As filed with the Securities and Exchange Commission on June 22, 2001
Registration No. 333-62348
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
Amendment No. 1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
BOWATER INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 62-072180
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
55 EAST CAMPERDOWN WAY
POST OFFICE BOX 1028
GREENVILLE, S.C. 29602
(864) 271-7733
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
WENDY C. SHIBA, ESQ.
VICE PRESIDENT, SECRETARY AND ASSISTANT GENERAL COUNSEL
BOWATER INCORPORATED
55 EAST CAMPERDOWN WAY
POST OFFICE BOX 1028
GREENVILLE, S.C. 29602
(864) 271-7733
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy To:
PETER GATES, ESQ.
CARTER LEDYARD & MILBURN
2 WALL STREET
NEW YORK, N.Y. 10005
(212) 732-3200
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated June 22, 2001
PROSPECTUS
Up to 5,821,696 shares
BOWATER INCORPORATED
Common Stock
(par value $1.00 per share)
This prospectus relates to the shares of common stock of Bowater
Incorporated, a Delaware corporation, that we will issue upon exchange or
redemption of exchangeable shares of Bowater Canada Inc., a corporation existing
under the laws of Canada and an indirect subsidiary of Bowater, which we call
Bowater Canada in this prospectus. The exchangeable shares are being issued to
the former shareholders of Alliance Forest Products Inc., a corporation existing
under the laws of Canada, in connection with our acquisition of Alliance.
Each exchangeable share may be exchanged for one share of our common
stock, plus all payable and unpaid dividends, if any, on a share of our common
stock. We will issue the shares of our common stock offered by this prospectus
only in exchange for, or upon the redemption of, the exchangeable shares.
We will not receive any cash proceeds from this offering.
We are paying all of the expenses of registration of this offering.
The common stock of Bowater is traded on The New York Stock Exchange
(under the symbol BOW), on regional U.S. exchanges, and on the London Stock
Exchange. On , the last reported sales price of our common stock on The New
York Stock Exchange was $ per share. Unless otherwise indicated, all dollar
references in this prospectus are to U.S. dollars.
This exchange of exchangeable shares for our common stock involves risks.
See "Risk Factors" on page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2001.
TABLE OF CONTENTS
TABLE OF CONTENTS.............................................................i
INTRODUCTION..................................................................1
WHERE YOU CAN FIND MORE INFORMATION...........................................1
RISK FACTORS..................................................................2
The exchange of your exchangeable shares is generally taxable.............3
The market price of our common stock may be less than the
market price of the exchangeable shares...................................3
Our common stock will be foreign property for Canadian tax purposes.......3
BOWATER.......................................................................3
USE OF PROCEEDS...............................................................4
DESCRIPTION OF CAPITAL STOCK..................................................4
Our Common Stock............................................................4
Our Preferred Stock.........................................................5
CERTAIN CERTIFICATE, BY-LAW AND CONTRACT PROVISIONS...........................6
PLAN OF DISTRIBUTION..........................................................6
HOW WE WILL ISSUE OUR COMMON STOCK TO YOU.....................................7
You May Retract Your Exchangeable Shares....................................7
We May Redeem Your Exchangeable Shares......................................9
Liquidation of Bowater Canada..............................................10
Insolvency of Bowater Canada...............................................11
Liquidation of Bowater.....................................................12
Support Agreement..........................................................12
INCOME TAX CONSIDERATIONS....................................................13
Canadian Federal Income Tax Considerations.................................13
Holders Resident in Canada.............................................14
Holders Not Resident in Canada.........................................19
United States Federal Income Tax Considerations............................20
Exchange of Exchangeable Shares........................................22
Passive Foreign Investment Company Considerations......................23
Shareholders Not Resident in or Citizens of the United States..........24
LEGAL OPINIONS...............................................................27
EXPERTS......................................................................28
FINANCIAL STATEMENTS OF ALLIANCE............................................F-1
Exchange Table..........................................................F-2
Unaudited Consolidated Financial Statements of Alliance Forest
Products Inc. as of and for the three months ended March 31, 2001.......F-3
Consolidated Financial Statements of Alliance Forest Products Inc.
as of and for the three years ended December 31, 2000...................F-7
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INTRODUCTION
This prospectus relates to the shares of our common stock that we will
issue upon exchange or redemption of exchangeable shares of Bowater Canada. The
exchangeable shares are being issued to the former shareholders of Alliance
Forest Products Inc., which we call Alliance in this prospectus, in connection
with our acquisition of Alliance.
We acquired Alliance under the terms of a Plan of Arrangement agreed to
by way of an Arrangement Agreement dated April 1, 2001, between Alliance and us.
This document is called a prospectus and is part of a registration
statement that we filed with the Securities and Exchange Commission (the "SEC")
using a "shelf" registration or continuous offering process.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer or soliciting a purchase of
these securities in any jurisdiction in which the offer or solicitation is not
authorized or in which the person making the offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make the offer or
solicitation. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
Unless we have indicated otherwise, references in this prospectus to
"Bowater," "we," "us," "our" and similar terms are to Bowater Incorporated and
its consolidated subsidiaries, and references to "you," "your" and similar terms
are to persons who hold exchangeable shares as a result of our acquisition of
Alliance.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may obtain any document we file with the SEC
at the SEC's public reference rooms in Washington, D.C., Chicago, Illinois and
New York, New York. You may obtain information on the operation of the SEC's
public reference facilities by calling the SEC at 1-800-SEC-0330. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549-1004. Our SEC filings are also accessible through the Internet at the
SEC's Web site at http://www.sec.gov. In addition, our SEC filings can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The SEC permits us to "incorporate by reference" into this prospectus the
information in documents we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus, and later information that we file with the SEC will update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, until the offering is
otherwise terminated:
(a) Bowater's Annual Report on Form 10-K for the year ended December
31, 2000;
(b) Bowater's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2001;
(c) Bowater's Current Report on Form 8-K as filed on April 4, 2001,
and Amendment No. 1 to that report as filed on May 30, 2001; and
(d) The description of our common stock contained in the Registration
Statement of Bowater on Form S-3, File No. 33-51569.
If you request a copy of any or all of the documents incorporated by
reference in this prospectus, then we will send to you the copies you requested
at no charge. However, we will not send exhibits to these documents, unless the
exhibits are specifically incorporated by reference in these documents. You
should direct requests for copies of any or all of these documents to 55 East
Camperdown Way, Post Office Box 1028, Greenville, South Carolina 29602,
Attention: Investor Relations Department (telephone number: (864) 271-7733).
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933, as amended, covering the securities described in
this prospectus. This prospectus does not contain all of the information
included in the registration statement. The Arrangement Agreement, in which the
Plan of Arrangement is included as Schedule A, is included as an exhibit to the
registration statement. Any statement made in this prospectus concerning the
Arrangement Agreement and any contract, agreement or other document is only a
summary of the actual contract, agreement or other document. If we have filed
any contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
document or matter involved. Each statement regarding a contract, agreement or
other document is qualified in its entirety by reference to the actual document.
RISK FACTORS
You should consider carefully the following risk factors, in addition to
the other information contained in this prospectus, before exchanging your
exchangeable shares for the shares of our common stock offered by this
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prospectus. These factors relate only to the risks of making this exchange. They
do not describe the risks relating to our business and operations in general.
THE EXCHANGE OF YOUR EXCHANGEABLE SHARES IS GENERALLY TAXABLE. The exchange of
exchangeable shares for shares of our common stock is generally a taxable event
in Canada and the United States. Your tax consequences depend on a number of
factors, including your residency, the method of the exchange (redemption or
purchase) and the length of time you held the exchangeable shares prior to the
exchange. See "Income Tax Considerations."
THE MARKET PRICE OF OUR COMMON STOCK MAY BE LESS THAN THE MARKET PRICE OF THE
EXCHANGEABLE SHARES. The Toronto Stock Exchange, which we call TSE in this
prospectus, has conditionally approved the listing of the exchangeable shares on
the effective date of our arrangement with Alliance, subject to Bowater Canada
fulfilling all of the requirements of the TSE. Our common stock is listed on the
NYSE, U.S. regional exchanges and the London Stock Exchange. We have agreed that
the shares of our common stock issuable pursuant to the arrangement will be
listed on the NYSE. We do not plan to list the exchangeable shares or our common
stock on any other stock exchange in Canada or the United States. The price at
which the exchangeable shares will trade will be based upon the market for the
exchangeable shares on the TSE and the price at which the shares of our common
stock will trade will be based upon the market for shares of our stock on the
NYSE and the other exchanges upon which they trade. Although the market price of
the exchangeable shares on the TSE and the market price of our common stock on
the NYSE and the other exchanges should reflect essentially equivalent values,
there can be no assurances that the market price of our common stock will be
identical, or even similar, to the market price of the exchangeable shares.
OUR COMMON STOCK WILL BE FOREIGN PROPERTY FOR CANADIAN TAX PURPOSES. For so long
as the exchangeable shares are listed on a prescribed stock exchange in Canada,
and provided Bowater Canada maintains a substantial presence in Canada within
the meaning of subsection 206(1.1) of the Income Tax Act (Canada), which we call
the Canadian Tax Act in this prospectus, the exchangeable shares will not be
foreign property under that Act for trusts governed by registered retirement
savings plans, registered retirement income funds and deferred profit sharing
plans, for registered pension plans or for certain other persons. Shares of our
common stock however will be foreign property for these plans or persons. See
"Income Tax Considerations."
BOWATER
We are engaged in the manufacture, sale and distribution of newsprint,
uncoated groundwood specialties, coated groundwood paper, market pulp and
lumber. We operate facilities in the United States, Canada and South Korea and,
as of December 31, 2000, we manage and control approximately 1.8 million acres
of timberlands in the United States and Canada and have 14.1 million acres of
timber cutting rights in Canada to support these facilities. Our principal
executive offices are located at 55 East Camperdown Way, Post Office Box 1028,
Greenville, South Carolina 29602, and our telephone number is (864) 271-7733.
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USE OF PROCEEDS
We are offering to issue our common stock in exchange for the
exchangeable shares, and we will not receive any cash proceeds from those
exchanges.
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 100,000,000 shares of our common stock and
10,000,000 shares of our preferred stock, par value $1.00 per share. As of May
23, 2001, which was prior to the effective date of our arrangement with
Alliance, there were 50,392,114 shares of our common stock issued and
outstanding and one share of our Special Voting Stock, par value $1.00 per share
issued and outstanding. We will issue a maximum of 5,821,696 additional shares
of our common stock in connection with the arrangement, including shares issued
at the effective time of the arrangement and shares issued from time to time
in exchange for exchangeable shares.
Our Common Stock
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the holders of our common
stock. Our Restated Certificate of Incorporation, as amended, does not authorize
cumulative voting for the election of directors. Subject to the rights of the
holders of any class of our capital stock having any preference or priority over
our common stock, the holders of shares of our common stock are entitled to
receive the dividends as may be declared by the board of directors out of
legally available funds. In the event of our liquidation, dissolution or
winding-up, the holders of common stock are entitled to share ratably our net
assets remaining after payment of liabilities, subject to prior rights of
preferred stock, if any, then outstanding. Our common stock has no preemptive
rights, conversion rights, redemption rights or sinking fund provisions and
there are no dividends in arrears or default.
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The Support Agreement, dated July 24, 1998, among us, Bowater Canadian
Holdings Incorporated, our subsidiary organized under the laws of the province
of Nova Scotia, which we call Bowater Holdings in this prospectus, and Bowater
Canada, prohibits us from declaring or paying any dividend on our common stock
unless:
o Bowater Canada immediately thereafter declares or pays, as the case
may be, an equivalent dividend on the exchangeable shares; and
o Bowater Canada has sufficient money or other assets or authorized but
unissued securities available to enable the due declaration and the
due and punctual payment, in accordance with applicable law, of an
equivalent dividend on the exchangeable shares.
Our Preferred Stock
Our board of directors has the authority, without further vote or action
by our stockholders, to issue from time to time up to 10,000,000 shares of
preferred stock in one or more series, and to fix the rights, preferences,
privileges, qualifications, limitations and restrictions granted to or imposed
upon any wholly unissued shares of undesignated preferred stock, including but
not limited to dividend rights if any, voting rights, if any, and liquidation
and conversion rights, if any.
Our board of directors has issued one share of the preferred stock,
designated as special voting stock, par value $1.00 per share. The share of
special voting stock has been issued to Montreal Trust Company of Canada, as
trustee, which we call the Voting and Exchange Trustee in this prospectus, under
the voting and exchange trust agreement between us, Bowater Holdings, Bowater
Canada and the Voting and Exchange Trustee. The holder of the share of special
voting stock is entitled to cast a number of votes equal to the number of
outstanding exchangeable shares not owned by us or our affiliates as to which
the holder of the share of special voting stock has timely received voting
instructions from the holders of outstanding exchangeable shares in accordance
with the Voting and Exchange Trust Agreement. The holders of our common stock
and the holder of the share of special voting stock vote together as a single
class on all matters.
If we liquidate, dissolve or wind up our business, the holder of the
share of special voting stock will be entitled to receive, before any
distributions to holders of the shares of our common stock, $10.00 out of our
assets that are available for distribution to our shareholders. We do not pay
dividends on the share of special voting stock. We have no rights to redeem the
share of special voting stock, except that, if at any time no exchangeable
shares are outstanding (not counting shares owned by us or our affiliates), then
we automatically will redeem and cancel the share of special voting stock and
pay $10.00 to the former holder.
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CERTAIN CERTIFICATE, BY-LAW AND CONTRACT PROVISIONS
Certain provisions of our certificate of incorporation or our by-laws
may have the effect of delaying, deferring or preventing a change in control of
Bowater. These provisions include:
o those regarding a classified board of directors;
o the supermajority shareholder or special director voting requirements
for approval of certain business combinations and for filling
vacancies on the board of directors under certain circumstances;
o the requirement that the shareholders may act only through a
shareholders' meeting, coupled with the provision that only the board
of directors or certain executive officers can call a special meeting
of the shareholders;
o the requirements under the by-laws for submitting proposals at
shareholder meetings;
o the ability of the board of directors to issue preferred stock, which
is issued serially without prior approval of the shareholders and
which may have various voting rights designated by the directors,
including a separate right to approve a merger or sale of
substantially all of our assets; and
o the supermajority voting requirements to amend certain provisions of
the certificate or, in certain circumstances, various provisions
(including the notice provisions) of the by-laws.
Certain provisions in our employment contracts, change-in-control
agreements, stock option plans, severance pay plans, and qualified and
nonqualified benefit plans, and certain provisions in our credit agreements and
in the indentures relating to outstanding debt securities may also have the
effect of inhibiting a change in control of Bowater.
PLAN OF DISTRIBUTION
Under the Plan of Arrangement, we, through our subsidiary, Bowater
Canada, acquired all of the outstanding Alliance common shares, and each holder
of an Alliance common share became entitled to receive, for each share,
Cnd.$13.00 in cash, without interest, and either (i) 0.166 exchangeable shares
or (ii) 0.166 shares of our common stock.
We will issue Bowater common stock to you as follows:
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o you may at any time exchange your exchangeable shares for an equal
number of shares of our common stock (see "How We Will Issue Our
Common Stock to You -- You May Retract Your Exchangeable Shares");
o we may, under certain circumstances, purchase or redeem your
exchangeable shares by exchanging them for an equal number of shares
of our common stock (see "How We Will Issue Our Common Stock to You--
We May Redeem Your Exchangeable Shares"); and
o upon liquidation of Bowater or Bowater Canada, you may be required to,
or may elect to, exchange your exchangeable shares for shares of our
common stock (see "How We Will Issue Our Common Stock to You--
Liquidation of Bowater Canada", "-- Insolvency of Bowater Canada" and
"-- Liquidation of Bowater").
We have not engaged any broker, dealer or underwriter in connection with
this offering of our common stock.
HOW WE WILL ISSUE OUR COMMON STOCK TO YOU
The following describes how we will issue shares of Bowater common stock
in exchange for your exchangeable shares. This description is a summary of
certain provisions of the following documents:
o the Plan of Arrangement;
o Exhibit 1 to the Plan of Arrangement; and
o the Voting and Exchange Trust Agreement.
The Plan of Arrangement (including the provisions attaching to the
exchangeable shares) is included as Schedule A to the Arrangement Agreement. We
have included the Arrangement Agreement and the form of Voting and Exchange
Trust Agreement as exhibits to the registration statement of which this
prospectus constitutes a part, and the following description is qualified in its
entirety by reference to the Plan of Arrangement (including the provisions
attaching to the exchangeable shares) and the Voting and Exchange Trust
Agreement.
You May Retract Your Exchangeable Shares
You are entitled, at any time, to retract (in other words, to require
Bowater Canada to redeem) any or all exchangeable shares owned by you and to
receive one share of our common stock for each exchangeable share you retract.
Your right of retraction is subject to the call right of Bowater Holdings
described below. You may retract your exchangeable shares by presenting to
Bowater
7
Canada or its transfer agent a certificate or certificates representing
the exchangeable shares that you desire to have Bowater Canada redeem, together
with other documents and instruments required under the Canada Business
Corporations Act (the "CBCA") or the by-laws of Bowater Canada or by its
transfer agent, and a properly executed retraction request. The retraction
request has to:
o state that you desire to have all or a specified number of your
exchangeable shares redeemed by Bowater Canada;
o state the business day on which you desire to have Bowater Canada
redeem your exchangeable shares;
o acknowledge the right of Bowater Holdings to purchase all but not less
than all the exchangeable shares that you wish to retract directly
from you; and
o acknowledge that your request to retract your exchangeable shares is a
revocable offer by you to sell your exchangeable shares to Bowater
Holdings in accordance with Bowater Holdings' right to purchase all
your exchangeable shares on the terms and conditions described below.
The business day on which you desire to have Bowater Canada redeem your
exchangeable shares can be not less than 10 business days and not more than 15
business days after the date on which Bowater Canada receives your retraction
request. If you do not specify a day in your retraction request, the date of
retraction will be the fifteenth business day after the date on which Bowater
Canada received your retraction request.
Promptly after Bowater Canada receives your retraction request, Bowater
Canada will notify Bowater and Bowater Holdings of the request. Within five
business days after that notice from Bowater Canada, in order to exercise its
call right, Bowater Holdings must deliver a call notice to Bowater Canada. If
Bowater Holdings delivers a call notice within the five business day time
period, and provided that you do not revoke your retraction request, Bowater
Canada will not redeem the exchangeable shares specified by you for retraction,
and instead Bowater Holdings will buy those shares from you, on the
date previously specified by you in your retraction request, for an equal number
of shares of Bowater common stock. If Bowater Holdings does not deliver a call
notice within the five business day period, and if you do not revoke your
retraction request, Bowater Canada will redeem the exchangeable shares specified
by you for retraction, on the date previously specified by you in your
retraction request, for an equal number of shares of Bowater common stock.
You may withdraw your retraction request by giving notice in writing to
Bowater Canada before the close of business on the business day immediately
8
preceding the date of retraction. If you withdraw your retraction request, you
will void your retraction request and revoke your offer to sell your
exchangeable shares to Bowater Holdings.
If Bowater Canada is not permitted by law to redeem all of the exchangeable
shares tendered by a retracting holder because Bowater Canada is, or after the
redemption would be, insolvent, Bowater must purchase the "unretracted" shares
in exchange for our common stock on the retraction date, under the exchange
right provided for in the Voting and Exchange Trust Agreement, described below.
See "-- Insolvency of Bowater Canada".
We May Redeem Your Exchangeable Shares
Subject to the provisions described below, on or after June 30, 2008,
Bowater Canada will have the right, upon 60 days' notice, to redeem all of the
then outstanding exchangeable shares by delivering one share of our common stock
for each exchangeable share. This right has the following limitations and
additional features:
o The date on which Bowater Canada redeems the exchangeable shares may
be earlier than June 30, 2008, if:
o on any earlier date there are fewer than 500,000 exchangeable
shares outstanding (other than exchangeable shares held by us or
our affiliates and as adjusted to reflect share splits and
similar events) or
o a transaction is proposed that will result in an acquisition of
control (as described in the Plan of Arrangement) of Bowater;
o in the case of an acquisition of control of Bowater, Bowater Canada
may redeem the exchangeable shares by giving advance notice that its
board of directors deems reasonable (rather than 60 days' notice), and
the date of redemption will be the date immediately before the
acquisition of control of Bowater; and
o Bowater Holdings may preempt this right by exercising its call right,
as described below.
The ability of Bowater Canada to exercise this redemption right also may be
limited by applicable law.
On or after the redemption date, when you present and surrender the
certificates representing your exchangeable shares and any other required
documents at the office of the transfer agent or the registered office of
Bowater Canada, Bowater Canada either will:
9
o deliver one share of Bowater common stock for each of your
exchangeable shares, at your address as recorded in our securities
register; or
o hold shares of Bowater common stock for pick-up by you at the
registered office of Bowater Canada or the office of the transfer
agent as specified by Bowater Canada in the written notice given to
you.
If Bowater Canada proposes to redeem your exchangeable shares, Bowater
Holdings will have a right to purchase on the redemption date all but not less
than all of the exchangeable shares then outstanding by exchanging each then
outstanding exchangeable share for one share of Bowater common stock. When
Bowater Holdings exercises that right, you and the other holders of exchangeable
shares will be obligated to sell the exchangeable shares to Bowater Holdings and
Bowater Canada's right to redeem the exchangeable shares will end.
Liquidation of Bowater Canada
If Bowater Canada liquidates, dissolves or winds up its business, or
otherwise distributes its assets among its shareholders for the purpose of
winding up its affairs, you will have preferential rights to receive, for each
exchangeable share, one share of our common stock from the assets of Bowater
Canada on the effective date of any such liquidation event.
On or after the date of any such liquidation event, you may surrender
certificates representing your exchangeable shares, together with other
documents required to effect the transfer of exchangeable shares under the CBCA
or the by-laws of Bowater Canada or by its transfer agent, at Bowater Canada's
registered office or the office of the transfer agent. After we receive the
certificates and other documents from you and subject to the exercise by Bowater
Holdings of its right described below, Bowater Canada will:
o deliver to you one share of our common stock for each of your
exchangeable shares at your address as recorded in our securities
register; or
o hold shares of our common stock for pick-up by you at Bowater Canada's
registered office or the office of the transfer agent, as specified by
Bowater Canada in its written notice to you.
If Bowater Canada liquidates, dissolves or winds up its business, or
otherwise distributes its assets among its shareholders for the purpose of
winding-up its affairs, Bowater Holdings will have the right to purchase all but
not less than all of the outstanding exchangeable shares by exchanging each
exchangeable share for one share of Bowater common stock. Upon the exercise of
this right by Bowater Holdings, you will be obligated to sell your exchangeable
10
shares to Bowater Holdings. The purchase by Bowater Holdings of all of the
outstanding exchangeable shares upon the exercise of its right will occur on
the date on which Bowater Canada liquidates, dissolves or winds-up its business
or otherwise distributes its assets among its shareholders for the purpose of
winding-up its affairs.
Insolvency of Bowater Canada
If a Bowater Canada insolvency event occurs, the Voting and Exchange
Trustee will have the right to require us to exchange any or all outstanding
exchangeable shares (other than exchangeable shares held by Bowater or its
affiliates) for an equal number of shares of our common stock.
A Bowater Canada insolvency event will occur if:
o Bowater Canada initiates any bankruptcy, insolvency or winding-up
proceeding; or
o Bowater Canada consents to the institution of bankruptcy, insolvency
or winding-up proceedings against it; or
o any person files a petition, answer or consent seeking dissolution or
winding-up of Bowater Canada under any bankruptcy, insolvency or
similar laws, including, for example, the Companies Creditors'
Arrangement Act (Canada) and the Bankruptcy and Insolvency Act
(Canada), if Bowater Canada fails to contest in good faith any of
these proceedings within 30 days after Bowater Canada becomes aware of
them; or
o Bowater Canada consents to the filing of any petition seeking its
dissolution or winding-up or to the appointment of a receiver; or
o Bowater Canada makes a general assignment for the benefit of
creditors; or o Bowater Canada admits in writing its inability to pay
its debts generally as they become due; or
o Bowater Canada is not permitted by law to redeem any exchangeable
shares in connection with a retraction request because Bowater Canada
is insolvent or would be insolvent after the redemption.
Whenever a Bowater Canada insolvency event occurs and while it
continues, you will be entitled, subject to the provisions of the Voting and
Exchange Trust Agreement, to instruct the Voting and Exchange Trustee to
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exercise the exchange right as to any or all of your exchangeable
shares. By giving this instruction, you will require us to purchase your
exchangeable shares. As soon as practicable following a Bowater Canada
insolvency event or any event that may, with the passage of time or the giving
of notice, become a Bowater Canada insolvency event, we and Bowater Canada will
give written notice of the event to the Voting and Exchange Trustee. As soon as
practicable after receiving the notice, the Voting and Exchange Trustee will
notify you of the event or potential event and will advise you of your rights
as to the exchange right.
Liquidation of Bowater
If a Bowater liquidation event occurs, we will be required to
exchange each outstanding exchangeable share (other than exchangeable shares
held by us or our affiliates) on the fifth business day before the effective
date of a Bowater liquidation event for one share of our common stock.
A Bowater liquidation event will occur if:
o our board of directors decides to institute voluntary liquidation,
dissolution or winding-up proceedings for Bowater; or
o our board of directors decides to effect any other distribution of our
assets among our shareholders for the purpose of winding-up our
affairs; or
o we receive notice of, or we otherwise become aware of, any threatened
or instituted action to liquidate, dissolve or wind up Bowater's
business or to make any other distribution of our assets among our
shareholders for the purpose of winding-up our affairs and we fail to
contest in good faith the action within 30 days of becoming aware of
it.
Following the fifth business day before a Bowater liquidation event, at
your request and after you surrender your exchangeable share certificates,
properly endorsed in blank and accompanied by any required instrument of
transfer, we will deliver to you one share of our common stock for each
exchangeable share you hold.
Support Agreement
The Support Agreement provides, among other things, that we will do
everything needed for Bowater Canada to exchange exchangeable shares for shares
of our common stock according to all laws that may apply, as set out above. The
form of Support Agreement is included as an exhibit to the registration
statement of which this prospectus
12
is a part, and we refer you to that exhibit for the full terms of the
Support Agreement.
INCOME TAX CONSIDERATIONS
Canadian Federal Income Tax Considerations
Subject to the qualifications and assumptions contained herein, the
following discussion is the opinion of Fraser Milner Casgrain LLP, as to the
principal Canadian federal income tax considerations, as of the date of this
prospectus, generally applicable to holders of exchangeable shares who at all
relevant times, for purposes of the Canadian Tax Act, hold their exchangeable
shares and will hold their shares of our common stock as capital property and
"deal at arm's length" (within the meaning of the Canadian Tax Act) with, and
are not affiliated with, Bowater Canada or us. This discussion does not apply to
a holder of exchangeable shares with respect to whom we are a foreign affiliate
within the meaning of the Canadian Tax Act.
You should consult with your own tax advisor as to whether, as a matter
of fact, you hold your exchangeable shares and will hold your shares of Bowater
common stock as capital property for purposes of the Canadian Tax Act.
Mark-to-market rules in the Canadian Tax Act will preclude certain financial
institutions from treating their exchangeable shares and shares of our common
stock as capital property for purposes of the Canadian Tax Act. This discussion
does not take into account the mark-to-market rules, and holders of exchangeable
shares that are financial institutions for purposes of these rules should
consult their own tax advisors.
This discussion is based on the current provisions of the Canadian Tax
Act and the regulations thereunder, the current provisions of the Canada-United
States Income Tax Convention, and counsel's understanding of the current
published administrative practices of the Canada Customs and Revenue Agency.
This discussion takes into account proposed amendments to the Canadian Tax Act
and to the regulations under the Act and assumes that all the proposed
amendments will be enacted in their present form. We cannot assure you that the
proposed amendments will be enacted in the form proposed, if at all.
This discussion does not otherwise take into account or anticipate any
change in law, whether by legislative, administrative or judicial decision or
action. It also does not take into account provincial, territorial or foreign
income tax legislation or considerations, which may differ from the Canadian
federal income tax considerations described herein.
While this discussion is intended to address all principal Canadian
federal income tax considerations, it is of a general nature only and is not
intended to be, and should not be construed to be, legal, business or tax advice
13
to any particular holder of exchangeable shares. Therefore, you should
consult your own tax advisor concerning your particular circumstances.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of shares of our common stock, including
dividends, adjusted cost base and proceeds of disposition, must be converted
into Canadian dollars based on the prevailing United States dollar exchange rate
at the time these amounts arise. In computing a holder's liability for tax under
the Canadian Tax Act, any cash amounts received by a shareholder in United
States dollars must be converted into the Canadian dollar equivalent, and the
amount of any non-cash consideration received by a shareholder must be expressed
in Canadian dollars at the time the consideration is received.
Holders Resident in Canada
The following portion of this discussion is applicable to holders who,
for purposes of the Canadian Tax Act and any applicable tax treaty or
convention, are resident or deemed to be resident in Canada at all relevant
times. Certain of these persons to whom the exchangeable shares might not
constitute capital property may elect, in certain circumstances, to have the
property treated as capital property by making the irrevocable election
permitted by subsection 39(4) of the Canadian Tax Act.
Redemption of Exchangeable Shares
---------------------------------
On the redemption (including a retraction) of an exchangeable share by
Bowater Canada, the holder will be deemed to have received a dividend equal to
the amount, if any, by which the redemption proceeds exceed the paid-up capital
at that time of the exchangeable share so redeemed. For these purposes, the
redemption proceeds will be the fair market value, at the time of the
redemption, of the shares of our common stock received from Bowater Canada plus
the amount, if any, of all accrued but unpaid dividends on the exchangeable
share paid on the redemption. The amount of the deemed dividend generally will
be subject to the same tax treatment accorded to dividends on the exchangeable
shares as described below. On the redemption, the holder will also be considered
to have disposed of the exchangeable share, but the amount of the deemed
dividend will be excluded in computing the holder's proceeds of disposition for
purposes of computing any capital gain or capital loss arising on the
disposition. See "Taxation of Capital Gains and Capital Losses" below. In the
case of a holder that is a corporation, in some circumstances, the amount of any
deemed dividend may be treated as proceeds of disposition and not as a dividend.
In the case of a holder who is an individual, dividends received or
deemed to be received on the exchangeable shares will be included in computing
the holder's income, and will be subject to the gross-up and dividend tax credit
rules normally applicable to taxable dividends received from taxable Canadian
corporations.
14
Subject to the discussion below, in the case of a holder that is a
corporation other than a "specified financial institution"(as defined in the
Canadian Tax Act), dividends received or deemed to be received on the
exchangeable shares normally will be included in the corporation's income and
deductible in computing its taxable income.
A holder that is a "private corporation"(as defined in the Canadian Tax
Act) or any other corporation resident in Canada and controlled or deemed to be
controlled by or for the benefit of an individual or a related group of
individuals may be liable under Part IV of the Canadian Tax Act to pay a
refundable tax of 33 1/3% of dividends received or deemed to be received on the
exchangeable shares to the extent that these dividends are deductible in
computing the holder's taxable income.
If we or any person with whom we do not deal at arm's length is a
"specified financial institution" for the purposes of the Canadian Tax Act at
the time a dividend is paid on an exchangeable share, then, subject to the
exemption described in the next paragraph, dividends received or deemed to be
received by a holder that is a corporation will be fully includible in income
and will not be deductible in computing taxable income under Part I of the
Canadian Tax Act. A corporation will generally be a specified financial
institution for these purposes if it is a bank, a trust company, a credit union,
an insurance corporation or a corporation whose principal business is the
lending of money to persons with whom the corporation is dealing at arm's length
or the purchasing of debt obligations issued by these persons or a combination
thereof, or a corporation controlled by one or more of these entities, or
related to these entities. We have informed counsel that we are of the view that
we and any person with whom we do not deal at arm's length are not a
specified financial institution. However, we cannot assure you that this status
will continue through the time that any dividend on the exchangeable shares is
received or deemed to be received by a corporate holder.
This denial of the dividend deduction to a corporate holder will not
apply if at the time a dividend is received, or deemed to be received:
o the exchangeable shares are listed on a prescribed stock exchange
(which currently includes the TSE);
o Bowater controls Bowater Holdings and Bowater Canada; and
o the recipient (together with persons with whom the recipient does not
deal at arm's length and any partnership or trust of which the
recipient, or such person, is a member or beneficiary, respectively)
does not receive dividends on more than 10% of the issued and
outstanding exchangeable shares.
15
The exchangeable shares are "term preferred shares" as defined in the
Canadian Tax Act. Consequently, if you are a specified financial institution,
you will be able to deduct this dividend in computing your taxable income only
if:
o we and any person with whom we do not deal at arm's length are not a
specified financial institution at the time the dividend is received,
and you acquired the exchangeable shares outside of the ordinary
course of your business; or
o in any case, at the time you received the dividend, the exchangeable
shares are listed on a prescribed stock exchange in Canada (which
currently includes the TSE) and you, either alone or together with
persons with whom you do not deal at arm's length, do not receive (or
are not deemed to receive) dividends in respect of more than 10% of
the issued and outstanding exchangeable shares.
In addition, to the extent that a deemed dividend arises on the redemption of
the exchangeable shares by Bowater Canada, the dividend may not be subject to
the denial of dividend deduction applicable to dividends on term preferred
shares. Specified financial institutions should consult their own tax advisors.
A holder that is throughout the relevant taxation year a
"Canadian-controlled private corporation" (as defined in the Canadian Tax Act)
may be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year, which will include dividends or deemed
dividends that are not deductible in computing taxable income.
The exchangeable shares will be "taxable preferred shares" and
"short-term preferred shares" for purposes of the Canadian Tax Act. Accordingly,
Bowater Canada will be subject to a 66 2/3% tax under Part VI.1 of the Canadian
Tax Act on dividends (other than "excluded dividends" as defined in the Canadian
Tax Act) paid or deemed to be paid on the exchangeable shares and will be
entitled to deduct an amount equal to 9/4 of the tax so payable in computing its
taxable income for purposes of the Canadian Tax Act. Dividends received or
deemed to be received on the exchangeable shares will not be subject to the 10%
tax under Part IV.1 of the Canadian Tax Act applicable to certain corporations.
Exchange of Exchangeable Shares with Bowater Holdings or Bowater
----------------------------------------------------------------
On the exchange of an exchangeable share with Bowater Holdings or
Bowater for shares of Bowater common stock, the holder will generally realize a
capital gain (or a capital loss) equal to the amount by which the proceeds of
disposition of the exchangeable share, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the holder of
the exchangeable share immediately before the exchange. For these purposes, the
proceeds of disposition will be the fair market value at the time of exchange of
the shares of
16
our common stock plus any other amount received by the holder from Bowater
Holdings or us as part of the exchange consideration. See "Taxation of Capital
Gains and Capital Losses" below.
Because of the existence of the retraction call right, the redemption
call right and the liquidation call right, you cannot control whether you will
receive our common stock by way of redemption of the exchangeable share by
Bowater Canada or by way of purchase of the exchangeable share by Bowater
Holdings or us. As described above, the Canadian federal income tax consequences
of redemption differ from those of a purchase.
Disposition of Shares of Our Common Stock
-----------------------------------------
The cost of a share of our common stock received on a retraction,
redemption or exchange of an exchangeable share will be equal to the fair market
value of the share at the time of the retraction, redemption or exchange. A
disposition or deemed disposition of a share of our common stock by a holder
will generally result in a capital gain (or a capital loss) equal to the amount
by which the proceeds of disposition, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the holder of
the share immediately before the disposition. The adjusted cost base to a holder
of shares of our common stock acquired on a retraction, redemption or exchange
of an exchangeable share will be determined by averaging the cost of the share
with the adjusted cost base of all other shares of our common stock held by the
holder as capital property immediately before the retraction, redemption or
exchange, as the case may be. See "Taxation of Capital Gains and Capital Losses"
below.
Dividends on Our Common Stock
-----------------------------
Dividends on shares of our common stock will be included in the
recipient's income for the purposes of the Canadian Tax Act. The dividends
received by an individual holder will not be subject to the gross-up and
dividend tax credit rules in the Canadian Tax Act. A holder that is a
corporation will include the dividends in computing its income and generally
will not be entitled to deduct the amount of the dividends in computing its
taxable income. A holder that is throughout the relevant taxation year a
Canadian-controlled private corporation may be liable to pay an additional
refundable tax of 6 2/3% on its aggregate investment income for the year, which
will include the dividends. United States non-resident withholding tax on the
dividends will be eligible for foreign tax credit or deduction treatment, where
applicable, under the Canadian Tax Act.
Taxation of Capital Gains and Capital Losses
--------------------------------------------
Three-quarters of any capital gain ("taxable capital gain") must be
included in a holder's income for the year of disposition. Three-quarters of any
capital loss ("allowable capital loss") generally must be deducted by the holder
17
from taxable capital gains for the year of disposition. Proposed amendments,
announced on October 18, 2000, if enacted, will reduce the portion of a capital
gain or capital loss included in a taxable capital gain or allowable capital
loss to one-half. Any allowable capital losses in excess of taxable capital
gains for the year of disposition generally may be carried back up to three
taxation years or forward indefinitely and deducted against net taxable capital
gains in these other years to the extent and under the circumstances
described in the Canadian Tax Act, subject to the proposed amendments.
Capital gains realized by an individual or trust, other than other
certain specified trusts, may give rise to alternative minimum tax under the
Canadian Tax Act.
A holder that is throughout the relevant taxation year a
Canadian-controlled private corporation may be liable to pay an additional
refundable tax of 6 2/3% on its aggregate investment income for the year, which
is defined to include an amount in respect of taxable capital gains.
If the holder is a corporation, the amount of any capital loss arising
from a disposition or deemed disposition of an exchangeable share may be reduced
by the amount of dividends received or deemed to have been received by it on the
share to the extent and under circumstances prescribed by the Canadian Tax Act.
Similar rules may apply where a corporation is a member of a partnership or a
beneficiary of a trust that owns exchangeable shares or where a trust or
partnership of which the corporation is a beneficiary or a member is a member of
a partnership or a beneficiary of a trust that owns exchangeable shares. Holders
to whom these rules may be relevant should consult their own tax advisors.
Eligibility for Investment
--------------------------
Shares of our common stock will be foreign property under the Canadian
Tax Act for trusts governed by registered retirement savings plans, registered
retirement income funds and deferred profit sharing plans, for registered
pension plans or for certain other persons to whom Part XI of the Canadian Tax
Act applies.
Shares of our common stock will be a qualified investment under the
Canadian Tax Act for trusts governed by registered retirement savings plans,
registered retirement income funds, registered education savings plans and
deferred profit sharing plans, provided these shares remain listed on the NYSE
(or are listed on another prescribed stock exchange).
Foreign Property Information Reporting
--------------------------------------
A holder of exchangeable shares or shares of our common stock who is a
"specified Canadian entity" for a taxation year or fiscal period and whose total
cost amount of "specified foreign property", including these shares, at any time
in the year or fiscal period exceeds Canadian $100,000 will be required to file
an
18
information return for the year or period disclosing prescribed information,
including the shareholder's cost amount, any dividends received in the year, and
any gains or losses realized in the year, in respect of this property. With some
exceptions, a taxpayer resident in Canada in the year will be a specified
Canadian entity. A holder of exchangeable shares or shares of our common stock
should consult its own advisors about whether it must comply with these rules.
Holders Not Resident in Canada
The following portion of the discussion applies to holders who, for
purposes of the Canadian Tax Act and any applicable tax treaty or convention,
have not been and will not be resident or deemed to be resident in Canada at any
time while they have held exchangeable shares or will hold shares of our common
stock and, except as specifically discussed below, to whom these shares are not
"taxable Canadian property" (as defined in the Canadian Tax Act) and, in the
case of a non-resident of Canada who carries on an insurance business in Canada
and elsewhere, these shares are not "designated insurance property" as defined
in the Canadian Tax Act.
Generally, shares of our common stock will not be taxable Canadian
property. Generally, exchangeable shares will not be taxable Canadian property
at a particular time provided that:
o the shares are listed on a prescribed stock exchange (which currently
includes the TSE);
o the holder does not use or hold, and is not deemed to use or hold, the
exchangeable shares, in connection with carrying on a business in
Canada; and
o the holder, persons with whom the holder does not deal at arm's
length, or the holder and these persons, has not owned (or had under
option) 25% or more of the issued shares of any class or series of the
capital stock of Bowater Canada at any time within five years
preceding the particular time.
Exchangeable shares will be deemed taxable Canadian property to a holder who
made a joint tax election under Section 85 of the Canadian Tax Act on the
acquisition of the exchangeable shares.
A holder of exchangeable shares that are not taxable Canadian property
will not be subject to tax under the Canadian Tax Act on the exchange of an
exchangeable share for shares of our common stock (except to the extent the
exchange gives rise to a deemed dividend discussed below), or on the sale or
other disposition of an exchangeable share.
19
Dividends paid or deemed to be paid on the exchangeable shares are
subject to non-resident withholding tax under the Canadian Tax Act at the rate
of 25%, although this rate may be reduced under the provisions of an applicable
income tax treaty or convention. For example, under the Canada-United States
Income Tax Convention, the rate is generally reduced to 15% in respect of
dividends paid to a person who is the beneficial owner thereof and who is
resident in the United States for purposes of the Canada-United States Income
Tax Convention.
If Bowater Canada redeems your exchangeable shares (either under Bowater
Canada's redemption right or pursuant to the holder's retraction rights), you
will be deemed to receive a dividend as described above under "Holders Resident
in Canada -- Redemption of Exchangeable Shares". Any deemed dividend will be
subject to withholding tax as described in the preceding paragraph. You cannot
control whether you will realize a deemed dividend or proceeds of disposition on
an exchange of the exchangeable shares for shares of our common stock.
United States Federal Income Tax Considerations
The following discusses the principal United States federal income tax
consequences that generally apply to a United States holder of exchangeable
shares who receives shares of our common stock. This discussion is the opinion
of Carter, Ledyard & Milburn. Carter, Ledyard & Milburn acted as our United
States counsel in connection with our arrangement with Alliance, insofar as the
arrangement relates to matters of United States federal income tax law and legal
conclusions with respect thereto. This discussion is based, in part, on certain
representations and agreements made by us and Bowater Canada, and the assumption
that the representations were, as of the date made and as of the effective time
of the arrangement, true and correct, that the agreements will be complied with,
and that the Plan of Arrangement will be consummated in accordance with its
terms.
This discussion applies to you if you are:
o a citizen or individual resident of the United States;
o a corporation created or organized in or under the laws of the United
States, or of any political subdivision thereof;
o an estate or other entity the income of which is includible in its
gross income for United States federal income tax purposes without
regard to its source; or
o a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust.
20
This discussion does not apply to persons subject to special provisions
of United States federal income tax law, such as:
o tax-exempt organizations, financial institutions and insurance
companies, broker-dealers;
o persons having a "functional currency" other than the United States
dollar;
o holders who hold exchangeable shares or shares of our common stock, as
the case may be, as part of a hedge, straddle, wash sale, appreciated
financial position, synthetic security, conversion transaction or
other integrated investment comprised of exchangeable shares or shares
of our common stock, as the case may be, and one or more other
investments (other than by virtue of their participation in our
arrangement with Alliance); and
o holders of exchangeable shares or shares of our common stock, as the
case may be, who acquired their exchangeable shares or shares of our
common stock, as the case may be, through the exercise of employee
stock options or otherwise as compensation for services.
This discussion is limited to United States holders who hold
exchangeable shares or shares of our common stock as capital assets.
This discussion is based on United States federal income tax law in
effect as of the date of this prospectus. No statutory, judicial or
administrative authority exists which directly addresses certain of the United
States federal income tax consequences of the issuance and ownership of
instruments comparable to the exchangeable shares. Consequently, some aspects of
the United States federal income tax treatment of an exchange of exchangeable
shares for shares of our common stock are not certain. We have not sought or
obtained an advance income tax ruling from the United States Internal Revenue
Service regarding the tax consequence of any of the transactions described in
this prospectus. We cannot assure you that the Internal Revenue Service would
not challenge the conclusions contained in the discussion below, or that, if
challenged, a court would not agree with the Internal Revenue Service.
This discussion does not address aspects of United States taxation other
than United States federal income taxation under the U.S. Code, nor does it
address all aspects of United States federal income taxation that may be
applicable to a particular United States holder in light of the United States
holder's particular circumstances. In addition, this discussion does not address
the United States state or local tax consequences or the foreign tax
consequences of our arrangement with Alliance or the receipt and ownership of
the exchangeable shares or shares of our common stock.
21
United States holders are urged to consult their own tax advisors with
respect to the United States federal, state and local tax consequences and the
foreign tax consequences of the receipt and ownership of our common stock.
Exchange of Exchangeable Shares
Assuming the exchangeable shares are treated as issued by Bowater Canada
for United States federal income tax purposes, we anticipate that a United
States holder who exchanges its exchangeable shares for shares of our common
stock generally will recognize gain or should recognize loss on the exchange.
This gain or loss will be equal to the difference between the fair market value
of the shares of our common stock at the time of the exchange and the United
States holder's tax basis in the exchangeable shares surrendered.
The gain or loss will generally be capital gain or loss, except that,
with respect to any declared but unpaid dividends on the exchangeable shares,
ordinary income may be recognized. Capital gain or loss will generally be
long-term capital gain or loss if the United States holder's holding period for
the exchangeable shares is more than one year at the time of the exchange.
A United States holder will have a tax basis in the shares of our common
stock received equal to the fair market value of the shares at the time of the
exchange. The holding period for the shares will begin on the day after the
exchange. The Internal Revenue Service could assert, however, that the
exchangeable shares and certain of the rights associated therewith constitute
"offsetting positions" for purposes of the straddle rules set forth in Section
1092 of the U.S. Code. In such case, the holding period of the exchangeable
shares would not increase while held by a United States holder and interest
incurred in carrying the exchangeable shares would not be deductible.
Under certain limited circumstances, the exchange by a United States
holder of exchangeable shares for shares of our common stock may be
characterized as a tax-free exchange. Whether an exchange would be tax-free will
depend upon the facts and circumstances existing at the time of the exchange and
cannot be accurately predicted at the time of this prospectus.
For United States federal income tax purposes, gain recognized on the
exchange of exchangeable shares for shares of our common stock generally will be
treated as United States source gain, except that, under the terms of the
Canada-United States Income Tax Convention, such gain may be treated as sourced
in Canada. Any Canadian tax imposed on the exchange may be available as a credit
against United States federal income taxes, subject to applicable limitations. A
United States holder that is ineligible for a foreign tax credit with respect to
any Canadian tax paid may be entitled to a deduction therefor in computing
United States taxable income.
The foregoing discussion and the discussion below under "Passive Foreign
Investment Company Considerations" would apply only if the exchangeable
22
shares are treated as issued by Bowater Canada, rather than by us, for United
States federal income tax purposes. There is some possibility, however, that the
Internal Revenue Service would assert that the exchangeable shares should be
treated as issued by us for United States federal income tax purposes. If the
Internal Revenue Service were to make this assertion successfully, an exchange
of exchangeable shares for shares of our common stock would likely not give rise
to taxable gain or loss.
Passive Foreign Investment Company Considerations
Assuming that the exchangeable shares are treated as issued by Bowater
Canada for United States federal income tax purposes, a United States holder of
exchangeable shares would be subject to a special adverse tax regime upon its
exchange of exchangeable shares for our common stock if Bowater Canada were, or
were to become, a "passive foreign investment company" for United States federal
income tax purposes during the holder's holding period for its exchangeable
shares. Bowater Canada generally would be classified as a passive foreign
investment company for United States federal income tax purposes for any taxable
year during which either:
o 75 percent or more of its gross income is passive income (as defined
for United States federal income tax purposes); or
o on average for the taxable year, 50 percent or more of its assets (by
value) produce or are held for the production of passive income.
For purposes of applying the foregoing, the assets and gross income of
Bowater Canada's significant subsidiaries (including, Bowater Pulp and Paper
Canada Inc. and, after the consummation of our arrangement with Alliance,
Alliance) will be proportionately attributed to Bowater Canada.
While there can be no assurance with respect to the classification of
Bowater Canada as a passive foreign investment company, Bowater Canada believes
that it is not and has not been a passive foreign investment company. Bowater
Canada and we intend to endeavor to cause Bowater Canada to avoid passive
foreign investment company status. There can be no assurance that we or Bowater
Canada will be able to do so or that our or Bowater Canada's intent will not
change. Promptly following the end of each taxable year, Bowater Canada will
notify United States holders of exchangeable shares if it believes that it was a
passive foreign investment company for that taxable year.
United States holders of exchangeable shares are urged to consult their
own tax advisors regarding the U.S. federal income tax consequences of owning
and disposing of stock in a passive foreign investment company and of making
certain elections in order to lessen the adverse consequences.
23
Shareholders Not Resident in or Citizens of the United States
The following discussion is applicable to a non-United States holder
that acquires our common stock in exchange for exchangeable shares. This
discussion applies to you if, for United States federal income tax purposes, you
are:
o a non-resident alien individual; or
o a foreign corporation; or
o a foreign partnership; or
o a foreign estate or trust.
This discussion excludes persons subject to special provisions of United
States federal income tax law, such as:
o tax-exempt organizations;
o financial institutions and insurance companies;
o broker-dealers;
o holders who hold exchangeable shares as part of a hedge, straddle,
wash sale, appreciated financial position, synthetic security,
conversion transaction or other integrated investment comprised of
exchangeable shares and one or more other investments (other than by
virtue of their participation in our arrangement with Alliance); and
o holders who acquired their exchangeable shares through the exercise of
employee stock options or otherwise as compensation for services.
A non-United States holder seeking benefits under an applicable tax
treaty or an exemption from United States withholding tax for "effectively
connected" income, as described below, may be required to comply with additional
certification and other requirements in order to establish the holder's
entitlement to these benefits or exemption. This discussion is limited to
non-United States holders who hold exchangeable shares as capital assets and who
will hold our common stock as capital assets.
Subject to certain exceptions, an individual may be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States for at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for these purposes all of the days present in the
current year, one-third
24
of the days present in the immediately preceding year, and one-sixth of the days
present in the second preceding year). Resident aliens are subject to tax as if
they were United States citizens. This discussion does not consider specific
facts and circumstances that may be relevant to a particular non-United States
holder's tax position, including whether the non-United States holder is a
United States expatriate.
Dividends received by a non-United States holder with respect to our
common stock that are not effectively connected with the conduct by the holder
of a trade or business in the United States will generally be subject to United
States withholding tax at a rate of 30 percent. This rate may be reduced by an
applicable income tax treaty in effect between the United States and the
non-United States holder's country of residence. This rate is currently 15
percent, generally, on dividends paid to residents of Canada under the
Canada-United States Income Tax Convention.
Subject to the discussion below, a non-United States holder generally
will not be subject to United States federal income tax on gain (if any)
recognized on the exchange of exchangeable shares for our common stock, or on
the sale or exchange of our common stock, unless:
o the gain is effectively connected with a trade or business of the
non-United States holder in the United States; or
o if a tax treaty applies, the gain is attributable to a permanent
establishment maintained by the non-United States holder in the United
States; or
o the non-United States holder is an individual who holds exchangeable
shares or our common stock and is present in the United States for 183
days or more in the taxable year of disposition and certain other
conditions are satisfied, unless an applicable tax treaty exempts the
gain.
Notwithstanding the general rule set forth in the preceding paragraph,
under the Foreign Investment in Real Property Tax Act of 1980, gain or loss
recognized by a non-United States holder on the sale or exchange of exchangeable
shares, or on the sale or exchange of our common stock, will be subject to
regular United States federal income tax as if the gain or loss were effectively
connected with a United States trade or business if:
o shares of our common stock are "United States real property interests"
(as defined below) with respect to the non-United States holder; and
o the non-United States holder is a "greater than 5 percent
shareholder"(as defined below) at some time during the shorter of:
25
o the five-year period ending on the date of the exchange of the
exchangeable shares or our common stock (as the case may be) or
o the period during which the non-United States holder held the
exchangeable shares or our common stock (as the case may be),
also called the "Foreign Investment in Real Property Tax Act
holding period."
Shares of our common stock will be United States property interests with
respect to a non-United States holder unless it is established that we were at
no time a United States real property holding corporation during the non-United
States holder's Foreign Investment in Real Property Tax Act holding period.
A corporation is an United States real property holding corporation if
the fair market value of its interests in United States real property equals or
exceeds 50 percent of the sum of the fair market value of all of its interests
in real property and all of its other assets used or held for use in a trade or
business (as defined in applicable regulations). We do not believe that we are
currently a United States real property holding corporation. Moreover, we
consider it unlikely that we will become a United States real property holding
corporation in the future unless our interests in United States real property
increase significantly as a result of one or more acquisitions. There can be no
assurance that we are not, or will not in any event become, a United States
real property holding corporation in the future. After the effective date of our
arrangement with Alliance, we intend to monitor our status as a United States
real property holding corporation regularly, and will notify non-United States
holders of exchangeable shares and our common stock if we believe that we may
become a United States real property holding corporation in any taxable year.
The definition of a "greater than 5 percent shareholder" is complex and
subject to some uncertainty. In the case of a non-United States holder who owns
only our common stock (actually and constructively), the non-United States
holder will be a greater than 5 percent shareholder if the non-United States
holder holds more than 5 percent of the total fair market value of our common
stock outstanding (on a non-diluted basis). In the case of a non-United States
Holder who owns only exchangeable shares (actually and constructively),
disregarding for this purpose any of our common stock constructively owned by
reason of ownership of exchangeable shares, the non-United States holder will be
a greater than 5 percent shareholder if the holder holds exchangeable shares
with a fair market value on the relevant date of determination greater than 5
percent of the total fair market value of our common stock outstanding (on a
non-diluted basis) on the date and the exchangeable shares are not treated as
"regularly traded on an established securities market".
It is not anticipated that the exchangeable shares will be considered
regularly traded on an established securities market for this purpose as neither
we
26
nor Bowater Canada anticipate making certain filings that would be required for
the exchangeable shares to be so considered. If the exchangeable shares were so
treated, a non-United States holder who holds more than 5 percent of the total
fair market value of the exchangeable shares outstanding could be treated as a
greater than 5 percent shareholder.
If, at any time, shares of our common stock were not regularly traded on
an established securities market, or the exchangeable shares were traded on an
established securities market located in the United States, different rules, not
described herein, may apply. Non-United States holders who believe they may be
greater than 5 percent shareholders are particularly urged to consult their own
tax advisors to determine the possible application of the Foreign Investment
in Real Property Tax Act to them.
A non-United States holder that is a greater than 5 percent shareholder
at any time during the Foreign Investment in Real Property Tax Act holding
period may be subject to withholding on the sale or exchange of exchangeable
shares, if, at the time of the sale or exchange, the exchangeable shares are not
treated as regularly traded on an established securities market. Upon the sale
or exchange of exchangeable shares, the transferee of the exchangeable shares
would be required to withhold 10 percent of the amount realized in the sale or
exchange, unless, in general, the non-United States holder obtains from us and
provides to the transferee a statement signed under penalties of perjury to the
effect that we are not a United States real property holding corporation and
were not a United States real property holding corporation at any time during
the Foreign Investment in Real Property Tax Act holding period. Any tax withheld
may be credited against the United States federal income tax owed by the
non-United States Holder for the year in which the sale or exchange occurs.
The foregoing discussion of the possible application of the Foreign
Investment in Real Property Tax Act rules to non-United States holders is only a
discussion of certain material aspects of these rules. The United States federal
income tax consequences to a non-United States Holder under the Foreign
Investment in Real Property Tax Act may be significant and are complex. For
those reasons, if you are a non-United States holder we urge you to discuss
those consequences with your tax advisor.
LEGAL OPINIONS
The validity of the shares of our common stock that we are offering in
this prospectus has been passed upon for us by Anthony H. Barash, our Senior
Vice President -- Corporate Affairs and General Counsel. Certain Canadian
federal income tax consequences have been passed upon by Fraser Milner Casgrain
LLP, and certain U.S. federal income tax consequences have been passed upon by
Carter, Ledyard & Milburn, as set forth under "Income Tax Considerations".
27
EXPERTS
The consolidated financial statements of Bowater, as of December 31,
2000 and 1999, and for each of the years in the three-year period ended December
31, 2000, have been incorporated by reference in reliance upon the report of
KPMG LLP, independent certified public accountants, incorporated by reference
herein and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Alliance as of December 31,
2000, 1999 and 1998, and for each of the three years in the period ended
December 31, 2000, have been audited by Raymond Chabot Grant Thornton, as set
forth in their report thereon and we have included those financial statements in
this prospectus in reliance on such report and in reliance on the authority of
such firm as experts in accounting and auditing.
28
Alliance Forest Products Inc.
Exchange Table F-2
Unaudited Consolidated Financial Statements of
Alliance Forest Products Inc. as of and for
the three months ended March 31, 2001 F-3
Consolidated Financial Statements of Alliance Forest
Products Inc. as of and for the three years ended
December 31, 2000
Auditors' Report F-7
Financial Statements
Consolidated Statements of Earnings F-8
Consolidated Statements of Retained
Earnings and Contributed Surplus F-9
Consolidated Statements of Cash Flows F-10
Consolidated Balance Sheets F-11
Notes to Consolidated Financial Statements F-12 to F-29
F-1
EXCHANGE TABLE
All dollar amounts set forth in the following financial statements of
Alliance Forest Products Inc. are in Canadian dollars, except where otherwise
indicated. The following table sets forth: (i) the rates of exchange for
Canadian dollars, expressed in United States dollars, in effect at the end of
each of the period indicated; (ii) the average of exchange rates in effect on
the last day of each month during such periods; and (iii) the high and low
exchange rates during each such period, in each case based on the non buying
rate in New York City for cable transfers in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York.
3 Months ended
March 31, Year ended December 31,
-------------- ----------------------------
2001 2000 1999 1998
------- ------- ------- -------
Rate at end of period..... $0.6336 $0.6669 $0.6925 $0.6504
Average rate during period 0.6511 0.6725 0.6745 0.6714
High...................... 0.6697 0.6969 0.6925 0.7105
Low....................... 0.6336 0.6410 0.6335 0.6341
On June 4, 2001 the noon buying rate for $1.00 Canadian was $0.6516 United
States.
F-2
Alliance Forest Products Inc.
Consolidated Statements of Earnings
(Unaudited) Quarter ended
(In millions of Canadian dollars, March 31
except for earnings per share) 2001 2000
-----------------------------------------------------------------------------
Sales $278.6 $270.9
------ ------
Operating costs and expenses
Cost of goods sold 222.1 230.8
Selling, general and administrative expenses 8.5 8.7
Depreciation, amortization and depletion 23.0 20.6
Amortization of the deferred gain (9.7) (5.0)
---- ----
243.9 255.1
----- -----
Operating income 34.7 15.8
Net financing expenses 6.9 5.5
--- ---
Earnings before unusual items 27.8 10.3
and income taxes
Unusual items
Gain on disposal of assets 8.3 -
--- ---
Earnings before income taxes 36.1 10.3
Income taxes - Current 7.3 0.8
- Future 6.4 2.5
--- ---
Net earnings 22.4 7.0
==== ===
Net earnings per common share $ 0.74 $ 0.20
====== ======
Net earnings per common share $ 0.57 $ 0.20
before unusual items
Net diluted earnings per common share $ 0.74 $ 0.20
Net diluted earnings per common share
before unusual items $ 0.57 $ 0.20
F-3
Alliance Forest Products Inc.
Consolidated Statements of Cash Flows Quarter ended
(Unaudited) March 31
(In millions of Canadian dollars) 2001 2000
---------------------------------------------------------------------------------------------
Operating activities
Net earnings $ 22.4 $ 7.0
Non-cash items:
Depreciation, amortization and depletion 23.0 20.6
Amortization of the deferred gain (9.7) (5.0)
Amortization of foreign exchange loss 1.2 0.2
Amortization of financing expenses 1.8 0.6
Pension expense relating to employee future benefits 0.3 2.8
Future income taxes 6.4 2.5
Gain on disposal of assets (8.3) -
Write-down of assets 1.4 -
Changes in working capital items (38.2) (34.5)
----- -----
Cash flows from operating activities 0.3 (5.8)
=== ====
Investing activities
Disposal of fixed assets 10.7 432.5
Acquisition of fixed assets (116.4) (48.2)
Increase in other assets - (0.2)
--- ----
Cash flows from investing activities (105.7) 384.1
====== =====
Financing activities
Increase of bank indebtedness 35.7 (38.1)
Issue of long-term debt 74.9 54.2
Repayment of long-term debt (12.1) (300.0)
Issue of common shares 0.4 0.4
Redemption of common shares - (100.6)
--- ------
Cash flows from financing activities 98.9 (384.1)
==== ======
Net decrease in cash and cash equivalents $ (6.5) $ (5.8)
======= =======
Cash and cash equivalents, beginning of year $ 6.5 $ 5.8
======= =======
Cash and cash equivalents, at end of period $ - $ -
======= =======
Cash flows from operating activities include the following:
Interest paid 11.7 7.1
Income taxes paid (recovered) 1.8 (4.1)
F-4
Alliance Forest Products Inc.
Consolidated Balance Sheets
(Unaudited) As at As at
(In millions of Canadian dollars) March 31 December 31
2001 2000
-------------------------------------------------------------------------------------------------
Assets
Current assets
Short-term investment $ - $ 6.5
Accounts receivable 176.8 145.1
Income taxes receivable - 0.3
Inventories 143.7 130.1
Prepaid expenses 8.9 7.9
Future income tax assets 4.4 10.7
--- ----
333.8 300.6
Property, timberlands, plant and equipment 1,269.6 1,257.5
Other assets 84.6 69.8
---- ----
1,688.0 1,627.9
======= =======
Liabilities
Current liabilities
Bank indebtedness 52.8 17.1
Trade and other accounts payable 149.5 226.3
Income taxes payable 4.9 -
Current portion of long-term debt 57.0 54.9
---- ----
264.2 298.3
Long-term debt 356.3 275.5
Deferred gain 149.8 159.5
Accrued benefit liability 91.3 91.0
---- ----
861.6 824.3
----- -----
Shareholders' Equity
Capital stock 608.4 608.0
Contributed surplus 13.7 13.7
Retained earnings 204.3 181.9
----- -----
826.4 803.6
----- -----
$1,688.0 $1,627.9
======== ========
F-5
Alliance Forest Products Inc.
Consolidated Statements of Retained Earnings Quarter ended
(Unaudited) March 31
(In millions of Canadian dollars) 2001 2000
--------------------------------------------------------------------------------
Balance, beginning of year as previously reported $181.9 $172.0
Changes in accounting policies - (11.3)
----- ------
Balance, as restated 181.9 160.7
Net earnings 22.4 7.0
---- ---
Balance, end of period $204.3 $167.7
====== ======
During the first quarter of 2000, the Company adopted, on a retroactive basis,
the new recommendations issued by the CICA with respect to the accounting for
the income taxes and employee future benefits. However, the Company did not
restate the financial statements for previous periods. The impact of adopting
the new recommendations was a decrease in retained earnings of $11.3
Segmented information by industry segment
3 months ended March 31
-----------------------
Unaudited (in millions of Canadian dollars)
Paper Pulp Lumber Head Office Consolidated
-------------- -------------- ------------- ------------- ------------
2001 2000 2001 2000 2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Sales $176.8 $140.2 $56.9 $55.5 $44.9 $75.2 $ - $ - $278.6 $270.9
Amortization and depreciation 14.6 12.8 4.1 4.0 4.0 3.5 0.3 0.3 23.0 20.6
Amortization of the deferred gain - - - - (9.7) (5.0) - - (9.7) (5.0)
Operating income (loss) 21.0 (2.4) 9.8 10.0 3.9 8.2 - - 34.7 15.8
Acquisition of capital assets 110.5 35.4 2.8 9.9 2.8 2.9 0.3 - 116.4 48.2
Note: The Lumber operating income at March 31, 2001 includes the amortization
of the deferred gain of $9.7 M ($5.0 M in 2000)
Volumes
-------
Shipments 3 months 3 months
03/31/01 03/31/00
Newsprint and specialty papers (1) $198,821 $199,196
Market Pulp (1) 64,456 68,964
Wood products (2) 135,467 166,227
(1) Metric tonnes
(2) Thousand feet board measure
Basis of presentation
The accompanying unaudited financial statements are in accordance with Canadian
accounting principles generally accepted for interim financial statements and do
not include all the information required for complete financial statements. They
are also consistent with the policies outlined in the Company's audited
financial statements for the year ended December 31, 2000 except for the
adoption of the new accounting recommendations regarding earnings per share. The
interim financial statements and related notes should be read in conjunction
with the Company's audited financial statements for the year ended December 31,
2000. When necessary, the financial statements include amounts based on informed
estimates and best judgements of management. The consolidated financial
statements include the accounts of the Company and its subsidiaries.
Earning per share
During the first quarter, the Company adopted, on a retroactive basis, the new
recommendations of the Canadian Institute of Chartered Accountants with respect
to Section 3500, Earnings per share. Under the new recommendations, the treasury
stock method is to be used, instead of the current imputed earnings approach,
for determining the dilutive effect of warrants and options. All prior diluted
earnings per share amounts have been recalculated in accordance with the new
requirements. This change in accounting policy had no significant impact in the
Company's previously reported diluted earnings per share for the quarter ended
on March 31, 2000.
F-6
Auditors' Report
To the Shareholders of
Alliance Forest Products Inc.
We have audited the consolidated balance sheets of Alliance Forest Products Inc.
as at December 31, 2000 and 1999 and the consolidated statements of earnings,
retained earnings, contributed surplus and cash flows for each of the years in
the three-year period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2000
and 1999 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2000 in accordance with
Canadian generally accepted accounting principles.
/s/Raymond Chabot Grant Thornton
Raymond Chabot Grant Thornton (signed) Chartered Accountants
Montreal, Canada
February 13, 2001
F-7
Alliance Forest Products Inc.
Consolidated Statements of Earnings
Years ended December 31,
(In millions of Canadian dollars, except net earnings per share)
2000 1999 1998
--------- --------- ---------
Sales $1,085.1 $1,052.7 $1,085.1
--------- --------- ---------
Operating costs and expenses
Cost of goods sold 910.6 914.0 864.2
Selling, general and administrative expenses 31.7 37.8 37.9
Depreciation, amortization and depletion 78.7 89.4 87.3
Amortization of the deferred gain (Note 4) (34.4) - -
--------- --------- ---------
986.6 1,041.2 989.4
--------- --------- ---------
Operating income 98.5 11.5 95.7
Net financing expenses 11.4 35.7 60.2
--------- --------- ---------
Earnings (loss) before unusual items and income taxes 87.1 (24.2) 35.5
--------- --------- ---------
Unusual items (Note 6)
Gain on disposal of assets 11.0 - -
Write-down of assets (62.8) - -
--------- --------- ---------
(51.8) - -
--------- --------- ---------
Earnings (loss) before income taxes 35.3 (24.2) 35.5
Income taxes (Note 7)
Current (recovery) 53.1 (0.5) (2.6)
Future (39.1) (7.5) 12.2
--------- --------- ---------
14.0 (8.0) 9.6
--------- --------- ---------
Net earnings (loss) 21.3 (16.2) 25.9
========= ========= =========
Net earnings (loss) per common share $ 0.68 $ (0.44) $ 0.68
========= ======== =========
Net earnings (loss) per common share
before unusual items $ 1.70 $ (0.44) $ 0.68
========= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
Alliance Forest Products Inc.
Consolidated Statements of Retained Earnings and Contributed Surplus
Years ended December 31,
(In millions of Canadian dollars)
2000 1999 1998
------- ------- --------
RETAINED EARNINGS
Balance, beginning of year as previously reported $172.0 $188.2 $162.3
Changes in accounting policies (Note 2) (11.4) - -
------- ------- --------
Balance, as restated 160.6 188.2 162.3
Net earnings (loss) 21.3 (16.2) 25.9
------- ------- --------
Balance, end of year $181.9 $172.0 $188.2
======= ======= ========
CONTRIBUTED SURPLUS
Balance, beginning of year $ 12.3 $ 1.3 $ -
Share redemption premium 1.4 11.0 1.3
------- ------- --------
Balance, end of year $ 13.7 $ 12.3 $ 1.3
======= ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
Alliance Forest Products Inc.
Consolidated Statements of Cash Flows
Years ended December 31,
(In millions of Canadian dollars)
2000 1999 1998
-------- --------- --------
OPERATING ACTIVITIES
Net earnings (loss) $ 21.3 $ (16.2) $ 25.9
Non-cash items
Depreciation, amortization and depletion 78.7 89.4 87.3
Amortization of the deferred gain (34.4) - -
Amortization of foreign exchange loss 8.4 3.9 16.9
Amortization of financing expenses 3.4 2.5 1.5
Pension expense relating to employee future benefits 4.6 (0.9) 11.3
Future income taxes (39.1) (7.5) 12.2
Gain on diposal of assets (11.0) - -
Write-down of assets 62.8 - -
Changes in working capital items (Note 8) (9.2) 51.6 (25.0)
-------- --------- --------
Cash flows from operating activities 85.5 122.8 130.1
-------- --------- --------
INVESTING ACTIVITIES
Disposal of a subsidiary (Note 5) - 60.0 -
Disposal of fixed assets 443.7 - -
Acquisition of fixed assets (225.0) (120.6) (114.4)
Increase in other assets (1.3) (4.4) (7.5)
-------- --------- --------
Cash flows from investing activities 217.4 (65.0) (121.9)
-------- --------- --------
FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness (35.8) 41.4 (17.7)
Issue of long-term debt 164.2 45.6 58.8
Repayment of long-term debt (331.9) (89.8) (45.2)
Issue of common shares 1.9 1.1 0.6
Redemption of common shares (100.6) (50.3) (4.7)
-------- --------- --------
Cash flows from financing activities (302.2) (52.0) (8.2)
-------- --------- --------
Net increase in cash and cash equivalents 0.7 5.8 -
Cash and cash equivalents, beginning of year 5.8 - -
-------- --------- --------
Cash and cash equivalents, end of year $ 6.5 $ 5.8 $ -
======== ========= ========
Cash and cash equivalents at the end of the year represent a short-term
investment in 1999 and 2000.
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
Alliance Forest Products Inc.
Consolidated Balance Sheets
As at December 31,
(In millions of Canadian dollars)
2000 1999
--------- ----------
ASSETS
Current assets
Short-term investment, 5.75%, maturing in January 2001 $ 6.5 $ 5.8
Accounts receivable, net of allowance for doubtful
accounts of $2.2($1.4 in 1999) 145.1 132.9
Income taxes receivable 0.3 11.9
Inventories (Note 9) 130.1 136.1
Prepaid expenses 7.9 9.3
Future income tax assets 10.7 -
--------- ----------
300.6 296.0
Property, timberlands, plant and equipment (Note 10) 1,257.5 1,367.1
Other assets (Note 11) 69.8 71.3
--------- ----------
1,627.9 1,734.4
========= ==========
LIABILITIES
Current liabilities
Bank indebtedness (Note 12) 17.1 52.9
Trade and other accounts payable (Note 13) 226.3 190.8
Current portion of long-term debt 54.9 48.2
--------- ----------
298.3 291.9
Long-term debt (Note 14) 275.5 436.6
Deferred gain (Note 4) 159.5 -
Accrued benefit liability (Note 15) 91.0 71.7
Future income tax liabilities - 41.8
--------- ----------
824.3 842.0
========= ==========
SHAREHOLDERS' EQUITY
Capital stock (Note 16) 608.0 708.1
Contributed surplus (Note 16) 13.7 12.3
Retained earnings 181.9 172.0
--------- ----------
803.6 892.4
--------- ----------
$1,627.9 $1,734.4
========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
On behalf of the Board,
/s/Robert Despres /s/Gaston Blackburn
----------------- -------------------
Robert Despres Gaston Blackburn
F-11
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
1 - GOVERNING STATUTES AND NATURE OF OPERATIONS
The Company was incorporated on March 11, 1994 under the Canada Business
Corporations Act. Alliance Forest Products Inc. is an integrated company which
harvests timber, manages forest land and produces and sells pulp, newsprint,
uncoated groundwood papers, lumber and related products.
2 - CHANGES IN ACCOUNTING POLICIES
In 2000, the Company retroactively adopted, without restating prior period
financial statements, the new recommendations of the Canadian Institute of
Chartered Accountants (CICA) with respect to accounting for the cost of pension
benefits and other employee future benefits. Under the new recommendations, the
cost of other retirement benefits is accounted for using the accrual basis of
accounting. Previously, these costs were charged to earnings on a
"pay-as-you-go" basis. The new recommendations also require that the discount
rate used to value pension obligations and current service costs be changed from
an estimated long-term rate to a market interest rate. The adoption of these new
recommendations led to an increase in the accrued benefit liability of $28.3 and
a decrease in future income tax liabilities of $9.1 and retained earnings at the
beginning of the year of $19.2.
The Company retroactively adopted, without restating prior period financial
statements, the new recommendations of the CICA with respect to accounting for
income taxes. Under the new recommendations, the Company uses the liability
method to recognize and measure future income tax assets and liabilities. In the
past, the Company used the deferral method of tax allocation. This change in
accounting policy led to a decrease in future income tax liabilities and an
increase in retained earnings at the beginning of the year of $7.8.
In 1999, the Company retroactively adopted the CICA recommendations with respect
to the presentation of the cash flows statement. Under the new recommendations,
cash and cash equivalents are redefined. As a result of applying these new
recommendations, changes in bank indebtedness are presented with financing
activities. Previously, bank indebtedness was included with cash resources.
3 - ACCOUNTING POLICIES
The consolidated financial statements are expressed in Canadian dollars and were
prepared in accordance with Canadian generally accepted accounting principles,
which differ from the generally accepted accounting principles used in the
United States, as shown in Note 21.
Accounting estimates
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles in Canada requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the year. Actual results could differ from management's estimates.
F-12
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
3 - ACCOUNTING POLICIES (Continued)
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries, which are wholly-owned.
Foreign currency translation
Monetary assets and liabilities in foreign currency of the Canadian companies
and the integrated foreign subsidiaries are translated into Canadian dollars at
exchange rates in effect at the balance sheet date, whereas non-monetary assets
and liabilities are translated at the exchange rates in effect at transaction
dates. Revenues and expenses in foreign currency are translated at the average
rate in effect during the year with the exception of depreciation, which is
translated at the historical rate. Gains and losses resulting from the
translation of foreign currency transactions are included in earnings. Moreover,
unrealized exchange gains and losses relating to monetary items with a remaining
life extending beyond one year after the balance sheet date are deferred and
amortized over the remaining life of these monetary items.
Derivative financial instruments
The Company, whose head office is in Montreal, operates internationally. Most of
its customers are located in Canada and the United States.
The Company is exposed to substantial market risks as a result of foreign
exchange rate fluctuations. To reduce these risks, it uses derivative financial
instruments such as options (put options and collars), forward foreign exchange
contracts and cross-currency interest rate swaps. It does not hold or issue any
derivative financial instruments for commercial or speculative purposes. The
derivative financial instruments are subject to the standard credit terms and
conditions, financial controls and management and risk monitoring procedures. In
management's opinion, none of the parties to the existing derivative financial
instruments are expected to default on their obligations given that they are
financial institutions with a high credit rating.
Unrealized gains and losses on currency options designated as hedges for the
Company future income in foreign currency are recognized on the option exercise
date which is the same as the transaction date. Unrealized gains and losses on
forward exchange contracts designated as hedges for the Company's future income
in foreign currency are recognized at the contract maturity date. Hedged sales
in foreign currency are recorded according to the terms of the hedge. Option
premiums are amortized over the option term.
Payments and receipts under cross-currency interest rate swaps are recorded as
an adjustment of financing expenses. Unrealized gains and losses on the
translation of these swaps are deferred and amortized over the remaining term of
the contract.
Cash and cash equivalents
The Company's policy is to present cash and temporary investments having a term
of three months or less with cash and cash equivalents.
F-13
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
3 - ACCOUNTING POLICIES (Continued)
Inventory valuation
Inventories of raw materials and of operating and maintenance supplies are
valued at the lower of average cost and replacement cost. Goods in process and
finished goods are valued at the lower of average cost and net realizable value
and include the cost of raw materials, direct labour and manufacturing overhead.
Property, timberlands, plant and equipment
Property, timberlands, plant and equipment are stated at cost net of government
grants. Fixed assets are depreciated on a straight-line basis using rates based
on the estimated useful lives of the assets as follows:
Timberlands Based on volumes of wood cut
Buildings Up to 40 years
Machinery and equipment Up to 20 years
Capitalized interest on property under construction is calculated at the end of
each accounting period by applying the interest rate on the long-term debt
financing these projects to the average cost of the property under construction.
Goodwill
Goodwill is amortized on a straight-line basis over 30 years. It is valued
periodically, which consists in examining generated cash flows and the return on
activities acquired as compared to the forecasts prepared upon acquisition. Any
permanent reduction in the amortized value of goodwill is recognized and charged
to earnings.
Long-term financing expenses
Financing expenses on long-term debt are amortized under the straight-line
method over the term of the related debt.
Long-term investments
Long-term investments are accounted for at cost. Where there is a permanent loss
in value of a long-term investment, the amount recorded is written down to
recognize this loss in value in the statement of earnings.
F-14
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
3 - ACCOUNTING POLICIES (Continued)
Pension plans and other retirement benefits
The Company has defined benefit pension plans and other retirement benefits for
its Canadian and American employees.
The following accounting policies are applied in respect of these defined
benefit plans:
- The cost of pensions and other retirement benefits earned by employees is
actuarially determined using the projected benefit method pro rated on
service and is charged to earnings as services are provided by the
employees. The calculations take into account management's best estimate of
expected plan investment performance, salary escalation, retirement ages of
employees, participants' mortality rates and expected health care costs.
- For the purpose of calculating the expected return on plan assets, those
assets are valued at fair value.
- Past service costs from plan amendments are amortized on a straight-line
basis over the average remaining service period of employees active at the
date of amendment.
- The excess of the net actuarial gain (loss) over 10% of the greater of the
benefit obligation and the fair value of plan assets is amortized over the
average remaining service period of active employees.
Stock option plans
The Company has granted stock options as described in Note 16. No expense is
recognized when stock options are granted. Any consideration received on
exercise of stock options is credited to share capital.
4 - DEFERRED GAIN
On February 10, 2000, the Company disposed of substantially all of its
timberlands for a cash consideration of $432.5 (US$298.3). At the same time, the
Company agreed to purchase from the buyer, at market value, approximately 70% of
the anticipated wood production in the next five years, i.e., 4,000,000 tons,
and 30% of the anticipated wood production in the following ten years, i.e.
4,900,000 tons. Accordingly, the Company has granted the buyer a guaranteed
return on investment for at least the first five years of the supply contract
and therefore recognizes the $193.9 gain on the disposal of the timberlands over
the same period.
5 - DISPOSAL OF A SUBSIDIARY
On January 28, 1999, the Company disposed of all of the shares of Enviro-Energie
Alliance inc. for an amount equal to their carrying amount, i.e. $76.0, of which
$60.0 was cash and $16.0 was preferred shares with a cumulative dividend of 4%
and redeemable at the issuer's option until 2002.
F-15
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
6 - UNUSUAL ITEMS
Gain on disposal of assets
On June 30, 2000, the Company disposed of the fixed assets relating to the
manufacture of I-joists for a cash consideration of $15.8.
Write down of assets
During the second quarter, the Company recorded a $62.8 charge relating to
the permanent closure at the end of 2001 of the deinking, mechanical pulp,
thermo-mechanical pulp and hardwood pulp installations at Coosa Pines.
7 - INCOME TAXES
The Company's effective income tax rate is calculated as follows:
2000 1999 1998
------- ------- -------
Combined basic Canadian rate 36.9% 36.9% 36.9%
Increase (decrease) in the tax rate for the following
Federal surtax and large corporations tax 6.2 (4.8) 4.1
Tax credit for manufacturing and processing profits (6.5) (1.4) (3.0)
Amortization of the difference between the tax cost
and the book value of the fixed assets acquired on
May 12, 1994 - 6.2 (6.3)
Income from American subsidiaries subject to
different tax rates 2.3 (2.4) 0.2
Reduction in capital gains inclusion rate 5.9 - -
Difference in tax rate on losses on the disposal of
assets and foreign currency contracts (7.6) (0.4) (3.6)
Other 2.5 (1.0) (1.3)
------- ------- -------
Effective tax rate 39.7% 33.1% 27.0%
======= ======= =======
F-16
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
7 - INCOME TAXES (Continued)
The components of the Company's net deferred income tax assets (liabilities) are
as follows:
2000 1999
------- -------
Short-term future income taxes
Expenses deductible in future years $ 10.7 $ -
------- -------
Long-term future income taxes
Tax depreciation in excess of book depreciation (139.9) (86.7)
Pension expense relating to employee future benefits 36.0 25.2
Share issuance expenses 1.6 3.1
Expenses deductible in subsequent years - 9.5
Minimum income tax of U.S. subsidiaries 45.6 3.7
Deferred gain 58.8 -
Other 1.4 3.4
------- -------
$ 14.2 $(41.8)
======== =======
Cash payments for income taxes in 2000 amounted to $38.1 ($6.6 in 1999 and $11.5
in 1998).
8 - CHANGES IN WORKING CAPITAL ITEMS
2000 1999 1998
------- ------- -------
Accounts receivable $(12.0) $28.6 $(26.9)
Income taxes receivable 11.6 (6.9) 0.1
Inventories 6.0 9.4 (11.9)
Prepaid expenses 1.4 (2.2) 0.5
Accounts payable and accrued liabilities (16.2) 22.7 13.2
------- ------- -------
$ (9.2) $51.6 $(25.0)
======= ======= =======
9 - INVENTORIES
2000 1999
------- -------
Raw materials
Logs $ 46.9 $ 48.8
Chips and other 6.2 7.2
Operating and maintenance supplies 37.5 36.7
Goods in process 14.1 13.2
Finished goods 25.4 30.2
------- -------
$130.1 $136.1
======= =======
F-17
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
10 - PROPERTY, TIMBERLANDS, PLANT AND EQUIPMENT
2000
--------------------------------------
Accumulated
Cost depreciation Net
---------- -------------- ----------
Land $ 6.2 - $ 6.2
Timberlands 10.8 $ 1.3 9.5
Buildings 161.8 33.7 128.1
Machinery and equipment 1,348.5 299.7 1,048.8
Property under construction 64.9 - 64.9
---------- -------------- ----------
$1,592.2 $334.7 $1,257.5
========== ============== ==========
1999
--------------------------------------
Accumulated
Cost depreciation Net
---------- -------------- ----------
Land $ 6.0 $ - $ 6.0
Timberlands 286.7 40.7 246.0
Buildings 122.8 28.3 94.5
Machinery and equipment 1,104.3 234.2 870.1
Property under construction 150.5 - 150.5
---------- -------------- ----------
$1,670.3 $303.2 $1,367.1
========== ============== ==========
During the year, the Company capitalized $17.9 of interest ($4.1 in 1999 and $0
in 1998) to the cost of property under construction. Government assistance in
the amount of $16.4 ($4.6 in 1999) has been credited to fixed assets.
11 - OTHER ASSETS
2000 1999
------- -------
Goodwill, at amortized cost $39.8 $41.5
Foreign exchange loss (gain), at amortized cost 2.8 (3.1)
Long-term financing costs, at amortized cost 4.1 7.5
Preferred share investment (Note 5) 16.0 16.0
Future income tax assets 3.5 -
Other 3.6 9.4
------- -------
$69.8 $71.3
======= =======
F-18
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
12 - BANK INDEBTEDNESS
As at December 31, 2000, bank indebtedness comprises solely outstanding cheques.
As at December 31, 1999, bank indebtedness comprised a short-term loan of $47.0
bearing interest at a rate based on banker's acceptances plus 2.5% and
outstanding cheques.
13 - TRADE AND OTHER ACCOUNTS PAYABLE
2000 1999
-------- -------
Accrued and trade accounts payable $100.9 $114.0
Accounts payable relating to fixed assets 95.8 44.1
Salaries and vacation payable 25.2 24.4
Taxes and stumpage dues 4.4 8.3
-------- -------
$226.3 $190.8
======== =======
14 - LONG-TERM DEBT
2000 1999
-------- --------
Credit facility at variable rates ranging
from 7.34% to 7.46% (6.50% to 7.75%) $314.3 $471.7
Note payable, without interest, payable in variable,
consecutive annual instalments as of 2003,
maturing in 2008 14.8 5.8
Other loans, rates ranging from 0% to 12.13%,
maturing at various dates until 2004 1.3 7.3
-------- --------
330.4 484.8
Current portion of long-term debt 54.9 48.2
-------- --------
$275.5 $436.6
======== ========
Credit facility
The credit facility, which amounts to $510.8 (or the U.S. dollar equivalent),
matures in September 2003, comprises four components: a rotating term credit
facility of $136.0 (or the U.S. dollar equivalent), a non-rotating term credit
facility of $174.8 drawn in U.S. dollars, a rotating working capital credit
facility of $180.0 (or the U.S. dollar equivalent) and a swing line credit
facility of $20.0 (or the U.S. dollar equivalent).
Pursuant to a clause of the credit agreement, the credit facility is reduced
following major disposal of fixed assets. In February 2000, the Company disposed
of certain timberlands; accordingly, in February 2001, the authorized, renewable
credit facility should be reduced to $42.0 (or the U.S. dollar equivalent).
F-19
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
14 - LONG-TERM DEBT (Continued)
The facility bears interest at rates based on banker's acceptances plus 0.5% to
1.5% or the prime rate plus 0% to 0.5% for amounts drawn in Canadian dollars and
on LIBOR plus 0.5% to 1.5% or on the U.S. prime rate plus 0% to 0.5% for amounts
drawn in U.S. dollars. The premiums are determined in accordance with the
Company's financial leverage ratio, on a quarterly basis.
This credit facility is payable in quarterly instalments of varying amounts. It
is secured by a movable and an immovable hypothec on the universality of the
Company's property and that of its subsidiaries, and comprises certain
covenants, notably regarding restrictions on the amount of fixed assets which
may be acquired.
Under the terms of the credit facility, the Company is required to maintain
certain ratios, in particular, a leverage ratio, a debt/equity ratio and a fixed
charge coverage ratio. As well, it is required to maintain a minimum level of
tangible net worth. As at December 31, 2000, the Company has complied with these
requirements.
An amount of $67.2 of this credit facility is used for letters of credit.
At December 31, 2000, the unused balance of the credit facility amounts to
$129.3.
Minimum payment requirements
Minimum payments requirements for the next five years amount to $54.9 in 2001,
$111.4 in 2002, $150.6 in 2003 and $1.6 in 2004 and $1.5 in 2005.
Interest
In 2000, the interest cost relating to the long-term debt amounted to $8.2
($29.5 in 1999 and $39.2 in 1998).
Total interest paid in cash, net of interest income and including interest
capitalized to property under construction, amounted to $24.6 in 2000 ($31.8 in
1999 and $42.1 in 1998).
F-20
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
15 - ACCRUED BENEFIT LIABILITY
Pension plans and other retirement benefits
Alliance Forest Products Inc. has several pension plans for substantially all of
its employees. Benefits under these plans are primarily based on years of
service and highest average eligible earnings during any 60-month period. For
the U.S. subsidiary, benefits under the plans are based primarily on years of
service credited since March 27, 1997 and highest average eligible earnings
during any 60-month period.
In Canada, the Company has group health, life and dental insurance plans for
certain retired employees or their equivalents. In the United States, the
Company has group health and life insurance plans for most of its retired
employees or their equivalents.
Information relating to the various plans is as follows:
Pension plans Other plans
------------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Accrued benefit obligations
Balance, beginning of year $148.0 $134.2 $45.1 $46.2
Effect of applying new recommendations (Note 2) 23.5 - 6.4 -
Current service cost 11.6 11.4 1.1 1.6
Interest cost 12.3 11.1 3.2 3.2
Benefits paid (8.8) (8.1) (0.8) (0.3)
Plan amendments - 3.2 - -
Plan curtailments - - (0.7) -
Actuarial losses (gains) 13.1 (2.9) (7.0) (3.0)
Foreign exchange rate adjustment 1.0 (0.9) 1.7 (2.6)
------------ ------------ ------------ ------------
Balance, end of year $200.7 $148.0 $49.0 $45.1
------------ ------------ ------------ ------------
Plan assets
Balance, beginning of year $130.8 $113.7 $ - $ -
Effect of applying new recommendations (Note 2) 1.6 - - -
Actual return on plan assets 6.5 10.3 - -
Employer contributions 11.1 12.7 - -
Employee contributions 2.7 2.6 - -
Benefits paid (8.8) (8.1) - -
Foreign exchange rate adjustment 0.6 (0.4) - -
------------ ------------ ------------ ------------
Balance, end of year $144.5 $130.8 $ - $ -
------------ ------------ ------------ ------------
Funded status - deficit $ 56.2 $ 17.2 $49.0 $45.1
Unamortized past service costs (5.1) - -
Unamortized net actuarial loss (gain) (19.6) 3.6 5.4 10.9
------------ ------------ ------------ ------------
Accrued benefit liability $ 36.6 $ 15.7 $54.4 $56.0
============ ============ ============ ============
F-21
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
15 - ACCRUED BENEFIT LIABILITY (Continued)
Accrued benefit liability expense
Pension plans Other plans
---------------------------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
Current service cost $ 8.9 $ 9.2 $ 8.6 $ 1.1 $1.6 $1.9
Interest cost 12.3 11.0 9.2 3.2 3.2 3.4
Expected return on plan
assets (8.7) (9.7) (8.6) - - -
Amortization of past
service costs - - (0.3) (2.3) - -
------------ ------------ ------------ ------------ ------------ ------------
Pension expense for the
year $12.5 $10.5 $ 8.9 $ 2.0 $4.8 $5.3
============ ============ ============ ============ ============ ============
For 2000 and 1999, the significant assumptions which management considers to be
the most likely used to measure its accrued benefit obligations are as follows
(weighted average assumptions, as at December 31):
Pension plans Other plans
---------------------------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
Canadian plans
Discount rate 6.75% 8.5% 8.5% 6.75% - -
Expected rate of return
on plan assets 8.5% 8.5% 8.5% - - -
Rate of compensation
increase (average) 3.0% 2.0% 4.0% 3.0% - -
For valuation purposes, the assumed annual rate of growth in health care costs
covered per person was set at 10.0% in 2001. Based on the assumption used, this
rate should decrease by 0.5% annually to 4.5% and remain at that level
thereafter.
Pension plans Other plans
---------------------------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
U.S. plans
Discount rate 7.5% 7.75% 7.75% 7.5% 7.5% 7.25%
Expected rate of return
on plan assets 8.75% 8.75% 8.75% - - -
Rate of compensation
increase (average) 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
For valuation purposes, the assumed annual rate of growth in health care costs
covered per person was set at 6.0% in 2001 (7.0% in 2000 and 7.0% in 1999).
Based on the assumption used, this rate should decrease annually to 5.5% and
remain at that level thereafter.
F-22
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
16 - CAPITAL STOCK
Authorized
Unlimited number of shares without nominal or par value
Common shares
First preferred shares
Second preferred shares
Issued
Common shares
2000 1999 1998
--------------------------- --------------------------- ----------------------------
Number of Number of Number of
shares Total shares Total shares Total
------------- ------------- ------------- ------------ ------------- -------------
Outstanding, beginning
of year $35,202,751 $ 708.1 $38,176,267 $768.3 $38,441,824 $773.7
Shares issued under
the share purchase plan 112,848 1.9 72,335 1.1 32,943 0.6
Share redemption (5,076,142) (102.0) (3,045,851) (61.3) (298,500) (6.0)
------------- ------------- ------------- ------------ ------------- -------------
Outstanding, end of year $30,239,457 $ 608.0 $35,202,751 $708.1 $38,176,267 $768.3
============= ============= ============= ============ ============= =============
During 2000, the Company redeemed and cancelled 5,076,142 common shares
(3,045,851 in 1999 and 298,500 in 1998) for $100.6 ($50.3 in 1999 and $4.7 in
1998). The discount on the redemption of shares amounted to $1.4 in 2000 ($11.0
in 1999) was charged to the contributed surplus.
Earnings per share are calculated using the weighted average number of common
shares outstanding during the year, which amounted to 31,222,434 shares in 2000
(36,606,565 in 1999 and 38,359,552 in 1998).
On April 20, 2000, the shareholders approved the shareholder rights protection
plan adopted by the Company. In the event that a person or group announces his,
her or its intention to acquire or acquires 20% or more of the Company's common
shares, without first making an offer in accordance with certain criteria or
obtaining approval from the Board of Directors while the subscription right
system is in effect, subscription rights will be issued. Each right confers on
its holder the right to acquire common shares of the Company for an amount
equivalent to 50% of market value. The threat of a significant dilution should
therefore result in changes to the offer so that it complies with certain
criteria or should encourage negotiations with the Board of Directors.
Officers' stock option plan
The Company has a stock option plan for certain officers. These options
generally expire ten years after they are granted and can be exercised
immediately or progressively three or four years after they are granted.
2000 1999 1998
---------------------------- ---------------------------- ----------------------------
Weighted Weighted Weighted
Number of average Number of average Number of average
options exercise price options exercise price options exercise price
------------- -------------- ------------ -------------- ------------ --------------
Outstanding, beginning
of year 2,570,470 $20.32 2,515,303 $20.42 1,306,652 $24.60
Granted 146,601 17.71 68,784 15.89 1,243,759 16.03
Cancelled (147,603) 20.69 (13,617) 17.00 (35,108) 21.06
------------- ------------- ------------- ------------ ------------- -------------
Outstanding, end of year 2,569,468 $20.17 2,570,470 $20.32 2,515,303 $20.42
============= ============= ============= ============ ============= =============
F-23
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
16 - CAPITAL STOCK (Continued)
The following table summarizes information about the stock options outstanding
at December 31, 2000:
Weighted
average Weighted Number of Weighted
Number remaining average exercisable average
outstanding contractual life exercise price options exercise price
------------- ---------------- -------------- ------------ --------------
Range of exercise prices
$14.00 - $19.99 1,463,928 7.03 $15.41 939,995 $15.28
$20.00 - $24.99 366,218 3.15 23.73 347,616 23.75
$25.00 - $29.99 705,226 3.29 27.51 698,643 27.50
$30.00 - $35.00 34,096 6.09 34.06 19,548 33.92
------------ -----------
2,569,468 2,005,802
============ ===========
Employee share purchase plan
Since February 15, 1995, under the Employee share purchase plan, all employees
are eligible to purchase shares at a price of 90% of the quoted market value.
Shares purchased under the plan are subject to a mandatory twelve-month holding
period, twenty-four-month in the United States. Employees who hold the shares
purchased in any calendar year until June 30 of the following year are entitled
to receive a Company contribution equivalent to 15% of the employee's
contribution used to purchase the shares. This Company contribution is used to
purchase additional shares at the market price on June 30. As at December 31,
2000, 1,700,000 common shares (1,700,000 in 1999 and 1998) were authorized for
issuance under the plans. During the year, 112,848 common shares (72,335 in 1999
and 32,943 in 1998) were issued under the plan at an average price of $16.84 per
share ($15.21 in 1999 and $18.21 in 1998). Since its inception, 281,632 shares
have been issued under this plan.
17 - COMMITMENTS
Supply agreements and leases
The Company has entered into various agreements, primarily for supply
agreements, expiring on different dates up to 2034, that call for total payments
of $300.5. Minimum payments for the next five years amount to $16.6 in 2001,
$16.4 in 2002, $15.7 in 2003, $14.8 in 2004 and $14.0 in 2005. Moreover,
following the sale of timberlands in Alabama, the Company signed a fifteen-year
contract providing it with a stable supply of fiber at market price. This
contract ensures a minimum supply of 42 % of the Coosa Pines' requirements in
virgin fiber for the term of the contract.
Commitments for capital expenditures
In connection with its capital expenditures program, the Company has undertaken,
under various contracts, to pay an amount of approximately $143.9 primarily to
complete construction of its recycled pulp plant at the Coosa Pines complex.
Environment
The Company intends to comply with environmental regulations in the United
States (Cluster Rules), as planned at the time of the acquisition of Coosa Pines
in 1997. The Company estimates that it has cost approximately $101.3 to conform
the current Coosa Pines installations to the American standards, including $12.8
from now until December 2001.
F-24
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
18 - FINANCIAL INSTRUMENTS
Fair value of financial instruments
The fair value of the short-term investment, trade accounts receivable, bank
indebtedness and accrued and trade accounts payable is comparable to their
carrying amount given their relative short term to maturity.
The fair value of the investment in preferred shares and the note payable has
not been determined because it is practically impossible to find financial
instruments on the market with essentially the same economic characteristics.
The fair value of the credit facility is equivalent to its carrying amount since
it bears interest at variable rates.
The fair value of the various derivative financial instruments is determined
using market parameters.
The following table presents the fair value and the term of the Company's
derivative financial instruments:
2000
---------------------------------------------------------------------------------------
Reference amount
---------------------------------------------------------------------------------------
0 to 1 1 to 2 2 to 3 3 to 5
year years years years Total Fair value
------------- ------------- ------------- ------------ ------------- -------------
Put options in U.S.
dollars purchased US$137.1 US$136.0 US$113.0 - US$386.1 CA$ 1.2
Call options in U.S.
dollars sold 113.1 91.0 69.0 - 273.1 (5.4)
1999
---------------------------------------------------------------------------------------
Reference amount
---------------------------------------------------------------------------------------
0 to 1 1 to 2 2 to 3 3 to 5
year years years years Total Fair value
------------- ------------- ------------- ------------ ------------- -------------
Put options in U.S.
dollars purchased US$166.0 US$136.0 US$109.0 US$ 24.0 US$435.0 CA$ 5.8
Call options in U.S.
dollars sold 183.0 112.0 80.0 24.0 399.0 (7.5)
Cross-currency interest
rate swaps - - - 160.0 160.0 3.8
The fair value represents exchange gains or losses which would have been
realized if the Company had sold all of its derivative financial instruments at
December 31 each year, which is not the case.
19 - CONTINGENCIES
Claims and lawsuits have been filed against the Company in the normal course of
its operations. In management's opinion, there is generally adequate insurance
coverage for these claims and lawsuits. In cases where coverage is inadequate,
the outcome of the claims or lawsuits is not expected to substantially affect
the Company's financial position.
F-25
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
20 - SEGMENTED INFORMATION
The Company has defined its segments based on its organizational structure. The
paper segment includes newsprint and uncoated groundwood specialty paper, the
pulp segment includes fluff pulp and SBHK pulp while the lumber segment also
includes treated wood and joists.
By industry segment
Paper Pulp Lumber
----------------------------- ----------------------------- -----------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
--------- --------- -------- -------- --------- --------- --------- --------- ---------
Sales(a) $615.6 $ 536.1 $ 622.0 $235.2 $182.1 $176.0 $234.3 $334.5 $287.1
Depreciation, amortization
and depletion 49.3 50.5 47.8 13.2 12.3 9.6 14.8 25.7 29.3
Amortization of deferred gain - - - - - - (34.4) - -
Operating income (loss) 33.9 (19.6) 79.3 51.1 (4.9) (16.9) 13.5 36.0 33.3
Capital expenditures 145.2 84.3 65.6 58.9 17.1 27.8 19.2 18.4 17.9
Assets 998.1 1,037.5 1,035.8 285.8 389.1 424.2 248.8 263.4 248.6
Head office Consolidated
----------------------------- ------------------------------
2000 1999 1998 2000 1999 1998
--------- --------- --------- --------- --------- ---------
Sales(a) $ - $ - $ - $1,085.1 $1,052.7 $1,085.1
Depreciation, amortization
and depletion 1.4 0.9 0.6 78.7 89.4 87.3
Amortization of deferred gain - - - (34.4) - -
Operating income (loss) - - - 98.5 11.5 95.7
Capital expenditures 1.7 0.8 3.1 225.0 120.6 114.4
Assets 95.2 44.4 63.2 1,627.9 1,734.4 1,771.8
Note: Operating income from lumber as at December 31, 2000 includes a deferred
gain of $34.4.
(a) In 2000, transactions with one customer in the pulp segment represent 18.3%
of sales (14.7% in 1999 and 15.8% in 1998). This same customer represents
24.3% of the Company's total accounts receivable (28.0% in 1999).
Shipments
2000 1999 1998
--------- --------- --------
Newsprint and uncoated
groundwood specialty paper(1) 783,693 774,377 742,627
Market pulp (1) 264,295 271,398 265,912
Wood products (2) 589,417 662,338 602,264
(1) Metric tons
(2) Thousands of foot board measures
By geographic segments
2000 1999 1998 2000 1999 1998
--------- --------- -------- --------- --------- ---------
Sales Operating income
Canada Canada $ 9.6 $ 9.1 54.6
Canadian customers $ 131.2 $ 121.8 $ 119.9 United States 88.9 2.4 41.1
--------- --------- ---------
American customers 398.5 388.9 399.9 $98.5 $11.5 $95.7
========= ========= =========
Overseas customers 5.2 9.7 2.2
--------- --------- -------- 2000 1999 1998
$ 534.9 $ 520.4 $ 522.0 --------- --------- ---------
--------- --------- --------- Assets
United States Fixed assets
Canadian customers - 6.3 11.8 Canada $ 659.3 $ 527.9 $ 516.8
American customers 483.5 483.4 490.2 United States 598.2 839.2 852.9
Overseas customers 66.7 42.6 61.1 --------- --------- ---------
--------- --------- -------- $1,257.5 $1,367.1 $1,369.7
$ 550.2 $ 532.3 $ 563.1 ========= ========= =========
--------- --------- --------- Goodwill
Total $1,085.1 $1,052.7 $1,085.1 Canada $ 39.8 $ 41.5 $ 41.0
========= ========= ========= ========= ========= =========
F-26
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
Years ended December 31,
(In millions of Canadian dollars, unless otherwise indicated)
21 - COMPARISON OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles (Canadian GAAP). In certain
respects, Canadian GAAP differ from United States generally accepted accounting
principles (U.S. GAAP).
The following summary sets out the material adjustments to the Company's net
earnings (loss) which would be made in order to conform with U.S. GAAP:
2000 1999 1998
------- ------ -------
Net earnings adjustments
Net earnings (loss) in accordance with Canadian GAAP $21.3 $(16.2) $ 25.9
Add (deduct)
Unrealized exchange gains (losses)(a) (5.9) 33.9 (17.8)
Unrealized exchange gains (losses) on foreign
currency hedges(b) (2.5) 61.4 (31.5)
Postretirement benefits other than pensions(c) - (0.3) (0.2)
Pension costs(d) (1.0) (4.7) (2.2)
Income taxes on previous adjustments 2.3 (30.7) 17.3
Income tax related to May 12, 1994 acquisition(e) - (1.6) (2.2)
------- ------ -------
Net earnings (loss) in accordance with U.S. GAAP $14.2 $ 41.8 $(10.7)
======= ======= =======
Net earnings (loss) per common share in accordance
with U.S. GAAP $0.46 $ 1.14 $(0.28)
======= ======= =======
The following summary sets out the material differences in the Company's balance
sheet under Canadian and United States generally accepted accounting principles:
2000
--------------------------------------
Canadian GAAP Adjustments U.S. GAAP
------------- ----------- ---------
Balance sheet components
Other assets(a) $ 69.8 $ (9.8) $ 60.0
Trade and other accounts payable(b) 226.3 4.2 230.5
Accrued benefit liability(c)(d) 91.0 (28.6) 62.4
Shareholders' equity(a)(b)(d)(e) 803.6 14.6 818.2
F-27
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
21 - COMPARISON OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
1999
--------------------------------------
Canadian GAAP Adjustments U.S. GAAP
------------- ----------- ---------
Balance sheet components
Other assets(a) $ 71.3 $(0.4) $ 70.9
Trade and other accounts payable(b) 190.8 1.7 192.5
Accrued benefit liability(c)(d) 71.7 (1.3) 70.4
Future income taxes(e) 41.8 (9.3) 32.5
Shareholders' equity(a)(b)(c)(d)(e) 892.4 8.5 900.9
(a) Unrealized exchange gains and losses attributable to the translation of
long-term debt in a foreign currency and cross-currency interest rate
swaps, at rates in effect at the balance sheet date, are deferred and
amortized over the remaining life of these financial instruments. Under
U.S. GAAP, these gains and losses are charged to earnings.
(b) Under Canadian GAAP, unrealized exchange gains and losses on long-term
derivative financial instruments designated to hedge future income are
recognized when the contracts expire. Under U.S. GAAP, such gains and
losses are charged to earnings as though the Company had realized these
contracts at year-end.
(c) Under Canadian GAAP, in 1999 and 1998, certain postretirement benefits
other than pensions were accounted for on a "pay-as-you-go" basis. Under
U.S. GAAP, these postretirement benefits are accounted for on an accrual
basis. On January 1, 2000, the Company adopted the accrual basis under
Canadian GAAP.
(d) Under U.S. GAAP, the rate used for discounting pension benefit obligations
is the rate which reflects the market rate. The rate used under Canadian
GAAP is based on management's best estimate of the future return on the
plan assets over the expected duration of the plan, except for the discount
rate used as of January 1, 2000, which, under the new CICA recommendations,
is the market rate. The remaining difference between the figures presented
under Canadian GAAP and those presented under U.S. GAAP results from the
method used to apply the standards in Canada.
(e) On May 12, 1994, the Company acquired Domtar Inc. newsprint, uncoated
groundwood paper and related lumber operations. The tax values of the
assets and liabilities acquired were different from the book value. Before
January 1, 2000, under Canadian GAAP, no future income tax was recorded
with respect to this difference. Under U.S. GAAP, a deferred tax asset of
$32.0 was recorded initially and subsequently reduced through amortization.
Following application of the new recommendations as of January 1, 2000,
there is no longer a difference in the accounting treatment under Canadian
and U.S. GAAP.
(f) Under Canadian GAAP, share issuance expenses are charged directly to
retained earnings. Under U.S. GAAP, these expenses are deducted from the
related proceeds, with the net proceeds being recorded in the capital stock
account.
F-28
Alliance Forest Products Inc.
Notes to Consolidated Financial Statements
As at December 31,
(In millions of Canadian dollars, unless otherwise indicated)
21 - COMPARISON OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (Continued)
(g) Under U.S. GAAP, the Company has elected to continue to measure
compensation costs related to awards of stock options using the intrinsic
value-based method of accounting. In this instance, however, under
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation", the Company is required to make pro forma
disclosures of net earnings and net earnings per share as if the
fair-value-based method of accounting had been applied. The fair value of
options granted was estimated using the Black-Scholes option-pricing model
with the following weighted average assumptions: risk-free interest rate of
6.5% (5.1% in 1999 and 5.3% in 1998): expected life of six years for the
three years and volatility of 40.0% (30.0% in 1999 and 34.0% in 1998).
Accordingly, the Company's net earnings and net earnings per share for the
year ended December 31, 2000 would have been decreased, on a pro-forma
basis, by $3.3 and $0.11 respectively (decrease of net earnings and net
earnings per share of $4.7 and $0.13 respectively for 1999 and increase of
net loss and net loss per share of $5.6 and $0.14 respectively for 1998).
The weighted average fair value of options granted in 2000 was $8.89 ($6.51
in 1999 and $6.95 in 1998).
(h) Under Canadian GAAP, distribution costs, which include freight, commissions
and discounts, are deducted from revenues in arriving at the net sales.
Under U.S. GAAP, commissions and freight costs should not be presented as
deductions from sales but rather should be treated as operating expenses.
If this presentation had been adopted, net sales and operating expenses
would have increased by $102.0 in 2000 ($96.5 in 1999 and $97.9 in 1998).
This difference in presentation would have had no effect on operating
income and net earnings.
(i) The FASB has issued SFAS No. 133 "Accounting for Derivative Instruments for
Hedging Activities", which is effective for the fiscal years beginning
after June 15, 2000. The Company has not yet determined the possible
repercussions of this new standard.
F-29
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses to be paid by Bowater in connection with this
offering are as follows:
Securities and Exchange Commission registration fee $ 68,870.67
Printing expenses 5,000.00
Accounting fees and expenses 7,500.00
Legal fees and expenses 15,000.00
Miscellaneous 3,629.33
-----------
Total $100,000.00
Item 15. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
empowers a corporation to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect of any claim, issue or manner as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
The Restated Certificate of Incorporation of Bowater provides, in
effect, that, to the extent and under the circumstances permitted by Section 145
of the General Corporation Law of the State of Delaware, Bowater shall indemnify
any person who was or is a party or is threatened to be made a party to any
action, suit or proceeding of the type described above by reason of the fact
that he or she is or was a director or officer of Bowater or is or was serving
at the request of Bowater as a director or officer of another enterprise.
II-1
Under insurance policies maintained by Bowater, directors and officers
of Bowater may be indemnified against certain losses arising from certain
claims, including claims under the Securities Act, which may be made against
such persons by reason for their being such directors or officers.
Item 16. Exhibits
The following exhibits are filed herewith or incorporated herein by
reference:
2.1 Arrangement Agreement dated as of April 1, 2001, by and between Bowater and
Alliance Forest Products Inc. (incorporated by reference to Exhibit 2.1 to
Bowater's Quarterly Report on Form 10-Q for the period ended March 31,
2001).
4.1 Restated Certificate of Incorporation of Bowater, as amended (incorporated
by reference to Exhibit 4.2 to the Bowater's Registration Statement No.
33-51569).
4.2 Bylaws of Bowater amended and restated as of May 20, 1998 (incorporated by
reference to Exhibit 4.12 to Amendment No. 1 to the 1998 Registration
Statement).
5 Opinion of Anthony H. Barash regarding the legality of the securities being
issued.
8.1 Opinion of Fraser Milner Casgrain LLP regarding tax matters.*
8.2 Opinion of Carter, Ledyard & Milburn regarding tax matters.*
23.1 Consent of KPMG LLP, independent accountants.*
23.2 Consent of Raymond Chabot Grant Thornton, Chartered Accountants.*
23.3 Consent of Anthony H. Barash (included in Exhibit 5).
23.4 Consent of Fraser Milner Casgrain LLP (included in Exhibit 8.1).*
23.4 Consent of Carter, Ledyard & Milburn (included in Exhibit 8.2).*
24 Powers of Attorney.*
II-2
99.1 Form of Voting and Exchange Trust Agreement among Bowater, Bowater
Holdings, Bowater Canada and Montreal Trust Company of Canada (incorporated
by reference to Annex F of the Joint Management Information Circular and
Proxy Statement filed on June 18, 1998 on Schedule 14A for Bowater).
99.2 Form of Support Agreement among Bowater, Bowater Holdings and Bowater
Canada (incorporated by reference to Annex G of the Joint Management
Information Circular and Proxy Statement filed on June 18, 1998 on Schedule
14A for Bowater).
______________
* Previously filed.
Item 17. Undertakings
(a) Bowater hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement;
Provided, However, that paragraphs (i) and (ii) above do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by Bowater pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
II-3
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of Bowater pursuant to the provisions described under Item 15 above, or
otherwise, Bowater has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Bowater of expenses incurred
or paid by a director, officer or controlling person of Bowater in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Bowater will, unless, in the opinion of its counsel, the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Bowater
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Greenville, the State of South Carolina, on June 22,
2001.
BOWATER INCORPORATED
By: /s/ Arnold M. Nemirow
--------------------------------------------
Name: Arnold M. Nemirow
Title: Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------------------------------------------------------------------------------
/s/ Arnold M. Nemirow Director, Chairman, June 22, 2001
--------------------- President and Chief
Arnold M. Nemirow Executive Officer
/s/ David G. Maffucci Senior Vice President June 22, 2001
--------------------- and Chief Financial
David G. Maffucci Officer
/s/ Michael F. Nocito Vice President June 22, 2001
--------------------- and Controller
Michael F. Nocito
* Director June 22, 2001
-------------------
Francis J. Aguilar
* Director June 22, 2001
-------------------
Richard Barth
* Director June 22, 2001
-------------------
Kenneth M. Curtis
* Director June 22, 2001
-------------------
Cinda A. Hallman
* Director June 22, 2001
-------------------
Charles J. Howard
II-5
SIGNATURE TITLE DATE
--------------------------------------------------------------------------------
* Director June 22, 2001
-------------------
James L. Pate
* Director June 22, 2001
-------------------
John A. Rolls
* Director June 22, 2001
-------------------
Arthur R. Sawchuk
*By: /s/ Wendy C. Shiba
----------------------
Wendy C. Shiba
Attorney-in-Fact
II-6
EXHIBIT INDEX
Exhibit No.
-----------
2.1 Arrangement Agreement dated as of April 1, 2001, by and between
Bowater and Alliance Forest Products Inc. (incorporated by
reference to Exhibit 2.1 to Bowater's Quarterly Report on Form
10-Q for the period ended March 31, 2001).
4.1 Restated Certificate of Incorporation of Bowater, as amended
(incorporated by reference to Exhibit 4.2 to the Bowater's
Registration Statement No. 33-51569).
4.2 Bylaws of Bowater amended and restated as of May 20, 1998
(incorporated by reference to Exhibit 4.12 to Amendment No. 1 to
the 1998 Registration Statement).
5 Opinion of Anthony H. Barash regarding the legality of the
securities being issued.
8.1 Opinion of Fraser Milner Casgrain LLP regarding tax matters.*
8.2 Opinion of Carter, Ledyard & Milburn regarding tax matters.*
23.1 Consent of KPMG LLP, independent accountants.*
23.2 Consent of Raymond Chabot Grant Thornton, Chartered Accountants.*
23.3 Consent of Anthony H. Barash (included in Exhibit 5).
23.4 Consent of Fraser Milner Casgrain LLP (included in Exhibit 8.1).*
23.4 Consent of Carter, Ledyard & Milburn (included in Exhibit 8.2).*
24 Powers of Attorney*
99.1 Form of Voting and Exchange Trust Agreement among Bowater,
Bowater Holdings, Bowater Canada and Montreal Trust Company of
Canada (incorporated by reference to Annex F of the Joint
Management Information Circular and Proxy Statement filed on June
18, 1998 on Schedule 14A for Bowater).
99.2 Form of Support Agreement among Bowater, Bowater Holdings and
Bowater Canada (incorporated by reference to Annex G of the Joint
Management Information Circular and Proxy Statement filed on June
18, 1998 on Schedule 14A for Bowater).
______________
* Previously filed.