AGREEMENT OF EXECUTIVE SEVERANCE TERMS (Agreement) ABITIBIBOWATER INC. (Company) AND WILLIAM G. HARVEY (Executive)

Status and Effective Date

B.     

Compensation

Severance pay of $1,303,681.44, less legally required withholdings and sums owing to the Company, if any. Severance pay is in line with the Severance Policy - CEO and Direct Reports (the “Policy”) as follows:

104 weeks (6 weeks * 20.31 years of service, maximum 104 weeks) of Eligible Pay, defined as the sum of Executive’s annual base salary as of the Termination Date and the average of the last two regular incentive awards paid to the Executive (annualized), up to 125% of bonus target.¹

The Company will also pay the Executive an amount of $42,500 as a retroactive salary adjustment for the period of January 1, 2011 through August 31, 2011.

The Executive’s welfare benefits, if any, to cease as of August 31, 2011. All other benefits (i.e. disability and business travel insurance)

$226,840.72, being the average of (i) the STIP 2010 payout of $198,687.52 annualized at $397,375.04; and (ii) the award paid pursuant to the AIP 2007 of $46,922 annualized at $56,306.40.

to also cease on August 31, 2011. If eligible for retiree medical, the Executive may timely enroll in retiree medical at a 50 percent (50%) cost share or $1,219.51 per month on the same basis as other eligible retirees. If not eligible for retiree medical and if the Executive timely enrolls, Executive (and Executive’s eligible dependents) will be eligible for COBRA coverage in accordance with the terms of the benefit plans, including premiums required by the plans, and COBRA. Executive will be obligated to pay the full cost of COBRA coverage, plus a two percent (2%) administrative charge. All of the terms and conditions of the company-sponsored medical, vision and/or dental plans, as amended from time to time, shall be applicable to the Executive (and Executive’s eligible dependents).

The Executive may continue his life insurance coverage by contacting the US Payroll & Benefits Service Center (800 ###-###-####). The Executive has thirty-one (31) days from his Termination Date to enroll.

Senior executive level outplacement services will be provided by an external outplacement consulting firm selected by Executive and reasonably acceptable by the Company and will cover a period of twelve (12) months, as long as services are initiated within seven (7) months following the Termination Date. Human Resources to open file with external outplacement services once contacted by the Executive.

Executive will not be entitled to receive any of the payments or benefits set forth in this Section B.1 if, prior to the Termination Date, Executive terminates his employment voluntarily other than for Good Reason or has his employment terminated by the Company for Cause. For all purposes of this Agreement, “Cause” and “Good Reason” have the meanings defined on Schedule A attached hereto.

As a condition to the receipt of severance pay and benefits and the consulting arrangement under this Agreement, the Executive must execute and not revoke a Waiver and Release Agreement in the form attached hereto as Exhibit A on or about the Termination Date. Pursuant to the Waiver and Release Agreement, the Executive shall waive all claims against the Company, its subsidiaries and affiliates, except (i) as provided in this Agreement and (ii) with respect to the following amounts: $252,268 for regular and synergy bonuses pursuant to the 2008 Annual Incentive Plan, $133,279 related to the Executive’s relocation process following the Abitibi/Bowater Merger (without any admission from the Company that the Executive did relocate to Canada), $135,000 for education allowance, and $10,208.19 for reimbursement of tax penalty, each of which shall be settled, if and when allowed, to the extent provided in accordance with applicable bankruptcy rules and procedures. The Executive expressly waives all other claims against AbitibiBowater Inc. and all other subsidiaries and affiliates.

The Executive will have 45 days to review and consider the Waiver and Release Agreement and seven (7) days for revoking same.

The above cash severance payments in the total amount of $1,346,181.40 will be paid in the form of a lump sum payment 15 days after the Eligible Executive signs the Waiver and Release Agreement (provided the seven (7) day period for revoking such agreement expires without revocation by the Executive), but in no event later than December 31, 2011. The outstanding balance of the Executive’s Amex card (other than allowable business expenses approved in normal course) will be withheld from the net severance should the outstanding balance of the same amount on the Corporate Amex card not be paid by Executive prior to payment of severance.

Executive’s entitlement to STIP and LTIP as follows:

•        Entitlement to 2011 STIP on a pro-rata basis in accordance with plan text and as per normal payment terms; i.e. if and when approved for payment by the Board in 2012 consistent with other senior executives; and

•       LTIP grants: Pro rata vesting through December 9, 2011:

•       7,876 Options;

•       1,225 RSUs, settled in shares; and

•       Options will expire on December 9, 2012.

US plans:

•        AbiBow US Retirement Plan

•        AbitibiBowater 2010 DC Supplemental Executive Retirement Plan

Canadian plans:

•        Employees’ Retirement Plan (1988) of Bowater Canadian Forest Products Inc.

•        AbiBow Canada 2010 Supplemental Retirement Plan

Executive to serve as a consultant to the Company for seven months after the Termination Date (the “Consulting Period”), consulting with and providing assistance to the then in place Senior Vice President and Chief Financial Officer. During the Consulting Period, Executive will not devote more than 20% of the time devoted to his full-time employment during the 36 months preceding the Termination Date. The Termination Date is intended to be a “separation from service” under Internal Revenue Code Section 409A. Consulting fees will be in the amount of $40,000 per month. Executive will perform all his consulting services from within the United States. The Executive will be an independent contractor and will not be entitled to any benefits or other amounts from the Company during the consulting term. This Consulting Agreement shall not be construed to create any employment or other form of business relationship, agency, partnership or joint venture between the Company and the Executive. The Executive shall not be empowered to act on behalf of or bind the Company with third parties as a result of this consulting agreement. The Company will reimburse the Executive’s business expenses incurred as a result of the consultancy arrangement.

Consulting Agreement may be terminated sooner by the Company or the Executive upon 5 days notice, provided that the Executive will be entitled to continue to receive monthly payments through the end of the Consulting Period if the Executive’s consulting agreement is terminated prior to the end of the Consulting Period (i) by the Company other than for Cause, (ii) by the Executive for Good Reason as defined on Schedule “A”, or (iii) upon Executive’s death or disability.

Executive’s consulting obligations will not preclude Executive from engaging in other full-time employment or business endeavors.

During the 12 months following the Termination Date, the Executive shall not, without the prior written consent from the Company:

i) engage or become interested, whether on his own account or in conjunction with or on behalf of any other person, and whether as an employee, director, officer, partner, principal, agent, advisor, financial backer, shareholder (except as a passive investor in a public Company) or in any other capacity whatsoever, business which competes with the Business of the Company in Canada and the United States of America; or

ii) assist financially or in any manner whatsoever any person, firm, association or Company, whether as principal, agent, officer, employee, manager, advisor, financial backer, shareholder (except as a passive investor in a public Company) or in any capacity whatsoever to enter into, develop, carry on or maintain a business which competes with the Business of the Company in Canada or the United States of America.

For the purpose of this agreement, “Business of the Company” means the manufacture, sale and/or dealing in newsprint, commercial printing papers, market pulp and wood products, as well as research into, development, production, manufacture, sale, supply, import, export or marketing of any product which is the same or similar to or competitive with any product researched, developed, produced, manufactured, sold, supplied, imported, exported or marketed by the Company or by any of its subsidiaries and affiliates in the context of the above described activities as of July 31, 2011.

The Executive agrees that, in the event of any actual or threatened breach by the Executive of any of the covenants or agreements contained in this provision, without prejudice to any and all other rights and recourses of the Company, the Company shall have the right to enforce the terms and provisions thereof by means of compelling specific performance and/or by means of injunction (including, without limitation, provisional, interlocutory and permanent).

In addition, and without restriction to the foregoing, in the event of a breach by the Executive of his non compete, non solicitation and confidentiality obligations, liquidated damages in the sum of $650,000 hereof shall be deemed to have been forfeited in its entirety and the Company shall be entitled to seek reimbursement of this gross amount.

Upon the reasonable request of the other Party, each Party hereto agrees to take any and all actions, including, without limitation, the execution of certificates, documents or instruments, necessary or appropriate to give effect to the terms and conditions set forth in this Agreement.

Executive agrees to fully cooperate with the Special Advisor to the President and Chief Executive Office between the date of this Agreement and the Termination Date.

(a) It is intended that any payment or benefit which is provided pursuant to or in connection with this Agreement which is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (“Code”) shall be paid and provided in a manner, and at such time and form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance.

(b) Neither Company nor Executive shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits in any manner which would not be in compliance with Section 409A of the Code (including any transition or grandfather rules thereunder).

(c) If Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code at such time, any payments to be made or benefits to be delivered in connection with Executive’s “separation from service” (as under 409A of the Code) that constitute deferred compensation subject to Section 409A of the Code shall not be made until the earlier of (i) Executive’s death or (ii) six months after Executive’s Separation from Service (the “409A Deferral Period”) as required by Section 409A of the Code. Payments otherwise due to be made in installments or periodically during the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payment shall be made as otherwise scheduled. Any such benefits subject to the rule may be provided under the 409A Deferral Period at Executive’s expense, with Executive having a right to reimbursement from Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled.

(d) For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code.

(e) For purposes of this Agreement, with respect to any amounts that constitute deferred compensation subject to Section 409A of the Code, termination of employment shall mean a “separation from service” within the meaning of Section 409A of the Code where it is reasonably anticipated that no further services would be performed after such date or that the level of bona fide services Executive would perform after that date (whether as an employee or independent

contractor) would permanently decrease to less than fifty percent (50%) of the average level of bona fide services Executive performed over the immediately preceding thirty-six (36) month period. The Company and Executive agree that a “separation from service” will occur no later than the Termination Date and Executive will not be expected to perform any consulting or other services thereafter that would negate a separation from service on the Termination Date.

(f) Notwithstanding any other provision of this Agreement, neither Company nor its subsidiaries or affiliates shall be liable to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferred compensation subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section 409A of the Code.

/s/ William G. Harvey

I am entering into this Agreement knowingly and voluntarily;

I have been advised to consult with an attorney before signing this Agreement;

I have received, along with this Agreement, a listing of job titles and ages of Company employees selected and not selected for termination in connection with the Company’s              2011 involuntary group termination program.

I understand I may take at least forty-five (45) days to consider this Agreement before signing it;

I have carefully read and fully understand all the provisions of this Agreement, and am voluntarily entering into this Agreement by signing below;

I am not otherwise entitled to the supplemental severance pay or other benefits set forth in the Severance Agreement; and

The Severance Agreement and this Agreement are the sole agreements between me and the Company regarding the termination of my employment with the Company.

Selected For Termination/

Eligible For Benefits

Not Selected For Termination/

Ineligible For Benefits

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