under the Plan each year; and
o limits on the percentage of shares (5%) subject to the Plan
that may be granted in the form of restricted or nonrestricted
stock.
The Plan has been designed to the extent possible to comply with the
provisions of Section 162(m) of the Code. In an effort to ensure that options,
SARs and restricted stock awarded under the Plan will qualify as
performance-based compensation, which is generally deductible, the Plan is being
submitted to shareholders for approval at the Annual Meeting. Bowater believes
compensation payable under the Plan, except for nonrestricted stock awards, if
any, will be deductible for federal income tax purposes under most
circumstances. However, under certain circumstances such as death, disability
and a change in control (as defined in the Plan), compensation not qualified
under Section 162(m) of the Code may be payable. By approving the Plan,
shareholders will be approving, among other things, the performance measures,
eligibility requirements and limits on various stock awards contained in the
Plan. The affirmative vote of holders of a majority of the shares voting on the
issue at the Annual Meeting is required to approve the Plan.
Administration. The Human Resources and Compensation Committee of the
Board (the "Committee") will administer the Plan. However, in the case of awards
made to Outside Directors, the Board will act as the Committee. Among other
things, the Committee will have the authority, subject to the terms of Plan, to
select officers, employees and Outside Directors to whom awards may be granted,
to determine the type of award as well as the number of shares of Bowater Common
Stock to be covered by each award and to determine the terms and conditions of
each award. The Committee also will have the authority to adopt, alter and
repeal rules, guidelines and practices governing the Plan as it deems advisable,
to interpret the terms and provisions of the Plan and any awards issued and to
otherwise supervise the administration of the Plan. All decisions made by the
Committee or the Board under the Plan will be final and binding.
Eligibility. Key employees and officers of Bowater and its subsidiaries
designated by the Committee and all Outside Directors are eligible to be granted
awards under the Plan. Accordingly, it is not possible to estimate at this time
the number of persons who will be eligible to participate in the Plan. Because
each of Bowater's executive officers and Outside Directors is eligible to
receive a grant under the Plan, each may be deemed to have an interest in the
approval of the Plan.
Performance Goals. The Committee may, but is not required to, establish
performance-related goals to be used in connection with conditions, restrictions
and limitations for grants under the Plan (except for nonrestricted stock
16
awards) within ninety days of the date of grant. The goals will be selected from
among the following factors, or any combination of them, as the Committee deems
appropriate: total shareholder return; growth in revenues, sales, net income,
stock price and/or earnings per share; return on assets, net assets and/or
capital; return on shareholders' equity; debt/equity ratio; working capital;
safety; quality; Bowater's financial performance versus peers; cost reduction;
productivity; market mix; and economic value added. The Committee may select
among the goals specified from award to award, and the Committee need not select
the same, or any, goals for each grantee. The Committee must certify that the
performance goals for each grant, if any, have been met before the grant will
become vested or exercisable (as the case may be).
Plan Features. The Plan authorizes the issuance of up to 2,600,000
shares of Bowater Common Stock through the grant or exercise of stock options
(including incentive stock options ("ISOs") to key employees and officers), SARs
and restricted and nonrestricted stock awards, but not more than 5% of the
shares subject to the Plan may be issued as a restricted or nonrestricted stock
award. No single participant may be granted awards under the Plan covering more
than 200,000 shares of Common Stock in any one calendar year, and no ISO may be
granted if the award would result in the participant's owning more than 10% of
the outstanding stock of Bowater calculated in accordance with the attribution
rules of Section 424 of the Code. In the event of any change in the outstanding
shares of Common Stock by reason of any share dividend, stock split,
recapitalization, merger, consolidation, combination, exchange of shares or
other similar corporate change, the number of shares subject to the plan and
outstanding awards will be proportionately adjusted. If any awards expire or
terminate, the shares subject to those awards will again be available for grant
under the Plan.
Subject to the foregoing limits, the shares available under the Plan
may be allocated among the various types of awards and among the participants as
the Committee deems appropriate. Awards may be granted on such terms as the
Committee may determine, except that the exercise price for stock options and
the base price for SARs must be no less than the fair market value of Bowater
Common Stock on the date of grant, and ISOs may not be exercisable beyond the
tenth anniversary of the date of grant.
As indicated above, several types of stock-related grants can be made
under the Plan. A summary of these grants is set forth below.
Stock Options. The Plan authorizes the Committee to grant options to
purchase Common Stock at an exercise price equal to or above the fair market
value of Bowater Common Stock on the date of grant. An option that satisfies the
requirements of Section 422 of the Code may be designated by the Committee as an
ISO. The principal difference between ISOs and nonqualified options is their tax
treatment. See "Federal Income Tax Consequences." Also, ISOs may not be granted
to Outside Directors. The aggregate fair market value, determined on the date of
grant, of the shares with respect to which ISOs granted to a grantee under all
plans of Bowater and its subsidiaries that may become exercisable during a
calendar year may not exceed $100,000. To the extent that any such options
exceed this limitation, the excess options will be deemed to be nonqualified
options. The Plan permits grantees to pay the exercise price of options in cash,
stock (valued at its fair market value on the date preceding notice to the
Committee) or a combination of cash and stock. The Plan prohibits the repricing
or reloading of options. ISOs and nonqualified options will become immediately
exercisable in full in the event of a change in control of Bowater (as defined
in the Plan). A grantee may exercise an ISO or a nonqualified option, as the
case may be, to the extent such option has become exercisable, by complying with
Bowater's notification procedures.
Stock Appreciation Rights. The Committee may grant tandem SARs or
non-tandem SARs, each as defined in the Plan. The principal difference between a
tandem SAR and a non-tandem SAR is that the exercisability of a tandem SAR is
related to an option and the exercisability of a non-tandem SAR is not so
related. The base price of a non-tandem SAR must be set by the Committee at or
above the fair market value of a share as of the date of the award. The base
price of a tandem SAR must equal the exercise price of the related option. A
grantee who is awarded a SAR will be entitled to receive from Bowater, at the
time the SAR is exercised, that number of shares of Common Stock having an
aggregate fair market value (as defined in the Plan) as of the date of exercise
equal to the product of (a) the number of shares as to which the grantee is
exercising the SAR, and (b) the excess of the fair market value (at the date of
exercise) of a share over the base price of the SAR. The Committee, in its sole
discretion, may elect to settle all or a portion of Bowater's obligation arising
out of the exercise of a SAR by the payment of cash in an amount equal to the
fair market value as of the date of SAR exercise of the shares that it would
otherwise be obligated to deliver. A tandem SAR will be exercisable only to the
extent that the related option is exercisable. A tandem SAR will be canceled to
the
17
extent that the related option is exercised, and the option will be canceled to
the extent that the related tandem SAR is exercised. Non-tandem SARs will be
exercisable as determined by the Committee at the date of grant. The Plan
prohibits the repricing or reloading of SARs. A SAR will become immediately
exercisable in full in the event of a change in control of Bowater (as defined
in the Plan). A grantee may exercise a SAR to the extent it has become
exercisable by complying with Bowater's notification procedures.
Restricted and Nonrestricted Stock. The Committee may grant restricted
or nonrestricted stock awards under the Plan. Shares awarded will be transferred
in consideration of the services of the grantee with or without other payment
therefor as determined by the Committee and will be issued in the grantee's
name. The grantee will have all of the rights of ownership of such shares,
subject to the terms, conditions, restrictions and limitations established by
the Committee and the Plan, except that if a restricted stock award is granted
subject to a risk of forfeiture that will lapse solely based on whether the
grantee remains employed by Bowater or a subsidiary, or as an Outside Director
for a minimum period, the vesting period selected by the Committee may not be
less than one year. Any condition providing for forfeiture of a restricted stock
award upon the occurrence or non-occurrence of a specified event or events will
immediately lapse in the event of a change in control of Bowater (as defined in
the Plan).
Federal Income Tax Consequences. The following discussion is intended
only as a brief summary of the federal income tax rules relevant to stock
options, SARs and restricted and nonrestricted stock awards. The laws governing
the tax aspects of awards are highly technical and are subject to change. In
addition, the grant and exercise of options and awards under the Plan to
employees outside the United States may be taxed on a different basis.
o Nonqualified Options and SARs. Upon the grant of a
nonqualified option (with or without a SAR), the grantee will
not recognize any taxable income, and Bowater will not be
entitled to a deduction. Upon the exercise of such an option
or a SAR, the excess of the fair market value of the shares
acquired on the exercise of the option over the option price
(the "spread"), or the consideration paid to the grantee upon
exercise of the SAR, will constitute compensation taxable to
the grantee as ordinary income. In determining the amount of
the spread or the amount of consideration paid to the grantee,
the fair market value of the stock on the date of exercise is
used. Bowater, in computing its federal income tax, will
generally be entitled to a deduction in an amount equal to the
compensation taxable to the grantee.
o ISOs. A grantee will not recognize taxable income on the grant
or exercise of an ISO. However, the spread at exercise will
constitute a tax preference item includable in an alternative
minimum tax computation, and thereby may subject the grantee
to the alternative minimum tax. Upon the disposition of shares
of stock acquired through the exercise of an ISO after (a) two
years from the date of grant of the ISO and (b) one year from
the date of transfer of the shares to the grantee (the "ISO
Holding Period"), the grantee will recognize long-term capital
gain or loss, as the case may be, measured by the difference
between the stock's selling price and the exercise price.
Bowater is not entitled to any tax deduction by reason of the
grant or exercise of an ISO or by reason of a disposition of
stock received upon exercise of an ISO if the ISO Holding
Period is satisfied. If the grantee disposes of the shares of
stock acquired pursuant to the exercise of an ISO before the
ISO Holding Period expires, the grantee recognizes ordinary
income in the taxable year of the disposition equal to the
excess of (y) the lower of the fair market value at date of
exercise or such value at the time of disposition over (z) the
exercise price, and Bowater receives a deduction in an equal
amount.
o Restricted Stock. A grantee who receives restricted stock may
make an election under Section 83(b) of the Code (a "Section
83(b) Election") to have the grant taxed as compensation
income at the date of receipt, with the result that any future
appreciation (or depreciation) in the value of the shares of
stock granted will be taxed as capital gain (or loss) upon a
subsequent sale of the shares. However, if the grantee does
not make a Section 83(b) Election, then the grant will be
taxed as compensation income at the full fair market value
(less any amount paid therefor by the grantee) on the date
that the restrictions imposed on the shares expire. Unless a
grantee makes a Section 83(b) Election, any dividends paid on
stock subject to the restrictions are compensation income to
the grantee and compensation expense to Bowater. Bowater is
generally entitled to an income tax deduction for any
compensation income taxed to the grantee, subject to the
limitations of Section 162(m) of the Code.
o Nonrestricted Stock. A grant of nonrestricted stock will be
taxed as compensation income at the date of receipt, with the
result that any future appreciation (or depreciation) in the
value of the shares of stock will be taxed
18
as capital gain (or loss) upon a subsequent sale of the
shares. Bowater is generally entitled to an income tax
deduction for any compensation income taxed to the grantee;
however, the deductibility of nonrestricted stock awards is
subject to the $1,000,000 cap of Section 162(m), and these
awards are not eligible for the exemptions from this cap.
Withholding. The Plan provides that when a grantee recognizes income
with respect to an award, the grantee must pay all federal, state and local
income or other taxes due, and Bowater will have the right to withhold funds
from amounts payable to the grantee to satisfy all federal, state and local
payroll tax withholding requirements. Alternatively, the grantee may elect to
have shares withheld by Bowater from the shares otherwise to be delivered to the
grantee, or to tender to Bowater shares previously acquired by the grantee. Any
shares withheld or tendered will have an aggregate fair market value equal to
the amount of funds to be withheld, and this value will be measured as of the
date as of which income is recognized by the grantee with respect to such
shares.
Transferability. Except to the extent specifically provided by the
Committee, an award made under the Plan may not be sold, assigned, pledged or
otherwise transferred, voluntarily or involuntarily, by the grantee. ISOs
granted under the Plan are not transferable except by will or by the laws of
descent and distribution or, to the extent not inconsistent with the applicable
provisions of the Code, under a qualified domestic relations order.
Amendment and Termination. Subject to any approval of Bowater's
shareholders required (or, in the opinion of the Committee, appropriate) under
law (including Section 422 of the Code and the regulations thereunder) or the
rules of any applicable securities exchange, Bowater may at any time amend,
suspend or terminate the Plan, but no amendment, suspension or termination may
be made that would materially alter or impair any award previously granted under
the Plan without the consent of the award holder.
Change in Control. The Plan provides that upon the occurrence of a
change in control (as defined in the Plan), all outstanding options and SARs and
all outstanding restricted stock awards as to which any conditions respecting
forfeiture have not previously lapsed will automatically be purchased by Bowater
at the Acceleration Price (as described below), with payment to be made within
thirty days of the change in control, irrespective of whether the shareholders
have approved the Plan. This payment would be considered non-performance based
compensation and would not be deductible by Bowater to the extent that total
compensation for any covered officer exceeded the $1,000,000 cap of Section
162(m) of the Code. For restricted stock, the Acceleration Price is the highest
of: (1) the highest reported sales price of the Common Stock within the sixty
days preceding the date of the change in control as reported by any securities
exchange upon which the Common Stock is listed, (2) the highest price of the
Common Stock as reported in a Schedule 13D or an amendment thereto that is paid
within the sixty days preceding the date of the change in control, (3) the
highest tender offer price paid for the Common Stock, and (4) any cash merger or
similar price. For options and SARs, the Acceleration Price is the highest of
these four prices, net of the option's exercise price or the SAR's base price.
Termination of Employment or Service on the Board. Under the Plan, if a
grantee is involuntarily terminated for cause (as defined in the Plan), all of
the grantee's options and SARs will expire and the grantee's unvested restricted
stock awards will be forfeited as of the date of termination. If a grantee is
involuntarily terminated without cause or voluntarily leaves, all of the
grantee's unexercisable options and SARs will expire immediately; any
exercisable options and SARs will expire three months after termination (unless
their expiration date is earlier) and unvested restricted stock awards will be
forfeited. If a grantee terminates employment due to disability or retirement,
the grantee will be treated under all awards as if employment continued for five
years. If a grantee dies while employed or during the above-described five-year
period, all options and SARs will become exercisable (and remain exercisable for
two years unless their expiration date is earlier), and unvested restricted
stock awards will vest. In the case of an Outside Director, these provisions
will be applied with respect to the individual's termination of service on the
Board. There is a special provision that applies to grants made to Outside
Directors under an elective stock option compensation program. Under that
provision, if an Outside Director's service on the Board is terminated because
of retirement, unexercisable options immediately expire. For exercisable
options, retirement would be treated as continued service for five years.
Vote Required. Approval of the Plan requires the affirmative vote of
holders of a majority of the shares voting on the issue at the Annual Meeting.
Abstentions are counted as a vote against this proposal. Broker non-votes have
no effect upon the vote to approve the Plan. The Plan must be approved by
shareholders on or before January 29, 2003
19
(the first anniversary of its adoption by the Committee). If approval is not
obtained by that date, the Plan will terminate and awards made under the Plan
will expire unless an earlier buy-back of those awards under the change in
control provisions has occurred.
New Plan Benefits. Set forth below is information concerning stock
option grants made by the Committee (without performance-related conditions)
under the Plan to date. The maximum benefit received by the grantees from these
grants cannot be determined at this time because the future performance of
Bowater's stock is unknown. The Committee may make additional grants in 2002
that could be on materially different terms from those of the grants set forth
below. It is not possible to determine the maximum benefits (other than based on
limits on the number of shares that may be granted in the aggregate or to any
employee) that will be granted to any person in 2002 under the Plan or what
benefits or amounts would have been received by or allocated to any person or
group of persons in 2001 if the Plan had been in effect. On March 14, 2002, the
fair market value of the Common Stock was $52.13.
NEW PLAN BENEFITS - 2002 STOCK OPTION PLAN
Number of
Shares Subject
Persons receiving Options under the 2002 Stock Option Plan to Options(1)
---------------------------------------------------------- --------------
All Executive Officers as a Group.............................. 30,000
All Employees (except executive officers)...................... 300,000
-------------
(1) To date, none of Bowater's Named Executive Officers or directors has
received grants or awards under this Plan. Bowater expects to issue options
under this Plan in the future to its directors and executive officers
(including the Named Executive Officers). However, the amount of such
awards has not been determined.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
2002 STOCK OPTION PLAN.
-----------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-----------------------------------------------------------
Section 16(a) of the Exchange Act requires Bowater's directors,
executive officers and 10% shareholders to file reports of holdings and
transactions in Common Stock and Exchangeable Shares with the Securities and
Exchange Commission. Based on a review of Section 16(a) reports received by
Bowater and written representations from its directors and executive officers,
Bowater believes that, except as stated below, all of its executive officers,
directors and 10% shareholders have made all filings required to be made under
Section 16(a) for 2001. Ms. Hallman filed one late Form 4 with respect to a
single acquisition of shares.
------------------------------
RELATED PARTY TRANSACTIONS
------------------------------
Fidelity Management Trust Company ("Fidelity Management"), under trust
agreements between it and Bowater or Bowater's affiliate (the "Fidelity
Agreements"), provides trustee services and investment management services to
qualified retirement plans maintained by Bowater and its affiliates. In
addition, pursuant to the Fidelity Agreements, Fidelity Institutional Retirement
Services Company ("FIRSCO"), a company affiliated with Fidelity Management,
provides administrative record-keeping services to these plans. Fidelity
Management and FIRSCO are subsidiaries of FMR Corp. During 2001, Bowater paid
these entities approximately $410,000 as a result of this relationship. Bowater
expects that similar amounts will be paid in the future. FMR Corp. reported in a
Schedule 13G that it had sole dispositive power with respect to 5,782,414 shares
of Common Stock at December 31, 2001, and sole voting power with respect to
376,759 of these shares, and that Fidelity Management beneficially owned 292,159
of these shares of Common Stock as a result of its serving as an investment
manager of institutional accounts. Bowater believes that its arrangements with
these entities are on terms as favorable as could be obtained from a
non-shareholder.
On September 24, 2001, Bowater consummated the acquisition of Alliance
Forest Products Inc. Mr. Menard, who became a director of Bowater on January 1,
2002, is the Chairman of the Board of Directors of BMO Nesbitt Burns Inc., one
of two investment banking firms that advised Alliance in the acquisition. In the
acquisition, BMO Nesbitt Burns received an investment banking fee that was
negotiated at arms' length by Alliance and paid by Alliance prior to
consummation. Mr. Menard did not receive any portion of BMO Nesbitt Burns' fee
as direct compensation and benefited only to the extent that BMO Nesbitt Burns,
as an entity, benefited.
20
-----------------------------------------------------------
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
-----------------------------------------------------------
The following report does not constitute soliciting material and is not
considered filed or incorporated by reference into any other filing by Bowater
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.
The Board of Directors has adopted a written charter for the Audit
Committee, a copy of which is attached to this Proxy Statement as Appendix A.
The Audit Committee is comprised of three Outside Directors, all of whom are
independent as defined in Section 303.01(B)(2)(a) and (3) of the New York Stock
Exchange's listing standards.
In carrying out its responsibilities, the Audit Committee has:
o Reviewed and discussed the audited financial statements for
the year ended December 31, 2001, with Bowater's management
and KPMG LLP.
o Discussed with KPMG LLP the matters required to be discussed
by the Statement on Auditing Standard No. 61, Communication
with Audit Committees.
o Received from KPMG LLP written disclosures regarding auditor
independence and the letter required by Independence Standards
Board Standard No. 1, Independence Discussion with Audit
Committees, and discussed with them their independence from
Bowater and its management.
Based on the review and discussions described above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in Bowater's Annual Report on Form 10-K for the year
ended December 31, 2001, for filing with the Securities and Exchange Commission.
All members of the Audit Committee concur in this report: Charles J.
Howard (Chairman), Cinda A. Hallman, Richard Barth.
---------------------------------------
APPOINTMENT OF INDEPENDENT AUDITORS
---------------------------------------
Upon recommendation of the Audit Committee of the Board of Directors,
the Board of Directors has appointed KPMG LLP as independent auditors for
Bowater to audit its consolidated financial statements for the year ended
December 31, 2002. KPMG LLP currently serves Bowater and its subsidiaries as
independent auditors and from time to time advises Bowater on tax and other
matters. Representatives of KPMG LLP will be present at the Annual Meeting, have
the opportunity to make a statement if they desire to do so, and be available to
respond to appropriate questions from shareholders.
The following table presents fees for professional audit services
rendered by KPMG LLP for the audit of Bowater's annual financial statements for
2001 and fees billed for other services rendered by KPMG LLP in 2001.
(in thousands)
--------------------------------------------------------------------------------
Audit fees (1) $ 1,300
========
Financial information systems design and implementation (2) --
========
All other fees:
Audit-related fees (3) 750
All other fees (4) 800
--------
Total all other fees $ 1,550
========
--------------------------------------------------------------------------------
(1) Aggregate fees billed for professional services rendered for the audit of
Bowater's annual financial statements and the reviews of the financial
statements included in Bowater's Quarterly Reports on Form 10-Q for 2001.
(2) This item refers to professional services described in Paragraph (c)(4)(ii)
of Rule 2-01 of Regulation S-X.
(3) This item consists principally of work done in connection with SEC
registration statements ($375,000), audits of financial statements of
certain employee benefit plans ($175,000) and accounting consultation
($170,000).
(4) All other fees consisted principally of services rendered in connection
with tax compliance and consulting ($565,000) and acquisition due diligence
services ($200,000).
The Audit Committee has considered whether the provision of these
services is compatible with maintaining KPMG LLP's independence.
21
-----------------------------
PROPOSALS BY SHAREHOLDERS
-----------------------------
A shareholder who wishes to present a proposal for inclusion in the
proxy materials relating to the Annual Meeting of Shareholders to be held in
2003 should submit his or her proposal on or before December 2, 2002, to
Bowater's Secretary, 55 East Camperdown Way, Post Office Box 1028, Greenville,
South Carolina 29602-1028. With respect to a shareholder proposal for the 2003
Annual Meeting that is not intended to be included in the proxy materials
relating to the meeting, Bowater must receive the proposal by the earlier of
January 9, 2003, or 10 days after notice or public disclosure of the annual
meeting is made or given to shareholders. After that date, the proposal will not
be considered timely. Shareholders submitting proposals for inclusion in the
proxy statement and form of proxy must comply with the proxy rules under the
Securities Exchange Act of 1934, as amended, and all shareholders submitting
proposals must comply with the Bylaw requirements described below.
Bowater's Bylaws require timely advance written notice of shareholder
nominations of director candidates and of any other proposals to be presented at
an annual meeting of shareholders. In the case of director nominations by
shareholders, the Bylaws require that 120 days advance written notice be
delivered to Bowater's Secretary (at the address indicated above). The notice
must be given, either by personal delivery or by United States mail, postage
prepaid, to Bowater's Secretary no later than: (a) with respect to an election
to be held at an annual meeting of shareholders, 120 days prior to the
anniversary date of the immediately preceding annual meeting; and (b) with
respect to an election to be held at a special meeting of shareholders for the
election of directors, the close of business on the seventh day following the
date on which notice of such meeting is first given to shareholders. In the case
of other proposals by shareholders at an annual meeting, the Bylaws require that
advance written notice be delivered to Bowater's Secretary (at the address
indicated above). The notice must be received by Bowater's Secretary by the
earlier of: (y) 120 days prior to the anniversary date of the immediately
preceding annual meeting; or (z) 10 days after notice or public disclosure of
the date of the annual meeting was given or made to shareholders. The Bylaws
contain specific requirements with respect to the contents of each of these
notices. A copy of the Bylaws is available upon request to Bowater's Secretary
at the address indicated above.
----------------------------
EXPENSES OF SOLICITATION
----------------------------
Bowater will bear the cost of soliciting proxies. In addition to
soliciting proxies by mail, it is expected that some of Bowater's officers and
regular employees may solicit, without additional compensation, proxies by
telephone, e-mail or oral communication. Morrow & Co., Inc. has been retained to
assist in soliciting proxies for a fee of $7,000, plus expenses. Bowater has
requested that brokerage houses and other custodians, nominees and fiduciaries
forward soliciting materials to their principals, the beneficial owners of
Bowater Common Stock and Exchangeable Shares, and will reimburse them for their
reasonable out-of-pocket expenses in so doing.
-------------------------
FINANCIAL INFORMATION
-------------------------
BOWATER'S 2001 ANNUAL REPORT TO SHAREHOLDERS IS ENCLOSED. BOWATER WILL
PROVIDE WITHOUT CHARGE TO ANY SHAREHOLDER OF RECORD AS OF MARCH 14, 2002, WHO
REQUESTS IN WRITING, A COPY OF THE 2001 ANNUAL REPORT TO SHAREHOLDERS (WHICH
INCLUDES BOWATER'S 2001 ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS). PLEASE
DIRECT ANY SUCH REQUEST TO BOWATER INCORPORATED, 55 EAST CAMPERDOWN WAY, POST
OFFICE BOX 1028, GREENVILLE, SOUTH CAROLINA 29602-1028, ATTENTION: INVESTOR
RELATIONS DEPARTMENT. COPIES MAY ALSO BE OBTAINED ONLINE AT
HTTP://WWW.BOWATER.COM.
By order of the Board of Directors,
/s/ Anthony H. Barash
Anthony H. Barash
Senior Vice President - Corporate Affairs,
General Counsel and Secretary
March 18, 2002
22
Appendix A to Proxy Statement
Bowater Incorporated
Audit Committee of the Board of Directors
Charter
--------------------------------------------------------------------------------
Purpose
--------------------------------------------------------------------------------
The Audit Committee and its Chair are appointed by the Board of Directors to
assist the Board in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
o Monitor the integrity of Bowater's financial reporting process and systems
of internal controls.
o Monitor the independence and performance of Bowater's independent and
internal auditors. Bowater's independent auditors are ultimately
accountable to the Board of Directors, and the Audit Committee, which have
the authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors.
o Provide an open avenue of communication among the Board of Directors,
management, independent auditors and internal auditors.
While the Audit Committee has the duties and responsibilities set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that Bowater's financial statements are complete and accurate and are
in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditors.
--------------------------------------------------------------------------------
Composition and Meetings
--------------------------------------------------------------------------------
The Audit Committee is composed of at least three directors, each of whom is an
independent director, free from any relationship that could interfere with the
exercise of his or her independence from management and Bowater, and satisfies
the requirements of the New York Stock Exchange concerning membership. All
members of the Committee have a basic understanding of finance and accounting
and are able to read and understand fundamental financial statements. At least
one member of the Committee has accounting or related financial management
expertise.
The Committee has four regularly scheduled meetings annually and meets more
frequently if circumstances dictate. The Committee maintains minutes of all
meetings and reports, through its Chair, to the Board of Directors on
significant aspects of its activities. The Committee meets at least annually, in
separate executive sessions, with management, the internal auditors and the
independent auditors to discuss any matters that the Committee or any of these
groups believes should be discussed. In addition, the Committee, through its
Chair, meets with management and the independent auditors quarterly to review
Bowater's financial statements and significant findings based upon the auditors'
limited review procedures.
--------------------------------------------------------------------------------
Duties and Responsibilities
--------------------------------------------------------------------------------
To fulfill its duties and responsibilities, the Committee will:
Review Procedures
-----------------
o Review and reassess the adequacy of this Charter annually. Submit the
charter to the Board of Directors for approval and have it published in
Bowater's proxy statement as required by the Securities and Exchange
Commission (SEC).
o In consultation with management, independent auditors and internal
auditors, consider the integrity of the Bowater's financial reporting
processes and controls. Discuss significant financial risk exposures, if
any, and the steps management has taken to monitor, control and report any
such exposures. Review significant findings prepared by the independent
auditors and internal auditors, together with management's responses.
o Review with financial management and the independent auditors Bowater's
quarterly financial statements prior to filing with the SEC. Discuss any
significant changes to Bowater's accounting policies and any items required
to be
Appendix A-1
communicated by the independent auditors in accordance with American
Institute of Certified Public Accountants, Statement on Auditing Standards
61, as amended (SAS 61).
o Review Bowater's annual audited financial statements prior to filing with
the SEC. Discuss with management and the independent auditors any
significant issues regarding accounting policies, practices, judgments and
disclosure, including, but not limited to, the effect of SEC regulatory and
accounting initiatives and off-balance sheet structures on the Company's
financial statements.
o Prepare a report to be included in Bowater's annual proxy statement that
discloses the Committee's review of the audited financial statements, the
required discussions (SAS 61) with the independent auditors, whether the
Committee has recommended to the Board of Directors that the financial
statements be included in Bowater's Annual Report on Form 10-K, and any
other matters required by the SEC.
Independent Auditors
--------------------
o Review the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the independent
auditors or any discharge of auditors when circumstances warrant.
o Approve the fees and other significant compensation to be paid to the
independent auditors.
o Require the independent auditors to submit annually to the Audit Committee
a formal written statement, delineating all relationships between the
independent auditors and Bowater in accordance with Independence Standards
Board (ISB) No. 1. Actively engage in a dialogue with the independent
auditors about any relationships or services that could impact their
objectivity and independence. Recommend that the Board of Directors take
appropriate action in response to the independent auditors' report to
satisfy itself of their independence.
o Review the independent auditors' audit plan and discuss scope, staffing
(including experience and qualifications), locations, reliance upon
management and internal audit and general audit approach.
o Discuss the results of the audit with the independent auditors. Discuss
matters required to be communicated to audit committees in accordance with
SAS 61 and any disagreements with management.
o Consider the independent auditors' judgments about the quality and
appropriateness of the Bowater's accounting policies as applied in its
financial reporting.
Internal Audit Department
-------------------------
o Review the budget, plan, changes in the plan, activities, organizational
structure and qualifications of the internal auditors.
o Review the appointment, performance and replacement of the senior internal
audit executive or service provider.
o Review significant observations and recommendations made by the internal
auditors, together with management's response and follow-up to these
reports.
Legal Compliance
----------------
o Review, with Bowater's General Counsel, any legal matter that could have a
material impact on Bowater's financial statements.
Other
-----
o Consider such other matters as the Committee or the Board determines
appropriate.
o Consult with such legal, accounting and other consultants as the Committee
or the Board determines appropriate.
Adopted by the Board of Directors, May 12, 2000
Amended and Restated, March 1, 2002
Appendix A-2
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
(BOWATER LOGO)
DATE AND TIME:
WEDNESDAY, MAY 8, 2002
AT 11:00 A.M.
PLACE
THE GUNTER THEATRE
300 SOUTH MAIN STREET
GREENVILLE, SC 29601
------------------------------------------------------------------
PLEASE SIGN YOUR PROXY OR VOTING INSTRUCTION CARD
AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
------------------------------------------------------------------
Appendix 1 to Electronic Filing
P R O X Y
BOWATER INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR ANNUAL MEETING MAY 8, 2002
The undersigned appoints David G. Maffucci and Anthony H. Barash, or either
one of them, each with full power of substitution, as proxies for the
undersigned, to vote all of the shares of common stock of Bowater Incorporated
held of record by the undersigned on March 14, 2002, at the annual meeting of
shareholders to be held May 8, 2002, and any adjournment.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, PROXYHOLDERS WILL VOTE
THIS PROXY FOR PROPOSALS 1 and 2. PROXYHOLDERS WILL VOTE, IN THEIR DISCRETION,
UPON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY
ADJOURNMENT.
------------------
SEE REVERSE SIDE
------------------
You are encouraged to specify your choices by marking the appropriate boxes (SEE
REVERSE SIDE) but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 and 2.
1. ELECTION OF DIRECTORS
FOR [ ] WITHHOLD [ ] EXCEPTIONS* [ ]
ALL NOMINEES AUTHORITY (To Vote (As Indicated to the
LISTED BELOW for all nominees contrary below)
listed below)
Francis J. Aguilar, John A. Rolls, L. Jacques Menard
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions ..............................................................
..........................................................................
2. Proposal to approve the Bowater Incorporated 2002 Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. At their discretion upon such other business that may properly come
before the annual meeting and any adjournment.
DATED: ________________________________________________________________, 2002
(PLEASE BE SURE TO INSERT DATE)
-----------------------------------------------------------------------------
(SIGNATURE)
-----------------------------------------------------------------------------
(SIGNATURE IF HELD JOINTLY)
(Signature should conform exactly to name shown on this proxy card. Executors,
administrators, guardians, trustees, attorneys and officers signing for
corporations should give full title.)
VOTE MUST BE INDICATED BY [X]
"X" IN BLACK OR BLUE INK.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Appendix 2 to Electronic Filing
BOWATER INCORPORATED
2002 STOCK OPTION PLAN
EFFECTIVE AS OF JANUARY 1, 2002
TABLE OF CONTENTS
Page No.
1. Definitions...........................................................1
2. Purpose. ............................................................5
3. Administration........................................................5
4. Participation.........................................................6
5. Shares Subject to the Plan............................................6
6. Restricted or Nonrestricted Stock Awards..............................7
7. Stock Options.........................................................7
8. Stock Appreciation Rights.............................................8
9. Special Provisions Under Code Section 162(m)..........................9
10. Exercise of Options and SARs.........................................10
11. Death, Retirement, and Termination of Employment.....................10
12. Compliance with Applicable Laws. ...................................11
13. Transferability......................................................11
14. Employment, Stockholder and Board Status. ..........................12
15. Adjustments to Number of Shares and Terms............................12
16. Change in Control ...................................................12
17. Withholding. ........................................................12
18. Term of Plan.........................................................13
19. Amendment and Termination of Plan....................................13
20. Applicable Law.......................................................13
BOWATER INCORPORATED
2002 STOCK OPTION PLAN
1. DEFINITIONS.
For purposes of this Plan, the following terms shall have the
meanings indicated, unless the context clearly indicates otherwise:
(a) "Acceleration Price" means (i) in the case of a Restricted
Stock Award, the highest of (A) through (D); and (ii) in the case of an Option
or SAR, the excess over the exercise or base price thereof 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.
(b) "Act" means the Securities Exchange Act of 1934, as
amended.
(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.
1
(d) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Act, as in effect on the date hereof.
(e) "Award" means a Restricted or Non-Restricted Stock Award,
Option or SAR granted to a Grantee pursuant to the Plan.
(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 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.
(g) "Board" means the Board of Directors of the Company.
(h) "Change in Control" shall be deemed to occur 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
2
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 fifty percent
(50%) of the total membership of the Board
consists of Continuing Directors.
(i) "Code" means the Internal Revenue Code of 1986, as
amended. Reference to a section of the Code shall also include a reference to
any Temporary or Final Regulation promulgated under such Section, and to any
successor to such Section or Regulation.
(j) "Committee" means a committee consisting of two (2) or
more members of the Board; provided that, (i) with respect to any Grantee of an
Award that constitutes an "equity security" under the Act who is subject to
Section 16 of the Act, (A) the members of the Committee shall all be
"non-employees" as defined in Section 240.16b-3 of the General Rules and
Regulations promulgated under the Act, or (B) the full Board shall act in lieu
of the Committee hereunder and (ii) with respect to any Award that is intended
by the Committee to constitute "qualified performance-based compensation,"
within the contemplation of Treasury Regulation Section 1.162-27(e)(2), within
the contemplation of Treasury Regulation Section 1.162-27(c)(2), the members of
the Committee shall all be "outside directors" as defined in Treasury Regulation
Section 1.162-27(e)(3) to the extent required by Section 162 of the Code.
Notwithstanding the foregoing, in the case of an Award granted to a member of
the Board who is not also a key employee or officer of the Company or a
Subsidiary, "Committee" means the Board.
(k) "Common Stock" means the common stock of the Company, par
value $1.00 per share.
(l) "Company" means Bowater Incorporated, a Delaware
corporation, and any successor thereto by merger or other acquisition.
(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
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.
(n) "Date of Grant" means the date an Award is granted to a
Grantee under the Plan.
3
(o) "Disability" shall have the meaning contained in the
Company's long-term disability plan, except that, in the case of an ISO, it
shall mean total and permanent disability within the contemplation of Section
22(e)(3) of the Code.
(p) "Effective Date" means January 1, 2002.
(q) "Fair Market Value" for a particular date means the simple
arithmetic mean between the highest and lowest prices per share at which the
Common Stock is traded as reported for the New York Stock Exchange Composite
Transactions for that date, or if not so traded, the simple arithmetic mean
between the closing bid-and-asked prices thereof as reported for such Exchange
on that date, rounded to the nearest number within two decimal places.
(r) "Grantee" means a key employee or officer of the Company
or a Subsidiary, or a member of the Board, to whom an Award has been granted;
provided that a member of the Board who is not also such a key employee or
officer may not become a Grantee of an ISO.
(s) "ISO" means an incentive stock option within the
contemplation of Section 422 of the Code.
(t) "Non-Tandem SAR" means an SAR granted to a Grantee that is
not a Tandem SAR.
(u) "Nonrestricted Stock Award" means a Stock Award granted
without any risk of forfeiture.
(v) "NQO" means an Option that is not an ISO.
(w) "Option" means an option to purchase Shares granted to a
Grantee pursuant to Section 7 of the Plan, which may be an ISO or an NQO.
(x) "Person" means any individual, firm, corporation,
partnership, trust or other entity.
(y) "Plan" means the Bowater Incorporated 2002 Stock Option
Plan as provided herein and as it may be amended from time to time.
(z) "Restricted Stock Award" means a Stock Award granted
subject to a risk or risks of forfeiture.
(aa) "Retirement" means (i) with respect to a key employee or
officer of the Company or a Subsidiary, 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
4
the Company or Subsidiary applicable to the Grantee or (ii) with respect to a
member of the Board not described in clause (i), the status of having terminated
service on the Board and being immediately eligible for the payment of
retirement benefits under the Company's retirement plan for the Directors.
(bb) "SAR" means a Stock Appreciation Right granted to a
Grantee pursuant to Section 8 of the Plan, which may be a Tandem SAR or a
Non-Tandem SAR.
(cc) "Share" means a share of Common Stock.
(dd) "Stock Award" means a Share awarded to a Grantee pursuant
to Section 6 of the Plan, which may be a Restricted or Nonrestricted Stock
Award.
(ee) "Subsidiary" means each entity with respect to which the
Company owns directly or indirectly interests embodying more than 50% of the
voting power, provided that for purposes of an ISO, such term shall have the
meaning given in Section 424 of the Code.
(ff) "Tandem SAR" means an SAR granted in connection with an
Option either at the Date of Grant of the Option or at a later date.
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.
2. PURPOSE. The Plan has been established by the Company to secure for
the Company and its stockholders the benefits arising from (i) providing
long-term incentive compensation opportunities to those key employees and
officers of the Company and its Subsidiaries who are and will be responsible for
its future growth and continued success and (ii) aligning the interests of
Company stockholders and members of the Board. The Plan provides a means whereby
such individuals: (a) may be awarded Restricted or Nonrestricted Stock Awards;
(b) may acquire Shares pursuant to Options; or (c) may be awarded SARs; provided
that a member of the Board who is not also a key employee or officer of the
Company or a Subsidiary may not be awarded an ISO.
3. ADMINISTRATION. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee. 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
5
Company, its stockholders, any Grantees and any other employee of the Company or
any of its subsidiaries (including their beneficiaries, transferees and other
successors in interest). No member of the Committee shall be liable for any
action or determination made with respect to the Plan.
4. PARTICIPATION.
(a) Subject to the terms and conditions of the Plan, the
Committee shall determine and designate from time to time the Grantees to whom
Awards are to be granted and the type, size and terms, conditions, restrictions
and limitations applicable to each Award; provided, however that the Committee
shall not have the power to reprice any outstanding Option or SAR effected by
reducing the exercise price of the Option or the base price of the SAR, or
cancel any outstanding Option or SAR and grant a replacement Award, without the
approval of the holders of a majority of the Company's voting shares, other than
as provided in Section 15. Such terms, conditions, restrictions and limitations
may include, but are not limited to terms, conditions, restrictions and
limitations related to: (i) the exercisability of an Award (subject to Sections
7(c), 8(b) and 11, and provided that the Committee shall at all times have the
authority to accelerate such exercisability), (ii) the forfeiture of an Award
(and/or the Shares subject thereto) and the lapse of the forfeiture condition
(subject to Sections 6(b) and 11, and provided that the Committee shall at all
times have the authority to declare such forfeiture condition to be lapsed),
(iii) the transferability of an Award and/or such Shares, (iv) the form of
payments (if any) in respect of an Award, (v) the consequences of a Grantee's
termination of employment with the Company and its Subsidiaries or termination
of service on the Board (as provided in Sections 11(b) and 11(d)), (vi)
restrictions on the sale, resale or other disposition of the Award and/or such
Shares, (vii) restrictions related to the payment of dividends with respect to
such Shares, (viii) restrictions with respect to the right to vote such Shares,
(ix) put or call rights with respect to such Shares, (x) provisions to comply
with federal and/or state securities laws, and (xi) such other matters not
inconsistent with the specific provisions of the Plan as deemed appropriate by
the Committee. Notwithstanding the foregoing, (I) the maximum number of Shares
with respect to which Awards may be granted during any calendar year to any
Grantee is 200,000 Shares; and (II) no Grantee may be granted an ISO Award if
immediately after such grant, were it made, he would be the owner or would be
deemed in accordance with Section 424 of the Code to be the owner of more than
10% of the total combined voting power of all classes of stock of the Company or
any of its Subsidiaries.
(b) The terms, conditions, restrictions and limitations
related to each Award shall be reflected in an Agreement between the Company and
the Grantee. Each Award under the Plan shall be made subject to the condition
that the Grantee execute and return such Agreement within sixty (60) days of the
date he receives the Agreement from the Company. An Agreement may only be
modified by a writing signed by both the Company and the Grantee. Each Agreement
shall be subject to all of the terms of the Plan.
6
5. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 15,
the aggregate number of Shares for which Stock Awards, Options and SARs may be
granted under the Plan shall not exceed 2.6 million Shares, and no more than 5%
of such Shares may be used for Restricted and Nonrestricted Stock Awards. If any
Option or SAR granted pursuant to the Plan shall expire or terminate for any
reason (including without limitation its settlement in cash in lieu of exercise
of the Option) or any Restricted Stock Award shall be forfeited pursuant to
conditions or restrictions applicable thereto, the number of Shares then subject
to the Option, SAR or Restricted Stock Award shall again be available for grant
under the Plan unless the Plan shall have terminated.
6. RESTRICTED OR NONRESTRICTED STOCK AWARDS.
(a) The Committee may grant Restricted or Nonrestricted Stock
Awards under the Plan. Shares awarded under this Section 6 shall be transferred
in consideration of the services of the Grantee with or without other payment
therefor as determined by the Committee and shall be issued in the Grantee's
name. The Grantee will have all of the rights of ownership of such shares,
subject to the terms, conditions, restrictions and limitations established
pursuant to Section 4(a). Notwithstanding any provision of Section 4(a), if a
Restricted Stock Award is granted subject to a risk of forfeiture that will
lapse solely based on whether the Grantee remains in employment with the Company
or a Subsidiary, or as a member of the Board, for a minimum period, the period
selected by the Committee may not be less than one year.
(b) Any condition providing for the forfeiture of a Restricted
Stock Award upon the occurrence or non-occurrence of a specified event or events
shall immediately lapse in the event of a Change in Control of the Company.
(c) Certificates for a Nonrestricted Stock Award shall be
issued to the Grantee as soon as practicable after the Grantee satisfies any
applicable tax withholding requirements. Certificates for a Restricted Stock
Award shall be issued in the Grantee's name and shall be held in escrow by the
Company (along with stock powers executed by the Grantee) until all conditions
that may cause a forfeiture of the Shares lapse or such Shares are forfeited as
provided therein. A certificate or certificates representing a Restricted Stock
Award as to which such conditions have lapsed shall be delivered to the Grantee
upon such lapse as soon as practicable after the Grantee has satisfied any
applicable tax withholding requirements.
7. STOCK OPTIONS.
(a) The Committee may grant Options under the Plan with an
exercise price at or above the Fair Market Value of the Shares as of the Date of
Grant. Any Option that satisfies all of the requirements of Section 422 of the
Code may be designated by the Committee as an ISO. An Option (or portion
thereof) that is not so designated, or that does not satisfy the requirements of
Section 422 of the Code, and any Option that is granted to a member of the
7
Board who is not also a key employee or officer of the Company or a Subsidiary,
shall not constitute an ISO and shall be an NQO.
(b) An ISO must expire no later than ten years after the Date
of Grant. The aggregate fair market value, determined on the Date of Grant, of
the Shares with respect to which ISOs granted to a Grantee under all plans of
the Company and its Subsidiaries may become exercisable during a calendar year
may not exceed $100,000. To the extent the foregoing limitation is exceeded, the
excess Shares shall be deemed to be subject to NQOs.
(c) An Option shall become immediately exercisable in full in
the event of a Change in Control of the Company.
(d) A Grantee may exercise an Option to the extent it has
become exercisable by complying with the notification procedures provided by the
Company's Human Resources Department at its corporate headquarters.
Contemporaneously with the delivery of notice with respect to exercise of an
Option, the full purchase price of the Shares purchased pursuant to the exercise
of the Option shall be paid in cash, or by tender of Share certificates in
proper form for transfer to the Company valued at the Fair Market Value of the
Shares on the preceding day, or by any combination of the foregoing or with any
other consideration acceptable to the Committee. Payment upon the exercise of
such Option may also be made by means of a properly executed exercise notice
together with irrevocable instructions to a broker (designated by the Company)
to deliver promptly to the Company the portion of the sale or loan proceeds
sufficient to pay such purchase price.
8. STOCK APPRECIATION RIGHTS.
(a) The Committee may grant Tandem SARs or Non-Tandem SARs
under the Plan. The base price of a Non-Tandem SAR must be set by the Committee
at or above the Fair Market Value of a Share as of the Date of Grant. The base
price of a Tandem SAR must equal the exercise price of the related Option. A
Grantee who is awarded an SAR shall be entitled to receive from the Company, at
the time the SAR is exercised, that number of Shares having an aggregate Fair
Market Value as of the date of exercise equal to the product of (i) the number
of Shares as to which the Grantee is exercising the SAR, and (ii) the excess of
the Fair Market Value (at the date of exercise) of a Share over the base price
of the SAR. The Committee, in its sole discretion, may elect to settle all or a
portion of the Company's obligation arising out of the exercise of an SAR by the
payment of cash in an amount equal to the Fair Market Value as of the date of
exercise of the Shares it would otherwise be obligated to deliver. Tandem SARs
shall be exercisable only to the extent that the related Option is exercisable.
Non-Tandem SARs shall be exercisable as determined by the Committee at the Date
of Grant. A Tandem SAR shall be canceled to the extent that the related Option
is exercised and the Option shall be canceled to the extent that the related
Tandem SAR is exercised.
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(b) An SAR shall become immediately exercisable in full in the
event of a Change in Control of the Company.
(c) A Grantee may exercise an SAR to the extent it has become
exercisable by complying with the notification procedures provided by the
Company's Human Resources Department at its corporate headquarters.
9. SPECIAL PROVISIONS UNDER CODE SECTION 162(M).
(a) The provisions of this Section 9 shall apply only to
persons designated by the Committee as individuals who are or who are likely to
become "covered employees," within the contemplation of Section 162(m) of the
Code; provided that, if an individual is so designated and the Committee
determines that such individual is not a covered employee for the year in which
the Company is entitled to a deduction with respect to income he recognizes for
Federal income tax purposes in connection with an Award, the provisions of this
Section 9 shall not apply to such Award. The provisions of this Section 9 shall
only apply to conditions, restrictions and limitations applicable to Awards that
are related to the performance of the Company and if the provisions of this
Section 9 are necessary so that the Award qualifies as "qualified
performance-based compensation" as defined in Treasury Regulation Section
1.162-27(e)(2). Except as provided in Section 16, in the event of any
inconsistencies between this Section 9 and the other Plan provisions within the
scope of the foregoing, the provisions of this Section 9 shall control with
respect to covered employees.
(b) With respect to each Award described in paragraph (a), as
soon as practicable following the grant of an Award subject to this Section 9
(but in no event more than ninety (90) days after the Date of Grant), the
Committee shall establish the performance-related goals to be used in connection
with conditions, restrictions and limitations applicable to such Award. The
performance-related goals shall be chosen from among the following factors, or
any combination of the following, as the Committee deems appropriate: total
stockholder return; growth in revenues, sales, net income, stock price, and/or
earnings per share; return on assets, net assets, and/or capital; return on
stockholders' equity; debt/equity ratio; working capital; safety; quality; the
Company's financial performance versus peers; cost reduction; productivity;
market mix; or economic value added. The Committee may select among the goals
specified from Award to Award which need not be the same for each Grantee.
(c) With respect to each Award described in paragraph (a), the
Committee shall (at the same time it is making the determinations under
paragraph (b)) determine the relationship between the performance-related goals
and the conditions, restrictions and limitations applicable to the Award.
(d) In connection with the Awards described in paragraph (a),
no performance-related goal will be considered to be satisfied until the
Committee has certified the extent to which the performance-related goals and
any other material terms were satisfied.
(e) Once established, performance-related goals shall not be
changed, except to the extent that the Committee has specified adjustments as
part of the determinations made
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under paragraphs (b) and (c). Except as provided in the preceding sentence, no
performance-related goal applicable to a condition, restriction or limitation
shall be considered to be satisfied if the minimum performance-related goals
applicable thereto are not achieved.
(f) Individual performance shall not be reflected in a
performance-related goal under this Section 9. However, the Committee may retain
the discretion to treat a performance-related goal as not having been satisfied
due to the failure of a Participant to meet individual performance goals.
(g) If, on advice of the Company's tax counsel, the Committee
determines that Code Section 162(m) and the regulations thereunder will not
adversely affect the deductibility for federal income tax purposes of any amount
paid under the Plan by applying provisions of this Plan (including this Section
9(g)) that conflict with this Section 9 to a covered employee, then the
Committee may, in its sole discretion, apply such Section or Sections to the
covered employee without regard to the exceptions to such Section or Sections
that are contained in this Section 9.
10. EXERCISE OF OPTIONS AND SARS. No Option or SAR may at any time be
exercised with respect to a fractional share or exercised in part with respect
to fewer than 100 shares (unless it is being exercised in full). In the event
that Shares are issued pursuant to the exercise of an SAR, no fractional shares
shall be issued; payment shall be made in cash for any such fractional shares.
Certificates for whole shares shall be delivered as soon as practicable after
the Grantee satisfies any applicable tax withholding requirements.
11. DEATH, 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 Options and SARs held by the Grantee
will expire and the Grantee's Restricted Stock Awards as to which any condition
providing for the forfeiture thereof exists ("Unvested Restricted Stock Awards")
will be forfeited 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 Options and SARs held by the Grantee
will expire immediately; (B) all exercisable options and SARs held by the
Grantee will expire three months after termination (unless their expiration date
is earlier); and (C) Unvested Restricted Stock Awards held by the Grantee will
be forfeited.
(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.
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(iv) If a Grantee dies while employed or during the five-year
period described in paragraph (iii), all Options and SARs held by the Grantee
will become exercisable (and remain exercisable for two years unless their
expiration date is earlier) and all conditions providing for forfeiture of the
Grantee's Unvested Restricted Stock Awards will lapse.
(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 Option or SAR 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.
(d) In the case of a Grantee who is a member of the Board and not an
employee of the Company or a Subsidiary, the provisions of this Section 11 shall
be applied by treating the Grantee's service on the Board as if it were
employment with the Company except in the event that the Grantee elects to
participate in an elective stock option compensation program. An elective stock
option grant (an "Elective Option") made under an elective stock option
compensation program will provide that, if the Grantee's service on the Board
terminates during the term of the Elective Options for any reason except death
or Disability, unexercisable Elective Options will expire upon such termination;
any exercisable Elective Options will remain exercisable in accordance with the
above provisions of this Section 11. Upon Retirement, exercisable Elective
Options may be exercised until the earlier of (i) five years from the date of
Retirement, or (ii) the original expiration date of the Elective Option.
12. COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other
provision in the Plan, the Company shall have no liability to issue any Shares
under the Plan unless such issuance would comply with all applicable laws and
applicable requirements of any securities exchange or similar entity. Prior to
the issuance of any Shares under the Plan, the Company may require a written
statement that the recipient is acquiring the Shares for investment and not for
the purpose or with the intention of distributing the Shares.
13. TRANSFERABILITY.
(a) Except to the extent specifically provided by the
Committee, an Award (including the Shares subject to a Restricted Stock Award
until all conditions providing for forfeiture have lapsed) shall not be sold,
assigned, pledged or otherwise transferred, voluntarily or involuntarily, by the
Grantee.
(b) Incentive Stock Options granted under the Plan are not
transferable except by will or by the laws of descent and distribution or, to
the extent not inconsistent with the
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applicable provisions of the Code, pursuant to a qualified domestic relations
order (as that term is defined in the Code). Incentive Stock Options may be
exercised during the lifetime of the Grantee only by the Grantee, and after the
death of the Grantee, only as provided in Section 11.
14. EMPLOYMENT, BOARD SERVICE AND STOCKHOLDER STATUS. The Plan does not
constitute a contract of employment or for continued service, and selection as a
Grantee will not give any employee or Grantee the right to be retained in the
employ of the Company or any Subsidiary or as a member of the Board. No person
entitled to exercise any Option or SAR granted under the Plan shall have any of
the rights or privileges of a stockholder of record with respect to any Shares
issuable upon exercise of such Option or SAR until certificates representing
such Shares have been issued and delivered. Certificates representing Shares
issued under the Plan may bear a legend referring to any conditions,
restrictions and limitations deemed appropriate by the Committee.
15. ADJUSTMENTS TO NUMBER OF SHARES AND TERMS. Subject to the following
provisions of this Section 15, in the event of any change in the outstanding
Shares by reason of any share dividend, split, recapitalization, merger,
consolidation, combination, exchange of shares or other similar corporate
change, the aggregate number and kind of Shares reserved for issuance under the
Plan or subject to Awards outstanding or to be granted under the Plan shall be
proportionately adjusted so that the value of each Award shall not be changed,
and the terms of any outstanding Award may be adjusted by the Committee in such
manner as it deems equitable, provided that, in no event shall the Option price
for a Share be adjusted below the par value of such Share, nor shall any
fraction of a Share be issued upon the exercise of an Option or SAR. Shares
subject to a Restricted Stock Award shall be treated in the same manner as other
outstanding Shares; provided that any conditions and restrictions applicable to
a Restricted Stock Award shall continue to apply to any Shares, other security
or other consideration received in connection with the foregoing.
16. CHANGE IN CONTROL. Upon the occurrence of a Change in Control, all
outstanding Options and SARs, and all outstanding Restricted Stock Awards as to
which any conditions providing for forfeiture have not lapsed, shall be
automatically purchased by the Company at the Acceleration Price with payment to
be made within thirty days of such Change in Control, irrespective of whether
the stockholders of the Company have approved the Plan as contemplated by
Section 18.
17. WITHHOLDING. Whenever a Grantee recognizes income with respect to
an Award (and as a condition to the exercise of any Option or SAR or the receipt
of a Stock Award), the Grantee will have the obligation to pay all federal,
state, and local income or other taxes due and the Company shall have the right
to withhold from amounts payable to the Grantee in any manner as necessary to
satisfy all federal, state and local payroll tax withholding requirements.
Alternatively, the Grantee may elect to have Shares withheld by the Company from
the Shares otherwise to be delivered to the Grantee or may tender to the Company
Shares previously acquired by the Grantee. The number of Shares so withheld or
tendered for payment of tax
12
withholding shall have an aggregate Fair Market Value as of the date as of which
income is recognized by the Grantee with respect to such Shares sufficient to
satisfy the applicable withholding taxes.
18. TERM OF PLAN. The Plan is effective January 1, 2002, and will be
submitted to the stockholders of the Company for approval on or before the first
anniversary of its adoption by the Committee. Awards may be granted prior to
stockholder approval, with all rights thereunder (other than the right to
receive payment of the Acceleration Price under Section 16) conditioned upon
such approval; provided that, if stockholder approval is not secured by such
anniversary, all such Awards shall expire and the Plan shall terminate. No ISO
may be granted under the Plan after December 31, 2012. No Award may be granted
under the Plan after the date on which the Plan is terminated pursuant to
Section 19.
19. AMENDMENT AND TERMINATION OF PLAN. Subject to any approval of the
stockholders of the Company that may be required (or, in the opinion of the
Committee, appropriate) under law or the rules of any securities exchange on
which the Shares are listed or similar entity, the Committee may at any time
amend, suspend or terminate the Plan. No amendment, suspension or termination of
the Plan shall materially and adversely alter or impair any Award previously
granted under the Plan without the consent of the holder thereof. No amendment
requiring stockholder approval under Treasury Regulation Section 1.162-27 or
Section 422 of the Code shall be valid unless such stockholder approval is
secured as provided therein.
20. APPLICABLE LAW. All questions under the Plan shall be governed by
the internal laws of the State of Delaware, without giving effect to the choice
of law provisions thereof.
Executed on behalf of the Company as of January 1, 2002, on this 14th
day of March, 2002.
BOWATER INCORPORATED
By: /s/ James T. Wright
------------------------------------
James T. Wright
Vice President - Human Resources
As adopted by the Board of Directors at its January 30, 2002, meeting.
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