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 00 Xxxx
Xxxxxxxxxx Xxx, X.X. Xxx 0000, Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000 (the
"Corporation"), and Xxxxx X. Xxxxxxxx of 0000 Xx. Xxxxx Xxxx, XX, Xxxxxxx,
Xxxxxxx 00000 (the "Executive").
WHEREAS, the Corporation considers it essential to the best interests of
its stockholders to xxxxxx 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 X. Xxxx, Xx.
-------------------------
Name: Togo X. Xxxx, Xx.
Title: Chairman, Human Resources and
Compensation Committee
/s/ Xxxxx X. Xxxxxxxx
---------------------
Name: Xxxxx X. Xxxxxxxx
