EXHIBIT 10.1
**MODIFICATION OF EMPLOYMENT AGREEMENT**
          THIS AGREEMENT is made and entered into as of this 31st day of May, 2004,by and between Bowater Incorporated, a Delaware corporation having a mailingaddress of 55 East Camperdown Way, P. O. Box 1028, Greenville, South Carolina29602 (the “Corporation”), and E. Patrick Duffy, of 6418 Glynmoor Lakes Drive,Charlotte, NC 28277 (the “Executive”).
          WHEREAS, the Corporation now employs the Executive pursuant to anEmployment Agreement dated as of April 1, 1995 (the “Employment Agreement”) anda Change in Control Agreement dated as of June 9, 2000 (the “Change in ControlAgreement”); and
          WHEREAS, the Executive and the Corporation wish to continue theExecutive’s employment until a specified and agreed upon date, whereupon theExecutive will terminate his employment with the Corporation and be entitled toreceive certain benefits under the Supplemental Benefit Plan for DesignatedEmployees of Bowater Incorporated and Affiliated Companies as Amended andRestated Effective February 26, 1999 (the “SERP”) as further described below;
          NOW, THEREFORE, the parties hereto agree to the following:
1.       Change in Control. The Change in Control Agreement will be terminated asof January 31, 2005, unless a letter of intent or a definitive agreementproviding for a Change in Control (as defined in the Change in ControlAgreement) is signed prior to such date. In that event, the Change inControl Agreement will continue until the earlier of: (i) the consummationof the transaction described in the letter of intent or definitiveagreement, (ii) the cancellation of such transaction, or (iii) January31, 2007.
2.       Employment Agreement. The Employment Agreement is hereby modified asfollows:
 (a) Term. Section 2 of the Employment Agreement is amended in its entirety to readas follows:    “2. Term. The term of this Agreement will end onJanuary 31, 2007,unless sooner terminated by the Executive’s death, disability orretirement, except that Sections 6, 10, 11, 14 and 15 shall continuein accordance with their terms.”  (b) Position and Duties. Section 3 of the Employment Agreement is amendedby adding the following at the end thereof:    “Throughout the term of the leave of absence described in Section 8(“leave of absence”), the Executive will have the employment status ofan exempt employee. The Executive is relieved, as of January 31, 2005,of the obligation to devote his full working time to the performanceof duties under this Agreement, but shall, during the leave ofabsence, be an employee of the
 

 

   Corporation notwithstanding theExecutive’s leave of absence status. During the term of this Agreementand for a period of five (5) years after the Executive’s retirement,the Executive shall be available to provide advisory, consultative andsimilar services with respect to the Corporation’s business, and suchadditional services as are described in Sections 6.02(a) and 6.02(c)of the SERP. In addition, during the term of this Agreement and suchadditional five-year period, the Executive shall be subject to thenon-complete obligations described in Section 6.02(b) of the SERP.”  (c) Compensation and Benefits. Section 5 of the Employment Agreement is amendedin its entirety to read as follows:
   “5. Compensation and Benefits.  (a) Base Salary. The Corporation will pay to the Executive a base salaryat the annual rate of $428,000, in substantially equal monthlyinstallments of $35,666.67, on the Corporation’s regularpay dates, through January 31, 2007. However, if the Executive elects toretire prior to February 1, 2007, the monthly installments will beterminated as of such earlier retirement date. All applicable taxes andother authorized deductions will be deducted from each paycheck.  (b) Incentive Plans. In addition to base salary, the Executive will beentitled, upon taking leave of absence status, to a severance bonusequal to 25/12 times the amount of the annual incentive award paid tothe Executive in 2003 for calendar year 2002 (total $421,313). Suchamount shall be paid in February 2006, subject to all applicablewithholding requirements. The bonus payment is in lieu of any incentiveawards for which the Executive may be or may have been eligible underthe Corporation’s 2005, 2006 or 2007 Annual Incentive Plans. TheExecutive will be eligible to receive an award, if any are paid, underthe 2003-2005 Mid-Term Incentive Plan based upon thirty-six (36) monthsof participation and under the 2004-2006 Plan Cycle based on thirteen(13) months of participation. Such awards, if any are due, will be paidat the time other plan participants are paid. The Executive will not beeligible to receive an award under any mid-term incentive planapplicable to any period of time after December 31, 2004, other than asset forth above.  (c) Benefit Plans. From and after January 31, 2005, throughJanuary 31, 2007 (or any earlier termination date), the Executive shallnot be entitled to coverage under the Corporation’s disability orbusiness travel accident benefit plans but may continue to participatein the Corporation’s various other benefit plans and programs (subjectto Sections 3, 4, 9 and 10 in the Modification of Employment Agreementdated May 31, 2004 (“Modification”)), provided all requiredemployee contributions are paid.
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   From and after January 31, 2007 (or any earlier terminationdate), the Executive and his dependents will be eligible tocontinue certain benefit coverages as provided under theConsolidated Omnibus Budget Reconciliation Act (COBRA). Thevalue of the Executive’s “Book Account” (as that term isdefined in the Corporation’s Compensatory Benefits Plan) as ofthe termination of the Executive’s leave of absence shall bepaid to the Executive in a lump sum (subject to applicabledeductions) as soon as practicable after such termination.  (d) Vacation. The Executive will be entitled to be paid on January31, 2005 for all vacation accrued as of January 31, 2005, but will nolonger accrue vacation from and after February 1, 2005.  (e) Perquisites. The Executive will no longer be entitled to executiveperquisites as of January 31, 2005. All charitable contributions made bythe Executive through January 31, 2005, shall qualify under theCorporation’s Matching Gifts to Education or Cultural Organizations. TheExecutive’s charitable contributions shall not qualify for such programsafter January 31, 2005.”
 (d) Severance Pay. Section 8 of the Employment Agreement is amended inits entirety to read as follows:    “8. Leave of Absence. The Executive will be on a paid leave ofabsence from February 1, 2005, through January 31, 2007 (or any earlierretirement date). This paid leave of absence is in lieu of any severancepay and/or bonus the Executive would otherwise be entitled to. TheExecutive’s entitlement to benefits, or payments under the Corporation’shealth, life insurance, retirement, stock option, equity participationrights, and savings (but not disability or business travel accidentinsurance) plans, policies or arrangements shall not, except asotherwise required in this Modification, or by law or regulation, beaffected by the Executive’s leave of absence status and shall continueto be governed by the applicable provisions of such plans as though theExecutive had continued to render services in the active employment ofthe Corporation to the end of the term of this Agreement.”  (e) Ratification. In all other respects, except as herein provided, theEmployment Agreement is hereby ratified and confirmed.
3.       Pension Benefits.
 (a) The period of the leave of absence is intended to be included within thedefinition of “Years of Service” in the SERP and of “Benefit Service” in theBowater Incorporated Retirement Plan (the “Qualified Plan”) and the BowaterIncorporated Benefits Equalization Plan (the “Equalization Plan”) andcompensation paid under
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   Section 5(a) and (b) of the Employment Agreement asamended hereunder (not including any awards paid under the Mid-Term IncentivePlan) during the leave of absence is intended to be included within thedefinition of “Compensation” in the SERP and in the Qualified Plan andEqualization Plan.  (b) As of January 31, 2007 (or any earlier retirement date), and assuming theExecutive survives until such date and is not disabled and further, subject tothe Executive signing and not later revoking a Waiver and Release Agreement asfurther described in Section 10, and assuming a proper election is made, theExecutive may retire and shall then be entitled to a lump sum payment of hisSERP and Equalization Plan benefits as of such date, calculated using theapplicable interest rate and the mortality table set in accordance with theprovisions of the Plans. Such payments will be made to the Executive as soonas practicable after his retirement date.
4.       Stock Options and EPRs; Stock Ownership and Trading Restrictions.
 (a) From and after December 31, 2004, the Executive will not be eligible toreceive any stock option, restricted stock or equity participation right(“EPR”) awards. The leave of absence will not interrupt or terminate employmentfor purposes of determining the Executive’s continued eligibility to becomevested in, and to exercise, options, EPRs or restricted stock awards grantedpursuant to the Corporation’s stock option and equity participation rightsplans. In accordance with the applicable stock option and equity participationright plans and assuming the Executive elects retirement, the expiration datefor the Executive’s stock option and equity participation rights awards shallbe the earlier of (i) five years after his retirement date, or (ii) theoriginal expiration date of the applicable stock option or EPR Award. In theevent of the Executive’s death or disability prior to such dates, differentexpiration dates shall apply in accordance with the terms of the applicableplan.  (b) From and after the date the Executive’s retirement is announced, theExecutive shall no longer be subject to the Corporation’s stock ownershipguidelines. The Executive shall still be subject to all applicableinsider-trading restrictions (both legal and administrative). Specifically,without limitation, the Executive shall be subject to the Bowater IncorporatedInsider Trading Policy Statement, including the quarterly blackout provisionsand trade pre-clearance obligations, so long as he is an officer of theCorporation. The general prohibition against trading the Corporation’ssecurities if the Executive is in possession of material information not knownto the public, as described in the policy statement, shall continueindefinitely.
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5.       Nondisclosure and Confidentiality Obligations.
 (a)(i) The Executive agrees not to take any actions or make any statements tothe public, future employers, business associates, clients, customers, themedia, current, former or future employees, or any other third party whatsoeverthat reflect negatively on the Corporation, its officers, directors oremployees, and not to express any opinions concerning the Corporation, itsaffiliates, officers, directors, shareholders, employees, productsand/or itsoperations that shall reflect negatively upon same. Further, the Executiveconfirms his agreement to comply with the provisions of Section 6 of theEmployment Agreement and Section 6.02(d) of the SERP indefinitely.  (ii) The officers of the Corporation agree not to make any statements to anythird parties that are intended to reflect negatively on the Executive,except as may be required by law or regulation.  (b) Upon service on either party, or any one acting in his behalf, of anorder or other legal process requiring him to divulge information prohibitedfrom disclosure hereunder or under the Employment Agreement or SERP, suchparty shall immediately inform the other party of such service and the natureof any testimony or information sought to be provided pursuant to such orderor process.
6.      Office Equipment and Property of the Corporation. All property of theCorporation such as documents, files, portable computers, portable telephonesand credit cards, must be retuned to the Corporation, and all outstandingcredit card balances repaid, by January 31, 2005. The Executive shall submit allbusiness expense reimbursement requests no later than February 28, 2005.
7.       Resignations. The Executive shall resign from all offices or positionsin which he presently serves on behalf of the Corporation by no later thanJanuary 31, 2005, or earlier if requested by the Corporation.
8.       Availability in Certain Circumstances. The Executive agrees to makehimself reasonably available to the Corporation in connection with any pendingor future governmental or regulatory investigation, civil or administrativeproceeding or arbitration, subject to any privileges the Executive may have andto his other personal and business commitments. The Corporation will reimbursethe Executive for all reasonable costs and expenses incurred by him inconnection with any such investigation, proceeding or arbitration.
9.       Death or Disability. If the Executive dies or becomes disabled withinthe meaning of the Corporation’s Long-Term Disability Plan prior to January31, 2005, this Modification shall become null and void and be of no furtherforce or effect. Specifically, if such an event occurs the Executive shall notbe entitled to any compensation (including base salary and incentive awards)relating to any period after the date of death or disability. If the Executivedies or
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becomes disabled afterFebruary 1, 2005, and assuming the Executive hasexecuted an effective Waiver and Release Agreement and the seven-day revocationperiod has passed, any unpaid compensation due the Executive for base pay andthe severance bonus equivalent payment shall be paid to the Executive’s estate(in the event of death) or to the Executive (in the event of disability). Ifthe Executive dies at any time prior to the date his lump sum SERP andEqualization Plan payments become due and payable, his estate shall not havethe right to the lump-sum payments, but instead his surviving spouse and/ordependents shall be entitled to the benefits described in Section 4.01 of theSERP. If the Executive becomes disabled (as defined under the Corporation’sQualified Plan) after February 1, 2005, the Executive shall be entitled toreceive the disability benefits provided under the Qualified Plan. Further, inthe event of disability, the payment of the Executive’s lump sum SERP andEqualization Plan benefits shall be deferred until the earlier of (i) age 65 or(ii) the Executive’s recovery from disability.
10.       Effectiveness Contingent Upon Release. This Modification shall not beeffective unless and until the Executive has executed a certain Waiver andRelease Agreement (the “Release Agreement”) on or afterJanuary 31, 2005, in theform attached as Exhibit I, and the seven-day revocation period provided fortherein has expired. If the Corporation shall believe in good faith that theExecutive has breached the terms of the Release Agreement, this Modification,the SERP or the Employment Agreement (specifically, without limitation, Section6) and the Executive fails to cure such breach within thirty (30) days afternotice of such breach is given to the Executive, then, upon written notice fromthe Corporation, this Modification shall immediately become null and void, andbe deemed canceled and the Corporation shall be entitled to recover from theExecutive all amounts previously paid to him hereunder (except $500).
11.       Governing Law. This Modification shall be governed by the substantivelaws of the State of Delaware.
          IN WITNESS WHEREOF, the Corporation and the Executive have executed thisAgreement as of the day and year first above written.
BOWATER INCORPORATED         By: