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                                                                    EXHIBIT 10.5


                              EMPLOYMENT AGREEMENT


         THIS AGREEMENT, is made as of this 24th day of July, 1998, by and among
BOWATER INCORPORATED, a Delaware corporation having a mailing address of 55 East
Camperdown Way, Greenville, South Carolina 29601 ("Bowater U.S."), BOWATER PULP
AND PAPER CANADA INC., a Canadian corporation having a mailing address of 1250
Rene-Levesque Blvd., West, Montreal, Quebec H3B 4Y3, and previously called
Avenor Inc. ("Bowater Canada") and David J. Steuart, having a mailing address at
120 Beritt Drive, Burlington, Ontario L7L 2T1 (the "Executive").

         WHEREAS, Bowater U.S. desires to employ the Executive as President,
Pulp Division through its affiliate, Bowater Canada; and

         WHEREAS, the Executive is desirous of serving Bowater U.S. and Bowater 
Canada in such capacity;

         NOW, THEREFORE, the parties hereto agree as follows:


         1. Employment. During the term of this Agreement Bowater U.S. agrees to
continue to employ the Executive through its affiliate, Bowater Canada, and the
Executive agrees to continue in the employ of Bowater U.S. or its affiliate, 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 this Agreement shall begin on the date
                  hereof and shall continue thereafter until terminated by any
                  party by written notice given to the other parties at least
                  thirty (30) 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 Bowater U.S.
                  or Bowater Canada specifies an effective date that is more
                  than thirty (30) days following the date of such notice, the
                  Executive may, upon thirty (30) days' written notice to
                  Bowater U.S. and Bowater Canada, terminate his employment at
                  an earlier date and such earlier termination shall not be, or
                  be deemed to be, a voluntary termination of employment and
                  shall not affect the Executive's entitlement to any rights or
                  benefits he may have as a result of the termination of his
                  employment by Bowater U.S. or Bowater Canada.

         (b)      Notwithstanding Section 2(a), upon the occurrence of a Change
                  in Control as defined in the Change in Control Agreement of
                  even date herewith between Bowater U.S. and the Executive (the
                  "Change in Control Agreement"), the term of this Agreement
                  shall be deemed to continue until terminated, but in any
                  event, for a period of not less than three (3) years 



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         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 this Agreement shall
                  end upon:

                  (i)      the death of the Executive;

                  (ii)     the inability of the Executive to perform his duties
                           properly, whether by reason of ill-health, accident
                           or other 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.


         3. Position and Duties. Throughout the term hereof, the Executive shall
be employed as President, Pulp Division of Bowater U.S. through its affiliate,
Bowater Canada, 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 of
Directors of Bowater U.S. 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 Bowater U.S. and Bowater Canada.


         4. Place of Employment. The Executive will be employed at the offices
of Bowater Canada in the Greater Metropolitan Toronto Area or at such other
place as Bowater U.S. shall designate from time to time, provided, however, that
if the Executive is 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 relocation policy of Bowater U.S. then in
effect.


         5. Compensation and Benefits.

         (a)      Base Salary. The Executive shall be paid a base salary of
                  $353,000 (Canadian) payable in substantially equal periodic
                  installments on regular payroll dates. The Executive's base
                  salary shall be reviewed after six months and at least
                  annually thereafter and from time to time may be increased (or
                  reduced, if such reduction is effected pursuant to
                  across-the-board salary reductions similarly affecting all
                  management personnel of Bowater U.S.).



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         (b)      Bonus Plan. In addition to his base salary, the Executive
                  shall be entitled to receive a bonus under the bonus plans of
                  Bowater U.S. (annual and long term) in effect from time to
                  time determined in the manner, at the time, and in the amounts
                  set forth under such plans. For the balance of 1998, the
                  Executive shall be entitled to a bonus computed in accordance
                  with the Avenor Inc. Short Term Incentive Plan, but with a 40%
                  (in lieu of 36%) target, in lieu of participation in the short
                  term incentive annual bonus plans of Bowater U.S. for such
                  period.

         (c)      Benefit Plans. Bowater U.S. or Bowater Canada shall make
                  contributions on the Executive's behalf to the various benefit
                  plans and programs of Bowater U.S. or Bowater Canada in which
                  the Executive is eligible to participate in accordance with
                  the provisions thereof as in effect from time to time.

         (d)      Vacations. The Executive shall be entitled to paid vacation
                  (currently five weeks per year) in keeping with the policy of
                  Bowater U.S. as in effect from time to time, to be taken at
                  such time or times as may be approved by Bowater U.S.

         (e)      Expenses. Bowater U.S. or Bowater Canada shall reimburse the
                  Executive for all reasonable expenses properly incurred, and
                  appropriately documented, by the Executive in connection with
                  the business of Bowater U.S. or Bowater Canada.

         (f)      Perquisites. Bowater U.S. shall make available to the
                  Executive all perquisites to which he is entitled by virtue of
                  his position including, at least as of the date hereof, the
                  perquisites to which he was entitled as an executive of Avenor
                  Inc.


         6. Nondisclosure. During and after the term of this Agreement, the
Executive shall not, without the written consent of the Board of Directors of
Bowater U.S., disclose or use directly or indirectly, (except in the course of
employment hereunder and in furtherance of the business of Bowater U.S. or any
of its subsidiaries and affiliates) any of the trade secrets or other
confidential information or proprietary data of Bowater U.S. 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. During the term of this Agreement, and for a period
of one (1) year after the date the Executive's employment terminates, the
Executive shall not, without the prior approval of the Board of Directors of
Bowater U.S. 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
Bowater U.S. and its subsidiaries and affiliates) which directly competes with
the 



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business of Bowater U.S. and its subsidiaries and affiliates as conducted during
the term hereof. 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 remedy of Bowater U.S. or Bowater Canada 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 Executive of this Section
7, Bowater U.S. and Bowater Canada shall be entitled to injunctive relief in
addition to any other remedy it may have.


         8. Severance Pay. If the Executive's employment hereunder is
involuntarily terminated for any reason other than those set forth in Section
2(c) hereof, then unless Bowater U.S. or Bowater Canada shall have terminated
the Executive for "Cause", Bowater U.S. 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 annual bonus plan of Bowater U.S.
applicable to the Executive for each month in the period beginning on January 1
of the year in which the termination occurs and ending on the date of the
termination and for each months' 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 retirement plans,
stock option or incentive plans, savings plans or bonus plans in which the
Executive participates, 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 of even date hereof between Bowater
U.S. and the Executive, if termination occurs in a manner and at a time when
such Change in Control Agreement is applicable. For purposes of this Agreement,
the term for "Cause" shall mean 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 Bowater U.S. or the Executive's ability
to perform adequately and effectively his duties hereunder.


         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 mailed, by registered or certified mail, return receipt requested
to the respective addresses of the parties set forth above, 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.




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


         12. 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.


         13. Binding Effect. The terms of this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of Bowater U.S. and the
heirs, executors, administrators and successors of the Executive, but this
Agreement may not be assigned by the Executive.


IN WITNESS WHEREOF, Bowater U.S., Bowater Canada and the Executive have executed
this Agreement as of the day and year first above written.


                                       BOWATER INCORPORATED


                                       By  /s/ Arnold M. Nemirow
                                           -------------------------------------
                                           Arnold M. Nemirow
                                       Its: Chairman and Chief Executive Officer


                                       BOWATER PULP AND PAPER CANADA INC.


                                       By  /s/ Arnold M. Nemirow
                                           -------------------------------------
                                           Arnold M. Nemirow, President






                                       /s/ David J. Steuart
                                       -----------------------------------------
                                       David J. Steuart



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