CHANGE IN CONTROL AGREEMENT

 

 

EMPLOYMENT AGREEMENT

     THIS AGREEMENT, is made this 4th day of April, 2006, by and between BOWATER INCORPORATED, a Delaware corporation having a mailing address of 55 East Camperdown Way, Greenville, South Carolina 29601 (the “Corporation”), and David J. Paterson (the “Executive”).

     WHEREAS, the Corporation desires to employ the Executive as President and Chief Executive Officer and a member of the board of directors of the Corporation (the “Board”); and

     WHEREAS, the Executive is desirous of serving the Corporation in such capacity;

     NOW, THEREFORE, the parties hereto agree as follows:

     1. Employment. The Corporation agrees to employ the Executive, and the Executive agrees to be employed by the Corporation, effective the Effective Date, in accordance with and subject to the provisions of this Agreement.

     2. Term. (a) Subject to the provisions of subparagraphs (b) and (c) of this Section 2, the term of the Executive’s employment shall begin on May l, 2006 (“Effective Date”) and shall continue thereafter until terminated by either party by written notice given to the other party at least ninety (90) days prior to the effective date of any such termination. The effective date of the termination shall be the date stated in such notice, provided that if the Corporation or Executive specifies an effective date that is more than ninety (90) days following the date of such notice, the Executive or the Corporation, as the case may be, may, upon ninety (90) days’ written notice to the Corporation or the Executive, as the case may be, accelerate the effective date of such termination.

          (b) The parties shall enter into a Change in Control Agreement effective the Effective Date, in the form previously provided to the Executive (“Change in Control Agreement”). Notwithstanding Section 2(a), upon the occurrence of a Change in Control, as defined in the Change in Control Agreement, for purposes of the Change in Control Agreement, the term of the Executive’s employment shall continue until terminated, but in any event, for a period of not less than three (3) years following the date of the Change in Control, unless such termination shall be at the Executive’s election for other than “Good Reason” as that term is defined in the Change in Control Agreement.

          (c) Notwithstanding Section 2(a), the term of the Executive’s employment shall end upon:

 

 

 

 

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               (i) the death of the Executive;

               (ii) the inability of the Executive to perform his duties properly, whether by reason of ill-health, injury or other similar cause, for a period of one hundred and eighty (180) consecutive days or for periods totaling one hundred and eighty (180) days occurring within any twelve (12) consecutive calendar months; or

               (iii) the Executive’s retirement on his early or normal retirement date in accordance with the Corporation’s tax-qualified retirement plan in which the Executive participates.

     3. Position and Duties. (a) Throughout the term of the Executive’s employment, the Executive shall be employed as President and Chief Executive Officer, with the duties and responsibilities customarily attendant to that office, provided that the Executive shall undertake such other and further assignments and responsibilities of at least comparable status as the Board may direct. The Executive shall diligently and faithfully devote his full working time and best efforts to the performance of the services under this Agreement and to the furtherance of the best interests of the Corporation. The Executive shall report to the Board.

          (b) Other Activities. During the term of the Executive’s employment, the Executive shall not engage in any other business activities, as an employee, director, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of the Board; provided that the Executive may serve on up to two corporate boards (other than the Board) with the approval of the Board, which approval shall not be unreasonably withheld. Notwithstanding the foregoing provisions of this subsection (b), it shall not be a violation of this Agreement for the Executive to serve on civic or charitable boards or committees to the extent that such service does not interfere with his duties under this Agreement.

     4. Place of Employment. The Executive will be employed at the Corporation’s offices in the City of Greenville, South Carolina or at such other place as the Corporation shall designate from time to time, provided, however, that if the Executive is so transferred to another place of employment, necessitating a change in his residence, the Executive shall be entitled to financial assistance in accordance with the terms of the Corporation’s relocation policy then in effect.

     5. Compensation and Benefits. (a) Base Salary. The Corporation shall pay to the Executive an annual base salary of $825,000 (“Base Salary”) payable in substantially equal periodic installments on the Corporation’s regular payroll dates. The Base Salary shall be reviewed at least annually and from time to time may be

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increased (or reduced, if such reduction is effected pursuant to across-the-board salary reductions similarly affecting all management personnel of the Corporation).

          (b) Annual Incentive Plan. In addition to Base Salary, the Executive shall be eligible to receive an annual bonus under the Corporation’s annual incentive plan in effect from time to time determined by Board in the manner, at the time, and within the criteria set forth by the Board in plan. The Executive shall be eligible under such plan for a target bonus of not less than 68% of Base Salary (“Target Bonus”), subject to reduction by the Board if such reduction is effected pursuant to across-the-board bonus reductions similarly affecting all management personnel of the Corporation, with a maximum eligible payout under such plan of 200% of the Target Bonus (“Maximum Bonus”). Notwithstanding the foregoing, the Executive will be paid, with respect to calendar year 2006 (payable in January of 2007), not less than 100% of such Target Bonus, prorated to reflect the percentage of the year 2006 that the Executive was actually employed by the Corporation.

          (c) Long Term Incentive. The Executive shall be entitled to participate in the Corporation’s long term incentive and stock-based incentive compensation plans beginning in 2007 on a basis commensurate with his position.

          (d) Initial Equity Grant. The Corporation shall grant Executive an award of an option to purchase 250,000 shares of the Corporation’s common stock having an exercise price equal to the fair market value of the common stock at the close of business on the Effective Date, a ten (10) year exercise term and vesting as to 83,333 shares on each of the first and second anniversaries and as to 83,334 shares on the third anniversary of the Effective Date. The initial stock option grant will be subject to further terms and conditions as set forth in the award document effective as of the Effective Date. The Corporation shall also grant to the Executive an award of 50,000 shares of restricted stock units (“Stock Grant”) effective as of May 10, 2006. The Stock Grant shall provide (i) that the award shall vest in full on the first anniversary of the grant date, (ii) the right to dividends on all such shares declared and paid to other shareholders shall be accrued during the vesting period and paid to the Executive upon vesting, (iii) upon vesting, the Corporation shall satisfy the Executive’s tax liability for the Stock Grant by withholding such number of shares from the Stock Grant as have an aggregate fair market value (as calculated in the plan under which the Stock Grant is made), provided, however, that such shares may be used to satisfy not more than the Corporation’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income), and shall remit such amount as withholding tax to the applicable taxing authorities, and (iv) the Stock Grant shall fully vest upon an involuntary termination of the Executive’s employment without Cause or a voluntary termination for Good Reason (each term as defined below).

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          (e) Deferred Compensation. The Corporation shall enroll the Executive in its new Retirement Savings Plan effective as of January 1, 2007, in accordance with the summary of plan terms previously provided to the Executive. The plan provides for an annual Corporation contribution of 20.5%, if the Executive contributes 5%, each as a percentage of the sum of the Executive’s Base Salary and annual bonus (referred to in Section 5(b), above) paid to Executive each calendar year. In lieu of any deferred plan participation or payment to which Executive otherwise may be entitled by reason of his employment by the Corporation in 2006, the Executive shall be entitled to a contribution in respect of 2006 on the foregoing basis (including his 5% elective deferral), but based on the Base Salary paid in 2006 and the 2006 bonus paid in January of 2007, all of which shall be credited as nonqualified deferred compensation under the Retirement Savings Plan as of January 1, 2007. The Executive shall be vested in this benefit upon the third anniversary of the Effective Date, and shall be entitled to a lump sum payment of a pro rata portion of this benefit in the event prior to the third anniversary of the Effective Date of an involuntary termination without Cause or a termination by the Executive for Good Reason, other than with respect to the 4.5% portion of the Corporation contribution (i.e., 21.95% of the total Corporation contribution) that shall remain subject in all events to three-year vesting.

          (f) Benefit Plans. The Corporation shall make contributions on the Executive’s behalf to the various benefit plans and programs of the Corporation in which the Executive is eligible to participate in accordance with the provisions thereof as in effect from time to time.

          (g) Vacations. The Executive shall be entitled to five weeks of annual paid vacation, and otherwise in keeping with the Corporation’s policy as in effect from time to time.

          (h) Expenses. The Corporation shall reimburse the Executive for all reasonable expenses properly incurred, and appropriately documented, by the Executive in connection with the business of the Corporation.

          (i) Perquisites. The Corporation shall make available to the Executive all perquisites to which he is entitled by virtue of his position.

          (j) Legal Expenses. The Executive shall be entitled to reimbursement of reasonable legal fees and expenses incurred in the negotiation and documentation of this Agreement promptly upon execution hereof up to a maximum amount of $30,000.

          (k) Relocation. The Executive shall be entitled to full relocation benefits in accordance with the Corporation’s relocation program for its senior executives.

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     6. Nondisclosure. During and after the term of the Executive’s employment, the Executive shall not without the written consent of the Board, except in the discharge of his duties hereunder and in furtherance of the business of the Corporation or any of its subsidiaries and affiliates, disclose or use directly or indirectly, any of the trade secrets or other confidential information or proprietary data of the Corporation or its subsidiaries or affiliates; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same or similar businesses.

     7. Noncompetition. (a) Executive represents and warrants that he is not subject to and will not bring any material that is subject to any

non-competition, non-disclosure, discoveries and works or other agreements that would prevent or restrict him from rendering services to the Corporation pursuant to this Agreement. Executive further represents and warrants that his employment and use of any material he brings will not violate the rights of any third party, including without limitation, pursuant to any non-competition or non-solicitation agreement.

          (b) During the term of the Executive’s employment and for a period of two (2) years after the date the Executive’s employment terminates (the “Covenant Period”), the Executive shall not, without the prior approval of the Board in the same or a similar capacity engage in or invest in, or aid or assist anyone else in the conduct of any business (other than the businesses of the Corporation and its subsidiaries and affiliates) which directly competes with the business of the Corporation and its subsidiaries and affiliates as conducted during the term hereof. During the Covenant Period, the Executive shall not, without the prior approval of the Board in the same or a similar capacity engage in or invest in, or aid or assist anyone else in any manner to solicit from any Corporation customer or vendor business of the type performed by the Corporation for the customer or by the vendor for the Corporation, as the case may be, or to persuade any customer or vendor to cease to do business or to reduce the amount of business which any such customer or vendor has customarily done or is reasonably expected to do with the Corporation, whether or not the relationship between the Corporation and such customer or vendor was originally established in whole or in part through the Executive’s efforts. If any court of competent jurisdiction shall determine that any of the provisions of this Section 7 shall not be enforceable because of the duration or scope thereof, the parties hereto agree that said court shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable and this Agreement in its reduced form shall be valid and enforceable to the extent permitted by law. The Executive acknowledges that the Corporation’s remedy at law for a breach by the Executive of the provisions of this Section 7 will be inadequate. Accordingly, in the event of the breach or threatened breach by the

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Executive of this Section 7, the Corporation shall be entitled to injunctive relief in addition to any other remedy it may have without the obligation of posting any bond in order to enforce its rights hereunder.

     8. Severance Pay. (a) If the Executive’s employment hereunder is involuntarily terminated for any reason other than those set forth in Section 2(c) hereof or if Executive terminates his employment hereunder for “Good Reason,” then, unless the Corporation shall have terminated the Executive for “Cause,” the Corporation shall pay the Executive severance pay in an amount equal to twenty-four (24) months of the Executive’s Base Salary on the effective date of the termination, plus 1/12 of the amount of the last annual bonus paid to the Executive under the Corporation’s bonus plan applicable to the Executive for each month in the period beginning on January 1 of the year in which the date of the termination occurs and ending on the date of the termination and for each month’s Base Salary to which the Executive is entitled under this Section 8. Such payment shall be made in a lump sum within ten (10) business days following the effective date of the termination. The severance pay shall be in lieu of all other compensation or payments of any kind relating to the termination of the Executive’s employment hereunder; provided that the Executive’s entitlement to compensation or payments under the Corporation’s welfare benefit plans, retirement plans, stock option or incentive plans, savings plans or bonus plans attributable to service rendered prior to the effective date of the termination shall not be affected by this clause and shall continue to be governed by the applicable provisions of such plans; and further provided that in lieu hereof, at his election, the Executive shall be entitled to the benefits of the Change in Control Agreement if a termination of his employment occurs in a manner and at a time when such Change in Control Agreement is applicable.

          (b) For purposes of this Agreement, the term for “Cause” shall mean: (i) because of gross negligence or willful misconduct by the Executive either in the course of his employment hereunder or which has a material adverse effect on the Corporation or the Executive’s ability to perform adequately and effectively his duties hereunder, or (ii) conviction of (or pleads guilty or nolo contendere) to a felony.

          (c) For purposes of this Agreement, the term for “Good Reason” shall mean: (i) a reduction by the Corporation in the Executive’s Base Salary, Target Bonus or Maximum Bonus percentages unless such reduction is effected pursuant to across-the-board salary or bonus reductions similarly affecting all management personnel of the Corporation, (ii) a material diminution in the Executive’s titles, duties or responsibilities, (iii) a change in Executive’s reporting lines such that he no longer reports to the Board, (iv) an unconsented relocation of Executive’s principal place of work to a location more than thirty (30) miles from the initial location referred to in Section 4, or (v) the failure of a successor to expressly assume

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this Agreement; provided, that for a termination for Good Reason under clause (i), (ii) or (iii), the Executive shall have provided the Corporation with written notice, and the Corporation shall fail to cure the basis for Cause within twenty (20) days of such notice.

          (d) The Executive shall not be obligated to seek mitigation of any severance payment payable hereunder. The Corporation shall not be entitled to offset or seek reimbursement of any amount payable or paid to the Executive hereunder in satisfaction of any other amount owed by the Executive to the Corporation, except that the Corporation shall be entitled to seek reimbursement of any severance payment made hereunder in the event of a breach of Executive’s post-termination obligations in Sections 6 and 7.

     9. Notices. Any notices required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered or, if mailed by registered or certified mail, return receipt requested, within three business days after such mailing, to the address set forth above or the Executive’s home address as recorded in the Corporation’s records, or to such other address as any party hereto shall designate to the other party in writing pursuant to the terms of this Section 9.

     10. Severability. The provisions of this Agreement are severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of any other provision.

     11. Governing Law. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of Delaware.

     12. Supersedure. This Agreement shall cancel and supersede all prior agreements relating to employment between the Executive and the Corporation. In the event of any inconsistency between (a) this Agreement and the Change in Control Agreement and (b) any other plan, program, practice or agreement of the Corporation in which the Executive participates or is a party, this Agreement and the Change in Control Agreement, as the case may be, shall control unless the parties specifically agree, by reference to this Section 12, that such other plan, program, practice or agreement controls.

     13. Waiver of Breach. The waiver by a party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any prior or subsequent breach by any of the parties hereto.

     14. Binding Effect. The terms of this Agreement shall be binding upon and inure to the benefit of the successors and assigns of the Corporation and the heirs, executors, administrators and successors of the Executive, but this Agreement may

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not be assigned by the Executive. The Corporation shall assign its rights and obligations hereunder to a successor to all or substantially all of the assets or business of the Corporation, provided, that such successor expressly assumes the Corporation’s obligations hereunder.

     15. Code Section 409A. It is intended that any amounts payable under this Agreement and the Corporation’s and the Executive’s exercise of authority or discretion hereunder shall comply with the provisions of Internal Revenue Code Section 409A and the Treasury Regulations relating thereto so as not to subject the Executive to the payment of Interest and tax penalty which may be imposed under Code Section 409A. In furtherance of this interest, to the extent that any regulations or other guidance issued under Code Section 409A after the date of this Agreement would result in the Executive being subject to payment of interest and tax penalty under Code Section 409A, the parties agree to amend this Agreement to the minimum possible extent in order to bring this Agreement into compliance with Code Section 409A while preserving the agreements and purposes otherwise expressed in this Agreement and the Change in Control Agreement.

     16. Public Announcement. The Corporation shall give the Executive a reasonable opportunity to review and comment on any public announcement (including all filings with governmental agencies and stock exchanges) relating to this Agreement or the Executive’s employment by the Company.

          IN WITNESS WHEREOF, the Corporation and the Executive have executed this Agreement as of the day and year first above written.

         

BOWATER INCORPORATED        

         

/s/ Togo D. West, Jr.        

 

By: Togo D. West, Jr.         

Title: Chairman, Human Resources and Compensation Committee    

         

EXECUTIVE        

         

/s/ David J. Paterson        

 

Name: David J. Paterson         

 

 

 

 

                                                                   EXHIBIT 10.4

                           CHANGE IN CONTROL AGREEMENT

 

 

THIS  AGREEMENT,  made as of the 10th day of May,  2006, by and between  Bowater

Incorporated,  a  Delaware  corporation  having  a  mailing  address  of 55 East

Camperdown   Way,  P.O.  Box  1028,   Greenville,   South  Carolina  29602  (the

"Corporation"),  and David J.  Paterson  of 2350 Mt.  Paran Road,  NW,  Atlanta,

Georgia 30327 (the "Executive").

 

     WHEREAS,  the  Corporation  considers it essential to the best interests of

its stockholders to foster the continued employment of key management personnel;

and

 

     WHEREAS,  the  uncertainty   attendant  to  a  change  in  control  of  the

Corporation  may result in the departure or distraction of management  personnel

to the detriment of the Corporation and its stockholders; and

 

     WHEREAS,  the Board of  Directors  of the  Corporation  (the  "Board")  has

determined that appropriate steps should be taken to reinforce and encourage the

continued  attention and dedication of members of the Corporations'  management,

including  Executive,  to their  assigned  duties  in the  event of a change  in

control of the Corporation.

 

     NOW THEREFORE, it is hereby agreed as follows:

 

1. DEFINITIONS

 

     The  following  terms shall have the meanings  assigned to them below:

 

     (a)  "Accrued  Compensation"  shall  mean all  amounts  earned  or  accrued

          through the Termination  Date but not paid as of the Termination  Date

          including (i) the Base Amount,  (ii)  reimbursement for reasonable and

          necessary  expenses  incurred  by  the  Executive  on  behalf  of  the

          Corporation  during the period ending on the Termination  Date,  (iii)

          vacation   pay,   and  (iv)  any  bonus  award  with  respect  to  the

          Corporation's fiscal year ended prior to the Termination Date.

 

     (b)  "Acquiring  Person"  shall  mean the  Beneficial  Owner,  directly  or

          indirectly,  of  securities  representing  20% or more of the combined

          voting power of the  Corporation's  then outstanding  securities,  not

          including  (except as  provided  in clause  (i) of the next  sentence)

          securities of such Beneficial Owner acquired  pursuant to an agreement

          allowing the  acquisition  of up to and  including  50% of such voting

          power approved by two-thirds of the members of the Board who are Board

          members  before the  Person  becomes  Beneficial  Owner,  directly  or

          indirectly,  of  securities  representing  5% or more of the  combined

          voting  power  of  the  Corporation's  then  outstanding   securities.

          Notwithstanding the foregoing,  (i) securities acquired pursuant to an

          agreement  described  in the  preceding  sentence  will be included in

          determining  whether a  Beneficial  Owner is an  Acquiring  Person if,

          subsequent to the approved acquisition,  the Beneficial Owner acquires

          5% or  more  of such  voting  power  other  than  pursuant  to such an

          agreement  so  approved;  and (ii) a Person  shall not be an Acquiring

          Person if such Person is  eligible  to and files a Schedule  13G under

          the Exchange Act with respect to such Person's  status as a Beneficial

          Owner of all  securities of the  Corporation  of which the Person is a

          Beneficial Owner.

 

     (c)  "Affiliate"  and  "Associate"  shall  have  the  respective   meanings

          ascribed  to such  terms  in  Rule  12b-2  of the  General  Rules  and

          Regulations under the Exchange Act, as in effect on the date hereof.

 

     (d)  "Base  Amount"  shall mean the greater of (i) the  Executive's  annual

          base salary at the rate in effect  immediately  prior to the Change in

          Control  and (ii) the  Executive's  annual  base salary at the rate in

          effect on the Termination Date.

 

     (e)  "Beneficial   Owner"  of  securities  shall  mean  (i)  a  Person  who

          beneficially owns such securities,  directly or indirectly,  or (ii) a

          Person  who has the right to acquire  such  securities  (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.

 

     (f)  "Bonus  Amount" shall mean an amount equal to the  Executive's  target

          amount (100% times salary  grade bonus  percentage  times base salary)

          under the  Corporation's  annual or other  short  term cash  incentive

          plans in effect  immediately  prior to the Change in  Control  for the

          fiscal year in which the Change in Control occurred or, if higher, the

          target amount under such plans in effect at the Termination Date based

          on the Executive's then base salary and position.

 

     (g)  "Cause" shall mean and be limited to the Executive's gross negligence,

          willful misconduct or conviction of a felony, which has a demonstrable

          and material  adverse  effect upon the  Corporation;  provided that if

          Cause exists by virtue of the Executive's  gross negligence or willful

          misconduct that is capable of being cured, the Corporation  shall give

          the Executive  written notice of the alleged  negligence or misconduct

          and if the Executive cures the negligence or misconduct  within thirty

          (30) days after receipt of the notice, such Cause shall cease to exist

          and the  Corporation  shall not terminate the  Executive's  employment

          therefor.  The Executive  shall be deemed to have been  terminated for

          Cause as of the  effective  date  stated  in a Notice  of  Termination

          delivered  by the  Corporation  to the  Executive,  which shall not be

          delivered  before the end of the thirty (30) day period  described  in

          the preceding sentence, if applicable.  The Notice of Termination must

          be accompanied by a certified copy of a resolution duly adopted by the

          affirmative  vote  of  not  less  than  three-quarters  (3/4)  of  the

          membership of the Board after  reasonable  notice to the Executive and

          an  opportunity  for  the  Executive,  with  the  Executive's  counsel

          present, to be heard before the Board, finding that, in the good faith

          opinion of the Board, the Executive was guilty of conduct constituting

          Cause  hereunder and setting forth in reasonable  detail the facts and

          circumstances  claimed  to  provide  the  basis  for  the  Executive's

          termination.

 

     (h)  "Change in Control" shall be deemed to have occurred upon:

 

          (i)  the date that any Person is or becomes an Acquiring Person;

 

          (ii) the date that the  Corporation's  stockholders  approve a merger,

               consolidation or  reorganization  of the Corporation with another

               corporation or other Person,  unless,  immediately following such

               merger, consolidation or reorganization,  (A) at least 50% of the

               combined  voting  power  of  the  outstanding  securities  of the

               resulting   entity  would  be  held  in  the   aggregate  by  the

               stockholders  of the  Corporation  as of the record date for such

               approval  (provided  that  securities  held by any  individual or

               entity that is an Acquiring  Person, or who would be an Acquiring

               Person if 5% were  substituted  for 20% in the definition of such

               term, shall not be counted as securities held by the stockholders

               of  the   Corporation,   but  shall  be  counted  as  outstanding

               securities for purposes of this  determination),  or (B) at least

               50% of the board of directors  or similar  body of the  resulting

               entity are Continuing Directors;

 

          (iii) the date the  Corporation  sells or otherwise  transfers  all or

               substantially  all  of  the   Corporation's   assets  to  another

               corporation or other Person,  unless,  immediately following such

               sale or transfer,  (A) at least 50% of the combined  voting power

               of the  outstanding  securities of the acquiring  entity would be

               held in the aggregate by the  stockholders  of the Corporation as

               of the record date for such approval  (provided  that  securities

               held by any individual or entity that is an Acquiring  Person, or

               who would be an Acquiring  Person if 5% were  substituted for 20%

               in  the  definition  of  such  term,  shall  not  be  counted  as

               securities held by the stockholders 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 acquiring entity are Continuing Directors; or

 

          (iv) the date on which  less than 50% of the total  membership  of the

               Board consists of Continuing Directors.

 

     (i)  "Code"  shall mean the United  States  Internal  Revenue Code of 1986,

          amended.

 

     (j)  "Continuing  Directors" shall mean any member of the Board who (i) was

          a member of the Board  immediately 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) who is not an Acquiring Person or an Affiliate or Associate of an

          Acquiring  Person and (iii) is  recommended  or elected to succeed the

          Continuing Director by a majority of the Continuing Directors.

 

     (k)  "Corporation" shall mean Bowater  Incorporated;  provided that, if the

          Executive   is  employed   by  a   subsidiary   of  the   Corporation,

          "Corporation"  shall  mean  such  subsidiary  of the  Corporation  for

          purposes of references to the Executive's  compensation  and benefits,

          and  the  plans,   programs   and   arrangements   pursuant  to  which

          compensation and benefits are provided.

 

     (l)  "Disability" shall mean a physical or mental condition that is defined

          as a disability in the  Corporation's  long term disability  insurance

          plan  covering  the  Executive  immediately  prior  to the  Change  in

          Control.

 

     (m)  "Employer  Match" shall mean an amount  equal to the maximum  matching

          contribution  the  Corporation  could have made  (regardless of actual

          circumstances)   on  the  Executive's   behalf  to  the  Corporation's

          Statutory and non-Statutory  defined contribution or savings plans for

          the  fiscal  year in which the  Change  in  Control  occurred,  or, if

          higher,  the maximum matching  contribution the Corporation could have

          made  for  the  fiscal  year  in  which  the  Executive's   employment

          terminated.

 

     (n)  "Exchange Act" shall mean the United States Securities Exchange Act of

          1934, as amended.

 

     (o)  "Good Reason" shall mean:

 

          (i)  a  change  in  the  Executive's   status,   title,   position  or

               responsibilities  (including  in  reporting  line  relationships)

               that,  in  the  Executive's  reasonable  judgment,  represents  a

               substantial  adverse change from 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 at 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 for Disability,  Cause, as a result of

               the  Executive's  death or by the  Executive  other than for Good

               Reason;

 

          (ii) the  failure by the  Corporation  to provide the  Executive  with

               compensation and benefits,  in the aggregate,  at least equal (in

               terms  of  benefit  levels  and/or  reward   opportunities  which

               opportunities  will be  evaluated  in  light  of the  performance

               requirements  therefor) to those  provided for under the employee

               compensation  and benefit plans,  programs and practices in which

               the Executive was  participating  at any time within  one-hundred

               eighty (180) days preceding the date of a Change in Control or at

               any time thereafter;

 

          (iii) the reduction of the Executive's salary as in effect on the date

               of the Change in Control or any time thereafter;

 

          (iv) a failure by the  Corporation  to obtain from any  Successor  its

               assent to this Agreement contemplated by Section 11 hereof; or

 

          (v)  the relocation of the principal  office at which the Executive is

               to perform  services on behalf of the  Corporation  to a location

               more than  thirty-five  (35) miles from its location  immediately

               prior to the Change in Control or a  substantial  increase in the

               Executive's business travel obligations  subsequent to the Change

               in Control.

 

     (p)  "Notice  of  Termination"  shall  mean a  notice  sent by  either  the

          Executive  or the  Corporation  to the  other  party  terminating  the

          Executive's  employment  as of a certain  date and  setting  forth the

          reasons therefor.

 

     (q)  "Person" shall mean any individual,  corporation,  partnership, group,

          association  or other  "person" as such term is used in Sections 13(d)

          and 14(d) of the Exchange Act.

 

     (r)  "Pro  Rata  Bonus"  shall  mean an amount  equal to the  Bonus  Amount

          multiplied  by a  fraction,  the  numerator  of which is the number of

          months  and  partial  months  through  the  Termination  Date  and the

          denominator of which is twelve (12).

 

     (s)  "Statutory  Plan" shall mean a retirement  plan that is intended to be

          qualified  (for purposes of United States tax law) or registered  (for

          purposes of Canadian tax law), as the case may be.

 

     (t)  "Successor"  shall mean the direct or indirect  successor by purchase,

          merger, consolidation or otherwise, to all or substantially all of the

          business and/or assets of the Corporation.

 

     (u)  "Termination  Date"  shall  mean  (i) in the  case of the  Executive's

          death,  the date of death,  (ii) in the case of a  termination  by the

          Executive in accordance  with Section 3, the last day of employment as

          set forth in the Notice of Termination  given by the Executive,  (iii)

          in the case of a termination by the  Corporation for Cause, a date not

          less than thirty (30) days after receipt of the Notice of  Termination

          by the Executive, (iv) in the case of a termination by the Corporation

          due to the Executive's Disability,  the date not less than thirty (30)

          days  after  receipt of the Notice of  Termination  by the  Executive,

          provided that the  Executive  shall not have returned to the full-time

          performance of duties within thirty (30) days after such receipt,  and

          (v)  in  all  other  cases,  the  date  specified  in  the  Notice  of

          Termination  or if no Notice of  Termination  is sent, the last day of

          the Executive's  employment (an Executive receiving periodic severance

          pay is not considered employed for the purposes of this Agreement).

 

2. TERM OF AGREEMENT

 

     This  Agreement  shall commence as of the date hereof and shall continue in

     effect  until  the  date  the  Executive's  employment  is  terminated  (an

     Executive being paid periodic  severance  benefits is no longer  considered

     employed for these purposes);  provided,  however,  that if the Executive's

     employment  is terminated  following,  or in  anticipation  of, a Change in

     Control,  the term shall continue in effect until all payments and benefits

     have been made or provided to the Executive hereunder.

 

3. EXECUTIVE'S RIGHT OF TERMINATION

 

     After a Change in Control and for thirty-six  (36) months  thereafter,  the

     Executive  shall have the right to terminate  employment for Good Reason by

     sending  a  Notice  of  Termination  to the  Corporation  setting  forth in

     reasonable  detail the facts and  circumstances  claimed to constitute Good

     Reason. If the Executive's  employment is terminated in accordance with the

     provisions  of this  Section  3, the  Executive  shall be  entitled  to the

     compensation and benefits described in Section 4(b) below.

 

4. COMPENSATION UPON CHANGE IN CONTROL FOLLOWED BY CERTAIN TERMINATIONS

 

     If the  Executive's  employment  with the  Corporation  shall be terminated

     within thirty-six (36) months following a Change in Control,  the Executive

     shall be entitled to the following compensation and benefits:

 

          (a) If the Executive's employment is terminated (i) by the Corporation

     for Cause or Disability,  (ii) by reason of the Executive's  death or (iii)

     by the Executive  other than in accordance  with Section 3, the Corporation

     shall  pay  to  the  Executive  the  Accrued   Compensation  and,  if  such

     termination is other than by the Corporation for Cause, the Pro Rata Bonus,

     computed as of the applicable Termination Date.

 

          (b) If the  Executive's  employment  with  the  Corporation  shall  be

     terminated  (x) by the  Corporation  for any reason other than for Cause or

     Disability,  (y) other than by reason of the  Executive's  death, or (z) by

     the Executive  pursuant to the provisions of Section 3, the Executive shall

     be entitled to the following as of the applicable Termination Date:

 

          (i)  the Accrued Compensation and the Pro-Rata Bonus;

 

          (ii) an amount equal to three (3) times the Base Amount;

 

          (iii) an amount equal to three (3) times the Bonus Amount;

 

          (iv) an amount equal to three (3) times the Employer Match;

 

          (v)  An amount equal to 30% of the Base Amount for certain

                           lost benefits;

 

          (vi) An amount equal to the present value of the additional retirement

               benefits the Executive would have earned under the  Corporation's

               defined  contribution  or savings plans  (excluding  the Employer

               Match) for the three (3) years  following the  Termination  Date,

               computed assuming the following:

 

               (A)  the Executive's  salary  continues at the Base Amount with a

                    bonus equal to the Bonus Amount; and

 

               (B)  vesting requirements are waived;

 

          (vii) As of the Executive's  Termination  Date, or, if later, when the

               Executive   attains  age  fifty  (50),  the  Executive  (and  the

               Executive's  spouse or surviving  spouse and dependents)  will be

               provided  the  retiree  health care and life  insurance  coverage

               provided by the Corporation to executive  retirees as of the date

               of the Change in Control.  If and to the extent that the benefits

               described  in  this  paragraph   cannot  be  provided  under  the

               Corporation's  plans or programs  without the  benefits  provided

               thereunder being taxable to the Executive,  the Corporation shall

               procure an insurance policy or policies on substantially  similar

               terms and conditions for the Executive and the Executive's spouse

               or surviving spouse and dependents, or if such policy or policies

               cannot be obtained, shall provide a lump sum payment equal to the

               value of the lost benefits, provided that if any of the foregoing

               benefits or payment is  determined  to be  deferred  compensation

               subject to Code  Section  409A,  benefits  shall be  provided  or

               payment shall be made in accordance with Code Section 409A or any

               guidance issued thereunder; and

 

          (viii)  The  Corporation  shall  pay  for  or  provide  the  Executive

               individual  out-placement  assistance as offered by a member firm

               of the Association of Out-Placement Consulting Firms.

 

     Unless otherwise  required in the next paragraph,  amounts payable pursuant

     to  subsections  (b)(i)  - (vi)  shall  be  made  in a lump  sum as soon as

     administratively  feasible following the Executive's  Termination Date, but

     in no event  shall  payment  be made  later  than  March 15  following  the

     calendar  year  of  the  Executive's  Termination  Date,  unless  otherwise

     required by Internal  Revenue  Code  Section  409A or any  guidance  issued

     thereunder.

 

     Any amounts  payable under this  Agreement that are determined to be vested

     deferred  compensation  under Code Section 409A shall be paid in a lump sum

     as of  the  first  day of  the  seventh  month  following  the  Executive's

     Termination Date.

 

5. EXCISE TAX GROSS-UP

 

     If any payment or benefit  made  available to the  Executive in  connection

     with a Change in Control (including,  without limitation,  any payment made

     pursuant  to  any  long-term   incentive  plans,  stock  option  or  equity

     participation  right plans) or  termination of the  Executive's  employment

     following  a Change in Control  (in either  category,  a "Change in Control

     Payment")  is  subject  to the Excise  Tax (as  hereinafter  defined),  the

     Corporation  shall pay to the Executive  additional  amounts (the "Gross Up

     Amounts") such that the total amount of all Change in Control  Payments net

     of the  Excise  Tax shall  equal the total  amount of all Change in Control

     Payments to which the Executive  would have been entitled if the Excise Tax

     had not been imposed. For purposes of this Section 5, the term "Excise Tax"

     shall mean the tax imposed by Section  4999 of the Code and any similar tax

     that may hereafter be imposed.

 

     The Gross Up Amounts  due to the  Executive  under this  Section 5 shall be

     estimated by a nationally  recognized firm of certified public  accountants

     (other  than  the  firm  that  audited  the  financial  statements  of  the

     Corporation  for the most recently  preceding  fiscal year) selected by the

     individual  holding the  position of Chief  Financial  Officer  immediately

     before the Change in Control or such officer's  designee,  at any time that

     the  Executive  is to  receive a Change in  Control  Payment.  The Gross Up

     Amounts will be based upon the following assumptions:

 

          (a) all Change in Control  Payments  shall be deemed to be  "parachute

     payments"  within the meaning of Section  280(G)(b)(2) of the Code, and all

     "excess parachute payments" shall be deemed to be subject to the Excise Tax

     except  to  the  extent  that,  in the  opinion  of  the  certified  public

     accountants  charged with estimating the Gross Up Amounts for the Executive

     under this  Section 5, such Change in Control  Payments  are not subject to

     the Excise Tax; and

 

          (b) the  Executive  shall be  deemed to pay  federal,  state and local

     taxes at the highest marginal rate of taxation for the applicable  calendar

     year.

 

     The estimated  Gross Up Amount due the Executive with respect to any Change

     in  Control  Payment  pursuant  to  this  Section  5  shall  be paid to the

     Executive in a lump sum not later than thirty (30) business days after such

     Change in Control  Payment is provided to the Executive.  In the event that

     the Gross Up Amount is less than the amount  actually due to the  Executive

     under this Section 5, the amount of any such shortfall shall be paid to the

     Executive  within ten (10) days after the  existence  of the  shortfall  is

     discovered.  In the event  the  Gross Up  Amount  is more  than the  amount

     actually due the Executive  under this Section 5, the Executive shall repay

     the amount of such overpayment to the Corporation  within a reasonable time

     after the overpayment is discovered.

 

7. NO MITIGATION REQUIRED

 

     The  Executive  shall not be required to mitigate the amount of any payment

     provided for in this Agreement,  nor shall any payment or benefit  provided

     for in this Agreement be offset by any compensation earned by the Executive

     as the result of employment by another employer, by retirement benefits, or

     be offset  against any amount  claimed to be owed by the  Executive  to the

     Corporation, or otherwise.

 

8. INTEREST

 

     If any  payment to the  Executive  required by this  Agreement  is not made

     within the time for such payment  specified  herein,  the Corporation shall

     pay to the  Executive  interest on such  payment at the legal rate  payable

     from time to time upon  judgments  in the State of  Delaware  from the date

     such payment is payable under the terms hereof until paid.

 

9. NON-COMPETE CANCELLATION

 

     If the  Executive is entitled to the  payments  and  benefits  described in

     Section  4(b),  then any agreement by the Executive not to compete with the

     Corporation or its Affiliates after the Executive's  Termination Date shall

     be null and  void and any such  agreement  shall be  deemed  to be  amended

     accordingly.

 

10. EXECUTIVE'S EXPENSES

 

     The  Corporation  shall  pay or  reimburse  the  Executive  for all  costs,

     including  reasonable  attorney's,  accountants'  and  actuary's  fees  and

     expenses,  incurred by the Executive (i) to confirm the Executive's  rights

     to and  amounts of  payments  hereunder,  (ii) to  contest  or dispute  any

     termination of the Executive's  employment following a Change in Control or

     seek to obtain or enforce any right or benefit  provided by this  Agreement

     in litigation or  arbitration,  or (iii) in connection  with any audit by a

     taxing  authority  related  to any  payment or  benefit  hereunder,  or any

     subsequent  contest or  litigation  relating to the tax  treatment  of such

     payment or benefit. Upon demand therefor,  the Corporation shall advance to

     the Executive any amount as to which the Executive  reasonably  believes he

     will be entitled  pursuant to this Section 10 for costs that the  Executive

     has  incurred  or will incur  during the ninety  (90) days  following  such

     demand.

 

11. BINDING AGREEMENT

 

     This  Agreement  shall  inure to the benefit of and be  enforceable  by the

     Executive, and the Executive's heirs, executors, administrators, successors

     and assigns.  This  Agreement  shall be binding upon the  Corporation,  its

     Successors  and assigns.  The  Corporation  shall  require any Successor to

     assume and agree to perform this  Agreement in  accordance  with its terms.

     The  Corporation  shall obtain such  assumption and agreement  prior to the

     effectiveness of any such succession.

 

12. NOTICE

 

     Any notices and all other  communications  provided  for herein shall be in

     writing and shall be delivered personally or sent by facsimile transmission

     (with written  confirmation sent at the same time),  prepaid air courier or

     prepaid  certified or registered  mail.  Any such notice shall be deemed to

     have  been  given  (a) when  received,  if  delivered  in  person,  sent by

     facsimile  transmission,  or sent by prepaid air courier,  or (b) three (3)

     business days following the mailing thereof, if mailed by prepaid certified

     or registered mail, return receipt  requested,  addressed to the respective

     addresses  set forth on the first page of this  Agreement  or to such other

     address  as either  party may have  furnished  to the other in  writing  in

     accordance  herewith,  except  that  notices of change of address  shall be

     effective  only upon  receipt.  All  notices  to the  Corporation  shall be

     addressed to the attention of the Board with a copy to the General Counsel.

 

13. SOLE SEVERANCE; OTHER BENEFITS

 

     If the Executive is paid the  entitlements  due under  Section  4(b),  such

     payments  shall be in lieu of any  other  severance  amounts  to which  the

     Executive may be entitled under any other severance arrangement,  including

     under  any  employment   agreement,   severance  pay  plan,  or  applicable

     legislation  entitling the Executive to severance  benefits.  However,  the

     parties  acknowledge that the benefits paid hereunder are only exclusive as

     to other severance payments and that the Executive may be entitled to other

     benefits or payments  triggered by a Change in Control  under certain other

     of the  Corporation's  benefit  or  compensation  arrangements,  including,

     without limitation, any long term incentive plans or stock option plans.

 

14. AMENDMENTS; WAIVERS

 

     No provision of this Agreement may be modified, waived or discharged except

     in a writing  specifically  referring to such  provision  and signed by the

     party against which enforcement of such  modification,  waiver or discharge

     is sought.  No waiver by either party hereto of the breach of any condition

     or  provision  of this  Agreement  shall be  deemed a waiver  of any  other

     condition or provision at the same or any other time.

 

15. GOVERNING LAW

 

     The  validity,   interpretation,   construction  and  performance  of  this

     Agreement  shall  be  governed  by the  substantive  laws of the  State  of

     Delaware without regard to the choice of law provisions thereof.

 

16. VALIDITY

 

     The invalidity or unenforceability of any provision of this Agreement shall

     not affect the validity or  enforceability  of any other  provision of this

     Agreement, which shall remain in full force and effect.

 

17. ARBITRATION

 

     If the Executive so elects, any dispute or controversy  arising under or in

     connection with this Agreement shall be settled  exclusively by arbitration

     in Greenville,  South Carolina,  or at the Executive's election in the city

     nearest to the  Executive's  principal  residence that has an office of the

     American Arbitration Association,  by one arbitrator in accordance with the

     rules of the American Arbitration  Association then in effect. Judgment may

     be entered on the arbitrator's award in any court having jurisdiction.  The

     Corporation hereby waives its right to contest the personal jurisdiction or

     venue of any court,  federal or state, in an action brought to enforce this

     Agreement or any award of an arbitrator  hereunder  which action is brought

     in the  jurisdiction  in which such  arbitration  was conducted,  or, if no

     arbitration  was elected,  in which  arbitration  could have been conducted

     pursuant to this Section 17.

 

18. COUNTERPARTS

 

     This Agreement may be executed in one or more  counterparts,  each of which

     shall be deemed to be an original but all of which together will constitute

     one and the same instrument.

 

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be

executed as of the day and year first above written.

 

 

                                         BOWATER INCORPORATED

 

 

                                         By: /s/ Togo D. West, Jr.

                                             -------------------------

                                         Name:  Togo D. West, Jr.

                                         Title: Chairman, Human Resources and

                                                Compensation Committee

 

 

 

                                              /s/ David J. Paterson

                                              ---------------------

                                          Name:  David J. Paterson