UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) May 9 , 2006
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 1-8712 62-0721803
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
55 East Camperdown Way
P.O. Box 1028
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
(864) 271-7733 (Registrant's telephone number,
including area code)
(Former name or former address, if changed since last report): Not applicable
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
// Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
// Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
// Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
// Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry Into a Material Definitive Agreement
CEO Compensation
On May 9, 2006, the Human Resources and Compensation Committee of the Board
of Directors (the "Committee") of Bowater Incorporated (the "Company") approved
the following items relating to CEO compensation, all in accordance with the
terms of the employment agreement between the Company and David J. Paterson,
dated April 4, 2006 (the "Employment Agreement"), providing for his employment
as the Company's President and Chief Executive Officer (the "CEO"). The
Employment Agreement was previously described in and filed with a Form 8-K dated
April 4, 2006.
50,000 Restricted Stock Unit Award. An award of 50,000 restricted stock
units was granted to the CEO as of May 10, 2006 pursuant to the terms of the
2006 Stock Option and Restricted Stock Plan. The terms of the award provide for
one-year vesting, accrual of dividends to be paid upon vesting, and accelerated
vesting in the event of a change in control, death, disability or involuntary
termination without "Cause" or for "Good Reason" as defined in the Employment
Agreement. A copy of the award agreement is attached as Exhibit 10.1.
250,000 Stock Option Awards. The Committee ratified the grant of three
stock option awards made to the CEO as of May 1, 2006, under the Bowater
Incorporated 1997, 2000, and 2002 Stock Option Plans (the "Prior Stock Option
Plans"), for a total of 250,000 stock options. The combined terms provide for
prorated vesting over three years, an exercise price of $27.425, ten-year terms
and accelerated vesting in the event of a change in control or death. Retirement
and disability are treated as continued employment in accordance with the terms
of the Prior Stock Option Plans. The three stock option award agreements are
attached as Exhibit 10.2.
MTIP Amendment. The Committee approved an amendment to the Mid-Term
Incentive Plan (the "MTIP") to exclude the CEO from coverage until January 1,
2007. The MTIP amendment is attached as Exhibit 10.3.
Change in Control Agreement. A Change in Control Agreement between the
Company and David J. Paterson (the "CIC Agreement") was signed on May 10, 2006
in accordance with his Employment Agreement. The CIC Agreement includes the
provisions described below. A copy of the CIC Agreement is attached as Exhibit
10.4.
If within 36 months following a change in control of the Company the CEO's
(the "Executive's") employment is terminated, the Executive will receive his
accrued salary. Unless the Executive's termination is for cause, he will also
receive a prorated annual incentive award and all benefits under the Company's
benefit plans and policies to which he is entitled through his date of
termination.
In addition, if the Executive's employment is involuntarily terminated
without cause or is terminated by the Executive for good reason within 36 months
following a change in control, the Executive will receive, in lieu of any
severance payments provided in his Employment Agreement, 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 target
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 the Company 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 value of the
additional retirement benefits the Executive would have earned for 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.
The CIC Agreement also provides the Executive with outplacement assistance
and a grossed up reimbursement of certain excise taxes that may be levied on
"excess parachute payments". The Executive will also be entitled to be paid or
reimbursed for all costs incurred (or to be incurred): (i) in connection with
confirming the Executive's rights to and amounts of payments due under the CIC
Agreement; (ii) 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 (iii) in connection with any audit relating to any payment or
benefit provided under the CIC Agreement.
Retirement Plan Proposal
On May 9, 2006, the Committee approved changes to the retirement benefits
provided to its US non-union employees, including its US executive officers as
follows:
o Replacement of the defined benefit pension benefit with an enhanced
savings plan benefit for all newly hired employees and all active
employees (i) who are younger than age 55 and (ii) whose age plus
years of service total less than 70, as of December 31, 2006
("non-grandfathered" employees). All other employees would be
grandfathered and would continue to accrue benefits under the current
defined benefit plan.
o Streamlining the savings plan by establishing a new "safe harbor"
qualified Retirement Savings Plan for most US non-union employees
(including grandfathered employees) with (i) an employer matching
contribution equal to 100% of the first 3% of employee compensation
and 50% of the next 2% of employee compensation, (ii) elimination of
the additional discretionary match, (iii) an expanded safe harbor
definition of compensation including bonus, gainsharing and overtime,
and (iv) Roth 401(k) accounts.
o Providing an automatic employer contribution for non-grandfathered and
newly hired employees based upon the sum of the participant's age plus
years of service as follows:
- less than 40 would receive a contribution of 2.5% of compensation
- 40-49 would receive a contribution of 3.5% of compensation
- 50-59 would receive a contribution of 4.5% of compensation
- 60-69 would receive a contribution of 5.5% of compensation
- 70 or more would receive a contribution of 6.5% of compensation
o Modifying the non-qualified compensatory savings plan (or creating a
new one) to allow for (i) employer contributions that cannot be made
to the qualified plan because of regulatory limits, (ii) investment
options determined appropriate by the Pension Administration Committee
(anticipated to be similar to the Retirement Savings Plan), (iii) an
additional 12% employer contribution for the CEO and an additional 10%
employer contribution for certain executive officers, and (iv) the
ability to defer earned income into the plan for certain executive
officers.
The new program will be effective January 1, 2007. As of that date (or May
1, 2006 for the CEO), the Bowater Incorporated Retirement Plan, the Bowater
Incorporated Benefits Equalization Plan (the "Equalization Plan") and the
Bowater Incorporated Supplemental Plan (the "SERP") will no longer admit new
participants and the benefits (years of service and compensation) will be frozen
for those participants who are younger than age 55 and whose age plus years of
service total less than 70. Those plans would continue for the grandfathered
participants.
2006 Stock Option and Restricted Stock Plan
On May 10, 2006, the Company's shareholders approved the Bowater
Incorporated 2006 Stock Option and Restricted Stock Plan (the "2006 Equity
Plan"), which was described in the Company's Proxy Statement for the May 10,
2006, Annual Meeting of Shareholders (the "Proxy Statement") at Item No. 2. A
copy of the 2006 Equity Plan was attached to the Proxy Statement as Appendix A.
The Committee made four types of awards pursuant to the 2006 Equity Plan,
effective May 10, 2006, upon approval of the 2006 Equity Plan as follows:
o Restricted stock unit awards in lieu of Annual Incentive Awards (the
"Bonus RSUs") were granted to the participants in the 2005 Annual
Incentive Plan. These awards equaled the value of the Annual Incentive
Awards the participants would have earned under the 2005 Annual
Incentive Plan, if such awards had been granted, expressed in Bowater
stock as of May 10, 2006. The awards will vest on January 1, 2008.
Accelerated vesting will occur in the event of a change in control,
death, disability or involuntary termination. In the event of
retirement, the participant will be entitled to a prorated award.
Accrued dividends will be payable upon vesting. A representative award
agreement for the Bonus RSUs is attached as Exhibit 10.5.
o Regular restricted stock unit awards (the "Regular RSUs") were granted
to eligible management employees. These awards will be fully vested on
January 24, 2009. A participant will receive a prorated award in the
event of retirement, death, disability or involuntary termination,
vesting immediately. In the event of a change in control, a
participant will be fully vested. Accrued dividends will be payable
upon vesting. A representative award agreement for the Regular RSUs is
attached as Exhibit 10.6.
o Performance-based restricted stock unit awards were granted to
eligible management employees in salary grade 30 and above. If the
Company has positive earnings per share during the three-year period
beginning January 1, 2006, and ending December 31, 2008, the total
award will vest. If the Company has positive earnings per share for
any one calendar year during the three-year period, one-third of the
award will vest for each such year. "Earnings per share" and "net
earnings" will be as reflected in the Company's published financial
statements. A participant will receive a prorated award in the event
of retirement, death, disability or involuntary termination only if
the Company has positive earnings per share for the three-year period
beginning January 1, 2006, and ending December 31, 2008. A participant
will be fully vested in the award in the event of a change in control.
Accrued dividends will be payable upon vesting. A representative award
agreement for the Performance-based RSUs is attached as Exhibit 10.7.
o Stock option awards were granted to eligible management employees in
salary grade 30 and above. The option awards will be fully vested on
January 24, 2009. A participant will receive a prorated award in the
event of retirement, death, disability or involuntary termination,
vesting immediately. A participant will be fully vested in the award
in the event of a change in control. A representative stock option
award agreement is attached as Exhibit 10.8.
Director Compensation
On May 9, 2006, the Committee approved the grant of 1450 stock units to the
non-employee directors in accordance with the 2004 Non-Employee Director Stock
Unit Plan. The terms of the grants provide that all first-time awards will be
payable in cash upon termination. The payment date for all other awards will be
governed by the participant's payment election as of December 31, 2005. A
representative award agreement is attached as Exhibit 10.9.
Amendments to the SERP and the Equalization Plan
Amendments have been adopted for the SERP and the Equalization Plan
incorporating modifications previously described in a Form 8-K filing dated
November 8, 2005 (the "November filing"). The amendments also provide that the
Bonus RSUs previously described above will be included as pensionable earnings
and exclude the CEO from coverage in accordance with his Employment Agreement.
Copies of the Fourth Amendment to the SERP and the Third Amendment to the
Equalization Plan are attached as Exhibits 10.10 and 10.11, respectively.
Amendment to Bowater Incorporated Compensatory Benefits Plan (the "Compensatory
Plan")
An amendment to the Compensatory Plan has been adopted incorporating
modifications previously described in the November filing and excluding the CEO
from coverage in accordance with his Employment Agreement. A copy of the Second
Amendment to the Compensatory Plan is attached as Exhibit 10.12.
SERP Modification for Senior Vice President, Secretary and General Counsel
The Committee approved a modification to the SERP benefits provided to the
Senior Vice President, Secretary and General Counsel (the "General Counsel"). As
of September 30, 2006, the General Counsel will be credited with an additional
two years and three months of service credit (for a total of five years), and be
entitled to an immediate distribution of SERP benefits and retiree health and
life insurance upon termination for any reason other than for cause. If he is
terminated without cause prior to September 30, 2006, he will also be credited
with a total of five years of service and be entitled to an immediate
distribution of benefits and retiree health and life insurance. In all of these
circumstances, the 10 year service requirement for immediate distribution of
SERP benefits and entitlement to retiree health and life insurance benefits is
waived for the General Counsel.
Consulting Agreement with Chairman of the Board
On May 10, 2006, the Board of Directors of the Company approved the
material terms of an agreement between Arnold M. Nemirow and the Company
regarding the service of Mr. Nemirow during the remainder of the year as
Non-Executive Chairman of the Board of Directors and regarding his services to
the Company as a consultant for a two-year period thereafter. The terms are
summarized below:
Continued Services: Mr. Nemirow will serve as Non-Executive Chairman of the
Board of the Company until December 31, 2006 ("Board Service Period"). From
January 1, 2007 until December 31, 2008 he shall serve as a consultant to the
Company ("Consultant Period").
Fees: Mr. Nemirow shall receive $50,000 per month for his services during the
Board Service and Consulting Periods and shall not receive any compensation or
fees to which a non-employee director is otherwise entitled. He shall be
reimbursed by the Company for the cost of an off-site office and administrative
support during the Board Service Period.
Change in Control: The Change in Control Agreement in effect between Mr. Nemirow
and the Company as of April 30, 2006 shall be amended such that if a defined
change in control occurs as a result of the execution of a letter of intent or a
definitive agreement during the Board Service Period, he shall receive upon
closing of the transaction three times the annualized fee payable to him as
non-executive chairman plus any excise taxes due as a result of such payment.
Non-Competition: The agreement contains non-competition, confidential
information, independent contractor and release provisions.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
On May 10, 2006, the Board of Directors of the Company unanimously elected
Arnold M. Nemirow as a Class II Director and as Chairman of the Board. Mr.
Nemirow was also appointed to the Executive Committee. Mr. Nemirow became Chief
Executive Officer of Bowater in 1995 and became Chairman in 1996. Mr. Nemirow
retired as the Company's President and Chief Executive Officer effective April
30, 2006. Accordingly, as required by Section 4.15 of the Company's By-Laws, Mr.
Nemirow resigned from the Board effective April 30, 2006, and his re-election
was expected.
On May 10, 2006, the Shareholders of Bowater Incorporated elected David J.
Paterson as a Class I Director. The Board of Directors appointed Mr. Paterson as
the Chairman of the Executive Committee. Since May 1, 2006, Mr. Paterson, age
51, has served as the Company's President and Chief Executive Officer. Mr.
Paterson was Executive Vice President of Georgia-Pacific Corporation, in charge
of its Building Products Division from 2003 until April 2006. At various times
since 2000, Mr. Paterson has been responsible for Georgia-Pacific's Pulp and
Paperboard Division, Paper and Bleached Board Division, and Communication Papers
Division. Mr. Paterson joined Georgia-Pacific in 1987. Mr. Paterson holds a
Bachelor of Science degree from the School of Industrial and Labor Relations,
Cornell University and a Masters in Business Administration from the University
of Michigan.
Item 9.01. Financial Statements And Exhibits
(d) Exhibits
10.1 Bowater Incorporated Restricted Stock Unit Agreement between David J.
Paterson and Bowater Incorporated, dated May 10, 2006
10.2 Bowater Incorporated Non-Qualified Stock Option Agreements between
David J. Paterson and Bowater Incorporated, dated May 1, 2006
10.3 Second Amendment to the Bowater Incorporated Mid-Term Incentive Plan
Effective as of January 1, 2003
10.4 Change In Control Agreement between David J. Paterson and Bowater
Incorporated, dated May 10, 2006
10.5 Form of Bowater Incorporated Restricted Stock Unit Agreement - Bonus
Units
10.6 Form of Bowater Incorporated Restricted Stock Unit Agreement - Regular
Award
10.7 Form of Bowater Incorporated Performance-Based Vesting Restricted
Stock Unit Agreement
10.8 Form of Bowater Incorporated Non-Qualified Option Agreement
10.9 Form of Bowater Incorporated 2004 Non-Employee Director Stock Unit
Plan Award Agreement
10.10 Fourth Amendment to the Supplemental Benefit Plan for Designated
Employees of Bowater Incorporated and Affiliated Companies As Amended
and Restated Effective February 26, 1999
10.11 Third Amendment to the Bowater Incorporated Benefits Equalization
Plan As Amended and Restate Effective February 26, 1999
10.12 Second Amendment to the Bowater Incorporated Compensatory Benefits
Plan As Amended and Restated Effective February 26, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
BOWATER INCORPORATED
(Registrant)
Date: May 15, 2006 By: /S/ James T. Wright
-------------------
Name: James T. Wright
Title: Sr. Vice President -
Human Resources