As filed with the Securities and Exchange Commission on July 20, 2005
Registration No. 333-124949
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
UNDER
THE SECURITIES ACT OF 1933
CF Industries Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State of Incorporation) |
2870
(Primary Standard Industrial Classification Code Number) |
20-2697511
(I.R.S. Employer Identification No.) |
One Salem Lake Drive
Long Grove, IL 60047
(847) 438-9500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Douglas C. Barnard
Vice President, General Counsel, and Secretary
CF Industries Holdings, Inc.
One Salem Lake Drive
Long Grove, IL 60047
(847) 438-9500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to: | ||
Brian W. Duwe
Skadden, Arps, Slate, Meagher & Flom LLP 333 West Wacker Drive Chicago, IL 60606 (312) 407-0700 |
Richard D. Truesdell, Jr.
Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 (212) 450-4000 |
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / /
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) 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 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 this form is a post-effective amendment filed pursuant to Rule 462(d) 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, check the following box. / /
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered |
Proposed Maximum
Aggregate Offering Price(1)(2) |
Amount of
Registration Fee(3) |
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Common stock, par value $0.01 per share (including rights to acquire Series A junior participating preferred stock pursuant to our rights plan) | $700,000,000 | $82,390 | ||
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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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS (Subject to Completion)
Issued , 2005
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 we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
Shares
CF Industries Holdings, Inc.
COMMON STOCK
CF Industries Holdings, Inc. is offering shares of its common stock. We intend to use our net proceeds from this offering to make payments to the existing owners of CF Industries, Inc. in connection with a reorganization transaction in which CF Industries, Inc. will become our wholly-owned subsidiary. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $ and $ per share.
We have applied for the listing of our common stock on the New York Stock Exchange under the symbol "CF."
Investing in our common stock involves risks. See "Risk Factors" beginning on page 11.
PRICE $ A SHARE
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Price to
Public |
Underwriting
Discounts and Commissions |
Proceeds to Us
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|||
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Per Share | $ | $ | $ | |||
Total | $ | $ | $ |
We have granted the underwriters the right to purchase up to an additional shares to cover over-allotments. We intend to use the net proceeds from any shares sold pursuant to the underwriters' over-allotment option to make additional payments to the existing owners of CF Industries, Inc. in connection with the reorganization transaction referred to above.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on , 2005.
MORGAN STANLEY | JPMORGAN |
CREDIT SUISSE FIRST BOSTON | HARRIS NESBITT |
, 2005
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Page
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Prospectus Summary | 1 | |
Risk Factors | 11 | |
Special Note Regarding Forward-Looking Statements | 22 | |
Market and Industry Data and Forecasts | 23 | |
The Reorganization Transaction | 24 | |
Use of Proceeds | 26 | |
Dividend Policy | 26 | |
Capitalization | 27 | |
Dilution | 29 | |
Selected Historical Financial and Operating Data | 31 | |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 34 | |
Fertilizer Industry Overview | 59 | |
Business | 67 | |
Management | 84 | |
Certain Relationships and Related Party Transactions | 93 | |
Principal Stockholders | 97 | |
Description of Certain Indebtedness | 99 | |
Description of Capital Stock | 101 | |
Shares Eligible for Future Sale | 108 | |
Material U.S. Federal Income Tax Considerations for Non-U.S. Holders | 111 | |
Underwriters | 115 | |
Legal Matters | 119 | |
Experts | 119 | |
Where You Can Find Additional Information | 119 | |
Index to Consolidated Financial Statements | F-1 |
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current as of the date of this prospectus.
Until , 2005 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
This summary highlights information contained elsewhere in this prospectus. It is not complete and may not contain all the information that may be important to you. You should carefully read the entire prospectus, including the "Risk Factors" and the financial statements and notes to those statements contained elsewhere in this prospectus, before making an investment decision.
CF Industries Holdings, Inc. is a new company formed to hold the existing businesses of CF Industries, Inc. Concurrent with the consummation of this offering, CF Industries, Inc. will become a wholly-owned subsidiary of CF Industries Holdings, Inc. in a merger transaction we refer to as the "Reorganization Transaction."
In this prospectus, all references to "CF Holdings," "the company," "we," "us" and "our" refer to CF Industries Holdings, Inc. and its subsidiaries, including CF Industries, Inc., after giving effect to the Reorganization Transaction, except where the context makes clear that the reference is only to CF Holdings itself and not its subsidiaries. In this prospectus, all references to "CF Industries" refer to CF Industries, Inc. and its subsidiaries prior to giving effect to the Reorganization Transaction, except where the context makes clear that the reference is only to CF Industries itself and not its subsidiaries.
In this prospectus, all references to "our owners" or the "owners of CF Industries" refer to the eight stockholders of CF Industries prior to the consummation of this offering, and all references to our "core market" refer to the states of Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
We have restated our unaudited quarterly results of operations for 2003 and 2004, our unaudited consolidated balance sheet as of March 31, 2004 and the related unaudited consolidated statements of operations and cash flows for the three months then ended. See note 2 to our unaudited consolidated quarterly financial statements included in this prospectus for information regarding the restatement. Accordingly, certain amounts and explanations included in this prospectus have been amended to reflect this restatement.
We are one of the largest manufacturers and distributors of nitrogen and phosphate fertilizer products in North America. Our operations are organized into two business segments: the nitrogen fertilizer business and the phosphate fertilizer business. Our principal products in the nitrogen fertilizer business are ammonia, urea and urea ammonium nitrate solution, or UAN. Our principal products in the phosphate fertilizer business are diammonium phosphate, or DAP, and monoammonium phosphate, or MAP. For the twelve months ended June 30, 2004, we supplied approximately 22% of the nitrogen and approximately 14% of the phosphate used in agricultural fertilizer applications in the United States. Our core market and distribution facilities are concentrated in the midwestern U.S. grain-producing states.
Our principal assets include:
For the year ended December 31, 2004, we sold 6.6 million tons of nitrogen fertilizers and 1.9 million tons of phosphate fertilizers, generating net sales of $1.7 billion, net earnings plus interestnet, income tax provision (benefit) and depreciation, depletion and amortization, or EBITDA, of $233.5 million and net earnings of $67.7 million. For the twelve months ended March 31, 2005, we sold 6.9 million tons of nitrogen fertilizers and 2.0 million tons of phosphate fertilizers, generating net sales of $1.8 billion, EBITDA of $253.2 million and net earnings of $81.6 million.
Company History
We were founded in 1946 as a fertilizer brokerage operation by a group of regional agricultural cooperatives seeking to pool their purchasing power. During the 1960s, we expanded our distribution capabilities and diversified into fertilizer manufacturing through the acquisition of several existing plants and facilities. During the 1970s and again during the 1990s, we expanded our production and distribution capabilities significantly, spending approximately $1 billion in each of these decades.
Through the end of 2002, we operated as a traditional supply cooperative. Our focus was on providing our owners with an assured supply of fertilizer. Typically, over 80% of our annual sales volume was to our owners. Though important, financial performance was subordinate to our mandated supply objective.
In 2002, we reassessed our corporate mission and adopted a new business model that established financial performance, rather than assured supply to our owners, as our principal objective. A critical aspect of our new business model is a more economically driven approach to the marketplace. We now pursue markets and customers and make pricing decisions with a primary focus on enhancing our financial performance. One result of this new approach has been a shift in our customer mix. In 2004, approximately 41% of our sales volume was to unaffiliated customers, more than double the percentage of our sales volume to this group in 2002.
Concurrent with our new approach to the marketplace, we have been implementing other measures to improve the performance of our business. For example, we are focused on improving asset utilization, lowering our cost profile, and reducing our exposure to volatility in raw material and fertilizer prices. These measures, combined with our new approach to the marketplace and a leadership change in mid-2003, positioned us to capitalize on the improving industry conditions that began in the latter half of 2003. Conversion to a public entity through this offering will complete our transition and significantly enhance our competitive position for the future.
Industry Overview and Trends
Fertilizers serve an important role in global agriculture by providing vital nutrients that help increase both the yield and the quality of crops. The three main nutrients required for plant growth are nitrogen, phosphate and potash. According to the International Fertilizer Association, or IFA, global agricultural consumption for the three principal crop nutrients in 2004 was approximately 162 million tons95 million tons of nitrogen (59%), 39 million tons of phosphate (24%) and 28 million tons of potash (17%).
The global fertilizer industry is highly cyclical and capital intensive. The performance of the fertilizer industry is driven by several key factors, including population growth, changes in dietary habits, planted acreage and application rates, available capacity and operating rates, raw material costs, government policies and global trade.
Natural gas is the principal raw material used to produce nitrogen fertilizers and can constitute a substantial majority of the cash cost to produce such fertilizer products in North America. High natural gas prices during the past few years have led to a sharp increase in the cost of producing nitrogen fertilizers and a significant decline in capacity in North America. This decline in capacity, together with a general tightening in the global supply/demand balance, has contributed to higher operating rates and improved fertilizer pricing for North American producers since the middle of 2003.
2
Phosphate-based fertilizers are produced from phosphate rock, sulfuric acid and ammonia. The principal phosphate fertilizer-producing regions are those with plentiful supplies of phosphate rock. The United States has substantial phosphate rock reserves and is the world's largest phosphate fertilizer producer. In 2004, the United States accounted for approximately 27% of global phosphate fertilizer capacity and exported approximately 45% of its output.
According to Fertecon, a fertilizer industry consultant, global agricultural demand for nitrogen and phosphate fertilizers is expected to grow from 2004 to 2009 at annual rates of 2.2% and 2.7%, respectively.
Competitive Strengths
3
orders with us, we lock in a substantial portion of the margin on the sale by effectively fixing the cost of natural gas, the largest and most volatile component of our supply cost. This program also increases our liquidity as customers pay a substantial portion of the sales price in advance of shipment. Our customers' favorable response to this program resulted in approximately 54% of our nitrogen fertilizer sales volume being sold under this program during 2004.
Our Business Strategy
4
The Reorganization Transaction
Concurrent with the closing of this offering, our owners will consummate the Reorganization Transaction in which CF Industries will become our wholly-owned subsidiary.
Pursuant to the Reorganization Transaction, the owners of CF Industries will receive shares of our common stock and cash in exchange for their outstanding equity interests in CF Industries. Assuming an initial public offering price of $ per share, the mid-point of the estimated price range shown on the cover page of this prospectus, the owners of CF Industries will receive, in the aggregate, shares of our common stock and $ million, which represents the estimated proceeds to us from this offering, after deducting underwriting discounts and commissions.
The cash payment and the number of shares issued to the owners of CF Industries will be adjusted depending on whether the underwriters exercise their over-allotment option. If the over-allotment option is not exercised by the underwriters, upon completion of this offering, the owners of CF Industries will own shares of our common stock, representing 25% of our outstanding common stock. If the over-allotment option is exercised in full by the underwriters, upon completion of this offering, the owners of CF Industries will own shares of our common stock, representing approximately 14% of our outstanding common stock.
Net operating loss carryforwards. As of March 31, 2005, we had total net operating loss carryforwards of $290.1 million. A gross deferred tax asset of $116.1 million related to these net operating loss carryforwards is included in deferred income taxes on our March 31, 2005 balance sheet. Because our net operating loss carryforwards were generated from business conducted with our owners when we were a cooperative for tax purposes, there is substantial uncertainty under existing tax law whether any tax benefits from the related deferred tax asset will be realizable after the completion of this offering. As a result of this uncertainty, we will establish a valuation allowance equal to 100% of any of the deferred tax asset remaining after the consummation of this offering. We will record a non-cash charge to "Income Tax Expense" in the amount of the valuation allowance in the quarter in which the offering is completed.
We intend to enter into a net operating loss agreement, or NOL Agreement, with the owners of CF Industries in connection with the Reorganization Transaction relating to the treatment of the net operating loss carryforwards. Under the NOL Agreement, in the event that it is finally determined that our net operating loss carryforwards can be used after we are no longer a cooperative, we will pay the owners of CF Industries an amount equal to the federal and state income taxes actually saved after the completion of this offering as a result of the utilization of net operating loss carryforwards related to our former cooperative status. These payments, if any, will be made only after it has been finally determined that utilization of the net operating losses has provided us with actual tax savings. The NOL Agreement will not require that we operate in a way that maximizes the use of our cooperative-related net operating loss carryforwards. Costs incurred after completion of this offering in pursuing a determination regarding the usability of these net operating loss carryforwards will be borne by the owners of CF Industries.
See "The Reorganization Transaction."
Our Corporate Information
Our principal executive offices are located outside of Chicago, Illinois at One Salem Lake Drive, Long Grove, Illinois 60047. Our main telephone number is (847) 438-9500.
5
Common stock offered | shares | |
Common stock to be issued to the owners of CF Industries in the Reorganization Transaction |
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shares (including shares that will be issued to the owners of CF Industries in the Reorganization Transaction, assuming the underwriters do not exercise their over-allotment option) |
Common stock to be outstanding after this offering |
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shares (including shares that will be issued to the owners of CF Industries in the Reorganization Transaction, assuming the underwriters do not exercise their over-allotment option) |
Over-allotment option |
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shares |
Use of proceeds |
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We estimate that our proceeds from this offering, after deducting underwriting discounts and commissions, will be approximately $ . We intend to pay $ million to the owners of CF Industries in the Reorganization Transaction. See "Use of Proceeds." |
Proposed New York Stock Exchange symbol |
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"CF" |
Dividend policy |
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We intend to pay quarterly cash dividends on our common stock at an initial rate of $ per share of common stock ($ per annum), commencing , 2005. The declaration and payment of future dividends will be at the discretion of our board of directors and will depend upon many factors that are described under "Dividend Policy" and elsewhere in this prospectus. |
Unless otherwise indicated, all information in this prospectus:
Investing in our common stock involves substantial risks. See "Risk Factors" beginning on page 11. You should carefully consider the information in the "Risk Factors" section and all other information included in this prospectus before investing in our common stock.
6
Summary Historical Financial and Operating Data
The following table presents summary historical financial and operating data about us. CF Holdings was formed in April 2005 to serve as a holding company for our businesses. CF Holdings has not commenced operations and has no assets or liabilities. In order to facilitate this offering, we will consummate the Reorganization Transaction in which CF Holdings will become the successor to CF Industries for accounting purposes. See "The Reorganization Transaction."
The following summary historical financial data for CF Industries as of December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003 and 2004 have been derived from CF Industries' audited consolidated financial statements and related notes included elsewhere in this prospectus. The following summary historical balance sheet data for CF Industries as of December 31, 2002 have been derived from CF Industries' unaudited consolidated financial statements, which are not included in this prospectus.
The following summary historical financial data for CF Industries as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 have been derived from CF Industries' unaudited consolidated financial statements and related notes included elsewhere in this prospectus. The following summary historical balance sheet data for CF Industries as of March 31, 2004 have been derived from CF Industries' unaudited consolidated financial statements, which are not included in this prospectus. In the opinion of management, such unaudited historical financial data reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any future period.
The summary historical financial and operating data should be read in conjunction with the information contained in "Selected Historical Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and CF Industries' audited consolidated financial statements and related notes included elsewhere in this prospectus.
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Three months ended March 31,
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Year ended December 31,
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2004
Restated (1) |
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2002
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2003
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2004
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2005
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(in thousands)
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Statement of Operations Data: | ||||||||||||||||
Net sales | $ | 1,014,071 | $ | 1,369,915 | $ | 1,650,652 | $ | 324,664 | $ | 459,329 | ||||||
Cost of sales | 986,295 | 1,335,508 | 1,434,545 | 288,802 | 404,053 | |||||||||||
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Gross margin | 27,776 | 34,407 | 216,107 | 35,862 | 55,276 | |||||||||||
Selling, general and administrative |
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37,317 |
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38,455 |
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41,830 |
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10,188 |
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11,023 |
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Other operatingnet | 9,294 | 1,557 | 25,043 | 2,143 | 1,130 | |||||||||||
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Operating earnings (loss) | (18,835 | ) | (5,605 | ) | 149,234 | 23,531 | 43,123 | |||||||||
Interest expense |
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23,565 |
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23,870 |
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22,696 |
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6,108 |
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5,255 |
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Interest income | (2,209 | ) | (2,260 | ) | (5,901 | ) | (1,298 | ) | (3,527 | ) | ||||||
Minority interest | 6,409 | 6,031 | 23,145 | 5,141 | 4,916 | |||||||||||
Impairment of investments in unconsolidated subsidiaries (2) | | | 1,050 | | | |||||||||||
Other non-operatingnet | (174 | ) | (676 | ) | (778 | ) | | (329 | ) | |||||||
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Earnings (loss) before income taxes | (46,426 | ) | (32,570 | ) | 109,022 | 13,580 | 36,808 | |||||||||
Income tax provision (benefit) |
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(16,600 |
) |
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(12,600 |
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41,400 |
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5,157 |
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14,465 |
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Equity in earnings (loss) of unconsolidated subsidiaries | 1,706 | 1,587 | 110 | 146 | (7 | ) | ||||||||||
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Net earnings (loss) | $ | (28,120 | ) | $ | (18,383 | ) | $ | 67,732 | $ | 8,569 | $ | 22,336 | ||||
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7
Other Financial Data: | ||||||||||||||||
EBITDA (3) | $ | 84,960 | $ | 95,243 | $ | 233,543 | $ | 45,220 | $ | 64,837 | ||||||
Depreciation, depletion and amortization | 108,471 | 105,014 | 108,642 | 26,938 | 26,556 | |||||||||||
Capital expenditures | 26,303 | 28,684 | 33,709 | 4,199 | 16,777 | |||||||||||
Total debt | 326,205 | 293,503 | 258,821 | 292,687 | 258,092 | |||||||||||
Net debt (4) | 271,224 | 290,654 | 51,029 | 309,356 | 27,935 |
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Year ended December 31, |
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Three months ended March 31, |
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2002
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2003
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2004
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2004
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2005
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Selected Operating Data: | ||||||||||||||||
Average selling prices (per ton) | ||||||||||||||||
Ammonia | $ | 159 | $ | 236 | $ | 278 | $ | 262 | $ | 281 | ||||||
Urea | 120 | 172 | 205 | 199 | 236 | |||||||||||
UAN | 93 | 119 | 137 | 130 | 155 | |||||||||||
DAP | 146 | 163 | 197 | 188 | 209 | |||||||||||
MAP | 157 | 172 | 204 | 198 | 213 | |||||||||||
Sales volume (in thousand tons) | ||||||||||||||||
Ammonia | 1,435 | 1,475 | 1,438 | 215 | 316 | |||||||||||
Urea | 2,663 | 2,572 | 2,513 | 612 | 749 | |||||||||||
UAN | 1,926 | 2,228 | 2,593 | 557 | 590 | |||||||||||
DAP | 1,560 | 1,627 | 1,549 | 330 | 387 | |||||||||||
MAP | 289 | 252 | 351 | 59 | 100 | |||||||||||
Cost of natural gas (per mmBTU) | ||||||||||||||||
Donaldsonville facility | $ | 3.29 | $ | 5.20 | $ | 5.60 | $ | 5.12 | $ | 7.02 | ||||||
Medicine Hat facility | 2.64 | 4.74 | 5.10 | 5.02 | 5.91 | |||||||||||
Average daily market price of natural gas (per mmBTU) | ||||||||||||||||
Henry Hub (Louisiana) | $ | 3.35 | $ | 5.44 | $ | 5.85 | $ | 5.61 | $ | 6.40 | ||||||
AECO (Alberta) | 2.60 | 4.72 | 5.04 | 4.87 | 5.59 |
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As of December 31,
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As of March 31,
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Actual
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Actual
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As Adjusted
(5)
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2002 |
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2003 |
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2004 |
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2004 Restated (1) |
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2005 |
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2005 |
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(in thousands)
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Balance Sheet Data: | |||||||||||||||||
Cash and cash equivalents | $ | 56,536 | $ | 77,146 | $ | 50,003 | $ | 32,140 | $ | 42,140 | |||||||
Short-term investments (6) | 38,417 | 91,725 | 369,290 | 137,700 | 423,618 | ||||||||||||
Total assets | 1,303,532 | 1,404,879 | 1,546,971 | 1,414,030 | 1,576,922 | ||||||||||||
Total debt | 326,205 | 293,503 | 258,821 | 292,687 | 258,092 | ||||||||||||
Customer advances | 39,972 | 166,022 | 211,501 | 186,509 | 235,601 | ||||||||||||
Stockholders' equity | 740,929 | 733,511 | 787,289 | 738,319 | 813,138 | (7) |
(footnotes on following page)
8
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Three months ended March 31,
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Year ended December 31,
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2004
Restated (1) |
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2002
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2003
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2004
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2005
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(in thousands)
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Calculation of EBITDA |
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Net earnings (loss) | $ | (28,120 | ) | $ | (18,383 | ) | $ | 67,732 | $ | 8,569 | $ | 22,336 | |||||
Interestnet (a)(b) | 21,356 | 21,610 | 16,795 | 4,810 | 1,728 | ||||||||||||
Income tax provision (benefit) | (16,600 | ) | (12,600 | ) | 41,400 | 5,157 | 14,465 | ||||||||||
Depreciation, depletion and amortization (c) | 108,471 | 105,014 | 108,642 | 26,938 | 26,556 | ||||||||||||
Financing fees (d) | (147 | ) | (398 | ) | (1,026 | ) | (254 | ) | (248 | ) | |||||||
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EBITDA | $ | 84,960 | $ | 95,243 | $ | 233,543 | $ | 45,220 | $ | 64,837 | |||||||
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(footnotes continued on following page)
9
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As of December 31,
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As of March 31,
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2002
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2003
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2004
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2004
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2005
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(in thousands)
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Calculation of net debt | |||||||||||||||||
Total debt | $ | 326,205 | $ | 293,503 | $ | 258,821 | $ | 292,687 | $ | 258,092 | |||||||
Less cash, cash equivalents and short-term investments | 94,953 | 168,871 | 419,293 | 169,840 | 465,758 | ||||||||||||
Plus customer advances | 39,972 | 166,022 | 211,501 | 186,509 | 235,601 | ||||||||||||
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Net debt | $ | 271,224 | $ | 290,654 | $ | 51,029 | $ | 309,356 | $ | 27,935 | |||||||
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10
An investment in our common stock involves risks. You should carefully consider the risks described below as well as the other information contained in this prospectus before investing in our common stock. If any of the events contemplated by the following risks actually occur, then our business, financial condition or results of operations could be materially adversely affected. As a result of these and other factors, the value of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Business
Our business is dependent on the price of natural gas in North America, which is both expensive and highly volatile.
Natural gas is the principal raw material used to produce nitrogen fertilizers. We use natural gas both as a chemical feedstock and as a fuel to produce ammonia, urea and UAN. Because all of our nitrogen fertilizer manufacturing facilities are located in the United States and Canada, the price of natural gas in North America directly impacts a substantial portion of our operating expenses. Expenditures on natural gas comprised approximately 61% of the total cost of our nitrogen fertilizer sales in 2004 and a substantially higher percentage of our related cash costs.
The market price for natural gas in North America is significantly higher than the price of natural gas in other major fertilizer-producing regions. For example, during 2004, natural gas prices in the United States (measured at the Henry Hub, near our Donaldsonville, Louisiana facility) averaged approximately $5.85 per mmBTU and in Canada (measured at AECO, near our joint venture's Medicine Hat, Alberta facility) averaged approximately $5.04 per mmBTU. In comparison, during 2004, natural gas prices paid by fertilizer producers are estimated to have been approximately $.90 per mmBTU in Russia and approximately $2.30 per mmBTU in the Republic of Trinidad and Tobago. Many of our competitors benefit from access to lower-priced natural gas through manufacturing facilities or interests in manufacturing facilities located in these regions or other regions with abundant supplies of natural gas.
The price of natural gas in North America is also highly volatile. During 2004, the average daily price ranged from a low of $4.99 per mmBTU during September to a high of $6.63 per mmBTU during December. The volatility of the price of natural gas in North America compounds our competitive disadvantage to some of our competitors, who, in addition to having access to lower-priced natural gas, also benefit from fixed-price natural gas contracts.
As a result of global competition in the fertilizer industry, we may not be able to pass the higher operating costs we incur due to our dependence on North American natural gas through to our customers in the form of higher product prices. Unless prices for natural gas in North America and other fertilizer-producing regions begin to converge, or we are able to reduce our dependence on North American natural gas, the relatively expensive and highly volatile cost of natural gas in North America could make it difficult for us to compete against producers from other parts of the world in certain situations, including those in which an oversupplied market or other factors exert downward pressure on product prices.
Our business is cyclical, which results in periods of industry oversupply during which our results of operations tend to be negatively impacted.
Historically, selling prices for our products have fluctuated in response to periodic changes in supply and demand conditions. Demand is affected by population growth, changes in dietary habits, and planted acreage and application rates, among other things. Supply is affected by available capacity and operating rates, raw material costs, government policies and global trade.
Periods of high demand, high capacity utilization and increasing operating margins tend to result in new plant investment and increased production, causing supply to exceed demand and prices and capacity utilization to decline. Reduced prices restrict investment in new capacity, initiating a new cycle. A
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substantial amount of new ammonia and urea capacity is expected to be added abroad in low-cost regions over the next several years. Future growth in demand for fertilizer may not be sufficient to alleviate any existing or future conditions of excess industry capacity.
During periods of industry oversupply, our results of operations tend to be affected negatively as the price at which we sell our products typically declines, resulting in reduced profit margins, lower production of our products and possible plant closures.
We have a history of losses and may incur losses in the future, which could materially and adversely affect the market price of our common stock.
We incurred net losses for five consecutive years, in 1999 through 2003, prior to earning a profit in the most recent year ended December 31, 2004. In future periods, we may not be able to sustain or increase profitability on a consistent quarterly or annual basis. Failure to maintain consistent profitability may materially and adversely affect the market price of our common stock.
Our products are global commodities, and we face intense global competition from other fertilizer producers.
We are subject to intense price competition from both domestic and foreign sources. Fertilizers are global commodities, with little or no product differentiation, and customers make their purchasing decisions principally on the basis of delivered price and to a lesser extent on customer service and product quality. We compete with a number of domestic and foreign producers, including state-owned and government-subsidized entities. Some of these competitors have greater total resources and are less dependent on earnings from fertilizer sales, which makes them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities.
Recent consolidation in the fertilizer industry has increased the resources of several of our competitors, and we expect consolidation among fertilizer producers to continue. In light of this industry consolidation, our competitive position could suffer to the extent we are not able to expand our own resources either through investments in new or existing operations or through acquisitions, joint ventures or partnerships. In the future, we may not be able to find suitable assets to purchase or joint venture or partnership opportunities to pursue. Even if we are able to locate desirable opportunities, we may not be able to acquire desired assets or enter into desired joint ventures or partnerships on economically acceptable terms. Our inability to compete successfully could result in the loss of customers, which could adversely affect our sales and profitability.
China is the largest producer and consumer of fertilizers and has been, and is expected to continue, expanding its fertilizer production capability. This increase in capacity could adversely affect the balance between global supply and demand and may put downward pressure on global fertilizer prices, which could adversely affect our results of operations and financial condition.
We may face increased competition from Russian and Ukrainian urea, which is currently subject to antidumping duty orders that impose significant duties on urea imported into the United States from these two countries. The antidumping orders have been in place since 1987, and there has been almost no urea imported into the United States from Russia or Ukraine since that time. Russia and Ukraine currently have considerable capacity to produce urea and are the world's largest urea exporters. Producers in both countries benefit from natural gas prices that are determined by their governments and which are well below the commercial value of the natural gas, encouraging urea production and export activity.
The U.S. Department of Commerce and the U.S. International Trade Commission are currently reviewing whether the antidumping orders on urea from Russia and Ukraine should be extended for an additional five-year period. Both agencies must make affirmative determinations for the orders to be continued. In May 2005, the Department of Commerce issued an affirmative determination that
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revocation of the orders would be likely to lead to continuation or recurrence of dumping (unfair pricing) of urea by Russian and Ukrainian producers. The International Trade Commission is now considering whether revocation of the orders would be likely to lead to continuation or recurrence of injury to the U.S. urea industry. We currently expect the Commission to issue its final determination in November 2005, but in any event no later than the end of December 2005. For a number of reasons, including underutilized capacity, the attractiveness of the U.S. market and barriers to Russian and Ukrainian urea imports in other key consuming markets, we expect that if the antidumping duties are not extended, imports of Russian and Ukrainian urea into the United States are likely to increase significantly, causing our sales and margins to suffer.
Any decline in U.S. agricultural production or limitations on the use of our products for agricultural purposes could materially adversely affect the market for our products.
Conditions in the U.S. agricultural industry can significantly impact our operating results. The U.S. agricultural industry can be affected by a number of factors, including weather patterns and field conditions, current and projected grain inventories and prices, the domestic and international demand for U.S. agricultural products and U.S. and foreign policies regarding trade in agricultural products.
State and federal governmental policies, including farm subsidies and commodity support programs, may also directly or indirectly influence the number of acres planted, the mix of crops planted and the use of fertilizers for particular agricultural applications. In addition, several states are currently considering limitations on the use and application of chemical fertilizers due to concerns about the impact of these products on the environment.
Adverse weather conditions may decrease demand for our fertilizer products.
Weather conditions that delay or intermittently disrupt field work during the planting and growing season may cause agricultural customers to use different forms of nitrogen fertilizer, which may adversely affect demand for the forms that we sell. Adverse weather conditions following harvest may delay or eliminate opportunities to apply fertilizer in the fall. Weather can also have an adverse effect on crop yields, which lowers the income of growers and could impair their ability to purchase fertilizer from our customers.
Our inability to predict future seasonal fertilizer demand accurately could result in excess inventory, potentially at costs in excess of market value, or product shortages.
The fertilizer business is seasonal. The strongest demand for our products occurs during the spring planting season, with a second period of strong demand following the fall harvest. We and/or our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales seasons. Seasonality is greatest for ammonia due to the limited ability of our customers and their customers to store significant quantities of this product. The seasonality of fertilizer demand results in our sales volumes and net sales being the highest during the spring and our working capital requirements being the highest just prior to the start of the spring season. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns.
If seasonal demand exceeds our projections, our customers may acquire products from our competitors, and our profitability will be negatively impacted. If seasonal demand is less than we expect, we will be left with excess inventory that will have to be stored (in which case our results of operations will be negatively impacted by any related storage costs) and/or liquidated (in which case the selling price may be below our production, procurement and storage costs). The risks associated with excess inventory and product shortages are particularly acute with respect to our nitrogen fertilizer business because of the
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highly volatile cost of natural gas and nitrogen fertilizer prices and the relatively brief periods during which farmers can apply nitrogen fertilizers.
Our customer base is concentrated, with our owners accounting for a substantial portion of our sales.
Prior to the completion of this offering, we have operated as a cooperative, and a substantial portion of our sales have been made to the eight regional agricultural cooperatives that own us. During 2004, our owners purchased approximately 4.5 million tons of fertilizer from us, which represented approximately 53% of our total sales volume. Our business with our owners is relatively concentrated. During 2004, two customers, GROWMARK, Inc., which is one of our owners, and Agriliance, LLC, a 50-50 joint venture between two of our other owners, made combined fertilizer purchases of approximately $688.6 million from us, representing approximately 42% of our total net sales. Under a cooperative structure, our owners benefited from purchases of our fertilizers through their ownership interest in us and our payment to them of patronage dividends in cash and/or patronage preferred stock. After the completion of this offering, our owners are anticipated to own a substantially reduced percentage of our outstanding common stock, and they will no longer be entitled to patronage benefits for purchases of fertilizers from us. As a result of their reduced ownership interest and the elimination of patronage benefits, our owners will have fewer incentives to purchase fertilizers from us after the completion of this offering. In addition, because we depend on our owners for a significant portion of our sales, we may have less flexibility than some of our competitors to diversify our customer base and seek more profitable direct sales to customers of our owners. Any substantial change in purchasing decisions by one or more of our larger owners, whether due to actions by our competitors, our actions in expanding the direct sale of fertilizers to customers of our owners or otherwise, could have a material adverse effect on our business.
A reduction in the use of the forward pricing program by our customers could increase our exposure to changes in natural gas prices and materially adversely affect our operating results, liquidity and financial condition.
In mid-2003, we instituted a forward pricing program. Through our forward pricing program, we offer our customers the opportunity to purchase product on a forward basis at prices and dates we propose. As our customers place forward nitrogen fertilizer orders with us, we effectively fix the cost of natural gas, the largest and most volatile component of our supply cost. Under our forward pricing program, customers pay a substantial portion of the sales price in advance of shipment, which has significantly increased our liquidity. During 2004, approximately 54% of our nitrogen fertilizer sales volume and approximately 14% of our phosphate fertilizer sales volume were sold under this program, and as of March 31, 2005, approximately 51% of our cash, cash equivalent and short-term investment balance was related to customer advances made for products ordered under this program.
Since its inception in 2003, we have sold an increasing percentage of our nitrogen fertilizers under our forward pricing program. We believe this was primarily due to our customers' desire to fix their costs and reduce their exposure to increased prices during a period of generally increasing prices for nitrogen fertilizers. We do not have experience with the forward pricing program under all market conditions, and our customers may not continue to use the forward pricing program during periods of generally decreasing or stable prices. We have relatively less experience with our forward pricing program as it applies to phosphate fertilizers.
Any reduction in the use of the forward pricing program by our customers due to changing conditions in the fertilizer market or otherwise could increase our exposure to changes in natural gas prices and materially adversely affect our operating results, liquidity and financial condition.
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Our operations involve significant risks and hazards against which we may not be fully insured.
Our operations are subject to hazards inherent in the manufacturing, transportation, storage and distribution of chemical fertilizers. These hazards include: explosions; fires; severe weather and natural disasters; train derailments, collisions, vessel groundings and other transportation and maritime incidents; leaks and ruptures involving storage tanks and pipelines; spills, discharges and releases of toxic or hazardous substances or gases; deliberate sabotage and terrorist incidents; mechanical failures; unscheduled downtime; labor difficulties and other risks. Some of these hazards can cause bodily injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and they may result in suspension of operations and the imposition of civil or criminal penalties and liabilities. For example, over the course of the past few years, we have been involved in numerous property damage and personal injury lawsuits arising out of an explosion at our Donaldsonville nitrogen fertilizer complex in 2000, in which three people died and several others were injured, as well as personal injury lawsuits arising out of a train derailment near Minot, North Dakota in 2002, in which one person died and numerous others were injured.
Our exposure to these types of risk is increased because of our reliance on a limited number of key facilities. Our nitrogen fertilizer operations are dependent on our nitrogen fertilizer complex in Donaldsonville, Louisiana and our joint venture's nitrogen fertilizer complex in Medicine Hat, Alberta. Our phosphate fertilizer operations are dependent on our phosphate mine and associated beneficiation plant in Hardee County, Florida, our phosphate fertilizer complex in Plant City, Florida and our ammonia terminal in Tampa, Florida. Any suspension of operations at any of these key facilities could adversely affect our ability to produce our products and could have a material adverse effect on our business.
We maintain property, business interruption and casualty insurance policies, but we are not fully insured against all potential hazards and risks incident to our business. If we were to incur significant liability for which we were not fully insured, it could have a material adverse effect on our business, results of operations and financial condition. We are subject to various self-retentions and deductibles under these insurance policies. As a result of market conditions, our premiums, self-retentions and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage.
Expansion of our business may result in unanticipated adverse consequences and may be hindered by the significant resources that would be required for any such expansion.
In the future, we may seek to grow our business by investing in new or existing facilities, making acquisitions or entering into partnerships and joint ventures. Acquisitions, partnerships, joint ventures or investments may require significant managerial attention, which may be diverted from our other activities and may impair the operation of our businesses.
International acquisitions, partnerships, or joint ventures or the international expansion of our business, such as the project we are studying in the Republic of Trinidad and Tobago, could involve additional risks and uncertainties, including:
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Furthermore, any future acquisitions of businesses or facilities could entail a number of additional risks, including:
These risks of unanticipated adverse consequences from any expansion of our business through investments, acquisitions, partnerships or joint ventures are increased due to the significant capital and other resources that we may have to commit to any such expansion. We also face increased exposure to risks related to acquisitions and international operations because our experience with acquisitions and international operations is limited. As a result of these and other factors, including the general economic risk associated with the fertilizer business, we may not be able to realize our projected returns from any future acquisitions, partnerships, joint ventures or other investments.
We may not have access to the funding required for the expansion of our business or such funding may not be available to us on acceptable terms. We may finance the expansion of our business with additional indebtedness and/or by issuing additional equity securities. We could face financial risks associated with incurring additional indebtedness, such as reducing our liquidity and access to financial markets and increasing the amount of cash flow required to service such indebtedness, or associated with issuing additional stock, such as dilution of ownership and earnings.
We are subject to numerous environmental and health and safety laws and regulations, as well as potential environmental liabilities, which may require us to make substantial expenditures.
We are subject to numerous environmental and health and safety laws and regulations in the United States and Canada, including laws and regulations relating to land reclamation; the generation, treatment, storage, disposal and handling of hazardous substances and wastes; and the cleanup of hazardous substance releases. These laws include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Toxic Substances Control Act and various other federal, state, provincial, local and international statutes.
As a fertilizer company working with chemicals and other hazardous substances, our business is inherently subject to spills, discharges or other releases of hazardous substances into the environment. Certain environmental laws, including CERCLA, impose joint and several liability, without regard to fault, for cleanup costs on persons who have disposed of or released hazardous substances into the environment. Given the nature of our business, we have incurred, are currently incurring, and will likely in the future periodically incur liabilities under CERCLA and other environmental cleanup laws, at our current or former facilities, adjacent or nearby third-party facilities or offsite disposal locations. The costs associated with future cleanup activities that we may be required to conduct or finance may be material. Additionally, we may become liable to third parties for damages, including personal injury and property damage, resulting from the disposal or release of hazardous substances into the environment.
Violations of environmental and health and safety laws can result in substantial penalties, court orders to install pollution-control equipment, civil and criminal sanctions, permit revocations and facility shutdowns. Environmental and health and safety laws change rapidly and have tended to become more
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stringent over time. As a result, we have not always been and may not always be in compliance with all environmental and health and safety laws and regulations. Additionally, future environmental and health and safety laws and regulations or more vigorous enforcement of current laws and regulations, whether caused by violations of environmental and health and safety laws by us or other chemical fertilizer companies or otherwise, may require us to make substantial expenditures, and our costs to comply with, or any liabilities under, these laws and regulations could have a material adverse effect on our business, financial condition and results of operations.
See "BusinessEnvironment, Health and Safety."
Our operations are dependent on numerous required permits and approvals from governmental authorities.
We hold numerous environmental, mining and other governmental permits and approvals authorizing operations at each of our facilities. Expansion of our operations also is predicated upon securing the necessary environmental or other permits or approvals. A decision by a government agency to deny or delay issuing a new or renewed material permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility and on our business, financial condition and results of operations.
In certain cases, as a condition to procuring such permits and approvals, we may be required to comply with financial assurance regulatory requirements. The purpose of these requirements is to assure the government that sufficient company funds will be available for the ultimate closure, post-closure care and/or reclamation at our facilities. Currently, these financial assurance requirements can be satisfied without the need for any expenditure of corporate funds if our financial statements meet certain criteria, referred to as the financial tests. However, pursuant to a recent amendment that is scheduled to become effective July 2, 2005 to Florida's regulations governing financial assurance related to the closure of phosphogypsum stacks, we intend to establish a trust fund to meet such obligations to take advantage of a "Safe Harbor" provision of the new regulations. Additionally, the Florida legislature recently passed a bill that would require mining companies to demonstrate financial responsibility for wetland and other surface water mitigation measures in advance of any mining activities. If this bill becomes law, we may be required to demonstrate financial responsibility for wetland and other surface water mitigation measures if and when we expand our Hardee mining activities to new geographical areas not currently permitted.
Until we begin making contributions to a trust fund under the new rules, we will continue to demonstrate financial assurance through the financial tests. In the event that we are unable to satisfy these financial tests, alternative methods of complying with the financial assurance requirements would require us to expend funds for the purchase of bonds, letters of credit, insurance policies or similar instruments. It is possible that we will not be able to comply with either current or new financial assurances regulations in the future, which could have a material adverse effect on our business, financial condition and results of operations.
As of January 1, 2005, the area permitted by local, state and federal authorities for mining at our Hardee phosphate complex had approximately 60 million tons of recoverable phosphate rock reserves, which will meet our requirements, at current operating rates, for approximately 17 years. Mining of these reserves beyond 2011, however, is subject to extension of our local development authorization by the Hardee County Board of County Commissioners. Additionally, we have initiated the process of applying for authorization and permits to expand the geographical area in which we can mine at our Hardee property. The expanded geographical area has an estimated additional 35 million tons of recoverable phosphate reserves, which will allow us to conduct mining operations at our Hardee property for approximately ten additional years at current operating rates, assuming we secure the authorization and permits to mine in this area. In Florida, local community participation has become an important factor in the authorization and permitting process for mining companies. A denial of the authorizations or permits
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to continue and/or expand our mining operations at our Hardee property would prevent us from mining all of our reserves and have a material adverse effect on our business, financial condition and results of operations.
Likewise, our phosphogypsum stack system at Plant City has sufficient capacity to meet our requirements through 2014 at current operating rates and subject to regular renewals of our operating permits. We have secured the local development authorization to increase the capacity of this stack system. The increased capacity is expected to meet our requirements through 2049 at current operating rates and subject to securing the corresponding operating permits. A decision by the state or federal authorities to deny a renewal of our current permits or to deny operating permits for the expansion of our stack system could have a material adverse effect on our business, financial condition and results of operations.
Acts of terrorism could negatively affect our business.
Like other companies with major industrial facilities, our plants and ancillary facilities may be targets of terrorist activities. Many of these plants and facilities store significant quantities of ammonia and other items that can be volatile if mishandled. Any damage to infrastructure facilities, such as electric generation, transmission and distribution facilities, or injury to employees, who could be direct targets or indirect casualties of an act of terrorism, may affect our operations. Any disruption of our ability to produce or distribute our products could result in a significant decrease in revenues and significant additional costs to replace, repair or insure our assets, which could have a material adverse impact on our financial condition and results of operations. In addition, due to concerns related to terrorism or the potential use of certain fertilizers as explosives, local, state and federal governments could implement new regulations impacting the security of our plants, terminals and warehouses or the transportation and use of fertilizers. These regulations could result in higher operating costs or limitations on the sale of our products and could result in significant unanticipated costs, lower revenues and/or reduced profit margins.
Our operations are dependent upon raw materials provided by third parties and any delay or interruption in the delivery of these raw materials may adversely affect our business.
We use natural gas, ammonia and sulfur as raw materials in the manufacture of fertilizers. We purchase these raw materials from third-party suppliers. These products are transported by barge, truck, rail or pipeline to our facilities by third-party transportation providers or through the use of facilities owned by third parties. Any delays or interruptions in the delivery of these key raw materials, including those caused by capacity constraints; explosions; fires; severe weather and natural disasters; train derailments, collisions, vessel groundings and other transportation and maritime incidents; leaks and ruptures involving pipelines; deliberate sabotage and terrorist incidents; mechanical failures; unscheduled downtime; or labor difficulties, could have a material adverse effect on our business.
The loss of key members of our management may adversely affect our business.
We believe our continued success depends on the collective abilities and efforts of our senior management. The loss of one or more key personnel could have a material adverse effect on our results of operations. Additionally, if we are unable to find, hire and retain needed key personnel in the future, our results of operations could be materially and adversely affected.
As a result of this offering, we will be subject to financial reporting and other requirements for which our accounting, internal audit and other management systems and resources may not be adequately prepared.
As a result of this offering, we will become subject to reporting and other obligations under the Securities Exchange Act of 1934, including the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires annual management assessments of the effectiveness of our internal controls over
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financial reporting and a report by our independent auditors addressing these assessments. These reporting and other obligations will place significant demands on our management, administrative, operational, internal audit and accounting resources. We anticipate that we will need to upgrade our systems; implement additional financial and management controls, reporting systems and procedures; expand our internal audit function; and hire additional accounting, internal audit and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, operating results and stock price.
Risks Related to this Offering
There is no existing market for our common stock, and if one does not develop, you may not have adequate liquidity.
There has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on the New York Stock Exchange or otherwise or how liquid that market might become. The initial public offering price for the shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering.
Future sales of our shares could depress the market price of our common stock.
Sales of a substantial number of shares of our common stock in the public market or otherwise following this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock. After completion of this offering, there will be approximately million shares of our common stock outstanding. The shares of common stock being sold in this offering (or shares if the underwriters exercise the over-allotment option in full) will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by affiliates of our company, as that term is defined in Rule 144 of the Securities Act. All remaining shares were issued and sold by us in private transactions and are eligible for public sale if registered under the Securities Act, or sold in accordance with Rule 144 thereunder. In addition, our amended and restated certificate of incorporation permits the issuance of up to approximately million additional shares of common stock after this offering. Thus, we have the ability to issue substantial amounts of common stock in the future, which would dilute the percentage ownership held by the investors who purchase our shares in this offering. See "Shares Eligible for Future Sale."
We, our directors and executive officers and our owners have agreed with the underwriters not to sell, dispose of, or hedge any of our common stock or securities convertible into or exchangeable for shares of our common stock, subject to specified exceptions, during the period from the date of this prospectus continuing through the date that is 180 days (or one year in the case of our owners) after the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. Incorporated.
Upon consummation of this offering, we will provide our owners the opportunity to enter into a registration rights agreement with us. Pursuant to this agreement, those owners who hold shares of our common stock received in the Reorganization Transaction representing at least 5% of our outstanding common stock will receive certain demand and piggyback registration rights with respect to those shares of common stock that they receive in the Reorganization Transaction. These rights may only be exercised after our owners' lock-up agreements pertaining to this offering expire one year after the date of this prospectus. In the Reorganization Transaction, the owners of CF Industries will receive up to shares of common stock. Registration of the sale of these shares of our common stock would facilitate their sale into the market. If, upon expiration of the one-year lock-up period, any of our owners sell a large number of shares, the market price of our common stock could decline.
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In addition, prior to the consummation of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register up to shares of our common stock for issuance under our 2005 Equity and Incentive Plan. As awards under this plan are granted, vest and are exercised, the shares issued on exercise generally will be available for sale in the open market by holders who are not our affiliates and, subject to the volume and other applicable limitations of Rule 144, by holders who are our affiliates.
The market price of our common stock may be volatile, which could cause the value of your investment to decline significantly.
Securities markets worldwide experience significant price and volume fluctuations, in response to general economic and market conditions and their effect on various industries. This market volatility could cause the price of our common stock to decline significantly and without regard to our operating performance. In addition, the market price of our common stock could decline significantly if our future operating results fail to meet or exceed the expectations of public market analysts and investors.
Some specific factors that may have a significant effect on our common stock market price include:
As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price.
The book value of shares of common stock purchased in the offering may be immediately diluted.
Investors who purchase common stock in the offering may suffer immediate dilution of $ per share in the pro forma net tangible book value per share. See "Dilution."
Although we intend to pay dividends, our financial condition, debt covenants or Delaware law may prohibit us from doing so.
Although we intend to pay dividends at the rate of $ per share of common stock per quarter, the payment of dividends will be at the discretion of our board of directors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition and other factors our board of directors deems relevant. Our ability to pay dividends also will be subject to compliance with the covenants in our proposed new senior secured credit facility, which is expected to become effective upon completion of this offering. Dividends may also be limited or prohibited by the terms of any future borrowings or issuances of preferred stock. In addition, applicable law requires that our board of directors determine that we have adequate surplus prior to the declaration of dividends. In the future, we may not pay dividends at the levels currently anticipated or at all.
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Provisions of our amended and restated certificate of incorporation and bylaws could delay or prevent a takeover of us by a third party.
Our amended and restated certificate of incorporation and bylaws could delay, defer or prevent a third party from acquiring us, despite the possible benefit to our stockholders, or otherwise adversely affect the price of our common stock. For example, our amended and restated certificate of incorporation and bylaws will:
These provisions may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors other than the candidates nominated by our board. See "Description of Capital Stock" for additional information on the anti-takeover measures applicable to us.
Our stockholder rights plan could prevent you from receiving a premium over the market price for your shares of common stock from a potential acquirer.
We anticipate adopting a stockholder rights plan to become effective upon completion of this offering. This plan will entitle our stockholders to acquire shares of our common stock at a price equal to 50% of the then current market value in limited circumstances when a third party acquires 15% or more of our outstanding common stock or announces its intent to commence a tender offer for at least 15% of our common stock, in each case in a transaction that our board of directors does not approve. Because, under these limited circumstances, all of our stockholders would become entitled to effect discounted purchases of our common stock, other than the person or group that caused the rights to become exercisable, the existence of these rights would significantly increase the cost of acquiring control of our company without the support of our board of directors. The existence of the rights plan could therefore deter potential acquirers and thereby reduce the likelihood that you will receive a premium for your common stock in an acquisition.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies.
We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this prospectus. These forward-looking statements are made based on our expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.
We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this prospectus. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this prospectus.
Important factors that could cause actual results to differ materially from our expectations are disclosed under "Risk Factors" and elsewhere in this prospectus, including, without limitation, in conjunction with the forward-looking statements included in this prospectus. As stated elsewhere in this prospectus, such factors include, among others:
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MARKET AND INDUSTRY DATA AND FORECASTS
This prospectus includes market share and industry data and forecasts that we have developed from independent consultant reports, reports from government agencies, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Our internal data, estimates and forecasts are based upon information obtained from our customers, suppliers, trade and business organizations and other contacts in the markets in which we operate and our management's understanding of industry conditions, and such information has not been verified by any independent sources.
Unless otherwise indicated, all financial information and operating data in this prospectus, including tons of product produced and sold, include information for Canadian Fertilizers Limited, or CFL, our consolidated Canadian joint venture in which we own a 66% economic interest. See "BusinessOperating SegmentsNitrogen Fertilizer Business."
Certain market and industry data in this prospectus is presented for twelve-month periods ending June 30, which is a measuring period referred to in the fertilizer industry as a "fertilizer year."
All references to dollars, or $, in this prospectus refer to U.S. dollars, unless otherwise indicated.
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THE REORGANIZATION TRANSACTION
CF Industries is currently owned by eight regional agricultural cooperatives: CHS Inc., GROWMARK, Inc., Intermountain Farmers Association, La Coop fédérée, Land O'Lakes, Inc., MFA Incorporated, Southern States Cooperative, Incorporated and Tennessee Farmers Cooperative.
As part of the reassessment of CF Industries' corporate mission and adoption of a new business model that began in 2002, the owners of CF Industries undertook an evaluation of the company's capital and ownership structure in light of their increasing desire for liquidity with respect to their investment in the company. After considering their alternatives, the owners determined that this offering best met their objective of providing liquidity for their investment, while at the same time permitting certain owners the opportunity to retain an equity interest in the company.
Concurrent with the closing of this offering, the owners of CF Industries will consummate the Reorganization Transaction, which is designed to facilitate this offering by creating a holding company for our business. The Reorganization Transaction will be effected through a merger of a newly-formed, wholly-owned subsidiary of CF Holdings into CF Industries pursuant to an agreement and plan of merger. The merger and the consummation of this offering will be contingent upon each other and will occur simultaneously. Following the merger, CF Industries will be our wholly-owned subsidiary. The Reorganization Transaction will not affect our operations, which we will continue to conduct through our operating subsidiaries.
Pursuant to the Reorganization Transaction, the owners of CF Industries will receive shares of our common stock and cash in exchange for their outstanding equity interests in CF Industries. Assuming an initial public offering price of $ per share, the mid-point of the estimated price range shown on the cover page of this prospectus, the owners of CF Industries will receive, in the aggregate, shares of our common stock and $ million, which represents the estimated proceeds to us from this offering, after deducting underwriting discounts and commissions.
The cash payment and the number of shares issued to the owners of CF Industries will be adjusted depending on whether the underwriters exercise their over-allotment option.
If the over-allotment option is not exercised by the underwriters, upon completion of this offering, the owners of CF Industries will own shares of our common stock, representing 25% of our outstanding common stock. If the over-allotment option is exercised in full by the underwriters, upon completion of this offering, the owners of CF Industries will own shares of our common stock, representing approximately 14% of our outstanding common stock. The cash payment or stock issuance related to the over-allotment option will be made shortly after the expiration or full exercise of the over-allotment option. For information relating to the number of shares and the amount of cash consideration that will be received by each of CF Industries' owners, see "Certain Relationships and Related Party TransactionsThe Reorganization Transaction."
Net operating loss carryforwards. As of March 31, 2005, we had total net operating loss carryforwards of $290.1 million. A gross deferred tax asset of $116.1 million related to these net operating loss carryforwards is included in deferred income taxes on our March 31, 2005 balance sheet. Because our net
24
operating loss carryforwards were generated from business conducted with our owners when we were a cooperative for tax purposes, there is substantial uncertainty under existing tax law whether any tax benefits from the related deferred tax asset will be realizable after the completion of this offering. As a result of this uncertainty, we will establish a valuation allowance equal to 100% of any of the deferred tax asset remaining after the consummation of this offering. We will record a non-cash charge to "Income Tax Expense" in the amount of the valuation allowance in the quarter in which the offering is completed.
We intend to enter into an NOL Agreement with the owners of CF Industries in connection with the Reorganization Transaction relating to the treatment of the net operating loss carryforwards. Under the NOL Agreement, in the event that it is finally determined that our net operating loss carryforwards can be used after we are no longer a cooperative, we will pay the owners of CF Industries an amount equal to the federal and state income taxes actually saved after the completion of this offering as a result of the utilization of net operating loss carryforwards related to our former cooperative status. These payments, if any, will be made only after it has been finally determined that utilization of the net operating losses has provided us with actual tax savings. The NOL Agreement will not require that we operate in a way that maximizes the use of our cooperative-related net operating loss carryforwards. Costs incurred after completion of this offering in pursuing a determination regarding the usability of these net operating loss carryforwards will be borne by the owners of CF Industries.
25
We estimate that we will receive net proceeds of approximately $ million from the sale of shares in this offering, after deducting underwriting discounts and commissions and the payment by us of estimated offering expenses, or $ million if the underwriters exercise their over-allotment option in full.
We intend to pay $ million, which represents the proceeds of the offering to us, after deducting underwriting discounts and commissions, to the owners of CF Industries in the Reorganization Transaction. We intend to pay the $ in estimated offering expenses from cash on hand. If the underwriters exercise the over-allotment option in full, we expect to pay an estimated additional $ million to the owners of CF Industries in the Reorganization Transaction. For additional information regarding the Reorganization Transaction, see "The Reorganization Transaction."
We intend to pay quarterly cash dividends on our common stock at an initial rate of $ per share of common stock ($ per annum), commencing , 2005. We expect to pay quarterly dividends at such rate for the foreseeable future. The declaration and payment of dividends to holders of our common stock will be at the discretion of our board of directors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal requirements and other factors as our board of directors deems relevant. In addition, our proposed new $250 millon senior secured credit facility, which we expect to become effective upon completion of this offering, limits our ability to pay dividends, and we may in the future become subject to debt instruments or other agreements that further limit our ability to pay dividends. See "Description of Certain Indebtedness."
26
The following table sets forth our consolidated cash, cash equivalents and short-term investments and capitalization as of March 31, 2005:
You should read the information in this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements included elsewhere in this prospectus.
|
As of March 31, 2005
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
Actual
|
As Adjusted
|
|||||||
|
(in thousands)
|
||||||||
Cash, cash equivalents and short-term investments (1) | $ | 465,758 | $ | ||||||
|
|
||||||||
Indebtedness (2) : |
|
|
|
|
|
|
|
||
Long-term debt, including current portion | $ | 254,021 | $ | ||||||
Notes payable (3) | 4,071 | ||||||||
|
|
||||||||
Total indebtedness, including current portion | 258,092 | ||||||||
|
|
||||||||
Stockholders' equity: |
|
|
|
|
|
|
|
||
Patronage preferred stock ($100 par value, 10,000,000 shares authorized, 7,343,018 shares issued and outstanding before adjustments, and none outstanding after adjustments) | 734,302 | | |||||||
Common stock ($1,000 par value, 100 shares authorized, 8 shares issued and outstanding before adjustments, and none outstanding after adjustments) | 8 | | |||||||
Common stock ($0.01 par value, shares authorized, none outstanding before adjustments, and shares issued and outstanding after adjustments) | | ||||||||
Paid-in capital | 5,555 | ||||||||
Retained earnings | 82,116 | ||||||||
Other comprehensive income (loss) | (8,843 | ) | |||||||
|
|
||||||||
Total stockholders' equity | 813,138 | (4) | |||||||
|
|
||||||||
Total capitalization | $ | 1,071,230 | $ | ||||||
|
|
27
28
Dilution is the amount by which the offering price paid by the purchasers of the common stock to be sold in this offering will exceed the net tangible book value per share of common stock after the offering. The net tangible book value per share presented below is equal to the amount of our total tangible assets (total assets less intangible assets) less total liabilities as of March 31, 2005, divided by the number of shares of our common stock held by the owners of CF Industries as of such date, assuming for this purpose that we had issued shares of common stock in the Reorganization Transaction, including shares of common stock to be issued to the owners of CF Industries if the underwriters do not exercise their over-allotment option as described under "The Reorganization Transaction." On March 31, 2005, we had a net tangible book value of $ million, or $ per share on the basis described above.
On an adjusted basis, after giving effect to:
our adjusted net tangible book value as of March 31, 2005 would have been $ million, or $ per share of common stock. This represents an immediate decrease in net tangible book value of $ per share to the owners of CF Industries and an immediate dilution in net tangible book value of $ per share to new investors.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share | $ | |||||
Net tangible book value per share as of March 31, 2005 | $ | |||||
Decrease in net tangible book value per share attributable to new investors | ||||||
|
||||||
Adjusted net tangible book value per share after giving effect to the offering | ||||||
|
||||||
Dilution in net tangible book value per share to new investors | $ | |||||
|
The following table summarizes, on an adjusted basis as of March 31, 2005 after giving effect to the transactions described above, the total number of shares of common stock purchased from us, the total
29
consideration paid to us, and the average price per share paid by the owners of CF Industries and by new investors purchasing shares in this offering:
|
Shares Purchased
|
Total Consideration
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Price Per Share
|
|||||||||||
|
Number
|
Percent
|
Amount
|
Percent
|
||||||||
Owners | % | % | $ | |||||||||
New investors | ||||||||||||
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|
|||||||||||
Total | % | % | ||||||||||
|
|
The foregoing computations exclude shares issuable upon the exercise of stock options to be issued in connection with this offering and shares available for future issuance under our 2005 Equity and Incentive Plan. To the extent the holders exercise these options, or we issue any other shares as incentive compensation under the Plan, there will be further dilution to new investors. See "Management2005 Equity and Incentive Plan." The foregoing computations also exclude shares of restricted stock that we intend to grant on the date of this prospectus to our non-employee directors (assuming an initial public offering price of $ per share, the mid-point of the estimated price range shown on the cover page of this prospectus).
30
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table presents selected historical financial and operating data about us. CF Holdings was formed in April 2005 to serve as a holding company for our businesses. CF Holdings has not commenced operations and has no assets or liabilities. In order to facilitate this offering, we will consummate the Reorganization Transaction in which CF Holdings will become the successor to CF Industries for accounting purposes. See "The Reorganization Transaction."
The following selected historical financial data for CF Industries as of December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003, and 2004 have been derived from CF Industries' audited consolidated financial statements and related notes included elsewhere in this prospectus. The following selected historical financial data for CF Industries as of December 31, 2000, 2001 and 2002 and for the years ended December 31, 2000 and 2001 have been derived from CF Industries' unaudited consolidated financial statements, which are not included in this prospectus.
The following selected historical financial data for CF Industries as of March 31, 2005 and for the three months ended March 31, 2004 and 2005 have been derived from CF Industries' unaudited consolidated financial statements and related notes included elsewhere in this prospectus. The following selected historical balance sheet data for CF Industries as of March 31, 2004 have been derived from CF Industries' unaudited consolidated financial statements, which are not included in this prospectus. In the opinion of management, such unaudited historical financial data reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the results for those periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or any future period.
The selected historical financial and operating data should be read in conjunction with the information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and CF Industries' audited consolidated financial statements and related notes included elsewhere in this prospectus.
|
Year ended December 31,
|
Three months ended March 31,
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2000
|
2001
|
2002
|
2003
|
2004
|
2004
Restated (1) |
2005
|
|||||||||||||||
|
(in thousands)
|
|||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||
Net sales | $ | 1,160,474 | $ | 1,159,603 | $ | 1,014,071 | $ | 1,369,915 | $ | 1,650,652 | $ | 324,664 | $ | 459,329 | ||||||||
Cost of sales | 1,127,588 | 1,244,706 | 986,295 | 1,335,508 | 1,434,545 | 288,802 | 404,053 | |||||||||||||||
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|
|
|
|
|
|
||||||||||||||||
Gross margin | 32,886 | (85,103 | ) | 27,776 | 34,407 | 216,107 | 35,862 | 55,276 | ||||||||||||||
Selling, general and administrative |
|
|
35,999 |
|
|
36,086 |
|
|
37,317 |
|
|
38,455 |
|
|
41,830 |
|
|
10,188 |
|
|
11,023 |
|
Other operatingnet | 11,630 | 13,106 | 9,294 | 1,557 | 25,043 | 2,143 | 1,130 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Operating earnings (loss) | (14,743 | ) | (134,295 | ) | (18,835 | ) | (5,605 | ) | 149,234 | 23,531 | 43,123 | |||||||||||
Interest expense |
|
|
21,087 |
|
|
21,766 |
|
|
23,565 |
|
|
23,870 |
|
|
22,696 |
|
|
6,108 |
|
|
5,255 |
|
Interest income | (6,247 | ) | (4,179 | ) | (2,209 | ) | (2,260 | ) | (5,901 | ) | (1,298 | ) | (3,527 | ) | ||||||||
Minority interest | 2,418 | (3,007 | ) | 6,409 | 6,031 | 23,145 | 5,141 | 4,916 | ||||||||||||||
Impairment of Bartow long-lived assets (2) | 11,404 | | | | | |||||||||||||||||
Impairment of investments in unconsolidated subsidiaries (3) | | | | | 1,050 | |||||||||||||||||
Other non-operatingnet | (889 | ) | (445 | ) | (174 | ) | (676 | ) | (778 | ) | | (329 | ) | |||||||||
|
|
|
|
|
|
|
||||||||||||||||
Earnings (loss) before income taxes | (42,516 | ) | (148,430 | ) | (46,426 | ) | (32,570 | ) | 109,022 | 13,580 | 36,808 | |||||||||||
Income tax provision (benefit) |
|
|
(16,700 |
) |
|
(59,325 |
) |
|
(16,600 |
) |
|
(12,600 |
) |
|
41,400 |
|
|
5,157 |
|
|
14,465 |
|
Equity in earnings (loss) of unconsolidated subsidiaries | (11 | ) | 507 | 1,706 | 1,587 | 110 | 146 | (7 | ) | |||||||||||||
Cumulative effect of change in accounting principlenet of taxes (4) | | 14,440 | | | | | | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Net earnings (loss) | $ | (25,827 | ) | $ | (74,158 | ) | $ | (28,120 | ) | $ | (18,383 | ) | $ | 67,732 | $ | 8,569 | $ | 22,336 | ||||
|
|
|
|
|
|
|
||||||||||||||||
Other Financial Data: | ||||||||||||||||||||||
EBITDA (5) | $ | 84,643 | $ | (13,709 | ) | $ | 84,960 | $ | 95,243 | $ | 233,543 | $ | 45,220 | $ | 64,837 | |||||||
Depreciation, depletion and amortization | 112,366 | 102,223 | 108,471 | 105,014 | 108,642 | 26,938 | 26,556 | |||||||||||||||
Capital expenditures | 52,273 | 41,734 | 26,303 | 28,684 | 33,709 | 4,199 | 16,777 | |||||||||||||||
Total debt | 286,586 | 334,831 | 326,205 | 293,503 | 258,821 | 292,687 | 258,092 | |||||||||||||||
Net debt (6) | 298,852 | 291,520 | 271,224 | 290,654 | 51,029 | 309,356 | 27,935 |
31
|
Year ended December 31,
|
Three months ended March 31,
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2000
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2001
|
2002
|
2003
|
2004
|
2004
|
2005
|
|||||||||||||||
Selected Operating Data: | ||||||||||||||||||||||
Average selling prices (per ton) | ||||||||||||||||||||||
Ammonia | $ | 167 | $ | 205 | $ | 159 | $ | 236 | $ | 278 | $ | 262 | $ | 281 | ||||||||
Urea | 133 | 142 | 120 | 172 | 205 | 199 | 236 | |||||||||||||||
UAN | 98 | 119 | 93 | 119 | 137 | 130 | 155 | |||||||||||||||
DAP | 143 | 142 | 146 | 163 | 197 | 188 | 209 | |||||||||||||||
MAP | 150 | 153 | 157 | 172 | 204 | 198 | 213 | |||||||||||||||
Sales volume (in thousand tons) | ||||||||||||||||||||||
Ammonia | 1,610 | 1,714 | 1,435 | 1,475 | 1,438 | 215 | 316 | |||||||||||||||
Urea | 2,528 | 2,188 | 2,663 | 2,572 | 2,513 | 612 | 749 | |||||||||||||||
UAN | 1,927 | 1,489 | 1,926 | 2,228 | 2,593 | 557 | 590 | |||||||||||||||
DAP | 1,630 | 1,776 | 1,560 | 1,627 | 1,549 | 330 | 387 | |||||||||||||||
MAP | 372 | 318 | 289 | 252 | 351 | 59 | 100 | |||||||||||||||
Cost of natural gas (per mmBTU) | ||||||||||||||||||||||
Donaldsonville facility | $ | 3.27 | $ | 4.11 | $ | 3.29 | $ | 5.20 | $ | 5.60 | $ | 5.12 | $ | 7.02 | ||||||||
Medicine Hat facility | 3.23 | 4.21 | 2.64 | 4.74 | 5.10 | 5.02 | 5.91 | |||||||||||||||
Average daily market price of natural gas (per mmBTU) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Hub (Louisiana) | $ | 4.29 | $ | 3.98 | $ | 3.35 | $ | 5.44 | $ | 5.85 | $ | 5.61 | $ | 6.40 | ||||||||
AECO (Alberta) | 3.73 | 3.55 | 2.60 | 4.72 | 5.04 | 4.87 | 5.59 | |||||||||||||||
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|
As of December 31, |
|
As of March 31, |
||||||||||||||||||
|
2000
|
2001
|
2002
|
2003
|
2004
|
2004
Restated (1) |
2005
|
|||||||||||||||
|
(in thousands)
|
|||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 144,517 | $ | 48,985 | $ | 56,536 | $ | 77,146 | $ | 50,003 | $ | 32,140 | $ | 42,140 | ||||||||
Short-term investments (7) | 42,526 | 4,550 | 38,417 | 91,725 | 369,290 | 137,700 | 423,618 | |||||||||||||||
Total assets | 1,593,715 | 1,300,913 | 1,303,532 | 1,404,879 | 1,546,971 | 1,414,030 | 1,576,922 | |||||||||||||||
Total debt | 286,586 | 334,831 | 326,205 | 293,503 | 258,821 | 292,687 | 258,092 | |||||||||||||||
Customer advances | 199,309 | 10,224 | 39,972 | 166,022 | 211,501 | 186,509 | 235,601 | |||||||||||||||
Stockholders' equity | 844,726 | 769,475 | 740,929 | 733,511 | 787,289 | 738,319 | 813,138 |
32
|
Year ended December 31,
|
Three months ended March 31,
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2000
|
2001
|
2002
|
2003
|
2004
|
2004
Restated (1) |
2005
|
||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||
Calculation of EBITDA | |||||||||||||||||||||||
Net earnings (loss) | $ | (25,827 | ) | $ | (74,158 | ) | $ | (28,120 | ) | $ | (18,383 | ) | $ | 67,732 | $ | 8,569 | $ | 22,336 | |||||
Interestnet (a)(b) | 14,840 | 17,587 | 21,356 | 21,610 | 16,795 | 4,810 | 1,728 | ||||||||||||||||
Income tax provision (benefit) | (16,700 | ) | (59,325 | ) | (16,600 | ) | (12,600 | ) | 41,400 | 5,157 | 14,465 | ||||||||||||
Depreciation, depletion and amortization (c) | 112,366 | 102,223 | 108,471 | 105,014 | 108,642 | 26,938 | 26,556 | ||||||||||||||||
Financing fees (d) | (36 | ) | (36 | ) | (147 | ) | (398 | ) | (1,026 | ) | (254 | ) | (248 | ) | |||||||||
|
|
|
|
|
|
|
|||||||||||||||||
EBITDA | $ | 84,643 | $ | (13,709 | ) | $ | 84,960 | $ | 95,243 | $ | 233,543 | $ | 45,220 | $ | 64,837 | ||||||||
|
|
|
|
|
|
|
|
As of December 31,
|
As of March 31,
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2000
|
2001
|
2002
|
2003
|
2004
|
2004
|
2005
|
||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||
Calculation of net debt | |||||||||||||||||||||||
Total debt | $ | 286,586 | $ | 334,831 | $ | 326,205 | $ | 293,503 | $ | 258,821 | $ | 292,687 | $ | 258,092 | |||||||||
Less cash, cash equivalents and short-term investments | 187,043 | 53,535 | 94,953 | 168,871 | 419,293 | 169,840 | 465,758 | ||||||||||||||||
Plus customer advances | 199,309 | 10,224 | 39,972 | 166,022 | 211,501 | 186,509 | 235,601 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Net debt | $ | 298,852 | $ | 291,520 | $ | 271,224 | $ | 290,654 | $ | 51,029 | $ | 309,356 | $ | 27,935 | |||||||||
|
|
|
|
|
|
|
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the "Selected Historical Financial and Operating Data" and the consolidated financial statements and related notes included elsewhere in this prospectus.
We have restated the unaudited consolidated balance sheet as of March 31, 2004 and the related unaudited consolidated statements of operations and cash flows for the three months then ended. See note 2 to our unaudited consolidated quarterly financial statements included in this prospectus for information regarding the restatement. Accordingly, certain amounts and explanations included in our discussion and analysis of financial condition and results of operations have been amended.
Our Company
We are one of the largest manufacturers and distributors of nitrogen and phosphate fertilizer products in North America. Our operations are organized into two business segments: the nitrogen fertilizer business and the phosphate fertilizer business. Our principal products in the nitrogen fertilizer business are ammonia, urea and UAN. Our principal products in the phosphate fertilizer business are DAP and MAP. For the twelve months ended June 30, 2004, we supplied approximately 22% of the nitrogen and approximately 14% of the phosphate used in agricultural fertilizer applications in the United States. Our core market and distribution facilities are concentrated in the midwestern U.S. grain-producing states.
Our principal assets include:
Company History
We were founded in 1946 as a fertilizer brokerage operation by a group of regional agricultural cooperatives seeking to pool their purchasing power. During the 1960s, we expanded our distribution capabilities and diversified into fertilizer manufacturing through the acquisition of several existing plants and facilities. During the 1970s and again during the 1990s, we expanded our production and distribution capabilities significantly, spending approximately $1 billion in each of these decades.
Through the end of 2002, we operated as a traditional supply cooperative. Our focus was on providing our owners with an assured supply of fertilizer. Typically, over 80% of our annual sales volume was to our owners. Though important, financial performance was subordinate to our mandated supply objective.
In 2002, we reassessed our corporate mission and adopted a new business model that established financial performance, rather than assured supply to our owners, as our principal objective. A critical aspect of our new business model is a more economically driven approach to the marketplace. We now pursue markets and customers and make pricing decisions with a primary focus on enhancing our financial performance. One result of this new approach has been a shift in our customer mix. In 2004, approximately 41% of our sales volume was to unaffiliated customers, more than double the percentage of our sales volume to this group in 2002.
34
Concurrent with our new approach to the marketplace, we have been implementing other measures to improve the performance of our business. For example, we are focused on improving asset utilization, lowering our cost profile, and reducing our exposure to volatility in raw material and fertilizer prices. These measures, combined with our new approach to the marketplace and a leadership change in mid-2003, positioned us to capitalize on the improving industry conditions that began in the latter half of 2003.
CF Holdings was formed as a Delaware corporation in April 2005 to hold the existing businesses of CF Industries. CF Holdings has not commenced operations and has no assets or liabilities. In order to facilitate this offering, we will consummate the Reorganization Transaction in which CF Industries will become a wholly-owned subsidiary of CF Holdings and CF Holdings will become the successor to CF Industries for accounting purposes. For additional information on the Reorganization Transaction, see "The Reorganization Transaction."
Key Industry Factors
We operate in a highly competitive, global industry. Our products are globally-traded commodities and, as a result, we compete principally on the basis of delivered price and to a lesser extent on customer service and product quality. Moreover, our operating results are influenced by a broad range of factors, including those outlined below.
Global Supply & Demand
Historically, global fertilizer demand has been driven primarily by population growth, changes in dietary habits and planted acreage and application rates, among other things. We expect these key variables to continue to have major impacts on long-term fertilizer demand for the foreseeable future. Short-term fertilizer demand depends on global economic conditions, weather patterns, the level of global grain stocks relative to consumption and farm sector income. Other geopolitical factors like temporary disruptions in fertilizer trade related to government intervention or changes in the buying patterns of key consuming countries such as China, India or Brazil often play a major role in shaping near-term market fundamentals. The economics of fertilizer manufacturing play a key role in decisions to increase or reduce capacity. Supply of fertilizers is generally driven by available capacity and operating rates, raw material costs, government policies and global trade.
Natural Gas Prices
Natural gas is the most significant raw material required in the production of nitrogen fertilizers. For example, in 2004, our natural gas purchases accounted for approximately 61% of our total cost of sales for nitrogen fertilizers. North American natural gas prices have increased substantially and, since 1999, have become significantly more volatile. Our competitive position, on a worldwide basis, has been negatively impacted by the higher price of North American natural gas relative to the gas prices available to fertilizer producers in other regions of the world.
Farmers' Economics
The demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers. Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties and amounts of fertilizer they apply depend on factors like their current liquidity, soil conditions, weather patterns and the types of crops planted.
Global Trade in Fertilizer
In addition to the relationship between global supply and demand, profitability within a particular geographic region is determined by the supply/demand balance within that region. Regional supply and demand can be influenced significantly by factors affecting trade within regions. Some of these factors include the relative cost to produce and deliver product, relative currency values and governmental policies
35
affecting trade and other matters. Changes in currency values alter our cost competitiveness relative to producers in other regions of the world.
Imports account for a significant portion of the nitrogen fertilizer consumed in North America. Producers of nitrogen-based fertilizers located in the Middle East, the former Soviet Union, the Republic of Trinidad and Tobago and Venezuela are major exporters to North America.
The domestic phosphate fertilizer industry is tied to the global market through its position as the world's largest exporter of DAP/MAP. Historically, China has been a major source of demand for the U.S. phosphate fertilizer industry. China's reliance on imported phosphate fertilizers has decreased over the last three years as a matter of Chinese government policy to achieve self sufficiency in these products. However, growth in demand in other international markets, including Latin America and Western Europe, has largely offset declining imports by China.
Political and Social Government Policies
The political and social policies of governments around the world can result in the restriction of imports, the subsidization of domestic producers and/or the subsidization of exports. Due to the critical role that fertilizers play in food production, the construction and operation of fertilizer plants often are influenced by these political and social objectives.
Factors Affecting Our Results
Net Sales. Our net sales are derived from the sale of nitrogen and phosphate fertilizers and are determined by the quantities of nitrogen and phosphate fertilizers we sell and the selling prices we realize. The volumes, mix and selling prices we realize are determined to a great extent by a combination of global and regional supply and demand factors.
Cost of Sales. Our cost of sales includes manufacturing costs, product purchases and distribution costs. Manufacturing costs, the most significant element of cost of sales, consist primarily of raw materials, maintenance, direct labor and other plant overhead expenses. Purchased product costs primarily include the cost to buy ammonia for use in our phosphate fertilizer business and the cost to purchase nitrogen fertilizers to augment our production. Distribution costs include the cost of freight required to transport finished products from our plants to our distribution facilities and storage costs prior to final shipment to customers.
In mid-2003, we instituted our forward pricing program, which allows us to manage some of the risks created by volatility of fertilizer prices and natural gas costs. Through our forward pricing program, we offer our customers the opportunity to purchase product on a forward basis at prices and dates we propose. As our customers place forward nitrogen fertilizer orders with us, we lock in a substantial portion of the margin on the sale by effectively fixing the cost of natural gas, the largest and most volatile component of our supply cost. See "Forward Pricing Program." As a result of fixing the selling prices of our products under our forward pricing program, often months in advance of their ultimate delivery to customers, our reported selling prices and margins may differ from market spot prices and margins available at the time of shipment.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses mainly consist of salaries and other payroll-related costs for our executive, administrative, legal, financial and marketing functions, as well as certain taxes, insurance and professional service fees. We anticipate incurring higher selling, general and administrative expenses as a public company after the consummation of this offering. These expenses will include additional legal and corporate governance expenses, salary and payroll-related costs for additional accounting staff, director compensation, exchange listing fees, transfer agent and stockholder-related fees and increased premiums for director and officer liability insurance coverage.
36
Other OperatingNet. Other operatingnet includes the costs associated with our Bartow phosphate facility (which has been largely idle since 1989) and other costs that do not relate directly to our central operations. Bartow facility costs include provisions for phosphogypsum stack and cooling pond closure costs. The term "other costs" refers to amounts recorded for environmental remediation for other areas of our business and litigation expenses.
Interest Expense. Our interest expense includes the interest on our long-term debt and notes payable and amortization of the related fees to execute required financing agreements.
Interest Income. Our interest income represents amounts earned on our cash and cash equivalents and short-term investments.
Minority Interest. Amounts reported as minority interest represent the 34% minority interest in the net operating results of CFL, our consolidated Canadian joint venture. We own 49% of the voting common stock of CFL and 66% of CFL's non-voting preferred stock. Two owners of CF Industries own 17% of CFL's voting common stock. The remaining 34% of the voting common stock and non-voting preferred stock of CFL is held by Westco. We designate four members of CFL's nine-member board of directors, which also has one member designated by each of the two owners of CF Industries that own an interest in CFL and three members designated by Westco.
We operate the Medicine Hat facility and purchase approximately 66% of the facility's ammonia and urea production, pursuant to a management agreement and a product purchase agreement. The management agreement and the product purchase agreement are each terminable by either us or CFL upon twelve-months' notice. Westco has the right, but not the obligation, to purchase the remaining 34% of the facility's ammonia and urea production under a similar product purchase agreement. To the extent that Westco does not purchase its 34% of the facility's production, we are obligated to purchase any remaining amounts. Under the product purchase agreements, both we and Westco pay the greater of operating cost or market price for purchases. However, the product purchase agreements also provide that CFL will distribute its net earnings to us and Westco annually based on the respective quantities of product purchased from CFL. Our product purchase agreement also requires us to advance funds to CFL in the event that CFL is unable to meet its debts as they become due. The amount of each advance would be at least 66% of the deficiency and would be more in any year that we purchased more than 66% of Medicine Hat's production. We and Westco currently manage CFL such that each party is responsible for its share of CFL's fixed costs and that CFL's production volume meets the parties' combined requirements. We are currently in discussions with Westco regarding amendments to the CFL agreements, including an amendment to the management agreement that may reduce our management fee in exchange for other consideration.
Impairment of Investments in Unconsolidated Subsidiaries. Impairment of investments in unconsolidated subsidiaries represents the write-down of the carrying value of our investments in our joint ventures.
Income Taxes. Our income taxes reflect our consolidated tax provision or tax benefit as determined under our current status as a nonexempt cooperative. As a cooperative, we may declare distributions in the form of patronage. Patronage is defined as the distribution of the excess of revenues over costs arising from business done with owners of a cooperative. Patronage is deductible for income tax purposes, provided that at least 20% of the total distribution is paid in cash. After the completion of this offering, we will no longer be eligible for taxation as a cooperative, but CFL will continue to operate as a cooperative for Canadian tax purposes. As such, CFL's earnings are, and will continue to be, available for distribution as patronage. Excluding any deductions related to patronage, we are subject to corporate rates as provided under subchapter C of the Internal Revenue Code.
As of December 31, 2004, we had total net operating loss carryforwards of $311.3 million. A gross deferred tax asset of $124.3 million related to these net operating loss carryforwards is included on our December 31, 2004 balance sheet. As of March 31, 2005, total net operating loss carryforwards were
37
$290.1 million, and a related gross deferred tax asset of $116.1 million was included in deferred income taxes. Because our net operating loss carryforwards were generated from business conducted with our owners when we were a cooperative for tax purposes, there is substantial uncertainty under existing tax law whether any tax benefits from the related deferred tax asset will be realizable after the completion of this offering. As a result of this uncertainty, we will establish a valuation allowance equal to 100% of any of the deferred tax asset remaining after the consummation of this offering. We will record a non-cash charge to "Income Tax Expense" in the amount of the valuation allowance in the quarter in which the offering is completed.
We intend to enter into an NOL Agreement with the owners of CF Industries in connection with the Reorganization Transaction relating to the treatment of the net operating loss carryforwards. Under the NOL Agreement, in the event that it is finally determined that our net operating loss carryforwards can be used after we are no longer a cooperative, we will pay the owners of CF Industries an amount equal to the federal and state income taxes actually saved after the completion of this offering as a result of the utilization of net operating loss carryforwards related to our former cooperative status. These payments, if any, will be made only after it has been finally determined that utilization of the net operating losses has provided us with actual tax savings. The NOL Agreement will not require that we operate in a way that maximizes the use of our cooperative-related net operating loss carryforwards. Costs incurred after completion of this offering in pursuing a determination regarding the usability of these net operating loss carryforwards will be borne by the owners of CF Industries.
In the event that it is finally determined that our net operating loss carryforwards can be used when we are no longer a cooperative, we would remove the appropriate portion (up to 100%) of the valuation allowance that we established at the consummation of this offering, thereby increasing our net deferred tax assets, and record a corresponding income tax benefit for the amount of the valuation allowance. We would also record a charge to "Other Non-OperatingNet Expense" and establish a liability to our owners for the amount that the valuation allowance was reduced. When any related tax benefits are realized over time as a result of profitable operations, we will record accounting entries to reduce "Current Income Tax Expense" and "Current Income Taxes Payable" for the amount of those realized tax benefits. We would also record corresponding accounting entries to increase "Deferred Income Tax Expense" and to reduce "Deferred Income Taxes" (Deferred Tax Asset) for those same realized tax benefits. As cash payments are made to our owners for any tax benefits realized pursuant to the NOL Agreement, we will record accounting entries to decrease cash and decrease the liability to our owners for the amount of any such payments.
In 2003, CFL, which operates as a cooperative, received a notice of proposed adjustment from the Canada Revenue Agency, or CRA, as a result of its audit of the tax years 1997 through 2000. The CRA's position was that we did not deal on an arms-length basis with CFL and, therefore, the C$35.8 million in management fees paid by CFL to us for the years under audit should not be allowed as a tax deduction. The total amount of exposure for the years under audit, consisting of income taxes and estimated interest, would have been approximately C$22.2 million. As of December 31, 2004, the CRA had completed the audit with no resulting assessment for the years 1997 through 2000 and confirmed that we and CFL were dealing at arms-length. The CRA further agreed, provided there has been no material change in the facts after 2000, that we and CFL were dealing at arms-length for the years 2001 through 2004. We and CFL believe that there has been no material change in facts. The CRA has reserved the right to audit all years subsequent to 2000, and has reserved the right to reopen the arms-length issue for years after 2004. On May 13, 2005, the Canadian Income Tax Act was amended to disallow the deduction of certain patronage distributions paid after March 22, 2004 to non-arm's length parties. It is unknown what impact, if any, this legislation will have on CFL's deductibility of patronage distributions in future years.
In 2004, the CRA initiated and we settled a Canadian income tax audit of our subsidiary corporation CF Chemicals, Ltd., or CFCL, through which we operate CFL, for the tax years 1997 through 2004. Completion of the audit resolved a transfer pricing issue involving the allocation of certain income from
38
CFL to us and CFCL. The settlement reached with the CRA increased the allocation of the income to CFCL but did not have a material impact on our financial statements.
CFL distributes all of its earnings from the sale of fertilizer as patronage dividends to its customers for fertilizer, including us. For Canadian income tax purposes CFL is permitted to deduct an amount equal to the patronage dividends it paid to its customers, provided that certain Canadian income tax requirements are met. While CFL is not currently under audit by the Canadian tax authorities, CFL has recently received a preliminary inquiry from the CRA which questions whether CFL's past patronage distributions have met the requirements for full deductibility under Canadian income tax law. The past years that would be affected by this inquiry are 2002, 2003 and 2004. While CFL believes its allocation method complied with applicable law, CFL could be subject to Canadian income tax liabilities (exclusive of interest and penalties) for 2002, 2003 and 2004 of $5.8 million, $7.6 million and $24.7 million, respectively, and additional material Canadian income tax liabilities for future periods if its allocation method were determined to fail to meet the requirements for deductibility under Canadian tax law. We have a 66% economic interest in CFL.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries. Equity in earnings (loss) of unconsolidated subsidiaries represents our share of the net earnings (loss) of the joint ventures in which we have an ownership interest.
Recent Developments
On July 15, 2005, we sold our interest in our CF Martin Sulphur joint venture to the other joint venture partner, an affiliate of Martin Resource Management, for $18.6 million. The transaction is not expected to have a material impact on our consolidated statement of operations, as the selling price approximated the carrying value of our investment in CF Martin Sulphur. Concurrent with the sale, we entered into a multi-year sulfur supply contract with CF Martin Sulphur.
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Results of Operations
The following table presents our consolidated results of operations:
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Three months ended March 31,
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Year ended December 31,
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2004
Restated |
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2002
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2003
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2004
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2005
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(in thousands)
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Net sales | $ | 1,014,071 | $ | 1,369,915 | $ | 1,650,652 | $ | 324,664 | $ | 459,329 | ||||||
Cost of sales | 986,295 | 1,335,508 | 1,434,545 | 288,802 | 404,053 | |||||||||||
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Gross margin | 27,776 | 34,407 | 216,107 | 35,862 | 55,276 | |||||||||||
Selling, general and administrative |
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37,317 |
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|
38,455 |
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|
41,830 |
|
|
10,188 |
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|
11,023 |
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Other operatingnet | 9,294 | 1,557 | 25,043 | 2,143 | 1,130 | |||||||||||
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Operating earnings (loss) | (18,835 | ) | (5,605 | ) | 149,234 | 23,531 | 43,123 | |||||||||
Interest expense |
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23,565 |
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23,870 |
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22,696 |
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6,108 |
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5,255 |
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Interest income | (2,209 | ) | (2,260 | ) | (5,901 | ) | (1,298 | ) | (3,527 | ) | ||||||
Minority interest | 6,409 | 6,031 | 23,145 | 5,141 | 4,916 | |||||||||||
Impairment of investments in unconsolidated subsidiaries | | | 1,050 | | | |||||||||||
Other non-operatingnet | (174 | ) | (676 | ) | (778 | ) | | (329 | ) | |||||||
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Earnings (loss) before income taxes | (46,426 | ) | (32,570 | ) | 109,022 | 13,580 | 36,808 | |||||||||
Income tax provision (benefit) |
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(16,600 |
) |
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(12,600 |
) |
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41,400 |
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5,157 |
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14,465 |
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Equity in earnings (loss) of unconsolidated subsidiaries | 1,706 | 1,587 | 110 | 146 | (7 | ) | ||||||||||
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Net earnings (loss) | $ | (28,120 | ) | $ | (18,383 | ) | $ | 67,732 | $ | 8,569 | $ | 22,336 | ||||
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Segment Review
Our business is organized and managed internally based on two segments, the nitrogen fertilizer business and the phosphate fertilizer business, which are differentiated primarily by their products, the markets they serve and the regulatory environments in which they operate. The following segment tables exclude information regarding our potash sales that were discontinued in 2003.
Nitrogen Fertilizer Business
The following table presents summary operating data for our nitrogen fertilizer business:
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Three months ended March 31,
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Year ended December 31,
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2004
Restated |
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2002
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2003
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2004
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2005
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(in thousands, except percentage and price per ton amounts)
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Net sales | $ | 730,360 | $ | 1,058,246 | $ | 1,273,885 | $ | 250,835 | $ | 357,275 | |||||||
Cost of sales | 711,134 | 999,677 | 1,080,086 | 214,976 | 310,516 | ||||||||||||
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Gross margin | $ | 19,226 | $ | 58,569 | $ | 193,799 | $ | 35,859 | $ | 46,759 | |||||||
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Gross margin percentage | 2.6 | % | 5.5 | % | 15.2 | % | 14.3 | % | 13.1 | % | |||||||
Tons of product sold | 6,069 | 6,309 | 6,603 | 1,392 | 1,660 | ||||||||||||
Sales volumes by product |
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Ammonia | 1,435 | 1,475 | 1,438 | 215 | 316 | ||||||||||||
Urea | 2,663 | 2,572 | 2,513 | 612 | 749 | ||||||||||||
UAN | 1,926 | 2,228 | 2,593 | 557 | 590 | ||||||||||||
Other nitrogen fertilizers | 45 | 34 | 59 | 8 | 5 | ||||||||||||
Average selling price per ton by product |
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Ammonia | $ | 159 | $ | 236 | $ | 278 | $ | 262 | $ | 281 | |||||||
Urea | 120 | 172 | 205 | 199 | 236 | ||||||||||||
UAN | 93 | 119 | 137 | 130 | 155 |
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The following table presents summary operating data for our phosphate fertilizer business:
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Year ended December 31,
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Three months ended March 31,
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2002
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2003
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2004
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2004
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2005
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(in thousands, except percentage and price per ton amounts)
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Net sales | $ | 281,848 | $ | 309,798 | $ | 376,767 | $ | 73,829 | $ | 102,054 | |||||||
Cost of sales | 273,363 | 334,053 | 354,459 | 73,826 | 93,537 | ||||||||||||
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Gross margin | $ | 8,485 | $ | (24,255 | ) | $ | 22,308 | $ | 3 | $ | 8,517 | ||||||
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Gross margin percentage | 3.0 | % | (7.8 | )% | 5.9 | % | 0.0 | % | 8.3 | % | |||||||
Tons of product sold | 1,914 | 1,892 | 1,900 | 389 | 487 | ||||||||||||
Sales volumes by product |
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DAP | 1,560 | 1,627 | 1,549 | 330 | 387 | ||||||||||||
MAP | 289 | 252 | 351 | 59 | 100 | ||||||||||||
Other phosphate fertilizers | 65 | 13 | | | | ||||||||||||
Domestic vs export sales of DAP/MAP |
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Domestic | 1,614 | 1,718 | 1,218 | 300 | 334 | ||||||||||||
Export | 235 | 161 | 682 | 89 | 153 | ||||||||||||
Average selling price per ton by product |
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DAP | $ | 146 | $ | 163 | $ | 197 | 188 | $ | 209 | ||||||||
MAP | 157 | 172 | 204 | 198 | 213 |
First Quarter of 2005 Compared to First Quarter of 2004
Consolidated Operating Results
For the first quarter of 2005, the nitrogen fertilizer industry benefited from tight global supply conditions, while the domestic phosphate fertilizer industry continued to show improvement due primarily to strong export demand. Our total gross margin increased by approximately $19.4 million, or 54%, from $35.9 million for the first quarter of 2004 to $55.3 million for the first quarter of 2005 due largely to improved market conditions for both nitrogen and phosphate fertilizers. Net earnings improved to $22.3 million in the first quarter of 2005 compared to $8.6 million for the same period in 2004, again reflecting stronger market conditions for all fertilizers.
Net Sales
Our net sales increased 42% to $459.3 million in the first quarter of 2005 compared to $324.7 million in the first quarter of 2004, due to an increase in sales volumes and higher average selling prices. Our total sales volume increased 21% to 2.2 million tons in the first quarter of 2005 versus 1.8 million tons in the first quarter of 2004, due to stronger industry conditions and increased market penetration with unaffiliated customers. Nitrogen fertilizer prices in the first quarter of 2005 averaged 19% higher than the prices for similar products in the comparable period of 2004 reflecting strong demand and tight supply. Phosphate fertilizer prices in the first quarter of 2005 were 11% higher than corresponding prices in the first quarter of 2004, resulting primarily from strong international demand.
Cost of Sales
Total cost of sales of our nitrogen fertilizers averaged $187 per ton in the first quarter of 2005 compared to $154 per ton in the first quarter of 2004, an increase of 21%, primarily due to higher natural gas prices. Compared with the relevant spot prices, our natural gas hedging activities resulted in higher
42
natural gas costs of $13.6 million, which represented about 4% of total cost of sales of our nitrogen fertilizers in the first quarter of 2005. The $13.6 million increase in natural gas costs consisted of a $14.6 million increase due to hedging activities associated with our forward pricing program, partially offset by a $1.0 million decrease resulting from hedging activities unrelated to our forward pricing program. In the first quarter of 2004, compared with relevant spot prices, hedging activities unrelated to our forward pricing program lowered natural gas costs by $13.2 million, while hedging activities associated with our forward pricing program increased natural gas costs by $3.6 million. Phosphate fertilizer cost of sales averaged $192 per ton in the first quarter of 2005 compared to $190 per ton in the first quarter of the prior year, an increase of 1%, mainly due to higher fixed costs per ton because of lower production levels resulting from scheduled plant turnarounds.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 8% to $11.0 million in the first quarter of 2005 compared to $10.2 million in the comparable period of 2004. The increase in the first quarter of 2005 was largely due to increased administrative expenses related to preparation for this offering.
Other OperatingNet
Other operatingnet decreased from $2.1 million in the first quarter of 2004 to $1.1 million in the same period of 2005. The $1.0 million decrease was due to the fact that, in the first quarter of 2004, Bartow water treatment costs were expensed as incurred, whereas water treatment costs incurred in the comparable period of 2005 were charged against an asset retirement obligation, which was recorded in the fourth fiscal quarter of 2004. For a detailed explanation of the accounting for water treatment costs at Bartow, please refer to note 7 to our audited consolidated financial statements included in this prospectus.
InterestNet
Net interest expense decreased 64% from $4.8 million in the first quarter of 2004 to $1.7 million in the first quarter of 2005. Interest expense decreased 14% from $6.1 million in the first quarter of 2004 to $5.3 million in the comparable period of 2005 primarily due to lower debt outstanding in the first quarter of 2005. Interest income increased 172% from $1.3 million in the first quarter of 2004 to $3.5 million in the first quarter of 2005 as a result of higher average balances of invested cash and, to a lesser extent, higher average rates of return.
Minority Interest
Amounts reported as minority interest, which were essentially unchanged on a year-over-year basis, represent the interest of the 34% minority holder of CFL's common and preferred shares.
Income Taxes
Income taxes were recorded based on our estimated-annual-effective tax rate, which is based on applicable federal, foreign and state statutory rates. Our effective tax rate increased from 38% in the first quarter of 2004 to 39% in the first quarter of 2005. Our income tax provision for the first quarter of 2004 was $5.2 million compared to $14.5 million for the comparable period in 2005, primarily due to improved operating results.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings of unconsolidated subsidiaries decreased from $146,000 in the first quarter of 2004 to a loss of $7,000 in the first quarter of 2005, due to lower operating results of our CF Martin Sulphur joint venture.
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Nitrogen Gross Margin
Net Sales Nitrogen fertilizer net sales increased 42% to $357.3 million in the first quarter of 2005 compared to $250.8 million in the first quarter of 2004, due to both higher average selling prices and an increase in sales volume. Nitrogen fertilizer sales volume increased 19% to 1.7 million tons in the first quarter of 2005 compared to 1.4 million tons in the comparable period of 2004 due to stronger industry conditions. Ammonia, urea and UAN sales volume increased by 47%, 22% and 6%, respectively, in the first quarter of 2005 compared to the first quarter of 2004. The increase in ammonia sales volume in the first quarter of 2005 resulted primarily from favorable ammonia application conditions. The increase in urea sales volume in the first quarter of 2005 was largely due to increased demand stemming from customers buying product in advance in order to avoid price increases expected later in the 2005 spring season. Overall nitrogen fertilizer sales volume to unaffiliated customers decreased from 42% of total nitrogen fertilizer sales volume in the first quarter of 2004 to 39% of total nitrogen fertilizer sales volume in the first quarter of 2005. Ammonia, urea and UAN sales prices increased by 7%, 19% and 19%, respectively, in the first quarter of 2005 compared to the first quarter of the prior year. The increase in ammonia prices in the first quarter of 2005 was due to strong U.S. demand and tight supply conditions in certain midwestern U.S. markets. Urea prices increased in the first quarter of 2005 due to a tight world market caused by plant outages abroad and the impact of increased buying related to demand that had been deferred from previous periods. An improved overall nitrogen market also supported higher UAN selling prices in the first quarter of 2005.
Cost of Sales Total cost of sales of our nitrogen fertilizers averaged $187 per ton in the first quarter of 2005 compared to $154 per ton in the first quarter of 2004, an increase of 21%, due to higher natural gas prices and higher purchased product costs. The overall weighted average cost of natural gas supplied to our Donaldsonville facility and CFL's Medicine Hat facility increased by 30% in the first quarter of 2005 versus the cost in the comparable period of 2004 due to continued tight market conditions for natural gas. Purchased product costs were approximately $6.5 million higher in the first quarter of 2005 than in the first quarter of 2004, due to the overall increase in nitrogen fertilizer prices previously discussed.
During the first quarter of 2005, we sold approximately 1.2 million tons of nitrogen fertilizers under our forward pricing program, representing approximately 71% of our nitrogen fertilizer sales volume for the quarter. In the comparable period of 2004, we sold approximately .7 million tons of nitrogen fertilizers under this program, representing approximately 50% of our nitrogen fertilizer sales volume for the quarter.
Phosphate Gross Margin
Net Sales. Phosphate fertilizer net sales increased 38% to $102.1 million in the first quarter of 2005 compared to $73.8 million in the first quarter of 2004, due to a combination of increased sales volume and higher average selling prices. Our total level of phosphate fertilizer sales of 487,000 tons in the first quarter of 2005 represented an increase of 25% compared to the same quarter of 2004. Within our total phosphate fertilizer sales, export sales of DAP/MAP increased by 72%, totaling 153,000 tons in the first quarter of 2005 compared to 89,000 tons in the first quarter of 2004. Our phosphate fertilizer sales volume to unaffiliated customers increased from 35% of total phosphate fertilizer sales volume in the first quarter of 2004 to 51% of total phosphate fertilizer sales volume in the first quarter of 2005. Average phosphate fertilizer prices in the first quarter of 2005 increased by 11% compared to prices in the first quarter of 2004, due largely to strong international phosphate fertilizer demand, primarily from India and Pakistan.
Cost of Sales. Phosphate cost of sales averaged $192 per ton in the first quarter of 2005 compared to $190 per ton in the first quarter of 2004. The 1% increase is mainly due to higher fixed costs per ton of production because of lower production levels resulting from scheduled plant turnarounds, offset almost entirely by lower ammonia and sulfur costs. Ammonia prices decreased by 9% in the first quarter of 2005 compared to the first quarter of 2004, reflecting weaker global market conditions in the first quarter of 2005. The market for ammonia at Tampa, Florida (the pricing reference point for ammonia used in our
44
phosphate production) is closely tied to the global ammonia market and does not reflect the same conditions as our midwestern U.S. ammonia markets, where prices were sharply higher in the first quarter of 2005 versus the first quarter of 2004. Sulfur costs decreased 9% during the first quarter of 2005 as compared to the same period of 2004 due primarily to lower demand from phosphate producers as a result of plant turnarounds taken during the first quarter of 2005.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Consolidated Operating Results
In 2004, the nitrogen fertilizer industry benefited from tight global supply conditions, while the domestic phosphate fertilizer industry strengthened due to strong export demand. Our total gross margin increased by approximately $181.7 million, or 528%, from $34.4 million in 2003 to $216.1 million in 2004 due largely to improved market conditions for both nitrogen and phosphate fertilizers. Net earnings improved to $67.7 million in 2004 compared to a net loss of $18.4 million in 2003, primarily reflecting stronger market conditions for all fertilizers. To a lesser degree, our increased profitability in 2004 was also due to our new approach to the marketplace and measures implemented to improve asset utilization and reduce costs.
Net Sales
Our net sales increased 20% to $1.7 billion in 2004 compared to $1.4 billion in 2003, largely due to higher average selling prices and a slight increase in sales volume. Our total sales volume increased 4% to 8.5 million tons in 2004 versus 8.2 million tons in 2003, due to stronger industry conditions and increased market penetration with unaffiliated customers. Nitrogen fertilizer prices in 2004 averaged 15% higher than the prices for similar products in 2003, reflecting strong demand and tight supply. Phosphate fertilizer prices in 2004 were 21% higher than corresponding prices in 2003, resulting primarily from strong international demand.
Cost of Sales
Total cost of sales of our nitrogen fertilizers averaged $164 per ton in 2004 compared to $158 per ton in 2003, an increase of 4%, primarily due to higher natural gas prices. Compared with the relevant spot prices, our natural gas hedging activities resulted in lower natural gas costs of $19.3 million, which represented about 2% of total cost of sales of our nitrogen fertilizers in 2004. The $19.3 million reduction in natural gas costs consisted of a $30.9 million decrease due to hedging activities unrelated to our forward pricing program, partially offset by an $11.6 million increase resulting from hedging activities associated with our forward pricing program. In 2003, compared with relevant spot prices, hedging activities unrelated to our forward pricing program lowered our natural gas costs by $10.5 million, while hedging activities associated with our forward pricing program increased natural gas costs by $2.1 million. Phosphate fertilizer cost of sales averaged $187 per ton in 2004 compared to $177 per ton in 2003, an increase of 6%, mainly due to higher ammonia costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 9% to $41.8 million in 2004 compared to $38.5 million in 2003. The increase in 2004 was largely due to increased expenses related to performance-based management incentive compensation, which were offset partially by lower payroll costs resulting from staff reductions and lower outside consulting fees.
Other OperatingNet
Other operatingnet increased from $1.6 million in 2003 to $25.0 million in 2004. The $23.4 million increase was due primarily to the following: a $10.5 million credit to Bartow phosphogypsum stack asset retirement costs (related to revised engineering estimates) in 2003 that did not reoccur in 2004; a $7.1 million charge recorded in 2004 for future expenditures to treat water stored in the Bartow
45
phosphogypsum stack system; and a $4.7 million provision recorded in 2004 for other Bartow environmental remediation requirements.
Other operatingnet in 2004 also includes a $3.4 million provision for environmental remediation requirements at our Ahoskie, North Carolina nitrogen facility, which has been closed for 23 years.
InterestNet
Net interest expense decreased 22% from $21.6 million in 2003 to $16.8 million in 2004. Interest expense decreased 5% from $23.9 million in 2003 to $22.7 million in 2004 primarily due to scheduled debt reduction, while interest income increased 161% from $2.3 million in 2003 to $5.9 million in 2004 as a result of higher average balances of invested cash.
Minority Interest
Amounts reported as minority interest represent the interest of the 34% minority holder of CFL's common and preferred shares. The increase in 2004 was due to improved 2004 CFL operating results. The improvement in CFL operating results reflects stronger market conditions for nitrogen fertilizers.
Impairment of Investments in Unconsolidated Subsidiaries
Impairment of investments in unconsolidated subsidiaries in 2004 consisted of a $1.1 million write-off of our investment in Big Bend Transfer Co., L.L.C., or BBTC, our joint venture to construct and operate a dry sulfur remelting facility in Tampa, Florida. We wrote off our investment in BBTC due to a fundamental shift in the economics of converting dry sulfur to liquid. In the intervening five years since the joint venture discussions were initiated, domestic supplies of attractively-priced molten sulfur have increased substantially pursuant to increased production of cleaner grades of gasoline, which is expected to continue in the future.
Income Taxes
Our effective tax rate in 2004 was 38% compared to 39% in 2003. The decrease in the effective tax rate from 2003 to 2004 was due largely to lower effective state income tax rates. Our income tax provision for 2004 was $41.4 million compared to a net tax benefit of $12.6 million in 2003, primarily due to improved operating results.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings of unconsolidated subsidiaries decreased from $1.6 million in 2003 to $110,000 in 2004, due to lower operating results of our CF Martin Sulphur joint venture.
Nitrogen Gross Margin
Net Sales. Nitrogen fertilizer net sales increased 20% to $1.3 billion in 2004 compared to $1.1 billion in 2003, due to both higher average selling prices and an increase in sales volume. Nitrogen fertilizer sales volume increased 5% to 6.6 million tons in 2004 compared to 6.3 million tons in 2003 due to stronger industry conditions and increased market penetration with unaffiliated customers. Declines in ammonia and urea sales volume of 3% and 2%, respectively, in 2004 compared to 2003 were more than offset by a 16% increase in UAN sales volumes. These strong overall UAN sales in 2004 resulted primarily from our continuing efforts to expand our customer base. Overall nitrogen fertilizer sales volume to unaffiliated customers increased from 28% of total nitrogen fertilizer sales volume in 2003 to 40% of total nitrogen fertilizer sales volume in 2004. Overall nitrogen fertilizer prices in 2004 averaged 15% higher than the prices for similar products in 2003 on a per ton of product basis, reflecting strong demand and tight supply caused largely by production outages at foreign producers in the face of continuing strong worldwide demand for nitrogen fertilizers.
46
Cost of Sales. Total cost of sales of our nitrogen fertilizers averaged $164 per ton in 2004 compared to $158 per ton in 2003, an increase of 4%, due to higher natural gas prices and higher purchased product costs. The overall weighted average cost of natural gas supplied to our Donaldsonville facility and CFL's Medicine Hat facility increased by 8% in 2004 versus the cost in 2003 due to continued tight supply of natural gas and high prices for crude oil and other energy substitutes. Purchased product costs were approximately $16 million higher in 2004 than in 2003, due to the overall increase in nitrogen fertilizer prices previously discussed.
We instituted our forward pricing program in mid-2003. During 2004, we sold approximately 3.6 million tons of nitrogen fertilizers under this program, representing approximately 54% of our nitrogen fertilizer sales volume for the year.
Phosphate Gross Margin
Net Sales. Phosphate fertilizer net sales increased 22% to $376.8 million in 2004 compared to $309.8 million in 2003, largely due to higher average selling prices. Although our overall level of phosphate fertilizer sales of 1.9 million tons in 2004 approximated 2003 sales, the composition of our 2004 sales shifted significantly, with substantial increases in export sales and sales to unaffiliated domestic customers. Overall export sales of DAP/MAP increased 324%, totaling 682,000 tons in 2004 compared to 161,000 tons in 2003. Phosphate fertilizer sales volume to unaffiliated customers increased from 18% of total phosphate fertilizer sales volume in 2003 to 47% of total phosphate fertilizer sales volume in 2004. Average phosphate fertilizer prices in 2004 increased 21% compared to 2003, due to strong aggregate phosphate fertilizer demand.
Cost of Sales. Phosphate cost of sales averaged $187 per ton in 2004 compared to $177 per ton in 2003, an increase of 6%, mainly due to higher ammonia costs in 2004, partially offset by lower maintenance costs. Compared to 2003, ammonia prices in 2004 increased approximately 24%, primarily reflecting tighter global market conditions. Maintenance costs at our Plant City phosphate fertilizer complex were $6.4 million lower in 2004 than in 2003 due to a higher level of discretionary maintenance projects being completed in 2003.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Consolidated Operating Results
In 2003, tighter global supply and stronger global demand contributed to stronger nitrogen fertilizer industry conditions in the second half of the year, while phosphate fertilizer industry conditions remained at depressed levels throughout the year. Our total gross margin in 2003 increased by approximately $6.6 million, or 24%, from $27.8 million in 2002 to $34.4 million in 2003 due to improved nitrogen fertilizer margins, which more than offset the relative weakness in our phosphate fertilizer business operating results. Our net loss improved to $18.4 million in 2003, compared to $28.1 million in 2002. The adoption of our new approach to the marketplace and other measures we have implemented to improve business performance also contributed to improvement in our operating results.
Net Sales
Our net sales increased 35% to $1.4 billion in 2003 compared to $1.0 billion in 2002 due to higher selling prices and increased sales volume. Our total sales volume increased 3% to 8.2 million tons in 2003 as compared to 8.0 million tons in 2002, with a 47% increase in volumes sold to unaffiliated customers more than offsetting a 7% decline in volumes sold to our owners. Nitrogen fertilizer selling prices in 2003 averaged 40% higher than in 2002. Phosphate fertilizer prices in 2003 were 12% higher than they were in 2002.
47
Cost of Sales
The cost of sales for our nitrogen fertilizers averaged $158 per ton in 2003 compared to $117 per ton in 2002, an increase of 35%, primarily due to higher natural gas prices. Compared with the relevant spot prices, our natural gas hedging activities resulted in lower natural gas costs of approximately $8.4 million, which represented about 1% of total cost of sales of our nitrogen fertilizers in 2003. The $8.4 million reduction in natural gas costs consisted of a $10.5 million decrease due to hedging activities unrelated to our forward program pricing, partially offset by a $2.1 million increase resulting from hedging activities associated with our forward pricing program. In 2002, our natural gas costs were $9.3 million lower than relevant spot prices due to hedging activities unrelated to our forward pricing program. The cost of sales of our phosphate fertilizers averaged $177 per ton in 2003 compared to $143 per ton in 2002, an increase of 24%, due to higher raw material and maintenance costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 3% to $38.5 million in 2003 compared to $37.3 million in 2002, resulting primarily from increases in employee benefit costs.
Other OperatingNet
Other operatingnet decreased from $9.3 million in 2002 to $1.6 million in 2003. In 2003, we recorded a $10.5 million credit to Bartow phosphogypsum stack asset retirement costs as a result of revised engineering estimates.
InterestNet
Net interest expense in 2003 of $21.6 million reflected a slight increase of $254,000 over net interest expense in 2002 due primarily to increased interest expense.
Minority Interest
Amounts reported as minority interest represent the minority interest in CFL. The decrease of $378,000 in minority interest from 2002 to 2003 was due to a decrease in CFL's operating results.
Income Taxes
Our effective tax rate in 2003 was 39% compared to 36% in 2002. The effective tax rate was lower in 2002 as compared to 2003 due primarily to the loss of benefits related to foreign tax credits subsequently converted into foreign tax deductions in 2003, partially offset by higher 2002 effective state income tax rates resulting from a change in the apportionment of income (loss) among various states. The income tax benefit for 2003 was $12.6 million compared to a net benefit of $16.6 million in 2002, primarily due to improved operating results.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings of unconsolidated subsidiaries decreased from $1.7 million in 2002 to $1.6 million in 2003, or 7%, due to lower operating results of our CF Martin Sulphur joint venture.
Nitrogen Gross Margin
Net Sales. Nitrogen fertilizer net sales increased 45% to $1.1 billion in 2003 compared to $.7 billion in 2002, due to higher average selling prices and an increase in sales volume. Nitrogen fertilizer sales volumes increased 4% to 6.3 million tons in 2003 compared to 6.1 million tons in 2002. Declines in urea sales volume of 3% in 2003 as compared to 2002 were more than offset by a 3% and 16% increase in ammonia and UAN sales volumes in 2003, respectively. These stronger UAN sales resulted primarily from our efforts to develop business with unaffiliated customers. Overall nitrogen fertilizer sales volume to unaffiliated customers increased from 18% of total nitrogen fertilizer sales volume in 2002 to 28% of total nitrogen fertilizer sales volume in 2003. Nitrogen fertilizer selling prices in 2003 averaged 40% higher than
48
in 2002 on a per ton of product basis, reflecting improving industry conditions. In 2003, average ammonia and urea selling prices increased due to tighter global nitrogen fertilizer markets.
Cost of Sales. The cost of sales for our nitrogen fertilizers averaged $158 per ton in 2003 compared to $117 per ton in 2002, an increase of 35%, primarily due to higher natural gas prices. The overall weighted average cost of natural gas supplied to Donaldsonville and Medicine Hat increased by 63%. The increase in natural gas prices in 2003 was due to increased demand and supply concerns as demand growth exceeded increased natural gas production.
Phosphate Gross Margin
Net Sales. Phosphate fertilizer net sales in 2003 were $309.8 million, a 10% increase over 2002 primarily due to higher average selling prices. At 1.9 million tons, the sales volume of DAP/MAP for 2003 was approximately equal to the volume of product sold in 2002. Phosphate fertilizer prices in 2003 were 12% higher than they were in 2002.
Cost of Sales. The cost of sales of our phosphate fertilizers averaged $177 per ton in 2003 compared to $143 per ton in 2002, an increase of 24%, due to higher ammonia and sulfur prices and phosphate rock costs and increased maintenance costs. Ammonia prices increased 72% in 2003 compared to 2002, reflecting tighter global market conditions. Partially driven by increased phosphate fertilizer production, sulfur prices increased 42% in 2003 as compared to 2002. Maintenance costs at our Plant City phosphate fertilizer complex were $9.8 million higher in 2003 than in 2002, due to discretionary maintenance projects that had been deferred in earlier periods.
Liquidity and Capital Resources
The primary sources of cash for working capital, capital expenditures and acquisitions are operating cash flow and our senior revolving credit facility. Our primary uses of cash are operating costs, working capital needs, debt service requirements and capital expenditures. Our working capital requirements are affected by several factors, including demand for our products, selling prices for our products, raw material costs, freight costs and seasonality factors inherent in the business.
Cash Balance and Other Liquidity
As of March 31, 2005, we had cash and cash equivalents of $42.1 million, short-term investments of $423.6 million and a $235.6 million current liability attributable to customer advances related to cash deposits received under our forward pricing program. As of December 31, 2004, the comparable amounts were $50.0 million, $369.3 million and $211.5 million, respectively. Short-term investments consist of available-for-sale auction rate securities that are reported at fair value. We believe that our cash, cash equivalents and short-term investments, our operating cash flows and liquidity under our revolving credit facility are adequate to fund our cash requirements for the foreseeable future. As of March 31, 2005 and December 31, 2004, we had $139 million and $120 million available, respectively, under our revolving credit facility.
We reclassified $369.3 million of auction rate securities from cash and cash equivalents to short-term investments on the consolidated balance sheet as of December 31, 2004. This reclassification was also made on prior years' consolidated financial statements to conform to the current year's presentation. On the consolidated cash flow statement, corresponding adjustments have been made to reflect the gross purchases and gross sales and maturities of these securities as investing activities rather than a component of cash and cash equivalents. These reclassifications had no impact on previously reported net income or cash flow from operations.
We offer a forward pricing program to our customers under which product may be ordered for future delivery, with a substantial portion of the sales price being collected before the product is shipped, thereby reducing or eliminating the accounts receivable related to such sales. See "Forward Pricing Program." While customer advances were a significant source of liquidity in 2003, 2004 and the first quarter of 2005,
49
the level of sales under the forward pricing program is affected by many factors, including current market conditions and our customers' perceptions of future market fundamentals. If the level of sales under the forward pricing program were to decrease in the future, our cash received from customer advances would likely decrease, and our accounts receivable balances would likely increase. Also, borrowing under our revolving credit facility could become necessary as a further consequence. Future participation in the forward pricing program may not be at the levels that we have experienced over the past two years. Due to our lack of history with this program and the volatility inherent in our business, we cannot estimate the amount of future forward pricing program sales activity.
Debt
As of March 31, 2005, our long-term debt, including current maturities, totaled $254.0 million, compared to $254.8 million as of December 31, 2004. Notes payable, representing amounts owed to the CFL minority interest holder with respect to advances, were $4.1 million as of both March 31, 2005 and December 31, 2004.
Our long-term debt bears interest at both fixed and variable rates. Notes payable bear interest at a variable rate. Our $140 million revolving credit facility is available through September 26, 2006. This facility is secured by working capital, certain equipment and the Donaldsonville nitrogen fertilizer complex. Borrowing at any time is limited to the lesser of $140 million or the available collateral, offset by customer advances as defined in our senior credit agreement. Available credit as of March 31, 2005 and December 31, 2004, was approximately $139 million and approximately $120 million, respectively. There were no outstanding borrowings under this facility as of March 31, 2005 or December 31, 2004.
We plan to repay our existing term notes and pay the associated make-whole prepayment penalty on these notes with cash on hand and short-term investments shortly after the consummation of this offering. As of June 30, 2005, the outstanding balance of the term notes was approximately $246.3 million and the associated make-whole penalty was approximately $29.2 million. We also plan to replace our existing $140 million senior revolving credit facility with a new $250 million senior credit facility to become effective on the completion of this offering. CF Industries has entered into a commitment letter with JPMorgan Securities Inc. and JPMorgan Chase Bank, N.A. for this new facility. See "Description of Certain Indebtedness."
As of a result of the proposed repayment of our term notes, we are also considering possible new long-term debt financing opportunities, depending on market conditions and other relevant factors. There can be no assurance, however, that we will be able to raise additional long-term debt financing on terms acceptable to us or at all.
Capital Spending
Capital expenditures are made to sustain our asset base, to increase our capacity and to improve plant efficiency. In response to the difficult industry environment over the last several years, we deferred non-essential capital expenditures whenever it was possible to do so without compromising the operational integrity of our facilities or the safety of our employees. We expect to spend approximately $70 million to $80 million on capital expenditures in each of 2005 and 2006. This amount includes approximately $14 million to $21 million each year for capital expenditures at CFL, of which we are obligated to fund 66%. These amounts do not include expenditures related to opportunities for new investment, such as the project to construct a world-scale ammonia and UAN manufacturing facility in the Republic of Trinidad and Tobago that we are currently studying with Terra Industries and ANSA McAL.
Financial Assurance Requirements
In addition to various operational and environmental regulations related to our phosphate fertilizer business, we are also subject to financial assurance requirements. The purpose of these requirements is to assure the government that sufficient company funds will be available for the ultimate closure, post-closure care and/or reclamation at our facilities. Currently, these financial assurance requirements can be satisfied
50
without the need for any expenditure of corporate funds if our financial statements meet certain criteria, referred to as the financial tests. However, pursuant to a recent amendment that is scheduled to become effective July 2, 2005 to Florida's regulations governing financial assurance related to the closure of phosphogypsum stacks, we intend to establish a trust fund to meet such obligations to take advantage of a "Safe Harbor" provision of the new regulations. Beginning in 2006, we expect to contribute between $2 million and $5 million annually over the next ten years, based upon an assumed rate of return of 4% on invested funds, to a fund earmarked to cover the closure and long-term maintenance and monitoring costs for our phosphogypsum stacks, as well as any costs incurred to manage our wastewater upon closure of the stacks. The amount of money that will have accumulated in the trust fund by the end of the ten-year period, including interest earned on contributed funds, is currently expected to be approximately $37 million. After the initial ten years, contributions to the trust fund are expected to average approximately $1 million annually for the following 16 years. The trust fund is expected to approximate $92 million at the end of 26 years assuming a 4% return on the invested funds. The amounts recognized as expense in our operations pertaining to phosphogypsum stack closure and land reclamation are determined and accounted for as described in note 7 to our audited consolidated financial statements included in this prospectus. These amounts are expected to differ from the amounts anticipated to fund the trust, which are based on the guidelines set forth in the Florida regulations. Ultimately, the cash in these trust funds will be used to settle the asset retirement obligations. Additionally, the Florida legislature recently passed a bill that would require mining companies to demonstrate financial responsibility for wetland and other surface water mitigation measures in advance of any mining activities. If this bill becomes law, we may be required to demonstrate financial responsibility for wetland and other surface water mitigation measures if and when we expand our Hardee mining activities to new geographical areas not currently permitted.
Cash Flows
Operating Activities
First Quarter of 2005 Compared to First Quarter of 2004
Net cash generated from operating activities during the first quarter of 2005 was $63.9 million compared to $6.1 million in the same period in 2004. An increase in operating earnings of $19.6 million for the first quarter of 2005, along with a $38.1 million decrease in the amount of cash used to fund working capital, together accounted for most of the $57.8 million year-over-year improvement in cash provided by operating activities. Net changes in working capital consumed $5.5 million of cash flow in the first quarter of 2005 compared to $43.6 million in the comparable period of 2004. In the first quarter of 2005, accounts receivable increased by $17.2 million, and inventories increased by $20.9 million, while accounts payable and accrued expenses decreased by $6.3 million, resulting in a net use of cash of $44.4 million, which was partially offset by a $14.8 million decrease in margin deposits and a $24.1 million increase in customer advances. The increased inventories were due to higher raw material prices and quantities held at March 31, 2005. The increase in accounts receivable was due to increased sales volume and higher prices realized for sales on account. The decrease in margin deposits was due to fewer natural gas financial positions being established and lower margin requirements. The increase in customer advances was primarily due to higher average selling prices for forward purchases by customers on order as of March 31, 2005 as compared to December 31, 2004. The primary reason for the $43.6 million use of cash in working capital for the quarter ended March 31, 2004 was an $84.8 million increase in inventories due to higher quantities held at March 31, 2004, which was partially offset by a $19.9 million decrease in accounts receivable and a $20.5 million increase in customer advances.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Net cash generated from operating activities in 2004 was $344.3 million compared to $136.9 million in 2003. The $207.4 million improvement in cash flows from operating activities in 2004 was due primarily to a $154.8 million improvement in operating earnings and a $24.6 million increase in cash generated by
51
changes in working capital. Net changes in working capital generated $100.5 million of cash flow in 2004 compared to $75.9 million generated in 2003. In 2004, accounts receivable decreased by $41.4 million, accounts payable and accrued expenses increased $44.1 million and customer advances increased $45.5 million. The decrease in accounts receivable was due primarily to an increase in sales volume shipped under the forward pricing program for which full payment was received prior to shipment. The increased accounts payable and accrued expenses were largely related to higher trade credit obligations to our gas suppliers, reflecting higher natural gas prices. The increase in customer advances in 2004 was due to expanded participation in our forward pricing program. The net positive effects from the above changes in operating cash flows were partially offset by a $26.4 million increase in inventories due to higher raw material prices and a $4.1 million increase in margin deposits due primarily to higher margin requirements. The primary reason for the $75.9 million source of cash in working capital in 2003 was the $126.1 million increase in customer advances due to expanded customer participation in our forward pricing program, which we instituted in 2003. The increase in cash flow from customer advances was partially offset by a $16.6 million increase in accounts receivable, a $21.1 million increase in margin deposits and a $13.6 million increase in inventories. The increase in accounts receivable was due primarily to increased net sales, and the increase in margin deposits was related to natural gas hedges established as of December 31, 2003. The increase in inventories was primarily due to higher raw material prices.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Net cash generated from operating activities in 2003 was $136.9 million compared to $76.9 million in 2002. The increase of $60.0 million in 2003 was primarily due to a $65.2 million increase in cash generated by changes in working capital. Net changes in working capital generated $75.9 million of cash flow in 2003 compared to $10.7 million generated in 2002. Customer advances increased by $126.1 million in 2003 due to expanded customer participation in our forward pricing program, which we instituted in 2003. The increase in cash flow from customer advances was partially offset by a $16.6 million increase in accounts receivable, a $21.1 million increase in margin deposits and a $13.6 million increase in inventories. The increase in accounts receivable was due primarily to increased net sales, and the increase in margin deposits was related to natural gas hedges established as of December 31, 2003. The increase in inventories was primarily due to higher raw material prices. The primary reason for the $10.7 million source of cash in working capital in 2002 was a $29.8 million increase in customer advances, partially offset by a $6.9 million increase in accounts receivable, a $7.2 million increase in margin deposits and a $7.1 million increase in inventories. Customer advances increased due to greater quantities on order and higher selling prices. The increase in accounts receivable was due primarily to higher sales volumes and the increase in margin deposits was related to higher margin requirements. The increase in inventories was primarily due to higher raw material prices.
Investing Activities
First Quarter of 2005 Compared to First Quarter of 2004
Net cash used in investing activities was $49.6 million for the first quarter of 2004 compared to $71.1 million in the first quarter of 2005. The increase in additions to property, plant and equipment-net in 2005 was due primarily to $8.2 million of plant turnaround costs incurred during the first quarter of 2005 versus no plant turnaround activity occurring in the first quarter of 2004. The level of short-term investments, generally instruments with maturities between three and twelve months and auction rate securities, is dictated by our current cash position and estimated future requirements.
Years Ended December 31, 2004, 2003 and 2002
Net cash used in investing activities was $59.8 million, $78.6 million and $309.3 million in 2002, 2003 and 2004, respectively. Additions to property, plant and equipment-net accounted for $26.3 million, $28.7 million and $33.7 million in 2002, 2003 and 2004, respectively. These additions were primarily related to operational improvements, maintenance capital, plant turnaround costs and mining dam costs. Cash used to purchase short-term investments of $103.1 million, $226.5 million and $818.8 million was offset by
52
the proceeds generated from the sales and maturities of short-term investments in the amounts of $69.0 million, $173.4 million and $541.2 million in 2002, 2003 and 2004, respectively.
Financing Activities
First Quarter of 2005 Compared to First Quarter of 2004
Net cash used in financing activities, consisting mainly of payments on long-term debt, was $756,000 in the first quarter of 2004 compared to $729,000 in the comparable period of 2005. We had no outstanding borrowings under our revolving credit facilities at the end of the first quarter of either 2005 or 2004.
Years Ended December 31, 2004, 2003 and 2002
Net cash used in financing activities was $9.9 million, $40.5 million and $61.3 million in 2002, 2003 and 2004, respectively. Payments on long-term debt of $21.4 million, $33.4 million and $34.9 million were made in 2002, 2003 and 2004, respectively. We incurred $70.0 million of long-term debt in 2002 and used the proceeds to repay $55.0 million of outstanding borrowings under our revolving credit facility and to refinance $15.0 million of existing long-term debt. At the end of 2003 and 2004, we did not have any outstanding borrowings under our revolving credit facilities. The $21.7 million increase in distributions to minority interest in 2004 was due to the improved financial results of CFL in 2004.
Obligations
Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2004:
|
Payments Due by Period
|
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2006
|
2007
|
2008
|
2009
|
After
2009 |
Total
|
|||||||||||||||
|
(in thousands)
|
|||||||||||||||||||||
Contractual Obligations | ||||||||||||||||||||||
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt | $ | 19,917 | $ | 19,917 | $ | 32,416 | $ | 34,500 | $ | 34,500 | $ | 113,500 | $ | 254,750 | ||||||||
Notes payable (1) | | | | | 4,071 | | 4,071 | |||||||||||||||
Interest payments on long-term debt (2) | 18,289 | 17,054 | 15,775 | 13,353 | 10,764 | 16,900 | 92,135 | |||||||||||||||
Other Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (3) | 9,576 | 6,691 | 3,840 | 2,141 | 783 | 305 | 23,336 | |||||||||||||||
Equipment purchases and plant improvements | 2,681 | | | | | | 2,681 | |||||||||||||||
Purchase obligations (4)(5)(6) | 206,522 | 25,000 | | | | | 231,522 | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
Total | $ | 256,985 | $ | 68,662 | $ | 52,031 | $ | 49,994 | $ | 50,118 | $ | 130,705 | $ | 608,495 | ||||||||
|
|
|
|
|
|
|
53
Other Long-Term Obligations
As of December 31, 2004, our other liabilities included balances related to asset retirement obligations and environmental remediation liabilities and shutdown costs. The estimated timing and amount of cash outflows associated with these liabilities are as follows:
|
Payments Due by Period
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2005
|
2006
|
2007
|
2008
|
2009
|
After 2009
|
Total
|
||||||||||||||
|
(in thousands)
|
||||||||||||||||||||
Other Long-Term Obligations | |||||||||||||||||||||
Asset retirement obligations (1)(2) |
|
$ |
13,017 |
|
$ |
5,153 |
|
$ |
5,554 |
|
$ |
2,839 |
|
$ |
2,856 |
|
$ |
181,298 |
|
$ |
210,717 |
Environmental remediation liabilities and shutdown costs | 4,230 | 1,005 | 424 | 415 | 350 | 5,250 | 11,674 | ||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
Total | $ | 17,247 | $ | 6,158 | $ | 5,978 | $ | 3,254 | $ | 3,206 | $ | 186,548 | $ | 222,391 | |||||||
|
|
|
|
|
|
|
The following table details the undiscounted, inflation-adjusted estimated cash flows after 2009 required to settle asset retirement obligations, as discussed above.
|
Payments Due by Period
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2010-23
|
2024-30
|
2031-34
|
2035-42
|
2043-47
|
After 2048
|
Total
|
||||||||||||||
|
(in thousands)
|
||||||||||||||||||||
Asset Retirement Obligations After 2009 Cash Flows | $ | 38,695 | $ | 18,319 | $ | 57,058 | $ | 29,248 | $ | 11,756 | $ | 26,222 | $ | 181,298 |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or GAAP. GAAP requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience, technological assessment and the most recent information available to us. Actual results may differ from these estimates. Changes in estimates that may have a material impact on our results are discussed in the context of the underlying financial statement to which they relate. The following discussion presents information about our most critical accounting policies and estimates.
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Revenue Recognition
We recognize revenue when title is transferred to the customer, which can be at the plant gate, a distribution facility, a supplier location or a customer destination. In some cases, application of this policy requires that we make assumptions or estimates regarding a component of revenue, discounts and allowances, or creditworthiness of the customer. We make those estimates based on the most recent information available and historical experience, but they may be affected by subsequent changes in market conditions.
Inventory Valuation
We review our inventory balances at least annually, and more frequently if required by market conditions, to determine if the carrying amount of inventories exceeds their net realizable value. This review process incorporates current industry and customer-specific trends, current operational plans for the inventory and historical price activity of inventory. If the carrying amount exceeds the estimated net realizable value, we would immediately adjust our inventory balances accordingly. If the actual sales price ultimately realized were to be less than our estimate of net realizable value, additional losses would be incurred in the period of liquidation.
Asset Retirement Obligations and Environmental Remediation Liabilities
Costs associated with the closure of our phosphogypsum stack systems at the Bartow and Plant City, Florida phosphate fertilizer complexes, and costs associated with land reclamation activities at our Hardee, Florida phosphate rock mine, are accounted for in accordance with SFAS No. 143 Accounting for Asset Retirement Obligations . If the cost of closure can be reasonably estimated, asset retirement obligations are recognized in the period in which the related assets are put into service. These obligations are capitalized at their present value and a corresponding asset retirement liability is recorded. The liability is adjusted in subsequent periods through accretion expense. Accretion expense represents the increase in the present value of the liability due to the passage of time. The asset retirement costs capitalized as part of the carrying amount of the related asset are depreciated over their estimated useful life. The aggregate carrying value of all of our asset retirement obligations was $52.7 million as of December 31, 2004 and $50.4 million as of March 31, 2005.
Environmental remediation liabilities are recognized when the related costs are considered probable and can be reasonably estimated consistent with the requirements of SFAS No. 5 Accounting for Contingencies . Estimates of these costs are based upon currently available facts, existing technology, site-specific costs and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. All liabilities are monitored and adjusted as new facts or changes in law or technology occur. In accordance with GAAP, environmental expenditures are capitalized when such costs provide future economic benefits. Changes in laws, regulations or assumptions used in estimating these costs could have a material impact on our financial statements. The amount recorded for environmental remediation liabilities totaled $11.7 million as of December 31, 2004 and $11.5 million as of March 31, 2005.
The actual amounts to be spent on asset retirement obligations and environmental remediation liabilities will depend on factors such as the timing of activities, refinements in scope, technological developments and cost inflation, as well as present and future environmental laws and regulations. The estimates of amounts to be spent are subject to considerable uncertainty and long timeframes. Changes in these estimates could have a material impact on our results of operations and financial position.
Recoverability of Long-Lived Assets
We review the carrying values of our plant, property and equipment on a regular basis in accordance with SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets . If impairment of an asset has occurred, an impairment charge is recognized immediately. Factors that we must estimate when performing impairment tests include sales volume, prices, inflation, discount rates, exchange rates, tax rates and capital spending. Significant judgment is involved in estimating each of these factors, which include inherent uncertainties. The recoverability of the values associated with our long-lived assets is
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dependent upon future operating performance of the specific businesses to which the assets are attributed. Certain of the operating assumptions are particularly sensitive to the cyclical nature of the fertilizer business.
Deferred Income Taxes
Our deferred income tax assets and liabilities arise from tax net operating losses and temporary differences between income tax requirements and financial statement reporting. The most salient factors in this regard are typically depreciation and amortization, depletable mineral properties, retirement benefits and asset retirement obligations. We record a valuation allowance if we believe that it is more likely than not that a deferred tax asset will not be realized.
The eventual realization of the deferred tax assets recorded depends on our ability to generate sufficient taxable income in future periods. Sources of future taxable income include reversals of existing temporary differences and operating earnings to be generated in future years. Estimates involving the projection of future earnings are subject to significant uncertainties and, therefore, are highly susceptible to change. Changes in such projections can result in material adjustments to our consolidated income tax provision.
As of December 31, 2004, we had total net operating loss carryforwards of $311.3 million. A gross deferred tax asset of $124.3 million related to these net operating loss carryforwards is included on our December 31, 2004 balance sheet. As of March 31, 2005, total net operating loss carryforwards were $290.1 million, and a related gross deferred tax asset of $116.1 million was included in deferred income taxes. Because our net operating loss carryforwards were generated from business conducted with our owners when we were a cooperative for tax purposes, there is substantial uncertainty under existing tax law whether any tax benefits from the related deferred tax asset will be realizable after the completion of this offering. As a result of this uncertainty, we will establish a valuation allowance equal to 100% of any of the deferred tax asset remaining after the consummation of this offering. We will record a non-cash charge to "Income Tax Expense" in the amount of the valuation allowance in the quarter in which the offering is completed.
We intend to enter into an NOL Agreement with the owners of CF Industries in connection with the Reorganization Transaction relating to the treatment of the net operating loss carryforwards. Under the NOL Agreement, in the event that it is finally determined that our net operating loss carryforwards can be used after we are no longer a cooperative, we will pay the owners of CF Industries an amount equal to the federal and state income taxes actually saved after the completion of this offering as a result of the utilization of net operating loss carryforwards related to our former cooperative status. See "The Reorganization Transaction."
Pension Assets and Liabilities
Pension assets and liabilities are affected by the market value of plan assets, estimates of the expected return on plan assets, plan design, actuarial estimates and discount rates. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets will affect the amount of pension expense ultimately recognized. Our benefit obligation related to our pension plans was $214.6 million at December 31, 2004, which was $41.2 million higher than pension plan assets. The December 31, 2004 benefit obligation was computed based on a 5.75% discount rate, which was based on yields for high-quality corporate bonds with a maturity approximating the duration of our pension liability. Declines in comparable bond yields would increase our benefit obligation. Our net benefit obligation, after deduction of plan assets, could increase or decrease depending on the extent to which returns on pension plan assets are lower or higher than the discount rate. The 8.5% expected long-term rate of return on assets is based on studies of actual rates of return achieved by equity and non-equity investments, both separately and in combination over historical holding periods. We expect contributions to our pension plans to range between $8 million and $9 million annually for 2005 and 2006.
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Retiree Medical Benefits
Retiree medical benefits are determined on an actuarial basis and are affected by assumptions, including discount rates used to compute the present value of the future obligations and expected increases in health care costs. Changes in the discount rate and differences between actual and expected health care costs will affect the recorded amount of retiree medical benefits expense.
Qualitative and Quantitative Disclosures About Market Risk
We are exposed to the impact of changes in interest rates, foreign currency exchange rates and commodity prices.
Interest Rate Fluctuations
Borrowings under a variable rate term loan and notes payable bear a current market rate of interest such that we are subject to interest rate risk on these borrowings. The revolving credit facility bears a similar risk, but as of December 31, 2004, there were no borrowings under this facility. As of December 31, 2004, a 100 basis point change in interest rates on our floating rate loans, which totaled $25.1 million, would result in a $251,000 change in pretax income on an annual basis.
Foreign Currency Exchange Rates
We are exposed to changes in the value of the Canadian dollar as a result of our 66% economic interest and our 49% common equity interest in CFL. We do not maintain any exchange rate derivatives or hedges related to CFL.
Commodity Prices
Our net sales, cash flows and estimates of future cash flows related to the nitrogen and phosphate fertilizer sales not made under the forward pricing program are sensitive to changes in nitrogen and phosphate fertilizer prices as well as changes in the prices of natural gas and other raw materials. A $1.00 per mmBTU change in the price of natural gas would change the cost to produce a ton of ammonia by approximately $33.
We use natural gas in the manufacture of our nitrogen fertilizer products. Because natural gas prices are volatile, our Natural Gas Acquisition Policy includes the objective of providing protection against significant adverse natural gas price movements. We manage the risk of changes in gas prices through the use of physical gas supply contracts and derivative financial instruments covering periods not exceeding three years. The derivative instruments currently used are swaps, futures and purchased options. These contracts reference primarily NYMEX futures contract prices, which represent fair value at any given time. The related contracts are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. As of December 31, 2004, we hedged approximately 24.8 million mmBTUs of natural gas, most of which related to sales contracted to be sold through our forward pricing program as of December 31, 2004. As of March 31, 2005, we hedged approximately 12.8 million mmBTUs of natural gas, most of which related to sales contracted to be sold through our forward pricing program as of March 31, 2005. In the future, we may establish derivative positions in natural gas that are unrelated to forward pricing program contracts if we consider it appropriate to do so.
We designate, document and assess accounting for hedge relationships, which result primarily in cash flow hedges that require us to record the derivatives as assets and liabilities at their fair value on the balance sheet with an offset in other comprehensive income (loss). The gain or loss of an effective cash flow hedge is deferred in other comprehensive income (loss) until the second month after the hedged natural gas is used to manufacture inventoried products, which approximates the period of inventory turns of upgraded products and the release of the cost of the hedged gas to cost of sales. Ineffective hedge gains and losses are recorded immediately in cost of sales.
We purchase ammonia and sulfur for use as raw materials in the production of DAP and MAP. We attempt to include any price fluctuations related to these raw materials in our selling prices of finished products, but there can be no guarantee that significant increases in input prices can always be recovered.
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We enter into raw material purchase contracts to procure ammonia and sulfur at market prices. A $10 per related ton change in the cost of a ton of ammonia or a long ton of sulfur would change DAP production cost by $2.10 per ton and $3.80 per ton, respectively. We also purchase ammonia, urea and UAN to augment our production.
Forward Pricing Program
In mid-2003, we instituted a program that has reduced the risk inherent in the relationship between volatile fertilizer prices and natural gas costs. Our basic concept (principally applied to nitrogen fertilizers) is to fix the price of our principal raw material, natural gas, coincident with the establishment of the fertilizer sales price, which often occurs months in advance of shipment. Customer advances, which typically represent a substantial portion of the contract price, are received at the time the contract is executed, with any remaining unpaid amount due in the month prior to scheduled shipment. As is the case for all of our sales transactions, revenue is recognized when title transfers upon shipment or delivery of the product to customers. We use derivative instruments, primarily futures and swaps, to fix the natural gas prices for product sold under our forward pricing program. These instruments are classified as cash flow hedges as defined in SFAS No. 133 Accounting for Derivatives and Hedging Activities , and accounted for accordingly. The gains or losses of these hedges are deferred in other comprehensive income and are recognized in operations when the hedged item affects earnings. If any such hedges become ineffective, the gains or losses are recognized immediately in operations.
Some of our customers have been able to apply the forward pricing concept in their dealings with their customers, thereby further integrating their business with ours. For example, our two largest customers, Agriliance and GROWMARK, have electronically integrated their forward pricing offerings with ours.
As a result of the success of our forward pricing program, we have been able, under recent market conditions, both to reduce risks and to add more predictability in our business. In 2003, we sold approximately 1.6 million tons of fertilizer, representing approximately 19% of our sales volume, under the forward pricing program. During 2004, we sold approximately 3.6 million tons of nitrogen fertilizer, representing approximately 54% of our nitrogen fertilizer sales volume, and approximately 273,000 tons of phosphate fertilizer, representing approximately 14% of our phosphate fertilizer sales volume, under the forward pricing program. In the first quarter of 2005, we sold approximately 1.2 million tons of nitrogen fertilizer, representing approximately 71% of our nitrogen fertilizer sales volume, and approximately 133,000 tons of phosphate fertilizer, representing approximately 27% of our phosphate fertilizer sales volume, under the forward pricing program. As of December 31, 2004 and March 31, 2005, we had approximately 1.9 million tons of product and 1.4 million tons of product, respectively, committed to be sold under this program in 2005. The majority of these amounts were scheduled to ship within 150 days of December 31, 2004 and March 31, 2005, respectively.
As a result of fixing the selling prices of our products under our forward pricing program, often months in advance of their ultimate delivery to customers, our reported selling prices and margins may differ from market spot prices and margins available at the time of shipment.
Participation in the forward pricing program is affected by market conditions and our customers' expectations. There is no guarantee that we will transact the same percentage of our business under the forward pricing program in the future. Should the level of participation decrease, there is a risk of increased volatility in the operating earnings of future periods.
Discussion of Seasonality Impacts on Operations
Our sales of fertilizers to agricultural customers are typically seasonal in nature. The strongest demand for our products occurs during the spring planting season, with a second period of strong demand following the fall harvest. We and/or our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales seasons. Seasonality is greatest for ammonia due to the limited ability of our customers and their customers to store significant quantities of this product. The seasonality of fertilizer demand results in our sales volumes and net sales being the highest during the spring and our working capital requirements being the highest just prior to the start of the spring season. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns.
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Market Overview
Fertilizers serve an important role in global agriculture by providing vital nutrients that help increase both the yield and the quality of crops. The three main nutrients required for plant growth are nitrogen, phosphate and potash. Nitrogen promotes protein formation and is a major component of chlorophyll, and as a result nitrogen is essential to healthy plant growth and high crop yields. Phosphate plays a key role in the photosynthesis process (i.e., the production, transportation and accumulation of sugars in the plant). Phosphate is also involved in seed germination and helps plants use water efficiently. Potash improves plant durability, providing protection from drought, disease, weeds, parasites and cold weather and is an important regulator of plants' physiological functions. Phosphate and potash are retained in the soil over time to a much higher degree than nitrogen, which must be reapplied each year to maintain high crop yields.
According to the IFA, global agricultural consumption for the three principal crop nutrients in 2004 was approximately 162 million tons95 million tons of nitrogen (59%), 39 million tons of phosphate (24%) and 28 million tons of potash (17%). These relative percentages have been fairly consistent over time. We are one of the largest manufacturers and distributors of nitrogen and phosphate fertilizers in North America. Agricultural usage accounted for approximately 80% of total global consumption of nitrogen and phosphate fertilizer in 2004. The balance was used primarily in industrial applications. Growers of the major commodity crops are the largest consumers of fertilizer. In the United States, approximately two-thirds of agricultural fertilizer is used to grow corn, wheat, soybeans and cotton. Industrial uses of fertilizers include the production of resins, plastics, synthetic fibers, livestock feed, explosives and detergents and usage in certain pollution control applications.
The global fertilizer industry is highly cyclical and capital intensive. Fertilizers are commodities for which competition occurs principally on the basis of delivered price and to a lesser extent on customer service and product quality. Historically, global fertilizer demand has been driven primarily by population growth and changes in dietary habits, which determine global demand for food. Because arable land is a limiting factor, growth in food production must be achieved through greater crop yields, which in turn results in higher use of crop inputs such as fertilizers and crop chemicals. According to Fertecon, global agricultural demand for nitrogen and phosphate fertilizers is expected to grow from 2004 to 2009 at annual rates of 2.2% and 2.7%, respectively. Supply of nitrogen and phosphate fertilizers is influenced by a broad range of factors, including available capacity and operating rates, raw material costs, government policies and global trade.
Nitrogen Fertilizer Overview
The principal nitrogen fertilizer products, ammonia, urea and UAN, are produced in chemical processes using a hydrocarbon, generally natural gas. These three fertilizers accounted for a combined share of approximately 75% of the U.S. agricultural nitrogen fertilizer market over the last several years. On a global basis, urea is the fastest growing fertilizer and accounts for over half of total agricultural demand. Other products used in the global market include ammonium nitrate, ammonium sulfate, ammonium bicarbonate and nitrogen-based fertilizer compounds.
Global Nitrogen Fertilizer Market
From 1971 through 2004, global agricultural consumption of nitrogen fertilizer has grown at an average rate of 3.1% per year. The only significant downturn in global demand during this time period was in the late 1980s and early 1990s, when the collapse of the former Soviet Union resulted in a dramatic drop in consumption in that region. Excluding use in the former Soviet Union, agricultural consumption over this period has grown at an average rate of 3.5% per year.
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World Nitrogen Agricultural Fertilizer Consumption
Source: IFA
Changes in global nitrogen fertilizer capacity tend to be less uniform than changes in consumption, resulting in an industry with pronounced cyclicality. Fertilizer manufacturing is capital intensive, requiring large increments of capacity to achieve economies of scale. Adding capacity is typically a lengthy process, generally taking three to five years to design and construct new projects. Historically, large increases in global capacity have tended to follow periods of high industry profitability. For example, strong nitrogen fertilizer profitability during the mid-1990s contributed to an increase in nitrogen fertilizer capacity of about 14 million tons between 1996 and 2002. During this period, global nitrogen fertilizer consumption grew by only 5 million tons. The excess capacity led to a period of depressed profitability, forcing the closure of a number of plants, primarily in the United States and Europe. These closures, combined with a significant level of temporary outages at nitrogen fertilizer plants around the world and growth in demand, restored a more balanced relationship between global supply and demand in 2003 and 2004.
International trade is also a significant factor in the global nitrogen fertilizer market. Fertecon estimates that interregional trade of nitrogen fertilizer accounted for 35% of global consumption in 2004. Countries with supplies of low-priced natural gas, such as the Republic of Trinidad and Tobago and countries in the former Soviet Union and the Arab Gulf, are major nitrogen fertilizer exporters. North America is a large importer of nitrogen fertilizer.
North American Nitrogen Fertilizer Market
In 2004, North America accounted for approximately 12% of global nitrogen fertilizer capacity and 15% of global nitrogen fertilizer consumption. The cost of natural gas, including transportation to the plant, can constitute a substantial majority of the cash cost of producing nitrogen fertilizers in North America. Weak conditions in the global nitrogen fertilizer market in the late 1990s and high natural gas prices in North America from 2001 through 2004 contributed to the closure of approximately 5 million tons of nitrogen fertilizer production capacity in the United States since 1998. As a result, domestic production has declined as a percentage of domestic consumption. This decline in capacity combined with a general tightening in the global supply/demand balance has contributed to higher operating rates and improved fertilizer pricing for North American producers since the middle of 2003. For example, ammonia barge
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prices at the U.S. Gulf rose from an average of $109 per ton in 1999 to $182 per ton in 2001, to $275 per ton in 2004 and recently to over $300 per ton.
North American Nitrogen Fertilizer Supply/Demand
(1)
Source: Fertecon
The three major U.S. nitrogen fertilizer products are affected by many of the same macroeconomic factors. However, each is impacted by its own specific market dynamics.
Ammonia. Ammonia has a nitrogen content of 82% and is the simplest form of nitrogen fertilizer. In the United States, there are four major uses for ammonia.
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Due to the gaseous state of ammonia under ambient conditions, the infrastructure required to handle, store and transport ammonia is highly specialized. A substantial portion of the industry's existing ammonia distribution system was developed specifically to carry ammonia from North American production facilities to the midwestern United States and other key domestic markets. The midwestern United States is the largest market for ammonia in the United States, representing 70% of U.S. agricultural consumption. Only a limited amount of infrastructure has been built to import ammonia and move it into the U.S. distribution system. Further, the majority of the storage facilities (large cryogenic tanks) located within the consuming market are owned by domestic producers and tied into the existing distribution system. Due to this structure, we believe the midwestern U.S. agricultural market for ammonia has been impacted less by imports than the U.S. Gulf Coast markets.
Urea. Urea is produced from ammonia and carbon dioxide (a by-product of ammonia production). In its final form, urea is a solid dry product with a nitrogen content of 46%the highest level for any solid nitrogen fertilizer. In contrast to ammonia, imported urea has access to the same U.S. distribution system that is used by domestic producers and, as a result, it can be distributed easily throughout the United States. Relative to domestic producers, many foreign producers have access to significantly lower natural gas costs but incur higher transportation costs and face added logistical challenges in exporting urea to the United States.
UAN. UAN is produced by combining urea, nitric acid and ammonia. UAN is a liquid fertilizer product, with a nitrogen content typically ranging from 28% to 32%. UAN does not need to be refrigerated or pressurized for storage or transportation. UAN can be applied more uniformly than non-liquid forms of fertilizer and can be mixed with herbicides, pesticides and other nutrients, permitting the farmer to apply several materials simultaneously rather than in separate applications. Due to the fact that UAN requires specialized equipment for application, the primary markets for UAN are in the United States and Europe, where the required infrastructure investment has been made. As a result, very little UAN is traded on the global market outside of these regions.
Imports of UAN into the United States have increased in recent years. However, the existing export-oriented capacity outside the United States is currently being fully utilized, and no additional new capacity is currently under construction.
Nitrogen capacities for the major North American producers are shown in the following table:
2004/2005 North American Nitrogen Fertilizer Product Capacities
(Thousand Tons)
|
Total Ammonia
Capacity |
%
|
Dry Urea
Capacity |
%
|
UAN
Capacity (28%) |
%
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Agrium | 4,646 | 22 | % | 3,334 | 39 | % | 1,015 | 7 | % | ||||
Terra Industries | 3,889 | 18 | 167 | 2 | 4,843 | 35 | |||||||
CF Industries (1) | 3,530 | 17 | 2,540 | 30 | 2,710 | 20 | |||||||
Koch Nitrogen | 3,234 | 15 | 385 | 5 | 1,288 | 9 | |||||||
Potash Corp. | 1,356 | 6 | 688 | 8 | 1,017 | 7 | |||||||
Other | 4,567 | 22 | 1,338 | 16 | 2,989 | 22 | |||||||
|
|
|
|
|
|
||||||||
Total U.S. and Canada | 21,222 | 100 | % | 8,452 | 100 | % | 13,862 | 100 | % | ||||
|
|
|
|
|
|
Source: International Fertilizer Development Center, or IFDC, CF Industries
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Phosphate Fertilizer Overview
The principal raw materials used in the production of phosphate fertilizers are phosphate rock, sulfuric acid and ammonia. Typically, sulfur is used to make sulfuric acid, which is combined with phosphate rock to produce phosphoric acid. The principal phosphate fertilizer products are DAP and MAP. Both products are produced by reacting phosphoric acid with ammonia to produce a slurry that is then granulated. DAP has a phosphate content of 46% and a nitrogen content of 18%. The primary grade of MAP has a phosphate content of 52% and a nitrogen content of 11%. On a nutrient basis, DAP and MAP accounted for over 70% of U.S. agricultural phosphate fertilizer consumption and almost 70% of global agricultural phosphate fertilizer trade over the last three years.
Global Phosphate Fertilizer Market
The phosphate fertilizer market consists of three sectorsagricultural usage, industrial applications and feed products, with agricultural usage accounting for approximately 85% of the total phosphate fertilizer market. Excluding use in the former Soviet Union, global agricultural consumption of phosphate fertilizers has grown over the last 33 years at an average rate of about 2.0% per year.
World Phosphate Agricultural Fertilizer Consumption
Source: IFA
The use of DAP and MAP has been increasing as a percentage of agricultural usage of phosphate fertilizers. From 1981 through 2004, the combined agricultural usage of DAP and MAP has grown at an average rate of 4.1% per year.
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World Phosphate Agricultural Fertilizer Consumption
Source: IFA; Fertecon
While phosphate fertilizers can be made by various processes, DAP and MAP are produced from wet process phosphoric acid, or wet acid. Because it takes about 3.5 tons of phosphate rock to produce one ton of wet acid, the major phosphate fertilizer producing regions of the world are in countries that have large, high-quality phosphate rock deposits. The United States is the world's largest producer of phosphoric acid, accounting for approximately 27% of global wet acid capacity, followed by China, Morocco and Russia with approximately 16%, 9% and 8%, respectively.
With production concentrated geographically, interregional trade is a major factor in the global phosphate market. According to Fertecon, interregional trade of DAP and MAP accounted for 43% of global agricultural consumption of these products in 2004. The United States is the world's largest exporter of DAP/MAP. China, Western Europe and Latin America are the largest importers. Over the last three years, global trade with China has declined, but the decline has been offset by higher imports into Latin America and Western Europe.
U.S. Phosphate Market
Approximately 45% of U.S. production of phosphate fertilizers was exported in 2004, with the balance consumed domestically in agriculture and other applications. In 2001, U.S. exports declined due to a drop in shipments to China, but subsequently increased as demand in other export markets strengthened.
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Total U.S. Phosphate Fertilizer Supply/Demand
(1)
Source: Fertecon
PhosChem is the major phosphate-exporting organization in the United States. PhosChem was formed under the U.S. Webb-Pomerene Act, which allows domestic producers to work together to compete more effectively against other international phosphate suppliers. Prior to 2003, the members of PhosChem accounted for 52% of total U.S. phosphate capacity. Following the 2004 merger between IMC Global and Cargill Crop Nutrition to form Mosaic, PhosChem members now account for 74% of total U.S. wet acid capacity and 72% of U.S. DAP/MAP capacity, giving PhosChem an important role in global trade.
It has become increasingly difficult to develop new phosphate rock mines in the United States due to regulatory and environmental requirements. Several of the smaller phosphate producers do not own phosphate rock supplies. Those without captive supplies are expected to be at an increasing disadvantage with respect to cost and availability of phosphate rock.
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Phosphate fertilizer capacities for the major U.S. producers are shown in the following table:
2004/2005 U.S. Phosphate Fertilizer Capacity
(Thousand Tons as P
2
O
5
)
|
Wet Acid
Capacity |
%
|
DAP/MAP
Capacity |
%
|
|||||
---|---|---|---|---|---|---|---|---|---|
Mosaic* | 6,245 | 49 | % | 5,427 | 57 | % | |||
Potash Corp.* | 2,753 | 22 | 993 | 11 | |||||
CF Industries | 1,000 | 8 | 1,000 | 11 | |||||
Simplot | 850 | 7 | 641 | 7 | |||||
U.S. Agri-Chemicals | 560 | 5 | 596 | 6 | |||||
Mississippi Phosphates* | 415 | 3 | 399 | 4 | |||||
Other | 813 | 6 | 380 | 4 | |||||
|
|
|
|
||||||
Total U.S. | 12,636 | 100 | % | 9,436 | 100 | % | |||
|
|
|
|
Source: IFDC, CF Industries
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Our Company
We are one of the largest manufacturers and distributors of nitrogen and phosphate fertilizer products in North America. Our operations are organized into two business segments: the nitrogen fertilizer business and the phosphate fertilizer business. Our principal products in the nitrogen fertilizer business are ammonia, urea and UAN. Our principal products in the phosphate fertilizer business are DAP and MAP. For the twelve months ended June 30, 2004, we supplied approximately 22% of the nitrogen and approximately 14% of the phosphate used in agricultural fertilizer applications in the United States. Our core market and distribution facilities are concentrated in the midwestern U.S. grain-producing states.
Our principal assets include:
For the year ended December 31, 2004, we sold 6.6 million tons of nitrogen fertilizers and 1.9 million tons of phosphate fertilizers, generating net sales of $1.7 billion, EBITDA of $233.5 million and net earnings of $67.7 million. For the twelve months ended March 31, 2005, we sold 6.9 million tons of nitrogen fertilizers and 2.0 million tons of phosphate fertilizers, generating net sales of $1.8 billion, EBITDA of $253.2 million and net earnings of $81.6 million.
Company Evolution
We were founded in 1946 as a fertilizer brokerage operation by a group of regional agricultural cooperatives seeking to pool their purchasing power. During the 1960s, we expanded our distribution capabilities and diversified into fertilizer manufacturing through the acquisition of several existing plants and facilities. During the 1970s and again during the 1990s, we expanded our production and distribution capabilities significantly, spending approximately $1 billion in each of these decades.
Since inception, we have been structured as a cooperative. As we are a cooperative, our owners are our principal customers, and earnings generated on our sales to owners can be distributed to them on a pretax basis in a form called "patronage." Today, we have eight cooperative owners, six of whom conduct business directly with us and two of whom (Land O'Lakes, Inc. and CHS Inc.) conduct business with us through a 50-50 jointly-owned venture called Agriliance, LLC.
Through the end of 2002, we operated as a traditional supply cooperative. Our focus was on providing our owners with an assured supply of fertilizer. Typically, over 80% of our annual sales volume was to our owners. Though important, financial performance was subordinate to our mandated supply objective.
In mid-1998, the domestic fertilizer industry went into a cyclical downturn and our financial performance suffered. This situation led our board of directors and management to reexamine the basic strategy of operating as a traditional supply cooperative. In 2002, we reassessed our corporate mission and adopted a new business model that established financial performance, rather than assured supply to our
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owners, as our principal objective. While some vestiges of the traditional business approach remain, since the end of 2002 we have been:
While we continue to focus on customer service and supply reliability, we no longer offer our owners an assured supply and other commercial benefits associated with our previous business model.
One result of this new approach has been a shift in our customer mix. In contrast to 2002, when approximately 18% of our sales volume was to unaffiliated customers, approximately 41% of our sales volume was to unaffiliated customers in 2004.
Concurrent with our new approach to the marketplace, we have been implementing other measures to improve the performance of our business, including:
These measures, combined with our new approach to the marketplace and a leadership change in mid-2003, positioned us to capitalize on the improving industry conditions that began in the latter half of 2003. Conversion to a public entity through this offering will complete our transition and significantly enhance our competitive position for the future.
CF Holdings was formed as a Delaware corporation in April 2005 to hold the existing businesses of CF Industries. Concurrent with the completion of this offering, we will consummate the Reorganization Transaction in which CF Industries will become our wholly-owned subsidiary. The Reorganization Transaction will not affect our operations, which we will continue to conduct through our operating subsidiaries. See "The Reorganization Transaction."
Our Competitive Strengths
We believe that the combination of the following competitive strengths distinguishes us from our competitors.
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facilities, our market shares are even stronger. In our core market of ten midwestern U.S. grain-producing states, we supplied approximately 29% of the nitrogen and approximately 20% of the phosphate used by commercial farmers during this twelve-month period.
In 2004, our owners accounted for approximately 53% of our sales volume. Following this offering, we anticipate that our owners and their affiliates collectively will continue to be significant customers. We have entered into market-based, multi-year supply contracts with them relating to future purchases of fertilizer. See "Certain Relationships and Related Party TransactionsOwner Supply Contracts."
We also operate and have a 66% economic interest in the largest nitrogen fertilizer complex in Canada (located in Medicine Hat, Alberta), which gives us access to the economically attractive markets of western Canada and the northern tier states of the United States. Our Medicine Hat nitrogen fertilizer complex has gross annual production capacities of approximately 1.3 million tons of ammonia and 810,000 tons of granular urea. This facility is able to purchase natural gas at essentially no cost differential to AECO, the most heavily-traded natural gas pricing reference point in Alberta. Over the past five years, the daily price for natural gas at AECO has averaged $.66 per mmBTU less than the daily price at Henry Hub. For example, during 2004, the average daily natural gas price at AECO was $5.04 per mmBTU, while the average daily natural gas price at Henry Hub was $5.85 per mmBTU.
69
Our phosphate fertilizer operations are located in central Florida, the major phosphate-producing region in North America. Our facilities include:
Together, these assets provide us with economical and reliable access to raw materials, cost-competitive conversion of raw materials to finished product, and access to both domestic and international phosphate fertilizer markets. Our Plant City phosphate fertilizer complex has the capacity to produce over two million tons of ammonium phosphate fertilizers (DAP and MAP) per year. Our Hardee rock mine and beneficiation plant have the capacity to supply our Plant City phosphate fertilizer complex with all of its phosphate rock requirements. As of January 1, 2005, it had approximately 17 years of fully-permitted recoverable phosphate reserves remaining at current operating rates. Mining of these reserves beyond 2011 is subject to extension of our local development authorization. Additionally, we have initiated the process of applying for authorization and permits to expand the geographical area at our Hardee property where we can mine. We estimate that we will be able to conduct mining operations at our Hardee property for approximately ten additional years at current operating rates, assuming we secure the authorization and permits to mine in this area. Our ammonia terminal in Tampa includes a 38,000-ton storage tank and access to a deep-water dock. The facility allows us to purchase ammonia from international suppliers for use at our Plant City phosphate fertilizer complex and for resale to other phosphate producers. Our terminal is currently the only one in Tampa capable of accommodating the largest fully-loaded ammonia vessels, which typically carry between 35,000 and 40,000 metric tons of ammonia. Our warehouse in Tampa has a deep-water dock and the capacity to store 75,000 tons of phosphate fertilizer.
Our customers' favorable response to this program resulted in approximately 54% of our nitrogen fertilizer sales volume being sold under this program during 2004. Some of our customers have been able
70
to apply the forward pricing concept in dealings with their customers, thereby further integrating their business with ours. For example, our two largest customers, Agriliance and GROWMARK, have electronically integrated their forward pricing offerings with ours.
Our workforce of over 1,400 full-time employees averages approximately 15 years of service with us. From 1995 to 2004, our voluntary employee turnover (excluding retirements) averaged 3.7% per year. Virtually all of our workforce is non-unionized.
Our Business Strategy
71
strategy, coupled with continued strong relationships with our owners, will allow us to enhance the overall economics of our business.
Operating Segments
Our business is divided into two operating segments, the nitrogen fertilizer business and the phosphate fertilizer business.
Nitrogen Fertilizer Business
We are one of the leading nitrogen fertilizer producers in North America. Our primary nitrogen fertilizer products are ammonia, urea and UAN. Our historical sales of nitrogen fertilizer products are shown in the table below. The sales shown do not reflect amounts used internally in the manufacture of other products (for example in 2004, we used about 2.3 million tons of ammonia in the production of urea and UAN).
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Year ended December 31,
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Three months ended March 31,
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2002
|
2003
|
2004
|
2004
|
2005
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|||||||||||||||||||||
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Tons
|
Net Sales
|
Tons
|
Net Sales
|
Tons
|
Net Sales
|
Tons
|
Net Sales
|
Tons
|
Net Sales
|
||||||||||||||||
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($ in millions; tons in thousands)
|
|||||||||||||||||||||||||
Nitrogen Fertilizer Products | ||||||||||||||||||||||||||
Ammonia | 1,435 | $ | 228.7 | 1,475 | $ | 347.4 | 1,438 | $ | 399.5 | 215 | $ | 56.4 | 316 | $ | 88.9 | |||||||||||
Urea | 2,663 | 320.7 | 2,572 | 443.2 | 2,513 | 515.9 | 612 | 121.5 | 749 | 176.6 | ||||||||||||||||
UAN | 1,926 | 178.9 | 2,228 | 265.2 | 2,593 | 354.1 | 557 | 72.3 | 590 | 91.4 | ||||||||||||||||
Other nitrogen fertilizers (1) | 45 | 2.1 | 34 | 2.4 | 59 | 4.4 | 8 | .6 | 5 | .4 | ||||||||||||||||
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|
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|||||||||||||||||
Total Nitrogen Fertilizers | 6,069 | $ | 730.4 | 6,309 | $ | 1,058.2 | 6,603 | $ | 1,273.9 | 1,392 | $ | 250.8 | 1,660 | $ | 357.3 | |||||||||||
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Gross margin for the nitrogen fertilizer business was $19.2 million, $58.6 million and $193.8 million for the fiscal years ended December 31, 2002, 2003 and 2004, respectively. Gross margin for the nitrogen fertilizer business was $33.6 million and $46.8 million for the three months ended March 31, 2004 and 2005, respectively.
Total assets for the nitrogen fertilizer business were $546.9 million, $558.1 million and $530.6 million as of December 31, 2002, 2003 and 2004, respectively. Total assets for the nitrogen fertilizer business were $516.8 million as of March 31, 2005.
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We operate world-scale nitrogen fertilizer production facilities in Donaldsonville, Louisiana and Medicine Hat, Alberta, Canada. We own the Donaldsonville nitrogen fertilizer complex and have a 66% economic interest in Canadian Fertilizers Limited, or CFL, a Canadian joint venture that owns the Medicine Hat nitrogen fertilizer complex. The combined production capacity of these two facilities represented approximately 17% of North American ammonia capacity, 30% of North American dry urea capacity and 20% of North American UAN capacity in 2004.
The following table summarizes our nitrogen fertilizer production volume for the last five years and each of the three-month periods ended March 31, 2004 and 2005 and current production capacities at our facilities in Donaldsonville, Louisiana and Medicine Hat, Alberta.
Donaldsonville Nitrogen Complex
The Donaldsonville nitrogen fertilizer complex is the largest nitrogen fertilizer production facility in North America. It has four ammonia plants, four urea plants and two UAN plants. It has the capacity to produce annually approximately 2.3 million tons of ammonia (including amounts upgraded into urea and UAN), 2.6 million tons of liquid urea (including amounts upgraded into UAN) and 2.7 million tons of UAN (measured on a 28% nitrogen content basis). With UAN operating at capacity, approximately 1.7 million tons of granular urea can be produced. With UAN operating at reduced rates, approximately 2 million tons of granular urea can be produced.
We believe that our Donaldsonville nitrogen fertilizer complex is the most versatile nitrogen fertilizer production facility in North America. With multiple production units for each product, the complex has considerable flexibility to adjust its shippable product mix efficiently. Donaldsonville is located at the mouth of the Mississippi River and has three docks that can be used simultaneously under most river conditions. In addition, Donaldsonville is located on the Union Pacific railroad and the Kaneb Ammonia Pipeline, providing us with low-cost transportation to our in-market nitrogen fertilizer terminals and warehouses by rail and pipeline, as well as by barge. It is capable of docking and unloading into its storage system ocean-going ship loads of ammonia and UAN, providing us with direct access to global suppliers. The complex has on-site storage for 70,000 tons of ammonia, 135,000 tons of UAN (measured on a 28% nitrogen content basis) and 83,000 tons of granular urea, providing us with flexibility to handle temporary disruptions to shipping activities without impacting production.
73
Medicine Hat Nitrogen Complex
Medicine Hat is the largest nitrogen fertilizer complex in Canada. It has two world-scale ammonia plants that have a gross annual production capacity of approximately 1.3 million tons and a world-scale urea plant that has a gross annual production capacity of 810,000 tons. The complex has on-site storage for 60,000 tons of ammonia and 70,000 tons of urea, providing flexibility to handle temporary disruptions in outbound shipments.
Medicine Hat is owned by CFL. We own 49% of the voting common stock of CFL and 66% of CFL's non-voting preferred stock. Two owners of CF Industries own 17% of CFL's voting common stock. The remaining 34% of the voting common stock and non-voting preferred stock of CFL is held by Westco. We designate four members of CFL's nine-member board of directors, which also has one member designated by each of the two owners of CF Industries that also own an interest in CFL and three members designated by Westco.
We operate the Medicine Hat facility and purchase approximately 66% of the facility's ammonia and urea production, pursuant to a management agreement and a product purchase agreement. The management agreement and the product purchase agreement are each terminable by either us or CFL upon twelve-months' notice. Westco has the right, but not the obligation, to purchase the remaining 34% of the facility's ammonia and urea production under a similar product purchase agreement. To the extent that Westco does not purchase its 34% of the facility's production, we are obligated to purchase any remaining amounts. Under the product purchase agreements, both we and Westco pay the greater of operating cost or market price for purchases. However, the product purchase agreements also provide that CFL will distribute its net earnings to us and Westco annually based on the respective quantities of product purchased from CFL. Our product purchase agreement also requires us to advance funds to CFL in the event that CFL is unable to meet its debts as they become due. The amount of each advance would be at least 66% of the deficiency and would be more in any year that we purchased more than 66% of Medicine Hat's production. We and Westco currently manage CFL such that each party is responsible for its share of CFL's fixed costs and that CFL's production volume meets the parties' combined requirements. We are currently in discussions with Westco regarding amendments to the CFL agreements, including an amendment to the management agreement that may reduce our management fee in exchange for other consideration.
Nitrogen Fertilizer Raw Materials
Natural gas is the principal raw material, as well as the primary fuel source, used in the ammonia production process at both the Donaldsonville and the Medicine Hat facilities. In 2004, our natural gas purchases accounted for approximately 61% of our total cost of sales for nitrogen fertilizers and a substantially higher percentage of our related cash costs. Donaldsonville is located in close proximity to the most heavily-traded natural gas pricing basis in North America, known as the Henry Hub. Medicine Hat is located in close proximity to the most heavily-traded natural gas pricing basis in Canada, known as AECO.
We use a combination of spot and term purchases of varied duration from a variety of suppliers to maintain a reliable, competitively-priced natural gas supply. In addition, we use certain financial instruments to manage natural gas prices.
Operating at capacity, the Donaldsonville nitrogen fertilizer complex consumes approximately 80 billion cubic feet of natural gas per year. The facility has access to five natural gas pipelines and obtains gas from several suppliers. Typically, the largest individual supplier provides less than 40% of the Donaldsonville facility's total daily gas requirement. Operating at capacity, the Medicine Hat complex consumes approximately 43 billion cubic feet of natural gas per year. The facility has access to two natural gas pipelines and obtains gas from numerous suppliers, the largest of which generally provides approximately 25% of plant usage.
74
Nitrogen Fertilizer Distribution
The Donaldsonville nitrogen fertilizer complex, which is located on the Mississippi River, includes a deep-water docking facility, access to an ammonia shipping pipeline and truck and railroad loading capabilities. The Medicine Hat nitrogen fertilizer complex ships our share of ammonia and urea by truck and rail to customers and to our storage facilities in the northern United States and Canada.
Ammonia, urea and UAN from Donaldsonville can be loaded into ocean-going vessels and river barges for direct shipment to domestic customers, transport to storage facilities, or export. We own six ammonia river barges with a total capacity of 16,400 tons. We contract on a dedicated basis for tug services and the operation of these barges. We also contract on a dedicated basis ten UAN river barges, with a total capacity of approximately 30,000 tons. Additional ammonia and UAN barge capacity is contracted for as needed. River transportation for urea is provided primarily under an agreement with one of the major inland river system barge operators.
The Donaldsonville facility is connected to the Kaneb Ammonia Pipeline. This 2,000-mile long ammonia pipeline is used by several nitrogen producers to transport ammonia to over 20 terminals and shipping points located in the midwestern U.S. cornbelt. We are a major customer of this ammonia pipeline. In 2004, approximately 37% of our ammonia shipments from our Donaldsonville nitrogen fertilizer complex were transported via the ammonia pipeline.
We also transport substantial volumes of ammonia, urea and UAN from the Donaldsonville nitrogen fertilizer complex and ammonia and urea from the Medicine Hat nitrogen fertilizer complex by rail. In addition to rail cars provided by the rail carriers, we currently lease 638 ammonia tank cars, 1,048 UAN tank cars and 612 dry product hopper cars.
Phosphate Fertilizer Business
We are a major manufacturer of phosphate fertilizer products. Our main phosphate fertilizer products are DAP and MAP. Our historical sales of phosphate fertilizer products are shown in the table below.
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Year ended December 31,
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Three months ended March 31,
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2002
|
2003
|
2004
|
2004
|
2005
|
|||||||||||||||||||||
|
Tons
|
Net Sales
|
Tons
|
Net Sales
|
Tons
|
Net Sales
|
Tons
|
Net Sales
|
Tons
|
Net Sales
|
||||||||||||||||
|
($ in millions; tons in thousands)
|
|||||||||||||||||||||||||
Phosphate Fertilizer Products | ||||||||||||||||||||||||||
DAP | 1,560 | $ | 227.7 | 1,627 | $ | 264.4 | 1,549 | $ | 305.3 | 330 | $ | 62.2 | 387 | $ | 80.8 | |||||||||||
MAP | 289 | 45.3 | 252 | 43.3 | 351 | 71.5 | 59 | 11.6 | 100 | 21.3 | ||||||||||||||||
Other phosphate fertilizers (1) | 65 | 8.8 | 13 | 2.1 | | 0.0 | | | | | ||||||||||||||||
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|
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|||||||||||||||||
Total Phosphate Fertilizers | 1,914 | $ | 281.8 | 1,892 | $ | 309.8 | 1,900 | $ | 376.8 | 389 | $ | 73.8 | 487 | $ | 102.1 | |||||||||||
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Gross margin for the phosphate fertilizer business was $8.5 million, $(24.3) million and $22.3 million for the fiscal years ended December 31, 2002, 2003 and 2004, respectively. Gross margin for the phosphate fertilizer business was zero and $8.5 million for the three months ended March 2004 and 2005, respectively.
Total assets for the phosphate fertilizer business were $446.6 million, $417.6 million and $414.4 million as of December 31, 2002, 2003 and 2004, respectively. Total assets for the phosphate fertilizer business were $407.8 million as of March 31, 2005.
Our phosphate fertilizer manufacturing operations are located in central Florida and consist of a phosphate fertilizer chemical complex in Plant City and a phosphate rock mine, beneficiation plant and phosphate rock reserves in Hardee County. We own each of these facilities and properties. None of our phosphate facilities or properties are leased or subject to royalty agreements.
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The following table summarizes our phosphate fertilizer production volumes for the last five years and each of the three-month periods ended March 31, 2004 and 2005 and current production capacities for phosphate-related products.
Hardee County Phosphate Rock Mine
In 1975, we purchased 20,000 acres of land in Hardee County, Florida that was originally estimated to contain in excess of 100 million tons of recoverable rock reserves. Between 1978 and mid-1993, we operated a one-million-ton per year phosphate rock mine on a 5,000-acre portion of these reserves.
In 1992, we initiated a project to expand and relocate mining operations to the remaining 15,000-acre area of the reserve property. The new phosphate rock mine began operations in late 1995 at a cost of $135 million. In 1997, we added approximately 20 million tons to our reserve base through an exchange with a neighboring rock producer. In 1999, we acquired 1,400 acres containing an estimated 8 million tons of additional rock reserves.
The table below shows the estimated reserves, as of January 1, 2005, at the Hardee phosphate complex. The reserves are listed as recoverable tons. Also reflected in the table is the grade of the reserves, expressed as a percentage of bone phosphate of lime, or BPL, or P 2 O 5 . Finally, the table also reflects the average values of the following material contaminants contained in the reserves: ferrous oxide (Fe 2 O 3 ) plus aluminum oxide (Al 2 O 3 ) and magnesium oxide (MgO).
PROVEN AND PROBABLE RESERVES
(1)
CF Industries, Inc.Hardee Phosphate Complex
As of January 1, 2005
|
Recoverable Tons
(2)
(in thousands) |
% BPL
|
% P
2
O
5
|
% Fe
2
O
3
+ Al
2
O
3
|
% MgO
|
|||||
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Permitted | 59,846 | 64.88 | 29.69 | 2.33 | 0.71 | |||||
Pending Permit | 35,230 | 64.96 | 29.73 | 2.40 | 0.71 | |||||
Total | 95,076 | 64.91 | 29.71 | 2.36 | 0.71 |
Our phosphate reserve estimates are based on geological data assembled and analyzed by our staff geologist. Reserve estimates are periodically updated to reflect actual phosphate rock production, new drilling information and other geological or mining data.
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Plant City Phosphate Complex
Our Plant City phosphate fertilizer complex is one of the largest phosphate fertilizer facilities in North America. At one million tons per year, its phosphoric acid capacity represents approximately 8% of the total U.S. capacity. All of Plant City's phosphoric acid is converted into ammonium phosphates (DAP and MAP), representing approximately 11% of U.S. capacity for ammonium phosphate fertilizer products. The combination of the Plant City phosphate fertilizer complex and the Hardee mine gives us one of the largest integrated ammonium phosphate fertilizer operations in North America with the only purchased raw materials being sulfur and ammonia.
Bartow Phosphate Complex
We own a complex in Bartow, Florida that has been idle since 1983 except for operation of one sulfuric acid plant in 1996-99 and minor phosphate production runs in 1985 and 1988/89. In 2000, we decided to discontinue maintenance on the phosphate producing portions of the complex. Through 2003, we continued to use the plant's warehouse to provide us with additional storage and shipping capacity. In 2004, we discontinued use of the facility as a warehousing operation. Our current objective is to minimize the ongoing costs related to the facility, including our obligations with respect to closing the phosphogypsum stack and disposing of the site's process water.
Phosphate Raw Materials
Phosphate Rock Supply. Phosphate rock is the basic nutrient source for phosphate fertilizers. Approximately 3.5 tons of phosphate rock are needed to produce one ton of P 2 O 5 (the measure of nutrient content of phosphate fertilizers). Our Plant City phosphate fertilizer complex consumes in excess of three million tons of rock annually. Our phosphate rock mine and associated beneficiation plant in Hardee County, Florida, have the capacity to produce approximately 3.5 million tons of phosphate rock per year. As of January 1, 2005, our rock mine had approximately 17 years of fully-permitted recoverable phosphate reserves remaining at current operating rates. Mining of these reserves beyond 2011 is subject to extension of our local development authorization. Additionally, we have initiated the process of applying for authorization and permits to expand the geographical area at our Hardee property where we can mine. The expanded area has an estimated 35 million tons of recoverable phosphate reserves. We estimate that we will be able to conduct mining operations at our Hardee property for approximately ten additional years at current operating rates, assuming we secure the authorization and permits to mine in this area.
Sulfur Supply. Sulfur is used to produce sulfuric acid, which is combined with phosphate rock to produce phosphoric acid. Approximately three-quarters of a long ton of sulfur is needed to produce one ton of P 2 O 5 . Our Plant City phosphate fertilizer complex uses approximately 750,000 long tons of sulfur annually when operating at capacity. We obtain liquid sulfur from several domestic and foreign producers under contracts of varied duration. Since 2001, our largest liquid sulfur supplier has been CF Martin Sulphur. CF Martin Sulphur was created in November 2000 as a joint venture between us and Martin Resource Management and certain of its affiliates, or Martin. On July 15, 2005, we sold our interest in CF Martin Sulphur to Martin. Concurrent with the sale, we entered into a multi-year sulfur supply contract with CF Martin Sulphur.
Ammonia Supply. In addition to its 46% phosphate nutrient content, DAP has a nitrogen content of 18%. MAP has a nitrogen content of 11%. Ammonia is the primary source of nitrogen in DAP and MAP. Operating at capacity, our Plant City phosphate fertilizer complex consumes approximately 400,000 tons of ammonia annually.
Most of the ammonia used at our Plant City phosphate fertilizer complex is shipped by rail from our ammonia storage facility located in Tampa, Florida. This facility, acquired in 1992, consists of a 38,000-ton ammonia storage tank, access to a deep-water dock that is capable of discharging ocean-going vessels, rail and truck-loading facilities and a contract that entitles us to 50% of the capacity of an ammonia pipeline connecting the tank to three central Florida phosphate plants (our Plant City phosphate fertilizer complex is not on the pipeline). The pipeline contract expires in November 2005, and we are currently in discussions
77
regarding an extension of our capacity rights. In addition to supplying our Plant City phosphate fertilizer complex, our Tampa ammonia distribution system is used to support ammonia sales to other Florida phosphate producers and other customers. Sales of ammonia from our Tampa terminal are reported in our nitrogen business segment. The ammonia supply for Tampa is purchased from offshore sources, providing us with access to the broad international ammonia market.
Phosphate Distribution
We operate a phosphate warehouse located at a deep-water port facility in Tampa, Florida. A majority of the phosphate fertilizer produced at Plant City is shipped by truck or rail to our Tampa warehouse, where it is loaded onto vessels for sale in the export market, for sale to domestic customers or for transport across the Gulf of Mexico to the Mississippi River. In 2004, our Tampa warehouse handled approximately 1.2 million tons of phosphate fertilizers, or about 65% of our production for that year. The remainder of our phosphate fertilizer production is transported by truck or rail directly to customers or to in-market storage facilities.
Phosphate fertilizer shipped across the Gulf of Mexico to the Mississippi River is transferred into river barges near New Orleans. Phosphate fertilizer in these river barges is transported to our storage facilities or sold directly to customers. River transportation is provided primarily under an agreement with one of the major inland river system barge operators.
Storage Facilities and Other Properties
We currently own or rent space at 48 in-market storage terminals and warehouses located in a 16-state region stretching from the east coast of the United States to Washington State to Texas. Including storage at our production facilities and at the Tampa warehouse and ammonia terminal, we have an aggregate storage capacity for approximately two million tons of fertilizer. We believe our storage system is the most extensive in North America.
Our storage capabilities are summarized in the following table.
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Ammonia
|
UAN
(1)
|
Dry Products
(2)
|
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|
Number of
Facilities |
Capacity
(Tons) |
Number of
Facilities |
Capacity
(Tons) |
Number of
Facilities |
Capacity
(Tons) |
|||||||
|
(tons in thousands)
|
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Plants | 2 | 130 | 1 | 135 | 3 | 210 | |||||||
Tampa Port | 1 | 38 | | 1 | 75 | ||||||||
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|
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168 | 135 | 285 | |||||||||||
In-Market Locations |
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Owned | 20 | 680 | 9 | 245 | 5 | 369 | |||||||
Rentals (3) & other | | | 12 | 165 | 2 | 37 | |||||||
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|
|
|
|
|
||||||||
Total in-market | 20 | 680 | 21 | 410 | 7 | 406 | |||||||
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|
|
|||||||||||
Total Storage Capacity |
|
|
|
848 |
|
|
|
545 |
|
|
|
691 |
|
|
|
|
In addition to these facilities, we also own our corporate headquarters, which is located in Long Grove, Illinois.
78
Customers
The principal customers for our nitrogen and phosphate fertilizers are cooperatives and independent fertilizer distributors. Since our formation in 1946, most of our sales have been to the regional agricultural cooperatives that have owned us. Following adoption of our new business model in 2002, we have significantly broadened and adjusted our customer base and expanded our export sales. For example, in 2004, ConAgra, our largest unaffiliated customer, accounted for approximately 8% of our sales volume. The following table sets forth the sales to our owners, unaffiliated customers and Westco for the past three years and the first three months of 2005.
|
Year ended December 31,
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Three months ended
March 31, 2005 |
|||||||||||||||||
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2002
|
2003
|
2004
|
|||||||||||||||
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Sales
|
Percent
|
Sales
|
Percent
|
Sales
|
Percent
|
Sales
|
Percent
|
||||||||||
|
(tons in millions, except percentages)
|
|||||||||||||||||
Owners | 6.01 | 75 | % | 5.59 | 68 | % | 4.47 | 53 | % | 1.13 | 53 | % | ||||||
Unaffiliated Customers | ||||||||||||||||||
Domestic | 1.20 | 15 | 1.97 | 24 | 2.83 | 33 | .74 | 34 | ||||||||||
Export | .25 | 3 | .16 | 2 | .68 | 8 | .15 | 7 | ||||||||||
Westco | .54 | 7 | .50 | 6 | .52 | 6 | .13 | 6 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total | 8.00 | 100 | % | 8.22 | 100 | % | 8.50 | 100 | % | 2.15 | 100 | % | ||||||
|
|
|
|
|
|
|
|
We have entered into market-based, multi-year supply contracts with our owners and their affiliates relating to future purchases of fertilizer products. See "Certain Relationships and Related Party TransactionsOwner Supply Contracts."
During 2004, two customersGROWMARK, Inc., which is one of our owners, and Agriliance, LLC, a 50-50 joint venture between two of our other ownersmade combined fertilizer purchases of approximately $688.6 million from us, representing approximately 42% of our total net sales. A loss of either of these customers could have a material adverse effect on our results of operations.
Sales to Agriliance, LLC accounted for 44% of our total net sales in 2002; 41% of our total net sales in 2003 and 29% of our total net sales in 2004. With respect to our nitrogen fertilizer business, sales to Agriliance, LLC represented 46% of net sales in 2002; 40% of net sales in 2003, and 31% of net sales in 2004. With respect to our phosphate fertilizer business, sales to Agriliance, LLC represented 40% of net sales in 2002; 45% of net sales in 2003, and 24% of net sales in 2004.
Sales to GROWMARK, Inc. accounted for 17% of our total net sales in 2002; 15% of our total net sales in 2003 and 13% of our total net sales in 2004. With respect to our nitrogen fertilizer business, sales to GROWMARK, Inc. represented 17% of net sales in 2002; 15% of net sales in 2003, and 13% of net sales in 2004. With respect to our phosphate fertilizer business, sales to GROWMARK, Inc. represented 18% of net sales in 2002; 14% of net sales in 2003, and 11% of net sales in 2004.
Competition
Our markets are intensely competitive, based primarily on delivered price and to a lesser extent on customer service and product quality. During the peak demand periods, product availability and delivery time also play a role in the buying decisions of customers.
In the nitrogen fertilizer business, our primary North American-based competitors are Agrium, Terra Industries and Koch Nitrogen. There is also significant competition from product sourced from regions of the world with low natural gas costs. Because urea is the most widely-traded fertilizer product and there are limited barriers to entry, competition from foreign-sourced product is particularly acute with respect to urea.
In the phosphate fertilizer business, our primary North American-based competitors are Mosaic, Potash Corp. and Simplot. Historically, imports have not been a factor, as the United States is a large net exporter of phosphate fertilizers.
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Seasonality
The sales patterns of all five of our products are seasonal. The strongest demand for our products occurs during the spring planting season, with a second period of strong demand following the fall harvest. We and/or our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales seasons. Seasonality is greatest for ammonia due to the limited ability of our customers and their customers to store significant quantities of this product. The seasonality of fertilizer demand results in our sales volumes and net sales being the highest during the spring and our working capital requirements being the highest just prior to the start of the spring season. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns.
Financial Information About Foreign and Domestic Sales and Operations
The amount of net sales attributable to our sales to foreign and domestic markets over the last three fiscal years and the carrying value of our foreign and domestic assets is set forth under note 28 to our audited consolidated financial statements included in this prospectus.
Environment, Health and Safety
We are subject to numerous environmental, health and safety laws and regulations, including laws and regulations relating to land reclamation; the generation, treatment, storage, disposal and handling of hazardous substances and wastes; and the cleanup of hazardous substance releases. These laws include the Clean Air Act, the Clean Water Act, RCRA, CERCLA, the Toxic Substances Control Act and various other federal, state, provincial, local and international statutes. Violations can result in substantial penalties, court orders to install pollution-control equipment, civil and criminal sanctions, permit revocations and facility shutdowns. In addition, environmental, health and safety laws and regulations may impose joint and several liability, without regard to fault, for cleanup costs on potentially responsible parties who have released or disposed of hazardous substances into the environment.
We have received notices from time to time from governmental agencies or third parties alleging that we are a potentially responsible party at certain sites under CERCLA or other environmental cleanup laws. We are currently involved in remediation activities at certain of our current and former facilities. We are also participating in the cleanup of third-party sites at which we have disposed of wastes. In April 2002, we were asked by the current owner of a former phosphate mine and manufacturing facility that we operated in the late 1950s and early 1960s located in Georgetown Canyon, Idaho, to contribute to a remediation of this property. We declined to participate in the cleanup. It is our understanding that the current owner is undertaking an investigation of the environmental conditions at the site. We do not know if a final remedy has been identified by the current owner and approved by the state. We anticipate that the current owner may bring a lawsuit against us seeking contribution for the cleanup costs, although we do not have sufficient information to determine when such a suit may be brought. We are not able to estimate at this time our potential liability with respect to the remediation of this property. Based on currently available information, we do not expect that any remedial or financial obligations we may be subject to involving other sites will have a material adverse effect on our business, financial condition or results of operations.
In December 2004, the United States Environmental Protection Agency, or EPA, inspected our Plant City, Florida phosphate fertilizer complex for compliance with RCRA, the federal statute that governs the generation, transportation, treatment, storage and disposal of hazardous wastes. This inspection was undertaken as part of a broad enforcement initiative commenced by the EPA to evaluate whether mineral processing and mining facilities, including, in particular, phosphoric acid production facilities, are in compliance with RCRA, and the extent to which such facilities' waste management practices have impacted the environment. In January 2005, EPA returned to the Plant City phosphate fertilizer complex and took samples of soils, groundwater and various waste streams at the facility. We have not yet received the results of the inspection from EPA. Accordingly, we do not know at this time whether the EPA intends to bring an enforcement action against us alleging violations of RCRA or other environmental laws at this facility. If an enforcement action is brought by EPA, we could be subject to fines or penalties and required
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to undertake other actions, including additional environmental investigations, at this facility. In addition to Plant City, we understand that the EPA will also inspect our Bartow facility, where we formerly manufactured phosphoric acid, in connection with this enforcement initiative. To date, we have not been contacted by the EPA with respect to the Bartow facility.
We expect continued government and public emphasis on environmental issues will result in increased future investments for environmental controls at ongoing operations. Our environmental, health and safety capital expenditures in 2004 were approximately $1.6 million. We have budgeted $5.6 million and $3.9 million for environmental, health and safety capital expenditures for 2005 and 2006, respectively. Environmental, health and safety laws and regulations are complex, change frequently and have tended to become more stringent over time. As a result we may be required to incur additional expenditures to comply with these laws and regulations, and they could have a material adverse effect on our business, financial condition and results of operations.
Our phosphate operations in Florida are subject to regulations governing the closure and long-term maintenance of our phosphogypsum stack systems. In accordance with those regulations, we have closed the old phosphogypsum stack system at the Plant City phosphate fertilizer complex and are in the process of closing the phosphogypsum stack system at the Bartow phosphate complex.
At our Bartow phosphate complex, we estimate that we will spend between $3.0 million and $4.0 million per year during the years 2005 through 2007 and an additional $14.3 million, in the aggregate, in subsequent years to complete the closure of the phosphogypsum stack and cooling pond. At the Plant City phosphate complex, we estimate that from 2022 to 2026, we will spend roughly $2.3 million per year to close the phosphogypsum stack currently in use, and an additional $3.2 million, in the aggregate, during the years 2034 through 2038 to complete closure of the cooling pond.
Cost estimates for closure of our old phosphogypsum stack systems are based on formal closure plans submitted to the State of Florida, which are subject to revision during negotiations over the next several years. Moreover, the time frame involved in the closure of our phosphogypsum stack systems extends as far as the year 2057. Accordingly, the actual amount to be spent will also depend upon factors such as the timing of activities, refinements in scope, technological developments, cost inflation and changes in applicable laws and regulations. These costs estimates may also increase if the Plant City phosphogypsum stack is further expanded.
The present value of the closure costs for the phosphogypsum stack systems has been accrued in accordance with SFAS No. 143. As of December 31, 2004, reserves recorded in our financial statements for these closure costs totaled $33.9 million. This estimate includes $15.4 million to treat water at both the Bartow facility and the Plant City facility. The costs to treat water at Bartow are estimated to be $7.1 million and are anticipated to be incurred through 2023. The estimates for water treatment at Plant City are $8.3 million and are expected to be incurred in the 2031 to 2057 time frame.
We have an asset retirement obligation at CFL's Medicine Hat facility for certain decommissioning and land reclamation activities upon cessation of operations. We also have an asset retirement obligation at our Donaldsonville, Louisiana nitrogen complex for reclamation of two effluent ponds upon cessation of operations. We have determined that no reasonable estimate of these obligations can be made because a date or range of dates for cessation of operations is not determinable.
We hold numerous environmental and mining permits authorizing operations at our facilities. A decision by a government agency to deny or delay issuing a new or renewed material permit or approval, or to revoke or substantially modify an existing permit, could have a material adverse effect on our ability to continue operations at the affected facility. Any future expansion of our existing operations is also predicated upon securing the necessary environmental or other permits or approvals.
As of January 1, 2005, the area permitted for mining at our Hardee phosphate complex had approximately 60 million tons of recoverable phosphate rock reserves, which will meet our requirements, at current production rates, for approximately 17 years. We have secured the necessary permits to mine these reserves from the Florida Department of Environmental Protection and the U.S. Army Corps of
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Engineers. Mining of these reserves beyond 2011 is subject to extension of our local development authorization by the Hardee County Board of County Commissioners. Additionally, we have initiated the process of applying for authorization and permits to expand the geographical area in which we can mine at our Hardee property. The expanded geographical area has an estimated additional 35 million tons of recoverable phosphate reserves, which will allow us to conduct mining operations at our Hardee property for approximately ten additional years at current operating rates, assuming we secure the authorization and permits to mine in this area. The estimated recoverable phosphate reserves are reflective of the anticipated permittable mining areas based on recent similar permitting efforts. An assessment of the wetlands subject to the jurisdiction of the Florida Department of Environmental Protection and the Army Corps of Engineers is underway for this expanded area. In Florida, local community participation has become an important factor in the authorization and permitting process for mining companies. A denial of the authorizations or permits to continue and/or expand our mining operations at our Hardee property would prevent us from mining all of our reserves and have a material adverse effect on our business, financial condition and results of operations.
Likewise, our phosphogypsum stack system at Plant City has sufficient capacity to meet our requirements through 2014 at current operating rates and subject to regular renewals of our operating permits. We have secured the local development authorization to increase the capacity of this stack system. The increased capacity is expected to meet our requirements through 2049 at current operating rates and subject to securing the corresponding operating permits. A decision by the state or federal authorities to deny a renewal of our current permits or to deny operating permits for the expansion of our stack system could have a material adverse effect on our business, financial condition and results of operations.
In certain cases, as a condition to procuring such permits and approvals, we may be required to comply with financial assurance regulatory requirements. The purpose of these requirements is to assure the government that sufficient company funds will be available for the ultimate closure, post-closure care and/or reclamation at our facilities. Currently, these financial assurance requirements can be satisfied without the need for any expenditure of corporate funds if our financial statements meet certain criteria, referred to as the financial tests. However, pursuant to a recent amendment that is scheduled to become effective July 2, 2005 to Florida's regulations governing financial assurance related to the closure of phosphogypsum stacks, we intend to establish a trust fund to meet such obligations to take advantage of a "Safe Harbor" provision of the new regulations. Beginning in 2006, we expect to contribute between $2 million and $5 million annually over the next ten years, based upon an assumed rate of return of 4% on invested funds, to a fund earmarked to cover the closure and long-term maintenance and monitoring costs of our phosphogypsum stacks, as well as any costs incurred to manage our wastewater upon closure of the stacks. The amount of money that will have accumulated in the trust fund by the end of the ten-year period, including interest earned on contributed funds, is currently expected to be approximately $37 million. After the initial ten years, contributions to the trust fund are expected to average approximately $1 million annually for the following 16 years. The trust fund is expected to approximate $92 million at the end of 26 years assuming a 4% return on the invested funds. Additionally, the Florida legislature recently passed a bill that would require mining companies to demonstrate financial responsibility for wetland and other surface water mitigation measures in advance of any mining activities. If this bill becomes law, we may be required to demonstrate financial responsibility for wetland and other surface water mitigation measures if and when we expand our Hardee mining activities to new geographical areas not currently permitted.
Several of our permits require us to reclaim any property disturbed by our operations, including our mining permit at the Hardee phosphate complex. At our Hardee property, we currently mine approximately 300 to 400 acres of land each year, all of which must be reclaimed. The costs to reclaim this land vary based on the type of land involved and range from $2,400 to $17,800 an acre, with an average of $5,500 an acre. The present value of our estimated costs to reclaim previously mined land at the Hardee phosphate complex totals approximately $19 million. We do not anticipate our reclamation obligations at our Hardee property or other facilities will have a material adverse effect on our business, financial condition and results of operations.
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We manufacture, process, store, handle, distribute and transport ammonia, which is highly volatile. The mishandling of ammonia or an accidental release can cause fires, explosions, severe property damage, injuries to humans and the environment and possible disruptions in our operations. This could in turn result in civil lawsuits and regulatory actions by governmental agencies, which could lead to significant liabilities. In addition, we may incur significant liabilities associated with the use of railcars to transport our products, including ammonia and other potentially dangerous materials. A railcar accident involving this dangerous cargo could result in catastrophic circumstances, including fires, explosions, accidents and severe pollution. Such mishandling or accident could result in significant liability in civil suits and government enforcement actions. In May 2000, we experienced an explosion at our Donaldsonville nitrogen fertilizer complex. Three people died and several others were injured in this explosion and we currently are involved in numerous lawsuits involving this tragedy. We are also involved in personal injury lawsuits arising out of a train derailment near Minot, North Dakota in 2002, in which one person died and numerous others were injured. Although we do not anticipate that the outcome of these lawsuits will have a material adverse effect on our operations, we cannot assure you that these or future lawsuits will not be material.
We are also subject to the Occupational Safety and Health Act, the regulations of the Occupational Safety and Health Administration ("OSHA") and state statutes and regulations concerning employee health and safety matters. Recently, OSHA issued a notice to its regional offices and applicable state health and safety regulatory authorities stating that it has identified serious hazards at our facilities relating to the electrical classification of our ammonia compressor rooms and the fall protection equipment we use for our employees who work atop railcars. The notice also specifies certain corrective actions that OSHA has requested that we take relating to these matters. OSHA issued this notice following the inspection of certain of our facilities in connection with our participation in OSHA's Voluntary Protection Program, a voluntary program that recognizes health and safety achievements. The failure to take the requested corrective action could result in the commencement of enforcement proceedings against us and/or OSHA removing us from the Voluntary Protection Program. We disagree with OSHA's position on these matters and are currently evaluating possible responses to the OSHA notice. We also do not believe that the costs associated with implementing the corrective actions requested by OSHA, if we ultimately were to undertake such actions, would have a material adverse effect on our business, financial condition, results of operations or cash flow.
Employees and Labor Relations
As of March 31, 2005, we had approximately 1,400 full-time and 100 part-time employees. Of these employees, 25 operators at one of our storage facilities are represented by a collective bargaining agreement with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union or United Steel Workers.
Legal Proceedings
From time to time, we are involved in litigation and administrative proceedings which arise in the ordinary course of our business. Recently, we have been involved in numerous property damage and personal injury lawsuits arising out of an explosion at our Donaldsonville nitrogen fertilizer complex in 2000, in which three people died and several others were injured, as well as personal injury lawsuits arising out of a train derailment near Minot, North Dakota in 2002, in which one person died and numerous others were injured. We are also currently a defendant in numerous lawsuits in which the plaintiffs claim they were exposed to asbestos at our facilities, and we anticipate that we will be subject to additional claims relating to asbestos exposure in the future. We do not believe that any of the lawsuits or proceedings in which we are currently involved, either individually or in the aggregate, are likely to have a material adverse effect on our business, financial condition, results of operations or cash flows.
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In connection with this offering, we intend to amend and restate our certificate of incorporation and by-laws. The following summary of our management and directors contains reference to provisions of the amended and restated certificate of incorporation and by-laws, including the classification of the board of directors and the election and term of service of directors, that will be in effect upon the completion of this offering.
The following table identifies our executive officers and current directors and director nominees who will be serving upon completion of this offering, and their ages as of April 30, 2005.
Prior to the consummation of this offering, we expect to appoint new independent directors, consisting of Robert C. Arzbaecher, Wallace W. Creek, David R. Harvey and Edward A. Schmitt. They have each consented to serve as directors.
Name
|
Age
|
Position
|
||
---|---|---|---|---|
Stephen R. Wilson | 56 | President, Chief Executive Officer and Director | ||
Ernest Thomas | 51 | Senior Vice President and Chief Financial Officer | ||
Douglas C. Barnard | 46 | Vice President, General Counsel, and Secretary | ||
Stephen G. Chase | 53 | Vice President, Corporate Planning and Business Development | ||
William G. Eppel | 61 | Vice President, Human Resources | ||
Philipp P. Koch | 53 | Vice President, Raw Materials Procurement | ||
Fernando A. Mugica | 54 | Vice President, Supply and Logistics | ||
Monty R. Summa | 52 | Vice President, Sales | ||
Robert D. Webb | 62 | Vice President and Corporate Controller | ||
Robert C. Arzbaecher | 45 | Director Nominee | ||
Wallace W. Creek | 66 | Director Nominee | ||
David R. Harvey | 66 | Director Nominee | ||
Edward A. Schmitt | 58 | Director Nominee |
Each officer serves at the discretion of our board of directors and holds office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
The following sets forth certain biographical information with respect to our executive officers and current director and nominees who will be serving upon completion of this offering:
Stephen R. Wilson has served as our president and chief executive officer since October 2003 and served as interim president and chief executive officer from July 2003 through October 2003. Mr. Wilson has been a member of CF Holdings' board since April 2005. Mr. Wilson joined us in 1991 as senior vice president and chief financial officer, following a lengthy career with Inland Steel Industries, Inc. Mr. Wilson is a certified public accountant, and he holds B.A. and M.B.A. degrees from Northwestern University.
Ernest Thomas has served as our senior vice president and chief financial officer since May 2004. From November 2002 to August 2003, Mr. Thomas served as chief financial officer and treasurer of Tower Automotive, Inc., a supplier of structural metal products for the automotive industry. From August 2003 to May 2004, Mr. Thomas was not employed. He spent the previous four years with Modine Manufacturing Co., a manufacturer of heat-transfer components and systems, serving as chief financial officer from October 2000 to October 2002 and as a group vice president from August 1998 to October 2000. Prior to joining Modine, Mr. Thomas spent over nine years with Eaton Corporation, a diversified industrial manufacturer of systems and controls, primarily in senior operating positions, and over eleven years on the General Motors financial staff. On February 2, 2005, Tower Automotive, Inc. filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York seeking reorganization relief under the provisions of Chapter 11 of the United States Bankruptcy Code. Mr. Thomas holds a B.A. degree from Bluffton College and an M.B.A. degree from Miami University of Ohio.
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Douglas C. Barnard has served as our vice president, general counsel, and secretary since January 2004. From January 2001 to July 2003, Mr. Barnard served as an executive vice president and general counsel of Bcom3 Group, Inc., an advertising and marketing communication services group (including service from January 2003 to July 2003 in a successor corporation formed to market and sell securities received in the sale of Bcom3 Group). From July 2003 until January 2004, Mr. Barnard was not employed. From August 2000 to January 2001, he was a partner in the law firm of Kirkland and Ellis. Previously, from August 1996 to July 2000, Mr. Barnard was vice president, general counsel, and secretary of LifeStyle Furnishings International Ltd., a manufacturer and distributor of residential furniture and decorative fabrics. He holds a B.S. degree from the Massachusetts Institute of Technology, a J.D. degree from the University of Minnesota and an M.B.A. degree from the University of Chicago.
Stephen G. Chase has served as our vice president, corporate planning and business development since March 2001. Mr. Chase joined us in 1975 after earning an M.B.A. degree from the University of Chicago. He also has a B.S. degree in management engineering from Rensselaer Polytechnic Institute. During his career with us, Mr. Chase has served in a number of key positions, including director, operations planning and director, corporate planning and analysis.
William G. Eppel has served as our vice president, human resources since 1993. Since Mr. Eppel joined us in 1977, he has served in several key human resources positions. Mr. Eppel holds a B.A. in business administration from Michigan State University.
Philipp P. Koch has served as our vice president, raw materials procurement since July 2003. Before joining us, Mr. Koch spent nearly 25 years in the energy industry with Amoco Corporation and BP PLC, from January 1980 to July 2003. He has extensive international and domestic energy experience in the areas of supply and trading. Mr. Koch has a B.A. degree from Greenville College and an M.B.A. degree from DePaul University.
Fernando A. Mugica has served as our vice president, supply and logistics since March 2004. Mr. Mugica joined us in 1977 and has served in a number of key positions in the supply and logistics function during his career. Mr. Mugica holds a B.S. in systems engineering from the University of Illinois and an M.B.A from DePaul University.
Monty R. Summa has served as our vice president, sales since August 2003. Mr. Summa served as president of Sabre Initiatives, LLC, a cooperative buying group owned by independent agricultural retailers from March 2000 to August 2003. From 1997 to 2000, he was vice president of the Distribution Division for Terra Industries, a manufacturer and distributor of nitrogen fertilizer products. Mr. Summa holds a B.A. degree in marketing from Northwest Missouri State University.
Robert D. Webb has served as our vice president and corporate controller since 1997. Mr. Webb joined us in 1978 and has held several senior level management positions within the finance and accounting areas, including acting chief financial officer from July 2003 to May 2004. Prior to joining us, he spent 13 years with Arthur Andersen & Co. Mr. Webb holds a B.S. in accounting from Northern Illinois University and is a certified public accountant.
Robert C. Arzbaecher is a nominee to our board of directors and has consented to serve as a director. Mr. Arzbaecher has served as chairman of the board of Actuant Corporation, a manufacturer and marketer of industrial products and systems, since 2001 and president and chief executive officer of Actuant Corporation since 2000. From 1992 until 2000, Mr. Arzbaecher held various financial positions with Applied Power, Inc., Actuant's predecessor, the most recent of which was chief financial officer. Prior to 1992, Mr. Arzbaecher held various financial positions with Grabill Aerospace, Farley Industries and Grant Thornton, a public accounting firm. Mr. Arzbaecher is a certified public accountant.
Wallace W. Creek is a nominee to our board of directors and has consented to serve as a director. Mr. Creek served as controller of General Motors Corporation from 1992 to 2002 and held several executive positions in finance at GM over a 43-year career. Mr. Creek was senior vice president of finance of Collins & Aikman, a leading manufacturer of automotive interior components, from December 2002 to June 2004. He is also a director of Columbus McKinnon Corporation.
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David R. Harvey is a nominee to our board of directors and has consented to serve as a director. Mr. Harvey has served as chairman of the board of Sigma-Aldrich Corporation, a manufacturer and distributor of biochemical and organic chemicals, since January 2001 and as chief executive officer since November 1999. From 1986 until 1999, he served as Chief Operating Officer of Sigma-Aldrich Corporation. Prior to 1986, Mr. Harvey served in various executive positions at Aldrich Chemical Company, including president and vice presidentEurope, and in various sales and marketing positions at Shell International Chemical Company. Mr. Harvey has served as a director of Sigma-Aldrich Corporation since 1981.
Edward A. Schmitt is a nominee to our board of directors and has consented to serve as a director. Mr. Schmitt has served as chairman of the board of Georgia Gulf Corporation, a major manufacturer of chemical products, since September 2001; as chief executive officer since April 1998; and as president since December 1997. From 1985 until 1997, he held various manufacturing and executive positions with Georgia Gulf, including executive vice president in February 1997. Prior to 1985, Mr. Schmitt held manufacturing and engineering positions with Georgia-Pacific Corporation (Georgia Gulf was created in 1985 from Georgia-Pacific's commodity chemicals division), Allied Chemical Corporation, and the Aluminum Company of America.
In addition, we anticipate that William Davisson, John E. Gherty and John D. Johnson will be added to our board after the consummation of this offering.
William Davisson has served as the chief executive officer of GROWMARK, Inc., one of our owners, since 1998, and as a member of CF Industries' board since 1999. Mr. Davisson served as chairman of CF Industries' board from 2002 to 2004. Mr. Davisson has worked in the GROWMARK system his entire career, since 1970, and he is a certified public accountant.
John E. Gherty has served as the president and chief executive officer of Land O'Lakes, one of our owners, since 1989, and as a member of CF Industries' board since 1993. Mr. Gherty served as chairman of CF Industries' board from 2000 to 2002. Mr. Gherty has announced he will be retiring from Land O'Lakes at the end of December 2005.
John D. Johnson has served as the president and chief executive officer of CHS Inc. (formerly Cenex Harvest States), one of our owners, and as a member of CF Industries' board, since 2000. Mr. Johnson joined Harvest States, a predecessor to CHS, in 1976, and he served as president and chief executive officer of Harvest States from 1995 to 1998. From 1998 to 2000, Mr. Johnson served as general manager and president of CHS. Mr. Johnson currently serves as chairman of CF Industries' board, and he is also a director of Gold Kist Inc.
Board of Directors
Our board of directors currently consists of one member. Prior to the completion of this offering, the certificate of incorporation will be amended to divide our board into three classes, with one class being elected each year. Each director will serve a three-year term, with termination staggered according to class, except that Class I directors will have an initial term expiring in 2006, Class II directors will have an initial term expiring in 2007 and Class III directors will have an initial term expiring in 2008. Class I will be comprised of and . Class II will be comprised of and . Class III will be comprised of and . Under the rules of the New York Stock Exchange, a majority of the board must be independent on or before the date that is one year after the consummation of this offering. We intend to comply with this requirement as it becomes applicable to us.
Committees of the Board of Directors
We will have three board committees: an audit committee; a corporate governance and nominating committee; and a compensation committee.
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Audit Committee
Our audit committee's main function will be to oversee our accounting and financial reporting processes, internal systems of control, independent auditor relationships, and the audits of our financial statements. The audit committee will be comprised of not fewer than three directors elected by a majority of the board. After this offering, our audit committee will consist of , and . will be the chairman of our audit committee, and will be our audit committee financial expert (as defined under applicable SEC rules). Our board has determined that each of the directors serving on our audit committee is independent within the meaning of the rules of the SEC and under the corporate governance rules of the New York Stock Exchange.
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee's main functions will be to assist our board of directors by identifying individuals qualified to serve as directors, consistent with criteria set by our board, and also to assist our board of directors with respect to corporate governance matters. The corporate governance and nominating committee will be comprised of not fewer than three directors elected by a majority of the board. After this offering, our corporate governance and nominating committee will consist of , and . will be the chairman of our corporate governance and nominating committee. Our board has determined that each of the directors serving on our corporate governance and nominating committee is independent under the corporate governance rules of the New York Stock Exchange.
Compensation Committee
Our compensation committee's main function will be to assist our board of directors in determining the development plans and compensation of our senior management and directors. The compensation committee will be comprised of not fewer than three directors elected by a majority of the board. After this offering, our compensation committee will consist of , and . will be the chairman of our compensation committee. Each member of our compensation committee will be an "outside" director, as that term is defined in Section 162(m) of the Internal Revenue Code, and a "non-employee" director, within the meaning of Rule 16b-3 under the Securities Exchange Act. Our board has determined that each of the directors serving on our compensation committee is independent under the corporate governance rules of the New York Stock Exchange.
Director Compensation
The non-employee directors on our board will be paid an annual retainer of $30,000 and will receive restricted shares annually with a value of $65,000. The restricted shares will vest after one year of service on the board. Board members will receive an additional annual cash payment of $1,500 for each board meeting attended in person, $500 for each telephonic board meeting, and $1,250 for each board committee meeting. Committee chairs will receive an additional annual cash retainer of $ for the audit committee, $ for the compensation committee and $ for the corporate governance and nominating committee. We will reimburse directors for out-of-pocket meeting expenses.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving on our board of directors or compensation committee.
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Executive Compensation
The following table sets forth information regarding the compensation we paid our president and chief executive officer, our former executive vice president and chief operating officer and each of our three other most highly compensated executive officers for the year ended December 31, 2004. We refer to these individuals, collectively, as the named executive officers.
|
Annual Compensation
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Principal Position
|
Other Annual
Compensation (2) |
All Other
Compensation (3) |
||||||||||
Salary
|
Bonus
(1)
|
|||||||||||
Stephen R. Wilson
President and Chief Executive Officer |
$ | 636,400 | $ | 890,960 | $ | 2,642 | $ | 59,742 | ||||
John H. Sultenfuss
(4)
Executive Vice President and Chief Operating Officer |
450,000 | 500,000 | 2,751 | 43,266 | ||||||||
Ernest Thomas
(5)
Senior Vice President and Chief Financial Officer |
202,692 | 200,000 | | 17,343 | ||||||||
Douglas C. Barnard
(6)
Vice President, General Counsel, and Secretary |
240,385 | 175,000 | | 21,413 | ||||||||
Philipp P. Koch
Vice President, Raw Materials Procurement |
229,942 | 165,000 | 4,491 | 19,783 |
Change in Control Agreements
Messrs. Barnard, Koch, Thomas and Wilson, as well as certain other of our executive officers have entered into change in control agreements with us. Under the terms of these agreements, each of these executives is entitled to receive certain payments and benefits from us if the executive's employment is terminated by us without "cause" (other than by reason of the executive's death or disability), or the executive resigns because of "good reason," in either case within the period of 24 months following (or in certain cases prior to) a change in control (as defined in the agreements) (a "qualifying termination").
Under the change in control agreements, an executive will be deemed to have good reason if:
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Following a qualifying termination, the change in control agreements provide for (i) a lump sum payment equal to two times (three times in the case of Mr. Wilson) the sum of the executive's base salary and target bonus, (ii) welfare benefit continuation for a period of two years (three years in the case of Mr. Wilson) and (iii) a pro-rata bonus for the year of termination, assuming target levels of performance or, if higher, actual year-to-date performance. In addition, if the executive is otherwise eligible to participate in the applicable plan, the executive will receive a cash payment equal to the actuarial value of two additional years (three years in the case of Mr. Wilson) of age and service credit under our Retirement Income Plan; will be credited with two additional years of age and service credit under the related excess retirement plan (three years in the case of Mr. Wilson); and will receive a cash payment equal to contributions that we would have made to our Thrift Savings Plan and the related excess savings plan on behalf of the executive for a period of two years (three years in the case of Mr. Wilson). If the executive is not fully vested in his or her benefits under the Thrift Savings Plan and the related excess savings plan, he or she will receive a cash payment equal to his or her unvested benefits under such plans. The executive will not be obligated to seek other employment in mitigation of the payments and benefits to be provided, and no such other employment will reduce our obligation to make such payments and to provide such benefits to the executive under the agreements.
The change in control agreements further provide that, if any of the payments to the executive becomes subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, the executive will be entitled to receive an additional gross-up payment such that, after payment by the executive of all taxes, including any excise tax imposed upon the gross-up payment, the executive will receive the net after-tax benefit that the executive would have received had the excise tax not been imposed.
The executive will be required to sign a release of claims in favor of us as a condition to receiving any such payments or benefits under the change in control agreements.
2005 Equity and Incentive Plan
Our board of directors has adopted the CF Industries Holdings, Inc. 2005 Equity and Incentive Plan, which we refer to as the "plan." The purpose of the plan is to provide an incentive to our employees, officers, consultants and non-employee directors to increase their efforts and to promote our business.
The plan authorizes our compensation committee, which administers the plan, to grant the following awards:
Share Reserve
shares of our common stock are reserved and available for issuance under the plan, but no more than shares of our common stock are available for issuance under the plan for any awards other than stock options and stock appreciation rights. If any outstanding award expires for any reason or is settled in cash, any unissued shares subject to the award will again be available for issuance under the plan. If a participant pays the exercise price of an option by delivering to us previously owned
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shares, only the number of shares we issue in excess of the surrendered shares will count against the plan's share limit. Also, if the full number of shares subject to an option is not issued upon exercise for any reason (including to satisfy a tax withholding obligation), only the net number of shares actually issued upon exercise will count against the plan's share limit.
Individual Award Limits
The plan provides that no more than shares underlying stock options may be granted to a participant in any one calendar year in the form of stock options and stock appreciation rights, and that no more than shares underlying any other award may be granted to a participant in any one calendar year in the form of any other award under the plan. The maximum value of the aggregate payment that any participant may receive with respect to any cash-based awards under the plan is $3 million in respect of any annual performance period and $3 million per year under any performance period in excess of one year.
162(m)
Under section 162(m) of the Internal Revenue Code, a public company generally may not deduct compensation in excess of $1 million paid to its chief executive officer and the four next most highly compensated executive officers. Until the annual meeting of our stockholders in 2009, or until the plan is materially amended, if earlier, awards granted under the plan will be exempt from the deduction limits of section 162(m). In order for awards granted after the expiration of this grace period to be exempt, the plan must be re-submitted for approval of our stockholders.
Performance Goals
Under the plan, our compensation committee may determine that vesting or payment of an award under the plan will be subject to the attainment of one or more performance goals with respect to a performance period. Performance periods are determined by our compensation committee but are not shorter than twelve months. The performance goals may include any or a combination of, or a specified change in, the following:
Termination of Employment
Unless otherwise provided by our compensation committee in the award agreement, upon termination of a participant's employment or service, the participant will forfeit any outstanding awards.
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Change in Control
Upon a change in control (as defined in the plan) the restrictions, limitations and conditions applicable to outstanding awards will lapse, performance goals will be deemed to be fully achieved and the awards will become fully vested (and in the case of options, exercisable).
Transferability of Awards
Unless otherwise provided by our compensation committee, awards granted under the plan generally may not be transferred by a grantee other than by will or the laws of descent and distribution and may be exercised during the grantee's lifetime only by the grantee or his or her guardian or legal representative.
Term of the Plan, Amendment or Termination of the Plan
No award may be granted under the plan after the tenth anniversary of the effective date of the plan. Our board of directors may amend, alter, suspend, discontinue or terminate the plan at any time, provided that no such amendment, alteration, suspension, discontinuance or termination will be made without stockholder approval if such approval is, in the board's determination, necessary to comply with any tax or regulatory requirement. No amendment to or termination of the plan may adversely affect any awards granted under the plan without the participant's permission.
New Plan Benefits
In connection with this offering, the following grants of stock options will be made to the following individuals. The number of stock options that will be granted is not determinable at this time.
2005 Equity and Incentive Plan
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Name and Position
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% of Total Shares Outstanding
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Stephen R. Wilson, President and Chief Executive Officer | ||
Ernest Thomas, Senior Vice President and Chief Financial Officer | ||
Douglas C. Barnard, Vice President, General Counsel, and Secretary | ||
Philipp P. Koch, Vice President, Raw Materials Procurement | ||
All executive officers |
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All employees other than executive officers |
In addition, each of our non-employee directors will receive a grant of shares of restricted stock on the date of this prospectus (assuming an initial public offering price of $ per share, the mid-point of the estimated price range shown on the cover page of this prospectus).
Defined Benefit Pension Plans
We maintain noncontributory defined benefit pension plans for employees whose covered employment commenced on or before December 31, 2003, including certain of the named executive officers.
The annual retirement benefit under our defined benefit plans is based on years of eligible service multiplied by a percent of the highest average earnings of the retiree (as defined in the plan) during any 60 consecutive months. Benefits are paid on a straight line annuity basis, but married participants are paid a reduced qualified joint and survivor annuity unless they elect a straight line annuity.
The amounts shown in the following table include an annualized payout assuming retirement at age 65 (before any reduction for social security benefits) of both qualified pension funds, as capped by legislation, and additional funds from the Executive Compensation Equalization and Deferral Plan, a non-qualified
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supplemental pension plan, designed to restore a participant's benefits under the qualified pension plan which are reduced by certain limiting provisions of the Internal Revenue Code.
Our named executive officers have credited years of service as follows: Mr. Koch1 year and Mr. Wilson13 years. Mr. Sultenfuss retired on February 17, 2005, with 32 years of credited service under the plans. Messrs. Barnard and Thomas are ineligible to participate in these plans, since their employment commenced in 2004, after the plans had been closed to new participants.
Long-Term Incentive Plan
The CF Industries, Inc. Long-Term Incentive Plan, or the LTIP, which was established on January 1, 2004, provides for long-term, performance-based cash incentive awards to corporate officers and other management employees who can have a significant impact on our long-term financial performance. The initial performance period runs from January 1, 2004 through December 31, 2006. A second performance period began on January 1, 2005 and runs until December 31, 2007.
Upon completion of this offering the LTIP will be terminated. Aggregate payments to all participants under the plan in connection with the termination of the LTIP are expected to be approximately $ . Each of our named executive officers will receive the following payments with respect to the termination of the LTIP: Mr. Wilson, $ ; Mr. Sultenfuss, $ ; Mr. Thomas, $ ; Mr. Barnard, $ ; and Mr. Koch, $ .
Annual Incentive Plan
The CF Industries, Inc. Annual Incentive Plan, or the AIP, which was established on January 1, 2004, provides for annual performance-based cash awards to our corporate officers and other management employees who have the ability to contribute meaningfully to our business results. Each participant is assigned a target award opportunity ranging from 16% to 70% of base salary depending on the participant's compensation and responsibility level. Minimum awards are 0% and maximum awards are 200% of target. Achievement of awards depends on our pre-tax return on equity and the performance of the individual participant. Payment of approved awards is made in cash during the first two and one-half months of the calendar year following the completion of the applicable plan year. In the event of termination of employment other than for disability, death, or retirement, awards relating to the plan year in which termination occurs are forfeited. Upon a Change in Control (as defined in the AIP), company and individual performance results will be determined year-to-date for the then current plan year and, based on these results, awards will be paid in cash to participants on a pro-rata basis within 45 days following the Change in Control.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Prior to the completion of this offering, CF Industries' owners each owned more than 5% of its common stock, and each nominated one person to serve on CF Industries' board of directors.
Historical Product Purchases
In 2002, 2003, 2004 and the first three months of 2005, CF Industries' owners purchased substantial quantities of chemical fertilizers from us as shown in the following table.
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Year ended December 31,
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Three months ended March 31,
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2002
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2003
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2004
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2005
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Purchases
(in millions) |
Percent of
Total Net Sales |
Purchases
(in millions) |
Percent of
Total Net Sales |
Purchases
(in millions) |
Percent of
Total Net Sales |
Purchases
(in millions) |
Percent of
Total Net Sales |
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Agriliance, LLC (1) | $ | 448.8 | 44 | % | $ | 559.7 | 41 | % | $ | 481.8 | 29 | % | $ | 117.2 | 25 | % | ||||||
GROWMARK, Inc. | 172.1 | 17 | 202.9 | 15 | 206.8 | 13 | 63.3 | 14 | ||||||||||||||
Southern States Cooperative, Incorporated | 66.5 | 7 | 76.8 | 6 | 73.1 | 4 | 22.0 | 5 | ||||||||||||||
MFA Incorporated | 46.7 | 5 | 52.0 | 4 | 66.4 | 4 | 34.9 | 8 | ||||||||||||||
Tennessee Farmers Cooperative | 33.0 | 3 | 37.9 | 3 | 37.8 | 2 | 9.3 | 2 | ||||||||||||||
La Coop fédérée | 16.3 | 2 | 24.9 | 2 | 14.0 | 1 | 4.6 | 1 | ||||||||||||||
Intermountain Farmers Association | 2.8 | | 2.0 | | 1.7 | | .6 | | ||||||||||||||
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Total | $ | 786.2 | 78 | % | $ | 956.2 | 71 | % | $ | 881.6 | 53 | % | $ | 251.9 | 55 | % | ||||||
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In addition to purchasing fertilizer from us, some of our owners also contract with us to store fertilizer products at certain of our warehouses. In connection with these storage arrangements, we received approximately $362,000 from Agriliance, LLC and approximately $100,000 from MFA Incorporated in 2004.
Owner Supply Contracts
We have entered into multi-year supply contracts with six of our owners and Agriliance LLC, a 50-50 joint venture between two of our other owners, Land O'Lakes, Inc. and CHS Inc., relating to future purchases of fertilizer products. The initial terms of the supply contracts last until June 30, 2008 for the contracts with six of our owners, and until June 30, 2010 with Agriliance, LLC. The term will be automatically extended for successive one-year periods unless a termination notice is given by either party.
Each contract specifies a sales target volume and a requirement volume for the first contract year. The requirement volume is a percentage of the sales target volume and represents the volume of fertilizer that we are obligated to sell, and the customer is obligated to purchase, during the first contract year. Thereafter, the sales target volume is subject to yearly adjustment by mutual agreement or, failing such agreement, to an amount specified by us which is not less than 95% nor more than 100% of the prior year's sales target volume. The requirement volume is also subject to yearly adjustment to an amount specified by the customer which is not less than 65% nor more than 100% of the then applicable sales target volume. The contracts also contain reciprocal "meet or release" provisions pursuant to which each party must provide the other party with notice and the opportunity to match a transaction with a third party if such a transaction would impact the party's willingness or ability to supply or purchase, as the case may be, the then applicable sales target volume. The "meet or release" provisions may not, however, reduce the requirements volume. The aggregate requirement volumes under these seven contracts for the 12 months
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ending June 30, 2006 represents approximately 88% of the volume of fertilizer products purchased by our owners in the twelve-month period ending June 30, 2005.
The prices for product sold under the supply contracts will vary depending on the type of sale selected by the customer. The customer may select (i) cash sales at prices that are published in our weekly cash price list, (ii) index sales at a published index price, (iii) forward pricing sales under our forward pricing program and (iv) sales negotiated between the parties. The supply contracts also provide for performance incentives based on (i) the percentage of the sales target volume actually purchased, (ii) the timing of purchases under our forward pricing program, (iii) the amount of purchases under our forward pricing program, (iv) specifying a requirement volume in excess of the then applicable minimum requirement volume and (v) quantity discounts for overall volume.
We have agreed with our owners that the price they receive for cash sales, index sales and forward pricing sales are the same prices we charge all of our customers and that the performance incentives offered to them will be equal to the highest comparable incentives offered to other requirements contract customers. We believe the performance incentives offered to our owners under the supply contracts are consistent with the incentives offered to similarly situated customers in our industry in transactions between unaffiliated parties. We also expect that any future supply contracts following the offering with the former owners of CF Industries will be on terms no less favorable to us than could be obtained from unaffiliated parties.
Our supply contracts with Agriliance, LLC, GROWMARK, Inc. and MFA Incorporated also provide them with a right of first offer for the purchase of certain of our storage and terminal facilities. A portion of GROWMARK, Inc.'s requirement volume is also contingent on the purchase from GROWMARK, Inc. by one of its customers of specified amounts of certain fertilizer products.
The Reorganization Transaction
Pursuant to the Reorganization Transaction, the owners of CF Industries will receive shares of our common stock and cash in exchange for their outstanding equity interests in CF Industries. Assuming an initial public offering price of $ per share, the mid-point of the estimated price range shown on the cover page of this prospectus, the owners of CF Industries will receive, in the aggregate, shares of our common stock and $ million, which represents the estimated proceeds to us from this offering, after deducting underwriting discounts and commissions.
The cash payment and the number of shares issued to the owners of CF Industries will be adjusted depending on whether the underwriters exercise their over-allotment option.
The cash payment or stock issuance related to the over-allotment option will be made shortly after the expiration or full exercise of the over-allotment option.
The following table shows the owners of CF Industries, the number of shares we intend to issue to each and the cash payments to each. The information is presented assuming either no exercise or full exercise by the underwriters of the over-allotment option. The cash payments to the parties assume a
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public offering price of $ per share, the midpoint of the range set estimated price forth on the cover page of this prospectus, less underwriting discounts and commissions.
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Assuming No Exercise of Over-Allotment Option
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Assuming Full Exercise of Over-Allotment Option
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Name
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Shares
Issued |
Total Cash
Payments |
Shares
Issued |
Total Cash
Payments |
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CHS Inc. | $ | $ | |||||||||
GROWMARK, Inc. | |||||||||||
Intermountain Farmers Association | |||||||||||
La Coop fédérée | |||||||||||
Land O'Lakes, Inc. | |||||||||||
MFA Incorporated | |||||||||||
Southern States Cooperative, Incorporated | |||||||||||
Tennessee Farmers Cooperative | |||||||||||
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Total | $ | $ | |||||||||
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Net operating loss carryforwards. As of March 31, 2005, we had total net operating loss carryforwards of $290.1 million. A gross deferred tax asset of $116.1 million related to these net operating loss carryforwards is included in deferred income taxes on our March 31, 2005 balance sheet. Because our net operating loss carryforwards were generated from business conducted with our owners when we were a cooperative for tax purposes, there is substantial uncertainty under existing tax law whether any tax benefits from the related deferred tax asset will be realizable after the completion of this offering. As a result of this uncertainty, we will establish a valuation allowance equal to 100% of any of the deferred tax asset remaining after the consummation of this offering. We will record a non-cash charge to "Income Tax Expense" in the amount of the valuation allowance in the quarter in which the offering is completed.
We intend to enter into an NOL Agreement with the owners of CF Industries in connection with the Reorganization Transaction relating to the treatment of the net operating loss carryforwards. Under the NOL Agreement, in the event that it is finally determined that our net operating loss carryforwards can be used after we are no longer a cooperative, we will pay the owners of CF Industries an amount equal to the federal and state income taxes actually saved after the completion of this offering as a result of the utilization of net operating loss carryforwards related to our former cooperative status. These payments, if any, will be made only after it has been finally determined that utilization of the net operating losses has provided us with actual tax savings. The NOL Agreement will not require that we operate in a way that maximizes the use of our cooperative-related net operating loss carryforwards. Costs incurred after completion of this offering in pursuing a determination regarding the usability of these net operating loss carryforwards will be borne by the owners of CF Industries.
Hayes Terminal
We have entered into an agreement with GROWMARK, Inc., one of our owners, pursuant to which we will sell GROWMARK, Inc. certain assets of our former terminal in Hayes, Illinois for a gross purchase price of $200,000. We have not operated this terminal since 1987. Our board of directors approved this transaction in July 2004, and we believe it contains such terms and conditions as would have occurred in an arms-length transaction.
Canadian Fertilizers Limited
Two of our owners, GROWMARK, Inc. and La Coop fédérée, hold interests in CFL, our Canadian joint venture. GROWMARK, Inc. owns 9% of the outstanding common stock of CFL, and La Coop fédérée owns 8% of the outstanding common stock of CFL. See "BusinessOperating SegmentsNitrogen Fertilizer BusinessMedicine Hat Nitrogen Complex."
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Registration Rights Agreement
Upon consummation of this offering, we will provide our owners the opportunity to enter into a registration rights agreement with us. Pursuant to this agreement, those owners who hold shares of our common stock received in the Reorganization Transaction representing at least 5% of our outstanding common stock will receive certain demand and piggyback registration rights with respect to those shares of common stock. These shares are referred to as registrable securities. These rights may only be exercised after our owners' lock-up agreements pertaining to this offering expire one year after the date of this prospectus. Under the registration rights agreement, the holders of not less than 25% of the outstanding registrable securities may request up to two demand registrations. Pursuant to the registration rights agreement, we are required to pay all registration expenses required to register the registrable securities, subject to certain limitations.
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The following table sets forth, as of , certain information regarding the beneficial ownership of our common stock by:
Beneficial ownership is determined according to the rules of the SEC, and generally means that a person has beneficial ownership of a security if he or she possesses sole or shared voting or investment power of that security, and includes options that are currently exercisable or exercisable within 60 days. Each director, officer or 5% or more stockholder, as the case may be, has furnished us with information with respect to beneficial ownership. Except as otherwise indicated, we believe that the beneficial owners of common stock listed below, based on the information each of them has given to us, have sole investment and voting power with respect to their shares, except where community property laws may apply.
The number of shares outstanding and the percentage of beneficial ownership before the offering set forth below is based on the number of shares of our common stock to be issued and outstanding after giving effect to the issuance of shares of common stock to the owners of CF Industries in the Reorganization Transaction, without taking into account any additional shares that may be issued in connection with that transaction upon expiration of the underwriters' over-allotment option. See "The Reorganization Transaction." The number of shares and percentage of beneficial ownership after the offering set forth below is based on shares of our common stock to be issued and outstanding immediately after this offering, including shares that will either be issued to the underwriters upon the exercise of their over-allotment option or issued to the owners of CF Industries in the Reorganization Transaction upon the expiration of the underwriters' over-allotment option, assuming no exercise of that option.
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Beneficial Ownership After Offering
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Beneficial Ownership
Prior to Offering |
Assuming the Underwriters'
Over-allotment Option is Not Exercised |
Assuming the Underwriters'
Over-allotment Option is Exercised in Full |
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Name of Beneficial Owner
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Shares
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Percent
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Shares
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Percent
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Shares
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Percent
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||||||||
CHS Inc. (1) | 20.8 | % | 4.1 | % | 3.9 | % | |||||||
GROWMARK, Inc. (2) | 24.6 | 9.8 | 9.8 | ||||||||||
Land O'Lakes, Inc. (3) | 38.0 | 7.6 | | ||||||||||
Southern States Cooperative, Incorporated (4) | 5.5 | 1.1 | | ||||||||||
Douglas C. Barnard (5) | | | | | | | |||||||
Philipp P. Koch (5) | | | | | | | |||||||
John H. Sultenfuss (5) | | | | | | | |||||||
Ernest Thomas (5) | | | | | | | |||||||
Stephen R. Wilson (5) | | | | | | | |||||||
Robert C. Arzbaecher (6) | | | |||||||||||
Wallace W. Creek (7) | | | |||||||||||
David R. Harvey (8) | | | |||||||||||
Edward A. Schmitt (9) | | | |||||||||||
All directors and executive officers as a group ( persons) | | |
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CF Industries has entered into a commitment letter with J.P. Morgan Securities Inc. and JPMorgan Chase Bank, N.A., pursuant to which J.P. Morgan Securities has agreed to arrange and syndicate a senior secured revolving credit facility in an aggregate amount of $250.0 million on the terms and conditions set forth in the commitment letter and an associated term sheet.
Pursuant to such commitment letter and term sheet, effective upon the consummation of the offering and other specified conditions, CF Industries will enter into the revolving credit facility under a credit agreement with a syndicate of lenders including JPMorgan Chase, which also will serve as administrative agent under the facility. The following description of the credit facility is subject to finalization of the loan documentation. There can, however, be no assurance that CF Industries will be able to reach agreement on the final documentation for the credit facility on terms acceptable to it or at all.
The credit agreement, subject to the terms and conditions set forth therein, will provide CF Industries with a senior secured revolving credit facility for borrowing up to $250.0 million for working capital and general corporate purposes, including up to $50.0 million which will be available for the issuance of letters of credit. On the effective date of the credit agreement, we do not expect that there will be any loans or letters of credit outstanding under the credit facility. Availability under the revolving facility will be limited by a borrowing base equal to the value of a specified percentage of eligible receivables, plus the value of a specified percentage of eligible inventory, plus a property, plant and equipment component (capped at $75,000,000 in the aggregate) to be determined based on specified percentages of eligible fixed assets (including the real property) located at the Donaldsonville, Louisiana, facility and other eligible real property, if any, (each subject to caps), less certain reserve requirements.
Term
All outstanding borrowings under the credit facility will be scheduled to mature on the fifth anniversary of the effective date of the credit agreement.
Interest and Fees
For purposes of calculating interest, revolving loans under the credit facility will be designated as Eurodollar rate loans or base rate loans.
Eurodollar rate loans are to bear interest at the London interbank eurodollar rate, adjusted for reserves, plus a borrowing margin that varies from 1.375% to 1.625%, depending on CF Industries' average daily availability under the credit facility for a period to be determined. Interest on Eurodollar rate loans will be payable at the end of the applicable interest period in the case of interest periods of one, two or three months and every three months in the case of interest periods that exceed three months.
Base rate loans are to bear interest at (a) the greater of (i) the rate most recently announced by JPMorgan Chase as its "prime rate" or (ii) the federal funds rate plus 1 / 2 of 1% per annum plus (b) a borrowing margin that varies from 0.00% to 0.375%, depending on CF Industries' average daily availability under the credit facility for a period to be determined. Interest on base rate loans will be payable monthly in arrears.
Letters of credit issued under the credit facility will accrue fees at the applicable Eurodollar rate borrowing margin.
CF Industries will pay a fee on the average daily unused portion of the revolving commitment at a rate that varies from 0.25% to 0.35%, depending on CF Industries' average daily availability under the credit facility for a period to be determined, payable monthly in arrears.
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Security and Guarantees
The credit facility will provide that any loans made thereunder and any swap or other hedging arrangements entered into with any of the lenders will be obligations of CF Industries and guaranteed on a secured basis by CF Holdings and its material domestic subsidiaries and, unless otherwise agreed by the lenders, each of the future direct and indirect domestic subsidiaries of CF Industries and CF Holdings. The obligations of the loan parties under the credit facility will be secured by first-priority liens or pledges (subject to permitted liens) on 100% of the equity interests of each loan party's present and future direct and indirect domestic subsidiaries other than certain excluded domestic subsidiaries and on 65% of the equity interests of each loan party's present and future first-tier foreign subsidiaries. Additionally, the obligations will be secured by a first priority lien on the real property of CF Industries located in Donaldsonville, Louisiana, and on substantially all of the personal property and assets, both tangible and intangible, of CF Industries, as well as first priority liens on additional real property of CF Industries that, at the direction of CF Industries, will be included in the borrowing base.
Covenants
The credit facility will contain representations, affirmative covenants, negative covenants and financial covenants that will restrict CF Industries, CF Holdings and their respective subsidiaries' ability to do specified things, including but not limited to:
Additionally, if average daily availability under the credit facility for a period to be determined is less than $50.0 million, CF Industries will be required to maintain a minimum fixed charge coverage ratio.
Mandatory Prepayment
At any time after the average excess availability under the credit facility is less than or equal to $75,000,000, CF Industries will be required to repay borrowings, without any corresponding reduction in the lenders' commitment under the credit facility, in an amount equal to 100% of the net cash proceeds of certain asset sales and issuances of equity interests by any loan party and upon receipt of insurance or condemnation proceeds in excess of $5,000,000.
Events of Default
The loan documentation for the credit facility will contain customary events of default, including, but not limited to, specified change of control events and cross defaults to other material indebtedness of the loan parties for purposes of the credit facility.
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In connection with this offering, we will amend and restate our certificate of incorporation and by-laws. The following summary of our capital stock does not relate to our current certificate of incorporation or by-laws, but rather is a description of our capital stock pursuant to the amended and restated certificate of incorporation and by-laws that will be in effect upon completion of this offering. The following summary does not purport to be complete and is subject to, and is qualified in its entirety by, the provisions of our amended and restated certificate of incorporation and bylaws, forms of which are filed as exhibits to the registration statement of which this prospectus forms a part, and by the applicable provisions of Delaware law.
Our authorized capital stock will consist of shares of common stock, par value $.01 per share, and shares of preferred stock, par value $.01 per share. Upon consummation of the Reorganization Transaction, we will have shares of common stock issued and outstanding and held of record by our eight owners. Upon the closing of this offering, we expect to have shares of our common stock issued and outstanding, including shares that will be issued to the owners of CF Industries in the Reorganization Transaction, assuming the underwriters do not exercise their over-allotment option.
Common Stock
Voting
The holders of our common stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders, including the election of directors, and do not have any right to cumulate votes in the election of directors.
Dividends
Subject to the rights and preferences of the holders of any series of preferred stock which may at the time be outstanding, holders of our common stock are entitled to such dividends as our board of directors may declare out of funds legally available.
Liquidation rights
In the event of any liquidation, dissolution or winding-up of our affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any outstanding shares of any series of our preferred stock, the holders of our common stock will be entitled to receive the distribution of any of our remaining assets.
Other matters
Holders of our common stock have no conversion, preemptive or other subscription rights and there are no redemption rights or sinking fund provisions with respect to the common stock. The shares of our common stock to be sold in this offering when issued and paid for will be validly issued, fully paid and non-assessable.
Preferred Stock
We are authorized to issue up to shares of preferred stock. Our amended and restated certificate of incorporation authorizes our board, without any further stockholder action or approval, to issue these shares in one or more classes or series, to establish from time to time the number of shares to be included in each class or series and to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions. Our board may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the
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voting power or other rights of the holders of our common stock. We currently have no plans to issue any shares of preferred stock.
Certain Provisions
Provisions of our amended and restated certificate of incorporation, bylaws and Delaware law, which are summarized below, may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in such stockholder's best interest, including those attempts that might result in a premium over the market price for our common stock.
Classified board of directors
Our amended and restated certificate of incorporation provides for a board of directors divided into three classes, with one class to be elected each year to serve for a three-year term. The provision for a classified board will have the effect of making it more difficult for stockholders to change the composition of our board.
Number of directors; removal for cause; filling vacancies
Our amended and restated certificate of incorporation provides that our board of directors will consist of not less than three nor more than fifteen members, the exact number of which will be fixed from time to time by our board. Upon completion of this offering, the size of our board will be fixed at directors.
Under the General Corporation Law of the State of Delaware, or the DGCL, unless otherwise provided in our amended and restated certificate of incorporation, directors serving on a classified board may be removed by the stockholders only for cause. Our amended and restated certificate of incorporation provides that directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of the issued and outstanding shares of our capital stock entitled to vote generally at an election of directors. Our amended and restated certificate of incorporation and bylaws also provide that any newly created directorships on our board may only be filled by a majority of the board then in office, provided that a quorum is present, and any other vacancy occurring on the board may only be filled by a majority of the board then in office, even if less than a quorum, or by a sole remaining director. Any director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the board of directors shall have the effect of shortening the term of any incumbent director.
The director removal and vacancy provisions will make it more difficult for a stockholder to remove incumbent directors and simultaneously gain control of the board by filling vacancies created by such removal with its own nominees.
Special meetings of stockholders
Our amended and restated certificate of incorporation and bylaws deny stockholders the right to call a special meeting of stockholders. Our amended and restated certificate of incorporation and bylaws provide that a special meeting of stockholders may be called only by our board of directors, the chairman of our board or our President.
Stockholder action by written consent
Our amended and restated certificate of incorporation requires all stockholder actions to be taken by a vote of the stockholders at an annual or special meeting and denies the ability of stockholders to act by written consent without a meeting.
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Stockholder proposals
At an annual meeting of stockholders, only business that is properly brought before the meeting will be conducted or considered. To be properly brought before an annual meeting of stockholders, business must be specified in the notice of the meeting (or any supplement to that notice), brought before the meeting by or at the direction of the board (or any duly authorized committee of the board) or properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must:
To be timely, a stockholder's notice must be delivered to or mailed and received at our principal executive offices not less than 90 days nor more than 120 days prior to the anniversary date of the last annual meeting; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after the anniversary date, notice by the stockholder must be received not later than the close of business on the 10th day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the secretary must set forth as to each matter the stockholder proposes to bring before the annual meeting:
Similarly, at a special meeting of stockholders, only such business as is properly brought before the meeting will be conducted or considered. To be properly brought before a special meeting, business must be specified in the notice of the meeting (or any supplement to that notice) given by or at the direction of the board of directors, the chairman of our board or our President.
Nomination of candidates for election to our board
Under our bylaws, only persons who are properly nominated will be eligible for election to be members of our board. To be properly nominated, a director candidate must be nominated at an annual meeting of the stockholders or any special meeting called for the purpose of electing directors by or at the direction of our board (or any duly authorized committee of the board) or properly nominated by a stockholder. To properly nominate a director, a stockholder must:
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To be timely, a stockholder's notice must be delivered to or mailed and received at our principal executive offices:
To be in proper written form, a stockholder's notice to the secretary must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected and must set forth:
Amendment of certificate of incorporation and bylaws
Our amended and restated certificate of incorporation generally requires the approval of the holders of at least two-thirds of the voting power of the issued and outstanding shares of our capital stock entitled to vote generally at an election of directors to amend certain provisions of our certificate of incorporation
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described in this section. Our amended and restated certificate of incorporation and bylaws provide that the holders of at least two-thirds of the voting power of the issued and outstanding shares of our capital stock entitled to vote generally at an election of directors have the power to amend or repeal our bylaws. In addition, our amended and restated certificate of incorporation grants our board of directors the authority to amend and repeal our bylaws without a stockholder vote in any manner not inconsistent with the laws of the State of Delaware or our amended and restated certificate of incorporation.
Rights Plan
Each share of common stock has attached to it one right. Each right entitles the holder to purchase one one-thousandth of a share of a new series of our preferred stock designated as Series A junior participating preferred stock at an exercise price of $ , subject to adjustment. The following summary description of the rights agreement does not purport to be complete and is qualified in its entirety by reference to the rights agreement between us and The Bank of New York, as rights agent, a copy of which is filed as an exhibit to the registration statement of which this prospectus is a part and is incorporated herein by reference.
Rights will only be exercisable under limited circumstances specified in the rights agreement when there has been a distribution of the rights and such rights are no longer redeemable by us. A distribution of the rights would occur upon the earlier of:
The rights will expire at 5:00 P.M. (New York City time) on the tenth anniversary of the closing of this offering, unless such date is extended or the rights are earlier redeemed or exchanged by us.
If any person or group acquires shares representing 15% or more of the outstanding shares of our common stock, the rights will entitle a holder, other than such person, any member of such group or related person, all of whose rights will be null and void, to acquire a number of additional shares of our common stock having a market value of twice the exercise price of each right. If we are involved in a merger or other business combination transaction, each right will entitle its holder to purchase, at the right's then-current exercise price, a number of shares of the acquiring or surviving company's common stock having a market value at that time of twice the rights' exercise price.
Up to and including the tenth business day following a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding shares of our common stock, other than as a result of repurchases of stock by us, we may redeem the rights in whole, but not in part, at a price of $.001 per right (adjusted as appropriate for any stock split, stock dividend or similar transaction), payable in cash, common stock or other consideration that we deemed appropriate. Promptly upon our election to redeem the rights, the rights will terminate and the only right of the holders of rights will be to receive the redemption price.
At any time after any person or group acquires 15% or more of the outstanding shares of our common stock, and prior to the acquisition by such person or group of 50% or more of the outstanding shares of our common stock, our board of directors may exchange the rights (other than rights owned by such person, group or related parties which have become void) in whole or in part, for one share of our common stock per right or for one one-thousandth of a share of our Series A junior participating preferred stock (or a
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share of a class or series of our preferred stock or other security having equivalent rights, preferences and privilege) per right, subject, in each case, to adjustment.
Until a right is exercised, the holder of the right, as such, will have no rights as a stockholder of our company, including, without limitation, no right to vote or to receive dividends. While the distribution of the rights will not be taxable to stockholders or to us, stockholders may, depending upon the circumstances, recognize taxable income in the event that the rights become exercisable for our common stock or other consideration or for common stock of the acquiring or surviving company or in the event of the redemption of the rights as set forth above.
Any of the provisions of the rights agreement may be amended by our board of directors prior to the distribution of the rights. After such distribution, the provisions of the rights agreement may be amended by our board of directors in order to cure any ambiguity, to correct or supplement any defective or inconsistent provision, to shorten or lengthen any time period or to make changes which do not adversely affect the interests of holders of rights (other than any persons or groups who have acquired 15% or more of the outstanding shares of our common stock). The foregoing notwithstanding, no amendment may be made at such time as the rights are not redeemable (other than to cure an ambiguity or to correct or supplement a defective or inconsistent provision of the rights agreement).
The existence of the rights agreement and the rights is intended to deter coercive or partial offers which may not provide fair value to all stockholders and to enhance our ability to represent all of our stockholders and thereby maximize stockholder value.
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
Section 203 defines "business combination" to include the following:
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling, controlled by, or under common control with any of these entities or persons.
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Limitations on Liability and Indemnification of Directors and Officers
We have adopted provisions in our amended and restated certificate of incorporation that limit or eliminate the personal liability of our directors to the maximum extent permitted by the DGCL. The DGCL expressly permits a corporation to provide that its directors will not be liable for monetary damages for a breach of their fiduciary duties as directors, except for liability:
These limitations of liability do not generally affect the availability of equitable remedies such as injunctive relief or rescission. Our amended and restated certificate of incorporation and bylaws also authorize us to indemnify our officers, directors, employees and other agents to the fullest extent permitted under the DGCL and we may advance expenses to our directors, officers, employees and other agents in connection with a legal proceeding, subject to limited exceptions.
As permitted by the DGCL, our amended and restated certificate of incorporation and bylaws provide that:
We intend to enter into separate indemnification agreements with each of our board members and officers that will require us to indemnify them to the fullest extent permitted by the DGCL. These indemnification agreements will also require us to advance any expenses incurred by the board members and officers as a result of any proceeding against them as to which they could be indemnified.
The limited liability and indemnification provisions in our amended and restated certificate of incorporation and bylaws and in any indemnification agreements we enter into may discourage stockholders from bringing a lawsuit against our board members for breach of their fiduciary duties and may reduce the likelihood of derivative litigation against our board members and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. A stockholder's investment in us may be adversely affected to the extent we pay the costs of settlement or damage awards against our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification by us is sought, nor are we aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is The Bank of New York.
Listing
We have applied for the listing of our common stock on the New York Stock Exchange under the symbol "CF."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock, and a significant public market for our common stock may never develop or be sustained after this offering. We cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. However, sales of our common stock in the public market after the restrictions lapse, or the perception that these sales may occur, could cause the market price of our common stock to decline.
Upon completion of this offering, we expect to have outstanding shares of common stock, including shares that will either be issued to the underwriters upon exercise of their over-allotment option or to the owners of CF Industries in the Reorganization Transaction upon the expiration of the underwriter's over-allotment option, assuming no exercise of that option.
The shares of common stock being sold in this offering (or shares if the underwriters exercise the over-allotment option in full) will be freely tradable without restriction or further registration under the Securities Act, unless the shares are purchased by affiliates of our company, as that term is defined in Rule 144 of the Securities Act. All remaining shares were issued and sold by us in private transactions and are eligible for public sale if registered under the Securities Act, or sold in accordance with Rule 144 thereunder.
Lock-Up Agreements
We, our directors, our executive officers and all of our owners have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 180 days (or one year in the case of our owners) after the date of this prospectus:
whether any such transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to:
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strategic investments, provided that the actual issuance of shares of our common stock occurs after the expiration of the 180-day restricted period;
However, in the circumstances described under the last five bullet points above, each donee, trust or transferee shall agree to be subject to similar restrictions described above, and no filing (other than a Form 5) under Section 16(a) of the Securities Exchange Act, reporting a reduction in beneficial ownership of shares of our common stock, shall be required or shall be voluntarily made during the 180-day or one-year restricted period described above.
The 180-day or one-year restricted period described above is subject to extension such that, in the event that either (1) during the last 17 days of the applicable restricted period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the applicable restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the applicable restricted period, the "lock-up" restrictions described above will, subject to limited exceptions, continue to apply until the expiration of the 18-day period beginning on the earnings release or the occurrence of the material news or material event.
Eligibility of Restricted Shares for Sale in the Public Market
Rule 144
In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned restricted securities for at least one year, including the holding period of any prior owner other than an affiliate, and who files a Form 144 with respect to this sale, is entitled to sell within any three-month period commencing 90 days after the date of this prospectus a number of shares of common stock that does not exceed the greater of:
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Sales under Rule 144 are also subject to restrictions relating to manner of sale and the availability of current public information about us.
Rule 144(k)
A person who is not deemed to have been our affiliate at any time during the 90 days immediately preceding a sale and who has beneficially owned his or her shares for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell these shares of common stock pursuant to Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information or notice requirements of Rule 144. Affiliates must always sell pursuant to Rule 144, even after the applicable holding periods have been satisfied.
Equity Compensation
We intend to file a registration statement on Form S-8 under the Securities Act covering the shares that will be reserved for issuance under our 2005 Equity and Incentive Plan. This Form S-8 registration statement is expected to be filed prior to the consummation of this offering, and the Form S-8 will automatically become effective upon filing. Accordingly, shares registered under this registration statement will, subject to Rule 144 provisions applicable to affiliates, be available for sale in the open market, unless these shares are subject to vesting restrictions with us or are otherwise subject to the contractual restrictions described above. On the date of this prospectus, we intend to grant options exercisable for shares of our common stock, with a per share exercise price equal to the public offering price, to our executive officers and certain of our employees and shares of restricted common stock, assuming a public offering price of $ per share, the mid-point of the range shown on the cover of this prospectus, to each of our non-employee directors.
Registration Rights
Upon consummation of this offering, we will provide our owners the opportunity to enter into a registration rights agreement with us. Pursuant to this agreement, those owners who hold shares of our common stock received in the Reorganization Transaction representing at least 5% of our outstanding common stock will receive certain demand and piggyback registration rights with respect to those shares of common stock that they receive in the Reorganization Transaction. These rights may only be exercised after our owners' lock-up agreements pertaining to this offering expire one year after the date of this prospectus. In the Reorganization Transaction, the owners of CF Industries will receive up to shares of common stock. Registration of the sale of these shares of our common stock would facilitate their sale into the market. If, upon expiration of the one-year lock-up period, any of our owners sell a large number of shares, the market price of our common stock could decline.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following discussion is a summary of the material U.S. federal income tax considerations generally applicable to the purchase, ownership and disposition of our common stock by Non-U.S. Holders (as defined below). This summary deals only with our common stock held as capital assets by holders who purchase common stock in this offering. This discussion does not cover all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership or disposition of our common stock by prospective investors in light of their particular circumstances. In particular, this discussion does not address all of the tax considerations that may be relevant to certain types of investors subject to special treatment under U.S. federal income tax laws, such as:
Furthermore, this summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof. Such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, so as to result in U.S. federal income tax consequences different from those discussed below. We have not received a ruling from the Internal Revenue Service (the "IRS") with respect to any of the matters discussed herein. This discussion does not address any state, local or non-U.S. tax considerations.
For purposes of this summary, a "U.S. Holder" means a beneficial owner of our common stock that is for U.S. federal income tax purposes one of the following:
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If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds our common stock, the U.S. federal income tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. If you are a partnership or a partner of a partnership holding our common stock, we particularly urge you to consult your own tax advisors.
If you are considering the purchase of our common stock, we urge you to consult your own tax advisors concerning the particular U.S. federal income tax
consequences to you of the purchase, ownership and disposition of our common stock, as well as any consequences to you arising under state, local and non- U.S.
tax laws.
The following discussion applies only to Non-U.S. Holders. A "Non-U.S. Holder" is a beneficial owner of our common stock (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder. Special rules may apply to you if you are a "controlled foreign corporation" or a "passive foreign investment company" or are otherwise subject to special treatment under the Code. Any such holders should consult their own tax advisors to determine the U.S. federal income, state, local and non-U.S. tax consequences that may be relevant to them.
Dividends
Dividends paid to you (to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes) generally will be subject to U.S. federal withholding tax at a 30% rate or such lower rate as may be specified by an applicable tax treaty. However, dividends that are effectively connected with a trade or business you conduct within the United States, or, if certain tax treaties apply, are attributable to a permanent establishment you maintain in the United States, are not subject to the U.S. federal withholding tax, but instead are subject to U.S. federal income tax on a net income basis at the applicable graduated individual or corporate rates. Special certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. If you are a corporation, any such effectively connected dividends that you receive may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
If you wish to claim the benefit of an applicable treaty rate for dividends paid on our common stock, you must provide the withholding agent with a properly executed IRS Form W-8BEN, claiming an exemption from or reduction in withholding under the applicable income tax treaty. In the case of common stock held by a foreign intermediary (other than a "qualified intermediary"), the intermediary generally must provide an IRS Form W-8IMY and attach thereto an appropriate certification by each beneficial owner for which it is receiving the dividends.
If you are eligible for a reduced rate of U.S. federal withholding tax pursuant to an applicable income tax treaty, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.
Sale, Exchange or Other Taxable Disposition of Common Stock
You generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale, exchange or other taxable disposition of shares of our common stock unless:
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If you are an individual and are described in the first bullet above, you will be subject to tax on any gain derived from the sale, exchange or other taxable disposition under regular graduated U.S. federal income tax rates. If you are an individual and are described in the second bullet above, you will be subject to a flat 30% tax on any gain derived from the sale, exchange or other taxable disposition that may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). If you are a corporation and are described in the first bullet above, you will be subject to tax on your gain under regular graduated U.S. federal income tax rates and, in addition, may be subject to the branch profits tax on your effectively connected earnings and profits for the taxable year, which would include such gain, at a rate of 30% or at such lower rate as may be specified by an applicable income tax treaty, subject to adjustments.
We believe that we may be a "United States real property holding corporation" for U.S. federal income tax purposes. Generally, a corporation is a U.S. real property holding corporation if the fair market value of its U.S. real property interests, as defined in the Code and applicable regulations, equals or exceeds 50% of the aggregate fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. If we are a U.S. real property holding corporation and you are a holder of greater than 5% of the total fair market value of our common stock, you should consult your tax advisor.
U.S. Federal Estate Tax
Shares of our common stock held by an individual Non-U.S. Holder at the time of his or her death will be included in such Non-U.S. Holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding
You may be subject to information reporting and backup withholding with respect to any dividends on, and the proceeds from dispositions of, our common stock paid to you, unless you comply with certain reporting procedures (usually satisfied by providing an IRS Form W-8BEN) or otherwise establish an exemption. Additional rules relating to information reporting requirements and backup withholding with respect to the payment of proceeds from the disposition of shares of our common stock will apply as follows:
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In addition, the amount of any dividends paid to you and the amount of tax, if any, withheld from such payment generally must be reported annually to you and the IRS. The IRS may make such information available under the provisions of an applicable income tax treaty to the tax authorities in the country in which you reside.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished by you to the IRS. Non-U.S. Holders should consult their own tax advisors regarding the filing of a U.S. tax return for claiming a refund of such backup withholding.
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Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:
Name
|
Number of
Shares |
||
---|---|---|---|
Morgan Stanley & Co. Incorporated | |||
J.P. Morgan Securities Inc. | |||
Credit Suisse First Boston LLC | |||
Harris Nesbitt Corp. | |||
|
|||
Total | |||
|
The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' over-allotment option described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares of common stock at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters' option is exercised in full, the total price to the public would be $ , the total underwriters' discounts and commissions would be $ , and total proceeds to us would be $ .
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.
We have applied for the listing of our common stock on the New York Stock Exchange under the symbol "CF."
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We, our directors, our executive officers and all of our owners have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 180 days (or one year in the case of our owners) after the date of this prospectus:
whether any such transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to:
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However, in the circumstances described under the last five bullet points above, each donee, trust or transferee shall agree to be subject to similar restrictions described above, and no filing (other than a Form 5) under Section 16(a) of the Securities Exchange Act, reporting a reduction in beneficial ownership of shares of our common stock, shall be required or shall be voluntarily made during the 180-day or one-year restricted period described above.
The 180-day or one-year restricted period described above is subject to extension such that, in the event that either (1) during the last 17 days of the applicable restricted period, we issue an earnings release or material news or a material event relating to us occurs or (2) prior to the expiration of the applicable restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the applicable restricted period, the "lock-up" restrictions described above will, subject to limited exceptions, continue to apply until the expiration of the 18-day period beginning on the earnings release or the occurrence of the material news or material event.
The estimated offering expenses payable by us, in addition to the underwriting discounts and commissions, are approximately $ , which includes legal, accounting and printing costs and various other fees associated with registering and listing our common stock.
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters' over-allotment option to purchase additional shares of our common stock.
|
No Exercise
|
Full Exercise
|
||||
---|---|---|---|---|---|---|
Per share | $ | $ | ||||
Total | $ | $ |
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. As an additional means of facilitating the offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. The underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in this offering, if the syndicate repurchases previously distributed common stock to cover syndicate short positions or to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities, and may end any of these activities at any time.
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their
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online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriter's web site and any information contained in any other web site maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as an underwriter and should not be relied upon by investors.
From time to time, certain of the underwriters and their respective affiliates have provided, and continue to provide, investment banking and other services to us for which they receive customary fees and commissions. An affiliate of Harris Nesbitt Corp. acts as the administrative agent and a lender under our existing revolving credit facility. J.P. Morgan Securities Inc. has agreed to act as arranger, and JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities, has agreed to act as the administrative agent and one of the proposed lenders, under our proposed new $250 million senior secured credit facility, which we expect to become effective upon completion of this offering.
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
This offering is only being made to persons in the United Kingdom whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 or the UK Financial Services and Markets Act 2000, or the FSMA, and each underwriter has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of the shares of our common stock in circumstances in which section 21(1) of the FSMA does not apply to us. Each of the underwriters agrees and acknowledges that it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
The shares of our common stock may not be offered, transferred, sold or delivered to any individual or legal entity other than to persons who trade or invest in securities in the conduct of their profession or trade (which includes banks, securities intermediaries (including dealers and brokers), insurance companies, pension funds, other institutional investors and commercial enterprises which as an ancillary activity regularly invest in securities) in the Netherlands.
Directed Share Program
At our request, the underwriters will reserve for sale, at the initial public offering price, up to shares offered in this prospectus for our directors, officers, employees and former officers. The number of shares of common stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered in this prospectus.
Pricing of the Offering
Prior to this offering, there has been no public market for the shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. We and the representatives will consider the following factors in determining the initial public offering price: our future prospects and those of our industry in general; our sales, earnings and certain other financial and operating information in recent periods; investor demand for our common stock, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to ours. The estimated initial public
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offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.
The validity of the shares of our common stock offered by this prospectus will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois. Certain legal matters relating to this offering will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New York.
The consolidated financial statements and schedule of CF Industries, Inc. as of December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004, have been included herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The estimates of our phosphate reserves referred to in this prospectus and the registration statement, to the extent described in this prospectus and the registration statement, have been prepared by us and audited by John T. Boyd Company, an independent mining and geological consulting company.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 under the Securities Act with respect to the common stock offered in this prospectus. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, we refer you to the registration statement and to its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement, with each such statement being qualified in all respects by reference to the document to which it refers. Anyone may inspect the registration statement and its exhibits and schedules without charge at the Public Reference Room the SEC maintains at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. You may obtain further information about the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act and will be required to file reports, proxy statements and other information with the SEC. You will be able to inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC as described above or inspect them without charge at the SEC's website.
119
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm | F-2 | ||
Consolidated Year-End Financial Statements: | |||
Consolidated Statements of Operations for the Years Ended December 2002, 2003 and 2004 | F-3 | ||
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 2002, 2003 and 2004 | F-4 | ||
Consolidated Balance Sheets as of December 31, 2003 and 2004 | F-5 | ||
Consolidated Statements of Stockholders' Equity for the Years Ended December 2002, 2003 and 2004 | F-6 | ||
Consolidated Statements of Cash Flows for the Years Ended December 2002, 2003 and 2004 | F-7 | ||
Notes to Consolidated Year-End Financial Statements | F-8 | ||
Unaudited Consolidated Quarterly Financial Statements: |
|
|
|
Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2005 (unaudited) | F-34 | ||
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2004 and 2005 (unaudited) | F-35 | ||
Consolidated Balance Sheets as of December 31, 2004 and March 31, 2005 (unaudited as to March 31, 2005) | F-36 | ||
Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2004 and 2005 (unaudited) | F-37 | ||
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2005 (unaudited) | F-38 | ||
Notes to Consolidated Quarterly Financial Statements (unaudited) | F-39 | ||
Financial Statement Schedule |
|
II-3 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholders
CF Industries, Inc.:
We have audited the consolidated financial statements of CF Industries, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CF Industries, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP | |
Chicago, Illinois May 13, 2005 |
|
F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Years Ended December 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||||||
|
(in thousands)
|
|||||||||
Net sales | $ | 1,014,071 | $ | 1,369,915 | $ | 1,650,652 | ||||
Cost of sales | 986,295 | 1,335,508 | 1,434,545 | |||||||
|
|
|
||||||||
Gross margin | 27,776 | 34,407 | 216,107 | |||||||
Selling, general and administrative |
|
|
37,317 |
|
|
38,455 |
|
|
41,830 |
|
Other operatingnet | 9,294 | 1,557 | 25,043 | |||||||
|
|
|
||||||||
Operating earnings (loss) |
|
|
(18,835 |
) |
|
(5,605 |
) |
|
149,234 |
|
Interest expense |
|
|
23,565 |
|
|
23,870 |
|
|
22,696 |
|
Interest income | (2,209 | ) | (2,260 | ) | (5,901 | ) | ||||
Minority interest | 6,409 | 6,031 | 23,145 | |||||||
Impairment of investments in unconsolidated subsidiaries | | | 1,050 | |||||||
Other non-operatingnet | (174 | ) | (676 | ) | (778 | ) | ||||
|
|
|
||||||||
Earnings (loss) before income taxes |
|
|
(46,426 |
) |
|
(32,570 |
) |
|
109,022 |
|
Income tax provision (benefit) |
|
|
(16,600 |
) |
|
(12,600 |
) |
|
41,400 |
|
Equity in earnings (loss) of unconsolidated subsidiaries |
|
|
1,706 |
|
|
1,587 |
|
|
110 |
|
|
|
|
||||||||
Net earnings (loss) |
|
$ |
(28,120 |
) |
$ |
(18,383 |
) |
$ |
67,732 |
|
|
|
|
See Accompanying Notes to Consolidated Year-End Financial Statements.
F-3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Years Ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||||
|
(in thousands)
|
||||||||||
Net earnings (loss) | $ | (28,120 | ) | $ | (18,383 | ) | $ | 67,732 | |||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustmentno tax effect |
|
|
154 |
|
|
4,663 |
|
|
393 |
|
|
Unrealized gain (loss) on hedging derivativesnet of taxes |
|
|
|
|
|
5,722 |
|
|
(7,844 |
) |
|
Unrealized gain (loss) on securitiesnet of taxes |
|
|
(155 |
) |
|
155 |
|
|
|
|
|
Minimum pension liability adjustmentnet of taxes |
|
|
(425 |
) |
|
425 |
|
|
(6,503 |
) |
|
|
|
|
|||||||||
(426 | ) | 10,965 | (13,954 | ) | |||||||
|
|
|
|||||||||
Comprehensive income (loss) | $ | (28,546 | ) | $ | (7,418 | ) | $ | 53,778 | |||
|
|
|
See Accompanying Notes to Consolidated Year-End Financial Statements.
F-4
|
December 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
|||||||
|
(in thousands)
|
||||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 77,146 | $ | 50,003 | |||||
Short-term investments | 91,725 | 369,290 | |||||||
Accounts receivable | 92,821 | 41,510 | |||||||
Income taxes receivable | 823 | 1,764 | |||||||
Inventories | 206,284 | 233,547 | |||||||
Deferred income taxes | 3,493 | 33,501 | |||||||
Other | 53,690 | 59,182 | |||||||
|
|
||||||||
Total current assets | 525,982 | 788,797 | |||||||
Investments in unconsolidated subsidiaries |
|
|
21,470 |
|
|
18,666 |
|
||
Property, plant and equipmentnet |
|
|
708,696 |
|
|
645,595 |
|
||
Goodwill |
|
|
1,327 |
|
|
1,327 |
|
||
Deferred income taxes |
|
|
129,252 |
|
|
74,909 |
|
||
Other assets |
|
|
18,152 |
|
|
17,677 |
|
||
|
|
||||||||
Total assets | $ | 1,404,879 | $ | 1,546,971 | |||||
|
|
||||||||
Liabilities and Stockholders' Equity | |||||||||
Current liabilities: | |||||||||
Notes payable | $ | 3,836 | $ | | |||||
Accounts payable and accrued expenses | 132,935 | 169,237 | |||||||
Customer advances | 166,022 | 211,501 | |||||||
Distributions payable to minority interest | 6,866 | 5,631 | |||||||
Current portion of long-term debt | 34,917 | 19,917 | |||||||
Other | 4,939 | 18,517 | |||||||
|
|
||||||||
Total current liabilities | 349,515 | 424,803 | |||||||
|
|
||||||||
Noncurrent liabilities: |
|
|
|
|
|
|
|
||
Notes payable | | 4,071 | |||||||
Long-term debt | 254,750 | 234,833 | |||||||
Other | 52,447 | 83,203 | |||||||
|
|
||||||||
Total noncurrent liabilities | 307,197 | 322,107 | |||||||
|
|
||||||||
Minority interest |
|
|
14,656 |
|
|
12,772 |
|
||
|
|
||||||||
Stockholders' equity |
|
|
|
|
|
|
|
||
Patronage preferred stock$100 par value, 10,000,000 shares authorized, 7,343,018 shares outstanding | 734,302 | 734,302 | |||||||
Common stock$1,000 par value, 100 shares authorized, 8 shares outstanding | 8 | 8 | |||||||
Paid-in capital | 5,555 | 5,555 | |||||||
Retained earnings (accumulated deficit) | (7,952 | ) | 59,780 | ||||||
Accumulated other comprehensive income (loss) | 1,598 | (12,356 | ) | ||||||
|
|
||||||||
Total stockholders' equity | 733,511 | 787,289 | |||||||
|
|
||||||||
Total liabilities and stockholders' equity | $ | 1,404,879 | $ | 1,546,971 | |||||
|
|
See Accompanying Notes to Consolidated Year-End Financial Statements.
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
Patronage
Preferred Stock |
Common
Stock |
Paid-In
Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Total
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
||||||||||||||||||||
Balance at December 31, 2001 | $ | 734,301 | $ | 9 | $ | 5,555 | $ | 38,551 | $ | (8,941 | ) | $ | 769,475 | ||||||||
Add (deduct): | |||||||||||||||||||||
Net loss | | | | (28,120 | ) | | (28,120 | ) | |||||||||||||
Other comprehensive loss | | | | | (426 | ) | (426 | ) | |||||||||||||
|
|
|
|
|
|
||||||||||||||||
Balance at December 31, 2002 |
|
|
734,301 |
|
|
9 |
|
|
5,555 |
|
|
10,431 |
|
|
(9,367 |
) |
|
740,929 |
|
||
Add (deduct): | |||||||||||||||||||||
Net loss | | | | (18,383 | ) | | (18,383 | ) | |||||||||||||
Member stock transfers and redemptions | 1 | (1 | ) | | | | | ||||||||||||||
Other comprehensive income | | | | | 10,965 | 10,965 | |||||||||||||||
|
|
|
|
|
|
||||||||||||||||
Balance at December 31, 2003 |
|
|
734,302 |
|
|
8 |
|
|
5,555 |
|
|
(7,952 |
) |
|
1,598 |
|
|
733,511 |
|
||
Add (deduct): | |||||||||||||||||||||
Net earnings | | | | 67,732 | | 67,732 | |||||||||||||||
Other comprehensive loss | | | | | (13,954 | ) | (13,954 | ) | |||||||||||||
|
|
|
|
|
|
||||||||||||||||
Balance at December 31, 2004 | $ | 734,302 | $ | 8 | $ | 5,555 | $ | 59,780 | $ | (12,356 | ) | $ | 787,289 | ||||||||
|
|
|
|
|
|
See Accompanying Notes to Consolidated Year-End Financial Statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Cash Provided (Used)
Years Ended December 31, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||||||
|
(in thousands)
|
||||||||||||
Operating Activities: | |||||||||||||
Net earnings (loss) | $ | (28,120 | ) | $ | (18,383 | ) | $ | 67,732 | |||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities | |||||||||||||
Minority interest | 6,409 | 6,031 | 23,145 | ||||||||||
Depreciation, depletion and amortization | 108,471 | 105,014 | 108,642 | ||||||||||
Deferred income taxes | (15,800 | ) | (13,500 | ) | 33,800 | ||||||||
Equity in earnings of unconsolidated subsidiaries | (1,706 | ) | (1,587 | ) | (110 | ) | |||||||
Changes in: | |||||||||||||
Accounts receivable | (6,866 | ) | (16,629 | ) | 41,396 | ||||||||
Margin deposits | (7,234 | ) | (21,085 | ) | (4,051 | ) | |||||||
Inventories | (7,118 | ) | (13,557 | ) | (26,429 | ) | |||||||
Accounts payable and accrued expenses | 2,172 | 1,089 | 44,080 | ||||||||||
Customer advancesnet | 29,747 | 126,050 | 45,479 | ||||||||||
Othernet | (3,076 | ) | (16,525 | ) | 10,579 | ||||||||
|
|
|
|||||||||||
Net cash provided by operating activities | 76,879 | 136,918 | 344,263 | ||||||||||
|
|
|
|||||||||||
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|||
Additions to property, plant and equipmentnet | (26,303 | ) | (28,684 | ) | (33,709 | ) | |||||||
Purchases of short-term investments | (103,075 | ) | (226,499 | ) | (818,797 | ) | |||||||
Sales and maturities of short-term investments | 68,952 | 173,374 | 541,232 | ||||||||||
Investments in unconsolidated subsidiaries | (291 | ) | (372 | ) | (37 | ) | |||||||
Distributions from unconsolidated subsidiaries | 900 | 3,600 | 2,000 | ||||||||||
|
|
|
|||||||||||
Net cash used in investing activities | (59,817 | ) | (78,581 | ) | (309,311 | ) | |||||||
|
|
|
|||||||||||
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|||
Short-term debtnet | (55,000 | ) | | | |||||||||
Proceeds from long-term borrowings | 70,000 | | | ||||||||||
Payments on long-term debt | (21,416 | ) | (33,417 | ) | (34,917 | ) | |||||||
Repayment of notes payable | (2,320 | ) | | | |||||||||
Distributions to minority interest | | (4,638 | ) | (26,325 | ) | ||||||||
Othernet | (1,176 | ) | (2,426 | ) | (50 | ) | |||||||
|
|
|
|||||||||||
Net cash used in financing activities | (9,912 | ) | (40,481 | ) | (61,292 | ) | |||||||
|
|
|
|||||||||||
Effect of exchange rate changes on cash and cash equivalents |
|
|
401 |
|
|
2,754 |
|
|
(803 |
) |
|||
|
|
|
|||||||||||
Increase in cash and cash equivalents |
|
|
7,551 |
|
|
20,610 |
|
|
(27,143 |
) |
|||
Cash and cash equivalents at beginning of year |
|
|
48,985 |
|
|
56,536 |
|
|
77,146 |
|
|||
|
|
|
|||||||||||
Cash and cash equivalents at end of year | $ | 56,536 | $ | 77,146 | $ | 50,003 | |||||||
|
|
|
See Accompanying Notes to Consolidated Year-End Financial Statements.
F-7
NOTES TO CONSOLIDATED YEAR-END FINANCIAL STATEMENTS
1. Significant Accounting Policies
Description of Business
CF Industries, Inc. manufactures and distributes nitrogen and phosphate fertilizer products in North America.
Consolidation
The Company's consolidated financial statements include the accounts of CF Industries, Inc. (CF), all majority-owned subsidiaries and variable interest entities in which the Company is the primary beneficiary after elimination of intercompany transactions and balances.
Consolidated subsidiaries include Canadian Fertilizers Limited (CFL), a Canadian joint venture that owns the nitrogen complex in Medicine Hat, Alberta, Canada and supplies fertilizer products to CF and the other joint venture partner. The Medicine Hat fertilizer complex is the largest nitrogen fertilizer complex in Canada, with two world-scale ammonia plants, a world-scale urea plant and on-site storage for both ammonia and urea. CFL's sales revenue was $148.5 million, $237.3 million and $309.2 million for 2002, 2003 and 2004, respectively. CFL's assets were $101.7 million and $97.0 million at December 31, 2003 and 2004, respectively.
CF owns 49% of CFL's voting common shares and 66% of CFL's nonvoting preferred shares. Two owners of CF also own 17% of CFL's voting shares. The Company has determined that CFL is a variable interest entity and that the Company is the primary beneficiary. Amounts reported as minority interest represent the interests of the 34% holder of CFL's common and preferred shares and the holders of 17% of CFL's common shares. Consolidation of CFL results in a cumulative foreign currency translation adjustment, which is reported in other comprehensive income (loss).
CF operates the Medicine Hat facility and purchases approximately 66% of the facility's ammonia and urea production, pursuant to a management agreement and a product purchase agreement. The management agreement and the product purchase agreement are each terminable by either CF or CFL upon twelve-months' notice. Western Co-operative Fertilizers Limited (Westco) has the right, but not the obligation, to purchase the remaining 34% of the facility's ammonia and urea production under a similar product purchase agreement. To the extent that Westco does not purchase its 34% of the facility's production, CF is obligated to purchase any remaining amounts. Under the product purchase agreements, both CF and Westco pay the greater of operating cost or market price for purchases. However, the product purchase agreements also provide that CFL will distribute its net earnings to CF and Westco annually based on their respective quantities of product purchased from CFL. The product purchase agreement also requires CF to advance funds to CFL in the event that CFL is unable to meet its debts as they become due. The amount of each advance would be at least 66% of the deficiency and would be more in any year that CF purchased more than 66% of Medicine Hat's production. CF and Westco currently manage CFL such that each party is responsible for its share of CFL's fixed costs and that CFL's production volume meets the parties' combined requirements.
Revenue Recognition
Revenue is recognized when title transfers to the customer, which can be at the plant gate, a distribution facility, a supplier location or a customer destination. Shipping and handling costs are included in cost of sales.
F-8
Cash Equivalents and Short-Term Investments
Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less. Short-term investments consist of available-for-sale auction rate securities that are reported at fair value.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out or average basis.
Investments in Unconsolidated Subsidiaries
The investments in CF Martin Sulphur, L.P. and Big Bend Transfer Co., L.L.C. are accounted for under the equity method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation, depletion and amortization are computed using the units-of-production method for production assets and the straight-line method for other assets. Depreciable lives are as follows:
|
Years
|
|
---|---|---|
Mobile and office equipment | 3 to 18 | |
Production and related assets | 10 to 15 | |
Distribution facilities | 10 | |
Mining assets, phosphogypsum stacks and land improvements | 20 | |
Buildings | 45 |
Expenditures related to scheduled major maintenance of production facilities (plant turnarounds) are deferred when incurred and amortized to production costs on a straight-line basis during the period until the next scheduled turnaround, generally 2.5 to 5 years.
Recoverability of Long-Lived Assets
The Company reviews property, plant and equipment and other long-lived assets in order to assess recoverability based on expected future undiscounted cash flows whenever events or circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future net cash flows is less than the carrying value, an impairment loss is recognized. The impairment loss is measured as the amount by which the carrying value exceeds the fair value of the asset.
Goodwill
Goodwill represents the excess of the purchase price of an acquired entity over the amounts assigned to the assets acquired and liabilities assumed. Goodwill is no longer amortized but is reviewed for impairment annually or more frequently if certain impairment conditions arise. After analysis, goodwill that is deemed impaired is written down to fair value.
F-9
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities relate to tax net operating losses and temporary differences between income tax and financial statement reporting, principally for depreciation and amortization, depletable mineral properties, retirement benefits and asset retirement obligations. Realization of deferred tax assets is dependent on the ability of the Company to generate sufficient taxable income in future periods. A valuation allowance is required to be established if it becomes more likely than not that a deferred tax asset will not be realized.
Derivative Financial Instruments
The Company accounts for derivatives in accordance with Statement of Financial Accounting Standards (SFAS) No. 133 Accounting for Derivative Instruments and Hedging Activities as amended by subsequent standards. Under these standards, derivatives are recognized in the consolidated balance sheets at fair value and changes in their fair value are recognized in earnings unless hedge accounting is elected or the normal purchase and sale exemption applies. For a derivative designated and qualified as a cash flow hedge, the effective portion of the change in fair value is recorded in other comprehensive income (OCI) and is recognized in operations when the hedged item affects earnings. Any ineffective portion of a change in the fair value of a derivative designated as a cash flow hedge is recognized immediately in operations. See Note 22 for information on derivative financial instruments relating to CF's forward pricing program.
Environmental
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that do not provide current or future economic benefits are expensed. Expenditures that provide future economic benefits are capitalized. Liabilities are recorded when environmental assessments and/or remedial efforts are required and the costs can be reasonably estimated.
Use of Estimates
The consolidated financial statements and accompanying notes, which are prepared in conformity with accounting principles generally accepted in the United States of America, include amounts which are based on management's best judgments and estimates. Actual results could differ from those estimates.
2. New Accounting Standards
Following are summaries of recently issued accounting pronouncements which are or may be applicable to the Company's consolidated financial statements.
F-10
Modernization Act of 2003 for employers who sponsor postretirement health care plans that provide prescription drug benefits, and requires employers to provide certain disclosures regarding the effect of the federal subsidy provided by the Act. The FSP is generally effective for interim or annual periods beginning after June 15, 2004. The adoption of FSP No. 106-2 in 2004 did not impact the Company's consolidated financial statements.
3. Retirement and Incentive Plans
CF and its subsidiaries maintain noncontributory defined benefit pension plans. As a result of an amendment to CF's U.S. plan effective January 1, 2004, employees who began employment after December 31, 2003 are not eligible to participate in the plan.
The Company also provides group medical insurance to its retirees. Retirees in the U.S. are eligible to continue until age 65 the same Company subsidized medical coverage provided to active employees. After a participant becomes eligible for Medicare, generally at age 65, the offered coverage is a Medicare supplement and the participant pays the entire cost of the coverage. Retirees in Canada are eligible to
F-11
continue until age 65 the same Company subsidized coverage in both the provincial health care plan and the supplemental medical plan provided to active employees. At age 65, the Company provided medical coverage ceases.
Plan assets, benefit obligations, funded status and amounts recognized in the consolidated balance sheets for the Company's U.S. and Canadian plans as of the measurement date of December 31 are as follows:
|
Pension Plan
|
Retiree Medical
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 31,
|
December 31,
|
||||||||||||
|
2003
|
2004
|
2003
|
2004
|
||||||||||
|
(in thousands)
|
|||||||||||||
Change in plan assets | ||||||||||||||
Fair value of plan assets at January 1 | $ | 127,283 | $ | 155,046 | $ | | $ | | ||||||
Return on plan assets | 26,559 | 17,015 | | | ||||||||||
Funding contributions | 7,022 | 7,736 | | | ||||||||||
Benefit payments | (5,818 | ) | (6,402 | ) | | | ||||||||
|
|
|
|
|||||||||||
Fair value of plan assets at December 31 | 155,046 | 173,395 | | | ||||||||||
|
|
|
|
|||||||||||
Change in benefit obligation | ||||||||||||||
Benefit obligation at January 1 | (165,341 | ) | (187,101 | ) | (19,458 | ) | (23,979 | ) | ||||||
Service cost | (5,482 | ) | (5,843 | ) | (947 | ) | (1,227 | ) | ||||||
Interest cost | (10,762 | ) | (11,528 | ) | (1,417 | ) | (1,712 | ) | ||||||
Net benefit payments | 5,818 | 6,402 | 1,146 | 1,220 | ||||||||||
Change in assumptions and other | (11,334 | ) | (16,482 | ) | (3,303 | ) | (5,712 | ) | ||||||
|
|
|
|
|||||||||||
Benefit obligation at December 31 | (187,101 | ) | (214,552 | ) | (23,979 | ) | (31,410 | ) | ||||||
|
|
|
|
|||||||||||
Excess of benefit obligation over plan assets | (32,055 | ) | (41,157 | ) | (23,979 | ) | (31,410 | ) | ||||||
Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions | 32,908 | 45,884 | 5,494 | 10,615 | ||||||||||
Minimum pension liability adjustment | | (11,527 | ) | | | |||||||||
Unrecognized transition obligation (asset) | (52 | ) | (56 | ) | 2,883 | 2,607 | ||||||||
|
|
|
|
|||||||||||
Accrued asset (liability) included in the consolidated balance sheet at December 31 | $ | 801 | $ | (6,856 | ) | $ | (15,602 | ) | $ | (18,188 | ) | |||
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of the following:
|
Pension Plan
|
Retiree Medical
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
December 31,
|
December 31,
|
|||||||||||
|
2003
|
2004
|
2003
|
2004
|
|||||||||
|
(in thousands)
|
||||||||||||
Prepaid (accrued) amount recognized | $ | 801 | $ | 4,671 | $ | (15,602 | ) | $ | (18,188 | ) | |||
Intangible asset | | (688 | ) | | | ||||||||
Accumulated other comprehensive lossgross | | (10,839 | ) | | | ||||||||
|
|
|
|
||||||||||
Accrued asset (liability) | $ | 801 | $ | (6,856 | ) | $ | (15,602 | ) | $ | (18,188 | ) | ||
|
|
|
|
F-12
The accumulated other comprehensive loss related to the minimum pension liability adjustment in 2004 was reduced by an income tax benefit of $4.3 million, resulting in a net charge to other comprehensive loss of $6.5 million in 2004 (see Note 23).
CF's estimated U.S. pension funding contribution in 2005 is $7.0 million. Expected future pension benefit payments are $7.5 million in 2005, $8.1 million in 2006, $8.6 million in 2007, $9.2 million in 2008, $10.0 million in 2009 and $61.3 million during the five years thereafter. Expected U.S. future retiree medical benefit payments are $1.5 million in 2005, $1.6 million in 2006, $1.8 million in 2007, $1.9 million in 2008, $2.0 million in 2009 and $13.0 million during the five years thereafter.
The following assumptions were used in determining the benefit obligation at December 31 for the Company's primary (U.S.) plans. The assumptions used for the Canadian plans are substantially similar to those used for the primary plans.
|
Pension Plan
|
Retiree Medical
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
2002
|
2003
|
2004
|
|||||||
Discount rate | 6.75 | % | 6.25 | % | 5.75 | % | 6.75 | % | 6.25 | % | 5.75 | % | |
Rate of increase in future compensation | 5.5 | % | 5.0 | % | 5.0 | % | n/a | n/a | n/a | ||||
Expected long-term rate of return on assets | 8.5 | % | 8.5 | % | 8.5 | % | n/a | n/a | n/a |
The 8.5% expected long-term rate of return on assets is based on studies of actual rates of return achieved by equity and non-equity investments both separately and in combination over historical holding periods.
The objectives of the investment policy with respect to the primary pension plan are to administer the assets of the plan for the benefit of the participants in compliance with all laws and regulations, and to establish an asset mix that provides for diversification of assets and generation of returns at an acceptable level of risk. The policy considers circumstances such as participant demographics, time horizon to retirement and liquidity needs, and provides guidelines for asset allocation, planning horizon, general portfolio issues and investment manager evaluation criteria as well as monitoring and control procedures. The current target asset allocation is 65% equity and 35% non-equity, which has been determined based on studies of actual historical rates of return and plan needs and circumstances.
The allocation of pension assets by major asset category based on fair value for the primary plan is as follows:
|
Asset Allocation
December 31, |
||||
---|---|---|---|---|---|
|
2003
|
2004
|
|||
Equity securities | 66 | % | 64 | % | |
Debt securities | 32 | 33 | |||
Other | 2 | 3 | |||
|
|
||||
100 | % | 100 | % | ||
|
|
The health care cost trend rate used to determine the primary (U.S.) retiree medical benefit obligation is 9.25% in 2003 and 8.5% in 2004, grading down to 6.0% in 2008 and thereafter. A
F-13
one-percentage-point change in the assumed health care cost trend rate at December 31, 2004 would have the following effects:
|
One-Percentage-Point
|
|||||
---|---|---|---|---|---|---|
|
Increase
|
Decrease
|
||||
Effect on: | ||||||
Total of service and interest cost components for 2004 | 13 | % | (11 | )% | ||
Benefit obligation at December 31, 2004 | 10 | % | (9 | )% |
Net pension/retiree medical expense included the following components:
|
Pension Plan
|
Retiree Medical
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Years Ended December 31,
|
Years Ended December 31,
|
||||||||||||||||
|
2002
|
2003
|
2004
|
2002
|
2003
|
2004
|
||||||||||||
|
(in thousands)
|
|||||||||||||||||
Service cost for benefits earned during the period | $ | 4,980 | $ | 5,482 | $ | 5,843 | $ | 730 | $ | 947 | $ | 1,227 | ||||||
Interest cost on projected benefit obligation | 10,232 | 10,762 | 11,528 | 1,198 | 1,417 | 1,712 | ||||||||||||
Expected return on plan assets | (13,718 | ) | (13,500 | ) | (13,932 | ) | | | | |||||||||
Amortization of transition obligation | (47 | ) | (52 | ) | (56 | ) | 479 | 553 | 326 | |||||||||
Amortization of prior service cost | 105 | 106 | 108 | | | | ||||||||||||
Actuarial loss (gain) | (642 | ) | 58 | 144 | | 10 | 518 | |||||||||||
|
|
|
|
|
|
|||||||||||||
Net expense | $ | 910 | $ | 2,856 | $ | 3,635 | $ | 2,407 | $ | 2,927 | $ | 3,783 | ||||||
|
|
|
|
|
|
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) was signed into law. The Act provides a prescription drug benefit and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Based on information currently available, the Company's actuaries have determined that the benefit under the CF plan is not actuarially equivalent to the Medicare Part D benefit and that the Company is not eligible for the subsidy. Therefore, the impact on the Company's retiree medical cost is zero.
The Company also has a thrift savings plan covering substantially all employees. Under the plan, the Company contributes a fixed percentage of base salary to employees' accounts and matches employee contributions up to a specified limit. The Company contributed $5.9 million and $5.6 million to the plan in 2003 and 2004, respectively. There was no Company contribution in 2002.
The Company established the Annual Incentive Plan effective January 1, 2004. The aggregate award under the plan is based on pre-determined targets for pre-tax return on equity each year. Awards are accrued during the year and paid in the first quarter of the subsequent year. The Company recognized expense of $6.7 million for this plan in 2004. For its previous incentive plans, the Company recognized expense of $1.5 million and $1.2 million in 2002 and 2003, respectively.
The Company established a long term incentive plan effective January 1, 2004. Plan participants will receive a specified percentage of aggregate value created as defined upon completion of a three-year performance measurement period. The initial performance measurement period began January 1, 2004 and a new performance measurement period will begin each January 1 thereafter. Value created is based
F-14
on specified return on equity targets. The plan is unfunded. The Company recognized expense of $311 thousand for this plan in 2004. For its previous plan, the Company recognized expense of $971 thousand and $536 thousand in 2002 and 2003, respectively.
In addition to qualified defined benefit pension plans, the Company also maintains nonqualified supplemental pension plans which are designed to restore participants' benefits under the qualified plans that are reduced by certain limiting provisions of the Internal Revenue Code and a closed plan in which no current employees are eligible to participate. The Company recognized expense of $472 thousand, $393 thousand and $441 thousand for these plans in 2002, 2003 and 2004, respectively.
4. Other OperatingNet
Details of other operating costs are as follows:
|
Years Ended December 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||
|
(in thousands)
|
||||||||
Bartow facility costs | $ | 9,794 | $ | 952 | $ | 8,148 | |||
Bartow water treatment costs | | | 7,077 | ||||||
Other environmental costs | | | 8,116 | ||||||
Litigation costs | (500 | ) | 605 | 1,702 | |||||
|
|
|
|||||||
$ | 9,294 | $ | 1,557 | $ | 25,043 | ||||
|
|
|
Bartow facility costs include water treating expenditures and provisions for phosphogypsum stack closure and cooling pond closure. Bartow costs for 2003 are net of a $10.5 million credit for a change in estimate related to phosphogypsum stack closure costs (see Asset Retirement ObligationsNote 7).
A $7.1 million provision has been recognized in 2004 for a retirement obligation related to the treatment of water at the Bartow facility. Refer to Note 7 for additional information.
Other environmental costs in 2004 includes a $4.7 million provision, based on an assessment performed in late 2004 that identified certain measures, which if completed in the near-term, would allow the Company to reduce the long-term costs related to the demolition, removal and disposal of certain environmental materials and equipment at the Bartow phosphate complex. Also included, based on a review in late 2004, is a $3.4 million additional provision for an ongoing groundwater recovery and land application program at the site of a former nitrogen manufacturing facility.
Litigation costs represent costs (recoveries) associated with legal actions to which the Company is a party. Such costs are recorded when they are considered probable and can be reasonably estimated. Recoveries are recorded when realized.
F-15
5. Interest Expense
Details of interest expense are as follows:
|
Years Ended December 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||
|
(in thousands)
|
||||||||
Long-term debt | $ | 22,455 | $ | 22,308 | $ | 19,787 | |||
Short-term debt | 325 | 87 | | ||||||
Notes payable | 194 | 145 | 162 | ||||||
Fees on financing agreements | 591 | 1,330 | 2,747 | ||||||
|
|
|
|||||||
$ | 23,565 | $ | 23,870 | $ | 22,696 | ||||
|
|
|
6. Interest Income
Details of interest income are as follows:
|
Years Ended December 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||
|
(in thousands)
|
||||||||
Interest on cash, cash equivalents and short-term investments | $ | 1,468 | $ | 1,639 | $ | 5,287 | |||
Patronage refunds from CoBank | 563 | 534 | 499 | ||||||
Finance charges and other | 178 | 87 | 115 | ||||||
|
|
|
|||||||
$ | 2,209 | $ | 2,260 | $ | 5,901 | ||||
|
|
|
7. Asset Retirement Obligations
The Company's phosphate operations in Florida are subject to regulations governing the construction, operation, closure and long-term maintenance of phosphogypsum stack systems and regulations concerning site reclamation for phosphate rock mines. Costs associated with the closure of the Company's phosphogypsum stack systems at the Bartow and Plant City phosphate complexes, and costs associated with reclamation activities at the Company's Hardee phosphate rock mine, are accounted for in accordance with SFAS No. 143 Accounting for Asset Retirement Obligations .
The Company's asset retirement obligations are included in other noncurrent liabilities and accrued expenses. The balances and changes thereto are summarized below.
|
Year Ended December 31
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Phosphogypsum Stack
Costs |
Mine Reclamation
Costs |
|||||||||||||||||
|
2002
|
2003
|
2004
|
2002
|
2003
|
2004
|
|||||||||||||
|
(in thousands)
|
||||||||||||||||||
Obligation at January 1 | $ | 42,170 | $ | 37,422 | $ | 23,431 | $ | 11,309 | $ | 13,849 | $ | 14,092 | |||||||
Accretion expense | 3,384 | 3,004 | 1,887 | 905 | 1,115 | 1,127 | |||||||||||||
Liabilities incurred | | | 15,439 | 1,183 | 735 | 1,163 | |||||||||||||
Expenditures | (6,180 | ) | (7,439 | ) | (8,006 | ) | (203 | ) | (662 | ) | (981 | ) | |||||||
Change in estimate | (1,952 | ) | (9,556 | ) | 1,147 | 655 | (945 | ) | 3,420 | ||||||||||
|
|
|
|
|
|
||||||||||||||
Obligation at December 31 | $ | 37,422 | $ | 23,431 | $ | 33,898 | $ | 13,849 | $ | 14,092 | $ | 18,821 | |||||||
|
|
|
|
|
|
F-16
The liability for phosphogypsum stack costs includes the original portion of the Plant City stack, an expansion of the Plant City stack opened in 1999, the Bartow stack, cooling ponds at Bartow and Plant City and as of December 31, 2004, water treatment at Bartow and Plant City, as described below. The actual amounts to be spent will depend on factors such as the timing of activities, refinements in scope, technological developments, cost inflation and changes in regulations. It is possible that these factors could change at any time and impact the estimates. As described further below, the estimated time frame involved in completing the asset retirement activities extends as far as the year 2057. Additional asset retirement obligations may be incurred in the future due to further expansion of the Plant City stack.
The Company expects to incur expenditures to treat water stored in the Bartow and Plant City phosphogypsum stack and cooling pond systems during the process of closure. Until 2004, management believed that it was not possible to reasonably estimate the quantity or timing of such water treatment, if any, because the need to treat water at any particular time may arise from factors other than the process of stack closure and therefore, that a reasonable estimate of future water treatment costs associated solely with closure could not be made. In late 2004, the Florida Department of Environmental Protection (DEP) published proposed revisions to the regulations governing closure and long-term maintenance of phosphogypsum stack systems. The revisions are expected to become effective July 2, 2005. The revised regulations add specific requirements for inclusion of water management plans and estimated costs based on assumed end-of-life closure of the entire stack system. As a result of evaluating the new DEP requirements, in 2004, management determined that, based on experience with closure activities to date and development of refined assumptions, amounts for water treatment directly associated with ultimate closure of the Plant City stack system and the Bartow stack system can now be reasonably estimated.
Closure expenditures for the original portion of the Plant City phosphogypsum stack are expected to be complete in 2005. Closure activities on the Bartow stack are expected to continue through the year 2007 and closure of the Bartow cooling pond is estimated to occur in the years 2016 to 2023. Closure expenditures for the Plant City stack expansion are estimated to occur in the 2022 to 2026 timeframe and closure of the Plant City cooling pond is estimated to occur in the years 2034 to 2038. Water treatment expenditures at Bartow are estimated to extend through 2023, and such expenditures at Plant City are estimated to occur in the 2031 to 2057 time frame.
The $15.4 million identified as liabilities incurred in 2004 represents the Company's estimate of water treatment obligations. This amount consists of $7.1 million for Bartow which was charged to other operating expenses in 2004 rather than capitalized because Bartow is a closed facility, and $8.3 million for Plant City which was capitalized as property, plant and equipment and will be depreciated over a twenty-year period beginning in 2005.
The $9.6 million change in estimate in phosphogypsum stack closure costs in 2003 was primarily the result of a revised closure plan for the Bartow phosphogypsum stack and cooling pond systems. The previous plan anticipated significant costs related to closure of the cooling pond. Stack closure activities have now progressed to the point where it has been determined that the cooling pond will be closed in a less costly manner. The revised plan maintains conformance with existing permits and regulatory requirements.
In connection with its phosphate fertilizer business, the Company is subject to financial assurance requirements. The purpose of these requirements is to assure the government that sufficient Company funds will be available for the ultimate closure, post-closure care and/or reclamation at its facilities. Currently, these financial assurance requirements can be satisfied without the need for any expenditure of corporate funds if the Company's financial statements meet certain criteria, referred to as the financial
F-17
tests. However, pursuant to a recent amendment that is scheduled to become effective July 2, 2005 to Florida's regulations governing financial assurance related to the closure of phosphogypsum stacks, the Company intends to establish a trust fund to meet such obligations to take advantage of a "Safe Harbor" provision of the new regulations. Beginning in 2006, the Company expects to contribute between $2 million and $5 million annually over the next ten years, based upon an assumed rate of return of 4% on invested funds, to a fund earmarked to cover the closure and long-term maintenance and monitoring costs for its phosphogypsum stacks, as well as any costs incurred to manage its wastewater upon closure of the stacks. The amount of money that will have accumulated in the trust fund by the end of the ten-year period, including interest earned on contributed funds, is currently expected to be approximately $37 million. After the initial ten years, contributions to the trust fund are expected to average approximately $1 million annually for the following 16 years. The trust fund is expected to approximate $92 million at the end of 26 years assuming a 4% return on the invested funds. The amounts recognized as expense in the Company's operations pertaining to phosphogypsum stack closure and land reclamation are determined and accounted for as described above. These amounts are expected to differ from the amounts anticipated to fund the trust, which are based on the guidelines set forth in the Florida regulations. Ultimately, the cash in these trust funds will be used to settle the asset retirement obligations.
Additionally, the Florida legislature recently passed a bill that would require mining companies to demonstrate financial responsibility for wetland and other surface water mitigation measures in advance of any mining activities. If this bill becomes law, the Company may be required to demonstrate financial responsibility for wetland and other surface water mitigation measures associated with its Hardee mining activities.
The Company has an asset retirement obligation at CFL's Medicine Hat facility for certain decommissioning and land reclamation activities upon cessation of operations. The Company also has an asset retirement obligation at its Donaldsonville, Louisiana nitrogen complex for reclamation of two effluent ponds upon cessation of operations. The Company has determined that no reasonable estimate of these obligations can be made because a date or range of dates for cessation of operations is not determinable. In reaching this conclusion the historical performance, planned maintenance and asset replacements or upgrades have been taken into account. The possibility of changes in technology and the risk of obsolescence have also been considered.
8. Minority Interest
In accordance with CFL's governing agreements, CFL earnings are available for distribution to its Members based on approval by the CFL shareholders. Amounts reported as minority interest in the consolidated statements of operations represent the interest of the 34% shareholder of CFL in the distributed and undistributed earnings of CFL. The minority interest in CFL earnings for 2002, 2003, and 2004 consist of earnings distributions of $4.4 million, $6.8 million and $25.4 million, respectively, and undistributed current year earnings (loss) of $2.0 million, ($.8 million) and ($2.3 million), respectively. Amounts reported as minority interest on the consolidated balance sheets represent the interests of the holder of 34% of CFL's preferred stock and the holders of 51% of CFL's common stock.
9. Impairment of Investments in Unconsolidated Subsidiaries
The impairment of investments in unconsolidated subsidiaries of $1.1 million in 2004 consists of a write-off of the carrying value of the Company's investment in Big Bend Transfer Co., L.L.C. (Refer to Note 14 for additional information).
F-18
10. Income Taxes
CF is a nonexempt cooperative. Patronage is a preexisting obligation of CF, with the form and amount of the patronage distributions authorized annually by the Stockholders pursuant to recommendations by the Board of Directors. Patronage is deductible for income tax purposes provided at least twenty percent of the total distribution is paid in cash. In general, patronage-sourced earnings retained and nonpatronage-sourced earnings are taxed at normal corporate rates.
CF had no earnings from Member business in 2002 or 2003 to be distributed as patronage. In 2004, earnings from Member business were retained in order to utilize net operating loss carryforwards, thereby realizing the associated deferred tax assets.
CFL operates as a cooperative and distributes all of its earnings as patronage to its Members. CFL's patronage distributions are subject to the approval of its Shareholders pursuant to recommendations by its Board of Directors. Patronage distributions are deductible for income tax purposes; therefore, no provision for income taxes is required.
The components of the Company's earnings (loss) before income taxes are:
|
Years Ended December 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||
|
(in thousands)
|
||||||||
Domestic | $ | (46,767 | ) | $ | (33,312 | ) | $ | 107,555 | |
Non-U.S. | 341 | 742 | 1,467 | ||||||
|
|
|
|||||||
$ | (46,426 | ) | $ | (32,570 | ) | $ | 109,022 | ||
|
|
|
The Company's income tax provision (benefit) consisted of the following:
|
Years Ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||||
|
(in thousands)
|
||||||||||
Current | |||||||||||
Federal | $ | (1,400 | ) | $ | (100 | ) | $ | 4,300 | |||
Foreign | 900 | 1,200 | 3,800 | ||||||||
State | (300 | ) | (200 | ) | (500 | ) | |||||
|
|
|
|||||||||
(800 | ) | 900 | 7,600 | ||||||||
|
|
|
|||||||||
Deferred | |||||||||||
Federal | (10,700 | ) | (10,900 | ) | 27,800 | ||||||
State | (5,100 | ) | (2,600 | ) | 6,000 | ||||||
|
|
|
|||||||||
(15,800 | ) | (13,500 | ) | 33,800 | |||||||
|
|
|
|||||||||
Income tax expense (benefit) | (16,600 | ) | (12,600 | ) | 41,400 | ||||||
Tax effect of equity in earnings of unconsolidated subsidiaries |
|
|
1,100 |
|
|
1,000 |
|
|
100 |
|
|
Tax effects of items in other comprehensive income (loss): | |||||||||||
Unrealized gain (loss) on hedging derivatives | | 3,800 | (5,200 | ) | |||||||
Unrealized gain (loss) on securities | (100 | ) | 100 | | |||||||
Minimum pension liability adjustment | (300 | ) | 300 | (4,300 | ) | ||||||
|
|
|
|||||||||
Total income tax provision (benefit) on comprehensive income (loss) | $ | (15,900 | ) | $ | (7,400 | ) | $ | 32,000 | |||
|
|
|
F-19
Differences in the expected income tax provision (benefit) based on statutory rates and the income tax provision (benefit) reflected in the consolidated statements of operations are summarized below:
|
Years Ended December 31,
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||||||||||||
|
(in thousands, except percentages)
|
|||||||||||||||
Earnings (loss) before income taxes | $ | (46,426 | ) | $ | (32,570 | ) | $ | 109,022 | ||||||||
|
|
|
|
|
|
|||||||||||
Expected tax at U.S. statutory rate | (16,249 | ) | 35.0 | % | (11,400 | ) | 35.0 | % | 38,158 | 35.0 | % | |||||
State income taxes, net of federal | (3,743 | ) | 8.1 | (1,738 | ) | 5.4 | 3,495 | 3.2 | ||||||||
Foreign tax rate differential | 3,237 | (7.0 | ) | 538 | (1.7 | ) | 93 | 0.1 | ||||||||
Permanent differences and other | 155 | (0.3 | ) | | | (346 | ) | (0.3 | ) | |||||||
|
|
|
|
|
|
|||||||||||
Income tax at effective rate | $ | (16,600 | ) | 35.8 | % | $ | (12,600 | ) | 38.7 | % | $ | 41,400 | 38.0 | % | ||
|
|
|
|
|
|
The Company's deferred tax assets and deferred tax liabilities are as follows:
|
December 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
|
2003
|
2004
|
||||||
|
(in thousands)
|
|||||||
Deferred tax assets | ||||||||
Net operating loss carryover | $ | 163,832 | $ | 124,321 | ||||
Asset retirement obligations | 9,525 | 13,538 | ||||||
Accumulated other comprehensive loss | | 5,750 | ||||||
Retirement benefits | 6,162 | 7,117 | ||||||
Other | 12,108 | 16,103 | ||||||
|
|
|||||||
191,627 | 166,829 | |||||||
|
|
|||||||
Deferred tax liabilities | ||||||||
Depletable mineral properties | (24,745 | ) | (26,427 | ) | ||||
Depreciation and amortization | (19,171 | ) | (23,844 | ) | ||||
Accumulated other comprehensive income | (3,815 | ) | | |||||
Other | (11,151 | ) | (8,148 | ) | ||||
|
|
|||||||
(58,882 | ) | (58,419 | ) | |||||
|
|
|||||||
Valuation allowance | | | ||||||
|
|
|||||||
Net deferred tax asset | 132,745 | 108,410 | ||||||
Less amount in current assets | 3,493 | 33,501 | ||||||
|
|
|||||||
Noncurrent asset | $ | 129,252 | $ | 74,909 | ||||
|
|
The Company has net operating loss carryforwards of $311.3 million that will expire in the following years: $27.4 million in 2020, $166.1 million in 2021, $64.3 million in 2022 and $53.5 million in 2023. Deferred tax assets include the tax benefit of the net operating loss carryforwards whose realization is dependent on the ability of the Company to generate sufficient taxable income prior to their expiration. The Company evaluates the recoverability of these loss carryforwards using various estimation processes. The accuracy of such estimates is dependent on underlying assumptions such as future product prices and volumes, which are sensitive to the cyclical nature of the Company's business and require a significant amount of judgment. To the extent that future taxable income is less than estimated amounts, realization of the loss carryforwards could potentially be materially impacted. Although realization is subject to such
F-20
uncertainty, management believes that it is more likely than not that sufficient future taxable income will be generated within the carryforward periods.
In 2003, the Company's subsidiary corporation CFL received a notice of proposed adjustment from the Canada Revenue Agency (CRA) as a result of its audit of the tax years 1997 through 2000. The CRA's position was that CFL and CF do not deal on an arms-length basis and therefore that the tax deduction for management fees paid to CF for the years under audit should not be allowed. As of December 31, 2004, the CRA has completed the audit with no resulting assessment for the years 1997 through 2004. The CRA has reserved the right to reopen the arms-length issue in future audits after 2004.
On March 23, 2004, the 2004 Canadian Federal Budget was presented which included an amendment to the Income Tax Act that would disallow the deduction of certain patronage distributions paid after March 22, 2004 to non-arm's length persons. In the settlement of CFL's audit for the tax years 1997 through 2000, the CRA agreed that CFL has operated at arm's length with CF with respect to the deductibility of patronage payments to CF for the 2004 taxation year. However it is unknown what impact, if any, this legislation will have on the deductibility of CFL's future patronage distributions.
In 2004, the CRA initiated and the Company settled a Canadian income tax audit of its subsidiary corporation CF Chemicals, Ltd. (CFCL), through which the Company operates CFL, for the tax years 1997 through 2004. Completion of the audit resolved a transfer pricing issue involving the allocation of certain income from CFL to the Company and CFCL. The settlement reached with the CRA increased the allocation of the income to CFCL and will result in the assessment of Canadian and provincial income tax of approximately $2.2 million. The settlement agreement will not have a material impact on these financial statements.
11. Accounts Receivable
Accounts receivable consist of the following:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
Trade | $ | 89,874 | $ | 37,934 | ||
Other | 2,947 | 3,576 | ||||
|
|
|||||
$ | 92,821 | $ | 41,510 | |||
|
|
12. Inventories
Inventories consist of the following:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
Fertilizer | $ | 161,098 | $ | 188,291 | ||
Spare parts, raw materials and supplies | 45,186 | 45,256 | ||||
|
|
|||||
$ | 206,284 | $ | 233,547 | |||
|
|
F-21
13. Other Current Assets and Other Current Liabilities
Other current assets consist of the following:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
Margin deposits | $ | 32,938 | $ | 37,731 | ||
Unrealized gains on natural gas derivatives | 13,167 | 16,402 | ||||
Prepaid expenses | 5,151 | 5,049 | ||||
Purchased product prepayments | 2,434 | | ||||
|
|
|||||
$ | 53,690 | $ | 59,182 | |||
|
|
Other current liabilities of $4.9 million and $18.5 million at December 31, 2003 and 2004, respectively, consist of unrealized losses on natural gas derivatives.
14. Investments in Unconsolidated Subsidiaries
Investments in unconsolidated subsidiaries consist of the following:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
Investment in CF Martin Sulphur, L.P. | $ | 20,352 | $ | 18,666 | ||
Investment in Big Bend Transfer Co., L.L.C. | 1,118 | | ||||
|
|
|||||
$ | 21,470 | $ | 18,666 | |||
|
|
The Company has a 50% ownership interest in CF Martin Sulphur, L.P. (CFMS), a molten sulfur handling joint venture, which is a sulfur supplier to the central Florida phosphate industry. The Company's purchases from CFMS were $15.2 million in 2003 and $23.7 million in 2004. Accounts payable to CFMS totaled $867 thousand at December 31, 2003 and $2.3 million at December 31, 2004.
The Company also has a one-third ownership interest in Big Bend Transfer Co., L.L.C., a joint venture with plans to develop a facility to convert imported dry sulfur into liquid. In the intervening five years since the joint venture discussions were initiated, domestic supplies of attractively-priced molten sulfur have increased substantially pursuant to increased production of cleaner grades of gasoline, which is expected to continue in the future. As a result of this fundamental shift in the economics of converting dry sulfur to liquid, management no longer believes that the carrying value of the investment can be recovered. Accordingly, an impairment loss of $1.1 million was recognized in 2004.
F-22
15. Property, Plant and EquipmentNet
Property, plant and equipmentnet consists of the following:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
Land | $ | 29,040 | $ | 29,083 | ||
Mineral properties | 187,005 | 187,077 | ||||
Manufacturing plants | 1,838,564 | 1,890,622 | ||||
Distribution facilities and other | 221,012 | 221,288 | ||||
Construction in progress | 11,955 | 11,685 | ||||
|
|
|||||
2,287,576 | 2,339,755 | |||||
Less accumulated depreciation, depletion and amortization | 1,578,880 | 1,694,160 | ||||
|
|
|||||
$ | 708,696 | $ | 645,595 | |||
|
|
16. Other Assets
Other assets are summarized as follows:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
Nonqualified employee benefit trusts | $ | 7,112 | $ | 6,676 | ||
Investment in CoBank | 4,869 | 5,118 | ||||
Deferred financing agreement fees | 3,468 | 2,492 | ||||
Other | 2,703 | 3,391 | ||||
|
|
|||||
$ | 18,152 | $ | 17,677 | |||
|
|
17. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
Accounts payable | $ | 37,998 | $ | 43,617 | ||
Accrued natural gas | 53,785 | 73,480 | ||||
Payroll and employee related costs | 10,769 | 17,012 | ||||
Asset retirement obligations | 7,093 | 10,992 | ||||
Other | 23,290 | 24,136 | ||||
|
|
|||||
$ | 132,935 | $ | 169,237 | |||
|
|
Payroll and employee related costs includes accrued salaries and wages, vacation, incentive plans and payroll taxes. Asset retirement obligations are the current portion of the Company's asset retirement obligations. Other includes accrued interest, property taxes, maintenance and professional services.
F-23
18. Customer Advances
Customer advances represent cash received from customers following acceptance of orders under a forward pricing program. The Company offers such forward pricing program to its customers whereby product may be ordered for future delivery with a substantial portion of the purchase price generally being collected by the time the product is shipped, thereby reducing or eliminating accounts receivable from customers upon shipment. Revenue is recognized when title transfers upon shipment or delivery of the product to customers. The Company hedges the natural gas cost for product to be delivered under such programs at the time the orders are accepted. As of December 31, 2004, the Company had approximately 1.9 million tons of product committed to be sold under the forward pricing program in 2005.
19. Long-Term Debt, Credit Agreement and Notes Payable
Long-term debt is summarized as follows:
|
December 31,
|
|||||
---|---|---|---|---|---|---|
|
2003
|
2004
|
||||
|
(in thousands)
|
|||||
7.17% note with insurance company due in annual installments through 2013 | $ | 100,000 | $ | 90,000 | ||
7.28% notes with insurance companies due in annual installments from 2007 through 2012 | 75,000 | 75,000 | ||||
9.02% notes with insurance companies due in annual installments from 2008 through 2012 | 35,000 | 35,000 | ||||
6.44% note with CoBank due in quarterly installments from 2008 through 2012 | 25,000 | 25,000 | ||||
Variable rate note with CoBank due in annual installments through 2007 (average 5.37% as of December 31, 2004) | 28,000 | 21,000 | ||||
7.05% note with CoBank due in quarterly installments through 2007 | 11,667 | 8,750 | ||||
7.32% note with insurance company due in annual installments through 2004 | 15,000 | | ||||
|
|
|||||
Total long-term debt | 289,667 | 254,750 | ||||
Less current portion | 34,917 | 19,917 | ||||
|
|
|||||
$ | 254,750 | $ | 234,833 | |||
|
|
Long-Term Debt
The Company's long-term borrowing agreements require maintenance of specified minimum net worth levels and maximum debt ratios, and contain covenants restricting cash patronage, redemptions of capital stock and other standard covenants. The agreements with CoBank also require investments in that bank. In conjunction with the establishment of the new Harris revolving credit agreement, the Company's existing term loan agreements were amended in 2003 to provide the term lenders with a subordinated security interest in the same assets that are pledged under the 2003 revolving credit agreement.
Long-term debt maturities for the five years succeeding December 31, 2004 are $19.9 million in each of the years 2005 and 2006, $32.4 million in 2007 and $34.5 million in each of the years 2008 and 2009.
Credit Agreement
In 2003, the Company established a $140 million revolving line of credit with Harris Trust and Savings Bank (Harris) and six other lending institutions, which is available through September 26, 2006. The agreement is secured by working capital, certain equipment and the Donaldsonville production facility.
F-24
Restrictive covenants under the agreement are those common to asset based agreements. Borrowing at any time is limited to the lesser of $140 million or the available collateral (including offset of customer advances) as defined in the agreement. At December 31, 2004, there was approximately $120 million of available credit (based on available collateral) and there were no outstanding borrowings under the revolver.
Notes Payable
From time to time, CFL receives advances from the CFL minority interest holder to finance major capital expenditures. The advances currently outstanding are evidenced by an unsecured promissory note due December 31, 2009 and bear interest at market rates. The amount shown as notes payable represents the advances payable to the CFL minority interest holder.
20. Leases
Future minimum lease payments under noncancelable operating leases at December 31, 2004 are:
|
Operating
Lease Payments |
||
---|---|---|---|
|
(in thousands)
|
||
2005 | $ | 9,576 | |
2006 | 6,691 | ||
2007 | 3,840 | ||
2008 | 2,141 | ||
2009 | 783 | ||
Thereafter | 305 | ||
|
|||
Future minimum operating lease payments | $ | 23,336 | |
|
Total rent expense for cancelable and noncancelable operating leases was $15.0 million for the year ended December 31, 2002, $14.6 million for 2003 and $14.7 million for 2004.
21. Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following:
|
December 31,
|
||||||
---|---|---|---|---|---|---|---|
|
2003
|
2004
|
|||||
|
(in thousands)
|
||||||
Asset retirement obligations | $ | 37,523 | $ | 52,719 | |||
Less: Current portion in accrued expenses | 7,093 | 10,992 | |||||
|
|
||||||
Noncurrent portion | 30,430 | 41,727 | |||||
Benefit plans and deferred compensation | 21,570 | 31,352 | |||||
Environmental costs and other | 447 | 10,124 | |||||
|
|
||||||
$ | 52,447 | $ | 83,203 | ||||
|
|
Asset retirement obligations are for phosphogypsum stack closure costs and mine reclamation costs (see Note 7). Benefit plans and deferred compensation include liabilities for pensions, retiree medical benefits, and the noncurrent portion of incentive plans (see Note 3). Environmental costs and other for
F-25
2004 consist of the noncurrent portions of the liability for environmental items included in other operating costs (see Note 4), including the Bartow demolition and removal costs and a groundwater recovery program at the site of a former nitrogen manufacturing facility.
22. Derivative Financial Instruments
The Company uses natural gas in the manufacture of its nitrogen fertilizer products. Because natural gas prices are volatile, the Company's Natural Gas Acquisition Policy includes the objective of providing protection against significant adverse natural gas price movements. The Company manages the risk of changes in gas prices through the use of physical gas supply contracts and derivative financial instruments covering periods not exceeding 3 years. The derivative instruments currently used are swaps, futures and purchased options. These contracts reference primarily NYMEX futures contract prices, which represent fair value at any given time. The contracts are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods.
The Company classifies a derivative financial instrument as a hedge if all of the following conditions are met: 1) the item to be hedged must expose the Company to commodity price risk, 2) it must be probable that the results of the hedge position substantially offset the effects of price changes on the hedged item (i.e., there is a high correlation between the hedge position and changes in market value of the hedged item) and 3) the derivative financial instrument must be designated as a hedge of the item at the inception of the hedge. The Company uses derivative instruments, primarily futures and swaps, to fix the natural gas price for product sold under its forward pricing program.
The Company designates, documents and assesses accounting for hedge relationships, which result primarily in cash flow hedges that require the Company to record the derivatives as assets and liabilities at their fair value on the balance sheet with an offset in OCI. The gain or loss of an effective cash flow hedge is deferred in OCI until the second month after the hedged natural gas is used to manufacture inventoried products, which approximates the period of inventory turns of upgraded products and the release of the cost of the hedged gas to cost of sales. Ineffective hedge gains and losses are recorded immediately in cost of sales.
Compared with spot prices, natural gas hedging activities decreased costs at the Company's Donaldsonville Nitrogen Complex by approximately $9.5 million in 2003 and $22.1 million in 2004. The Company recorded a net ineffective gain of $338 thousand in 2003 and a net ineffective loss of $259 thousand in 2004. Cash flows related to natural gas hedges are reported as cash flows from operating activities.
The Company's natural gas requirements typically range from 100 million to 125 million MMBtus annually. At December 31, 2004, derivative contracts were in place to cover approximately 25% of the Company's anticipated natural gas requirements for 2005. These hedge positions extend through December 2005. Open natural gas derivative contracts at December 31, 2003 and 2004 are summarized
F-26
below. Unrealized gains and losses are reported in other current assets and other current liabilities, respectively.
23. Stockholders' Equity
Patronage preferred stock consists of Member investments and patronage issues. In addition, a Base Capital Plan exists which is used to adjust each Member's current investment in CF on an equitable basis over time to correspond with the volume of business transacted by each Member.
CF also has the following classes of stock authorized, none of which were outstanding at December 31, 2004 or 2003: 7.5% cumulative senior preferred stock, $100 par value, 5,000 shares authorized; and 8% special preferred stock, $100 par value, 500,000 shares authorized.
Stockholders' equity also includes accumulated other comprehensive income (loss), which consists of the following components:
|
Foreign
Currency Translation Adjustment |
Unrealized
Gain (Loss) on Securities |
Unrealized
Gain (Loss) on Derivatives |
Minimum
Pension Liability Adjustment |
Accumulated
Other Comprehensive Income (Loss) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||||||||
Balance at December 31, 2001 | $ | (8,941 | ) | $ | | $ | | $ | | $ | (8,941 | ) | ||||
Net Change | 154 | (155 | ) | | (425 | ) | (426 | ) | ||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2002 | (8,787 | ) | (155 | ) | | (425 | ) | (9,367 | ) | |||||||
Net Change | 4,663 | 155 | 5,722 | 425 | 10,965 | |||||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2003 | (4,124 | ) | | 5,722 | | 1,598 | ||||||||||
Net Change | 393 | | (7,844 | ) | (6,503 | ) | (13,954 | ) | ||||||||
|
|
|
|
|
||||||||||||
Balance at December 31, 2004 | $ | (3,731 | ) | $ | | $ | (2,122 | ) | $ | (6,503 | ) | $ | (12,356 | ) | ||
|
|
|
|
|
The unrealized gain or loss on derivatives is related to natural gas hedges. As described in Note 1, these amounts are reclassified into earnings as the product ultimately manufactured with the hedged gas is sold. The $5.7 million balance at December 31, 2003 consists of a gross unrealized gain on open positions of $13.4 million (see Note 22), offset by primarily losses on closed positions of $3.9 million and a deferred income tax effect of $3.8 million. The $2.1 million balance at December 31, 2004 consists of a gross unrealized loss on open positions of $18.2 million (see Note 22), offset by primarily gains on closed positions of $14.7 million and a deferred income tax effect of $1.4 million. The amount shown as net change in OCI is the net change associated with current period hedging transactions. The amount of reclassification into earnings as a result of the discontinuance of cash flow hedges was zero for both 2003
F-27
and 2004. Virtually all of the balance at December 31, 2004 is expected to be reclassified into earnings during 2005.
The $425 thousand charge in 2002 related to the minimum pension liability adjustment is net of a deferred tax benefit of $283 thousand. The 2002 amounts reversed in 2003. The $6.5 million charge for the minimum pension liability adjustment in 2004 is net of a deferred tax benefit of $4.3 million.
The $155 thousand charge resulting from the unrealized loss on securities in 2002 is net of a deferred tax benefit of $103 thousand. These amounts reversed in 2003.
24. Disclosures about Fair Value of Financial Instruments
The estimated fair value of the Company's significant financial instruments not discussed elsewhere is described below. All financial instruments are held or issued for purposes other than trading.
Cash Equivalents and Short-Term Investments
The carrying values of cash equivalents and short-term investments approximate fair value because of the short maturities and the highly liquid nature of these investments.
Investments in Unconsolidated Subsidiaries
The carrying values of the Company's investments in CF Martin Sulphur, L.P. and Big Bend Transfer Co., L.L.C. approximate fair value.
Notes Payable
The carrying value of notes payable approximates fair value because they bear interest at market rates.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on current rates available to the Company for debt of similar remaining maturities. The estimated fair values of long-term debt at December 31, 2003 and 2004 are $300.6 million and $296.7 million, respectively. The rates used to determine these amounts are not necessarily indicative of rates that the Company could obtain in a current market transaction.
25. Litigation and Contingencies
The Company from time to time is subject to ordinary, routine legal proceedings related to the usual conduct of its business. The Company also is involved in proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of its various plants and facilities. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.
F-28
26. Other Financial Statement Data
The following provides additional information relating to cash flow activities:
|
Years Ended December 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||||||
|
(in thousands)
|
|||||||||
Cash paid (received) during the year for: | ||||||||||
Interest | $ | 23,048 | $ | 24,424 | $ | 24,122 | ||||
Income taxesnet of refunds | (1,480 | ) | 888 | 8,717 |
27. Reclassification
Certain items in the prior year's consolidated financial statements have been reclassified to conform to the current year's presentation and certain items previously presented in the current year's consolidated financial statements have been reclassified.
On the consolidated balance sheet, the Company's investments in auction rate securities have been reclassified from cash and cash equivalents to short-term investments. On the consolidated cash flow statement, corresponding adjustments have been made to reflect the gross purchases and gross sales and maturities of these securities as investing activities rather than a component of the change in cash and cash equivalents. These reclassifications had no impact on previously reported net income or cash flow from operations.
28. Segment Disclosures
The Company is organized and managed internally based on two segments, which are differentiated primarily by their products, the markets they serve and the regulatory environments in which they operate. The two segments are the nitrogen and phosphate fertilizer businesses.
Segment data for sales, cost of sales, gross margin, depreciation, depletion and amortization, capital expenditures, and assets for 2002, 2003, and 2004 are as follows. Other sales, costs and gross margin represent the Company's potash sales that were discontinued in 2003. Other assets, capital expenditures
F-29
and depreciation include amounts attributable to the corporate headquarters and unallocated corporate assets.
|
Nitrogen
|
Phosphate
|
Other
|
Consolidated
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||||||
Year ended December 31, 2002 | ||||||||||||||
Net sales | ||||||||||||||
Anhydrous ammonia | $ | 228,684 | $ | | $ | | $ | 228,684 | ||||||
Granular urea | 320,651 | | | 320,651 | ||||||||||
UAN solutions | 178,912 | | | 178,912 | ||||||||||
DAP | | 227,718 | | 227,718 | ||||||||||
MAP | | 45,321 | | 45,321 | ||||||||||
Other | 2,113 | 8,809 | 1,863 | 12,785 | ||||||||||
|
|
|
|
|||||||||||
730,360 | 281,848 | 1,863 | 1,014,071 | |||||||||||
Cost of sales | 711,134 | 273,363 | 1,798 | 986,295 | ||||||||||
|
|
|
|
|||||||||||
Gross margin | $ | 19,226 | $ | 8,485 | $ | 65 | $ | 27,776 | ||||||
Depreciation, depletion and amortization |
|
$ |
72,641 |
|
$ |
34,932 |
|
$ |
898 |
|
$ |
108,471 |
||
Capital expenditures | 15,139 | 10,466 | 698 | 26,303 | ||||||||||
December 31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
||
(unaudited) | ||||||||||||||
Assets | $ | 546,851 | $ | 446,630 | $ | 310,051 | $ | 1,303,532 |
|
Nitrogen
|
Phosphate
|
Other
|
Consolidated
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||||||
Year ended December 31, 2003 | ||||||||||||||
Net sales | ||||||||||||||
Anhydrous ammonia | $ | 347,390 | $ | | $ | | $ | 347,390 | ||||||
Granular urea | 443,192 | | | 443,192 | ||||||||||
UAN solutions | 265,225 | | | 265,225 | ||||||||||
DAP | | 264,437 | | 264,437 | ||||||||||
MAP | | 43,290 | | 43,290 | ||||||||||
Other | 2,439 | 2,071 | 1,871 | 6,381 | ||||||||||
|
|
|
|
|||||||||||
1,058,246 | 309,798 | 1,871 | 1,369,915 | |||||||||||
Cost of sales | 999,677 | 334,053 | 1,778 | 1,335,508 | ||||||||||
|
|
|
|
|||||||||||
Gross margin | $ | 58,569 | $ | (24,255 | ) | $ | 93 | $ | 34,407 | |||||
Depreciation, depletion and amortization |
|
$ |
69,866 |
|
$ |
33,974 |
|
$ |
1,174 |
|
$ |
105,014 |
||
Capital expenditures | 14,207 | 13,711 | 766 | 28,684 | ||||||||||
December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
||
Assets | $ | 558,101 | $ | 417,625 | $ | 429,153 | $ | 1,404,879 |
F-30
|
Nitrogen
|
Phosphate
|
Other
|
Consolidated
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||||||
Year ended December 31, 2004 | ||||||||||||||
Net sales | ||||||||||||||
Anhydrous ammonia | $ | 399,486 | $ | | $ | | $ | 399,486 | ||||||
Granular urea | 515,927 | | | 515,927 | ||||||||||
UAN solutions | 354,077 | | | 354,077 | ||||||||||
DAP | | 305,273 | | 305,273 | ||||||||||
MAP | | 71,452 | | 71,452 | ||||||||||
Other | 4,395 | 42 | | 4,437 | ||||||||||
|
|
|
|
|||||||||||
1,273,885 | 376,767 | | 1,650,652 | |||||||||||
Cost of sales | 1,080,086 | 354,459 | | 1,434,545 | ||||||||||
|
|
|
|
|||||||||||
Gross margin | $ | 193,799 | $ | 22,308 | $ | | $ | 216,107 | ||||||
Depreciation, depletion and amortization |
|
$ |
71,412 |
|
$ |
35,071 |
|
$ |
2,159 |
|
$ |
108,642 |
||
Capital expenditures | 13,847 | 16,175 | 3,687 | 33,709 | ||||||||||
December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
||
Assets | $ | 530,604 | $ | 414,419 | $ | 601,948 | $ | 1,546,971 |
Enterprise-wide data by geographic region is as follows:
|
Year Ended December 31
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
||||||||
|
(in thousands)
|
||||||||||
Sales by geographic region | |||||||||||
Nitrogen |
|
|
|
|
|
|
|
|
|
||
U.S. | $ | 650,678 | $ | 927,437 | $ | 1,115,007 | |||||
Canada | 77,816 | 130,809 | 158,878 | ||||||||
Export | 1,866 | | | ||||||||
|
|
|
|||||||||
730,360 | 1,058,246 | 1,273,885 | |||||||||
|
|
|
|||||||||
Phosphate | |||||||||||
U.S. | 238,743 | 274,973 | 230,778 | ||||||||
Canada | 10,841 | 10,515 | 13,756 | ||||||||
Export | 32,264 | 24,310 | 132,233 | ||||||||
|
|
|
|||||||||
281,848 | 309,798 | 376,767 | |||||||||
|
|
|
|||||||||
Potash |
|
|
1,863 |
|
|
1,871 |
|
|
|
||
|
|
|
|||||||||
Consolidated | $ | 1,014,071 | $ | 1,369,915 | $ | 1,650,652 | |||||
|
|
|
F-31
|
December 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||||||
|
(in thousands)
|
|||||||||
Property, plant and equipmentnet by geographic region | ||||||||||
U.S. | $ | 742,865 | $ | 673,789 | $ | 613,838 | ||||
Canada | 34,450 | 34,907 | 31,757 | |||||||
|
|
|
||||||||
Consolidated | $ | 777,315 | $ | 708,696 | $ | 645,595 | ||||
|
|
|
Data regarding major customers the sales to which represent at least ten percent of the Company's consolidated revenues are as follows:
|
Year Ended December 31
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2003
|
2004
|
|||||||
|
(in thousands)
|
|||||||||
Sales by major customer | ||||||||||
Agriliance, LLC | $ | 448,843 | $ | 559,745 | $ | 481,784 | ||||
GROWMARK, Inc. | 172,088 | 202,905 | 206,775 | |||||||
Others | 393,140 | 607,265 | 962,093 | |||||||
|
|
|
||||||||
Consolidated | $ | 1,014,071 | $ | 1,369,915 | $ | 1,650,652 | ||||
|
|
|
Sales to each major customer are generated from both the nitrogen and phosphate business segments.
29. Quarterly DataUnaudited
The following tables present the Company's unaudited quarterly results of operations for the eight quarters ended December 31, 2004. This quarterly information has been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflects all adjustments necessary for the fair representation of the information for the periods presented. This data should be read in conjunction with the audited financial statements and related disclosures. Operating results for any quarter apply to that quarter only and are not necessarily indicative of results for any future period.
F-32
|
Three Months Ended,
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||||||||||||
2003 Quarterly Results of Operations
|
As Previously Reported
|
Restated (a)
|
As Previously Reported
|
Restated (a)
|
As Previously Reported
|
Restated (a)
|
As Previously Reported
|
Restated (a)
|
|||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||
Net sales | $ | 229,583 | $ | 229,583 | $ | 404,998 | $ | 404,998 | $ | 313,626 | $ | 313,626 | $ | 421,708 | $ | 421,708 | |||||||||
Cost of sales | 234,984 | 236,254 | 403,709 | 408,286 | 295,822 | 304,469 | 400,993 | 386,499 | |||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Gross margin | (5,401 | ) | (6,671 | ) | 1,289 | (3,288 | ) | 17,804 | 9,157 | 20,715 | 35,209 | ||||||||||||||
Selling, general and administrative | 9,438 | 9,438 | 9,627 | 9,627 | 9,463 | 9,463 | 9,927 | 9,927 | |||||||||||||||||
Other operatingnet | 2,937 | 2,937 | 2,931 | 2,931 | 3,509 | 3,509 | (7,820 | ) | (7,820 | )(b) | |||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Operating earnings (loss) | (17,776 | ) | (19,046 | ) | (11,269 | ) | (15,846 | ) | 4,832 | (3,815 | ) | 18,608 | 33,102 | ||||||||||||
Interestnet | 4,722 | 4,722 | 5,455 | 5,455 | 5,564 | 5,564 | 5,869 | 5,869 | |||||||||||||||||
Minority interest | 795 | 795 | (1,147 | ) | (1,147 | ) | 3,361 | 3,361 | 3,022 | 3,022 | |||||||||||||||
Other non-operatingnet | (208 | ) | (208 | ) | 30 | 30 | (871 | ) | (871 | ) | 373 | 373 | |||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Earnings (loss) before income taxes | (23,085 | ) | (24,355 | ) | (15,607 | ) | (20,184 | ) | (3,222 | ) | (11,869 | ) | 9,344 | 23,838 | |||||||||||
Income tax expense (benefit) | (8,931 | ) | (9,422 | ) | (6,038 | ) | (7,809 | ) | (1,246 | ) | (4,591 | ) | 3,615 | 9,222 | |||||||||||
Equity in earnings of unconsolidated subsidiaries | 414 | 414 | 549 | 549 | 345 | 345 | 279 | 279 | |||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Net earnings (loss) | $ | (13,740 | ) | $ | (14,519 | ) | $ | (9,020 | ) | $ | (11,826 | ) | $ | (1,631 | ) | $ | (6,933 | ) | $ | 6,008 | $ | 14,895 | |||
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31
|
June 30
|
September 30
|
December 31
|
|||||||||||||||||||||
2004 Quarterly Results of Operations
|
As Previously Reported
|
Restated (a)
|
As Previously Reported
|
Restated (a)
|
As Previously Reported
|
Restated (a)
|
As Previously Reported
|
Restated (a)
|
|||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||
Net sales | $ | 324,664 | $ | 324,664 | $ | 520,701 | $ | 520,701 | $ | 326,694 | $ | 326,694 | $ | 478,593 | $ | 478,593 | |||||||||
Cost of sales | 291,081 | 288,802 | 450,567 | 455,671 | 272,889 | 282,781 | 420,008 | 407,291 | |||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Gross margin | 33,583 | 35,862 | 70,134 | 65,030 | 53,805 | 43,913 | 58,585 | 71,302 | |||||||||||||||||
Selling, general and administrative | 10,188 | 10,188 | 10,114 | 10,114 | 9,864 | 9,864 | 11,664 | 11,664 | |||||||||||||||||
Other operatingnet | 2,143 | 2,143 | 2,892 | 2,892 | 1,721 | 1,721 | 18,287 | 18,287 | (c) | ||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Operating earnings | 21,252 | 23,531 | 57,128 | 52,024 | 42,220 | 32,328 | 28,634 | 41,351 | |||||||||||||||||
Interestnet | 4,810 | 4,810 | 5,020 | 5,020 | 3,993 | 3,993 | 2,972 | 2,972 | |||||||||||||||||
Minority interest | 5,141 | 5,141 | 4,566 | 4,566 | 5,403 | 5,403 | 8,035 | 8,035 | |||||||||||||||||
Impairment of investments in unconsolidated subsidiaries | | | | | | | 1,050 | 1,050 | |||||||||||||||||
Other non-operatingnet | | | (537 | ) | (537 | ) | (149 | ) | (149 | ) | (92 | ) | (92 | ) | |||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Earnings before income taxes | 11,301 | 13,580 | 48,079 | 42,975 | 32,973 | 23,081 | 16,669 | 29,386 | |||||||||||||||||
Income tax expense | 4,292 | 5,157 | 18,257 | 16,320 | 12,521 | 8,764 | 6,330 | 11,159 | |||||||||||||||||
Equity in earnings (loss) of unconsolidated subsidiaries | 146 | 146 | 91 | 91 | (14 | ) | (14 | ) | (113 | ) | (113 | ) | |||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
Net earnings | $ | 7,155 | $ | 8,569 | $ | 29,913 | $ | 26,746 | $ | 20,438 | $ | 14,303 | $ | 10,226 | $ | 18,114 | |||||||||
|
|
|
|
|
|
|
|
F-33
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended March 31,
|
||||||
---|---|---|---|---|---|---|---|
|
2004
Restated |
2005
|
|||||
|
(unaudited)
(in thousands) |
||||||
Net sales | $ | 324,664 | $ | 459,329 | |||
Cost of sales | 288,802 | 404,053 | |||||
|
|
||||||
Gross margin | 35,862 | 55,276 | |||||
Selling, general and administrative | 10,188 | 11,023 | |||||
Other operatingnet | 2,143 | 1,130 | |||||
|
|
||||||
Operating earnings | 23,531 | 43,123 | |||||
Interest expense | 6,108 | 5,255 | |||||
Interest income | (1,298 | ) | (3,527 | ) | |||
Minority Interest | 5,141 | 4,916 | |||||
Other non-operatingnet | | (329 | ) | ||||
|
|
||||||
Earnings before income taxes | 13,580 | 36,808 | |||||
Income tax provision | 5,157 | 14,465 | |||||
Equity in earnings (loss) of unconsolidated subsidiaries | 146 | (7 | ) | ||||
|
|
||||||
Net earnings | $ | 8,569 | $ | 22,336 | |||
|
|
See Accompanying Notes to Unaudited Consolidated Quarterly Financial Statements.
F-34
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
Three Months Ended March 31,
|
||||||
---|---|---|---|---|---|---|---|
|
2004
Restated |
2005
|
|||||
|
(unaudited)
(in thousands) |
||||||
Net earnings | $ | 8,569 | $ | 22,336 | |||
Other comprehensive income (loss): | |||||||
Foreign currency translation adjustmentno tax effect | (556 | ) | 88 | ||||
Unrealized gain (loss) on hedging derivativesnet of taxes | (3,205 | ) | 3,425 | ||||
|
|
||||||
(3,761 | ) | 3,513 | |||||
|
|
||||||
Comprehensive income | $ | 4,808 | $ | 25,849 | |||
|
|
See Accompanying Notes to Unaudited Consolidated Quarterly Financial Statements.
F-35
UNAUDITED CONSOLIDATED BALANCE SHEETS
|
December 31,
2004 |
March 31,
2005 |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
|
(unaudited)
|
|||||||
|
(in thousands)
|
||||||||
Assets | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 50,003 | $ | 42,140 | |||||
Short-term investments | 369,290 | 423,618 | |||||||
Accounts receivable | 41,510 | 60,049 | |||||||
Income taxes receivable | 1,764 | 566 | |||||||
Inventories | 233,547 | 254,480 | |||||||
Deferred income taxes | 33,501 | 33,501 | |||||||
Other | 59,182 | 25,866 | |||||||
|
|
||||||||
Total current assets | 788,797 | 840,220 | |||||||
Investments in unconsolidated subsidiaries | 18,666 | 18,654 | |||||||
Property, plant and equipmentnet | 645,595 | 636,580 | |||||||
Deferred income taxes | 74,909 | 62,691 | |||||||
Goodwill | 1,327 | 1,327 | |||||||
Other assets | 17,677 | 17,450 | |||||||
|
|
||||||||
Total assets | $ | 1,546,971 | $ | 1,576,922 | |||||
|
|
||||||||
Liabilities and Stockholders' Equity | |||||||||
Current liabilities: | |||||||||
Accounts payable and accrued expenses | $ | 169,237 | $ | 162,944 | |||||
Customer advances | 211,501 | 235,601 | |||||||
Distributions payable to minority interest | 5,631 | 5,631 | |||||||
Current portion of long-term debt | 19,917 | 19,917 | |||||||
Other | 18,517 | 108 | |||||||
|
|
||||||||
Total current liabilities | 424,803 | 424,201 | |||||||
|
|
||||||||
Noncurrent liabilities: | |||||||||
Notes payable | 4,071 | 4,071 | |||||||
Long-term debt | 234,833 | 234,104 | |||||||
Other | 83,203 | 83,627 | |||||||
|
|
||||||||
Total noncurrent liabilities | 322,107 | 321,802 | |||||||
|
|
||||||||
Minority interest | 12,772 | 17,781 | |||||||
|
|
||||||||
Stockholders' equity | |||||||||
Patronage preferred stock$100 par value, 10,000,000 shares authorized, 7,343,018 shares outstanding | 734,302 | 734,302 | |||||||
Common stock$1,000 per value, 100 shares authorized, 8 shares outstanding | 8 | 8 | |||||||
Paid-in capital | 5,555 | 5,555 | |||||||
Retained earnings | 59,780 | 82,116 | |||||||
Accumulated other comprehensive loss | (12,356 | ) | (8,843 | ) | |||||
|
|
||||||||
Total stockholders' equity | 787,289 | 813,138 | |||||||
|
|
||||||||
Total liabilities and stockholders' equity | $ | 1,546,971 | $ | 1,576,922 | |||||
|
|
See Accompanying Notes to Unaudited Consolidated Quarterly Financial Statements.
F-36
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
Patronage
Preferred Stock |
Common
Stock |
Paid-In
Capital |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Total
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(unaudited)
|
|||||||||||||||||||
|
(in thousands)
|
|||||||||||||||||||
Balance at December 31, 2004 | $ | 734,302 | $ | 8 | $ | 5,555 | $ | 59,780 | $ | (12,356 | ) | $ | 787,289 | |||||||
Add (deduct): | ||||||||||||||||||||
Net earnings | | | | 22,336 | | 22,336 | ||||||||||||||
Other comprehensive income | | | | | 3,513 | 3,513 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Balance at March 31, 2005 | $ | 734,302 | $ | 8 | $ | 5,555 | $ | 82,116 | $ | (8,843 | ) | $ | 813,138 | |||||||
|
|
|
|
|
|
See Accompanying Notes to Unaudited Consolidated Quarterly Financial Statements.
F-37
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Months Ended March 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2004
Restated |
2005
|
|||||||
|
(unaudited)
|
||||||||
|
(in thousands)
|
||||||||
Operating Activities: | |||||||||
Net earnings | $ | 8,569 | $ | 22,336 | |||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities | |||||||||
Minority interest | 5,141 | 4,916 | |||||||
Depreciation, depletion and amortization | 26,938 | 26,556 | |||||||
Deferred income taxes | 5,251 | 9,933 | |||||||
Equity in losses (earnings) of unconsolidated subsidiaries | (240 | ) | 11 | ||||||
Changes in: | |||||||||
Accounts receivable | 19,939 | (17,244 | ) | ||||||
Margin deposits | 13,504 | 14,829 | |||||||
Inventories | (84,761 | ) | (20,881 | ) | |||||
Accounts payable and accrued expenses | (12,747 | ) | (6,320 | ) | |||||
Customer advancesnet | 20,487 | 24,100 | |||||||
Othernet | 3,992 | 5,674 | |||||||
|
|
||||||||
Net cash provided by operating activities | 6,073 | 63,910 | |||||||
|
|
||||||||
Investing Activities: | |||||||||
Additions to property, plant and equipmentnet | (4,199 | ) | (16,777 | ) | |||||
Purchases of short-term investments | (200,149 | ) | (155,498 | ) | |||||
Sales and maturities of short-term investments | 154,174 | 101,170 | |||||||
Distributions from unconsolidated subsidiaries | 600 | | |||||||
|
|
||||||||
Net cash used in investing activities | (49,574 | ) | (71,105 | ) | |||||
|
|
||||||||
Financing Activities: | |||||||||
Payments on long-term debt | (729 | ) | (729 | ) | |||||
Othernet | (27 | ) | | ||||||
|
|
||||||||
Net cash used in financing activities | (756 | ) | (729 | ) | |||||
|
|
||||||||
Effect of exchange rate changes on cash and cash equivalents | (749 | ) | 61 | ||||||
|
|
||||||||
Increase (decrease) in cash and cash equivalents | (45,006 | ) | (7,863 | ) | |||||
Cash and cash equivalents at beginning of period | 77,146 | 50,003 | |||||||
|
|
||||||||
Cash and cash equivalents at end of period | $ | 32,140 | $ | 42,140 | |||||
|
|
See Accompanying Notes to Unaudited Consolidated Quarterly Financial Statements.
F-38
NOTES TO UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
(Amounts and disclosures applicable to
March 31, 2004 and 2005 are unaudited)
1. Basis of Presentation
The accompanying interim financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments, necessary for the fair representation of the information for the periods presented. This data should be read in conjunction with the audited financial statements and related disclosures. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.
In the Company's December 31, 2004 consolidated balance sheet, certain items have been reclassified to conform to the consolidated balance sheet as of March 31, 2005. In particular, the Company's investments in auction rate securities have been reclassified from cash and cash equivalents to short-term investments.
2. Restatement
The Company's unaudited consolidated financial statements for the first quarter of 2004 have been restated to correct an error resulting from the improper elimination of intercompany balances which occurred during the process of consolidating the Company's variable interest entity, Canadian Fertilizers Limited. The error resulted in earnings being understated for the three months ended March 31, 2004. Presented below are reconciliations of previously reported amounts to restated amounts for the consolidated statements of operations, comprehensive income and cash flows for the three months ended March 31, 2004.
F-39
Reconciliation of Consolidated Statement of OperationsThree Months Ended March 31, 2004
|
Three Months Ended March 31,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2004
As Previously Reported |
Adjustments
|
2004
Restated |
|||||||
|
(unaudited)
(in thousands) |
|||||||||
Net sales | $ | 324,664 | $ | | $ | 324,664 | ||||
Cost of sales | 291,081 | (2,279 | ) (a) | 288,802 | ||||||
|
|
|
||||||||
Gross margin | 33,583 | 2,279 | 35,862 | |||||||
Selling, general and administrative | 10,188 | | 10,188 | |||||||
Other operatingnet | 2,143 | | 2,143 | |||||||
|
|
|
||||||||
Operating earnings | 21,252 | 2,279 | 23,531 | |||||||
Interest expense | 6,108 | | 6,108 | |||||||
Interest income | (1,298 | ) | | (1,298 | ) | |||||
Minority interest | 5,141 | | 5,141 | |||||||
|
|
|
||||||||
Earnings before income taxes | 11,301 | 2,279 | 13,580 | |||||||
Income tax provision | 4,292 | 865 | (b) | 5,157 | ||||||
Equity in earnings (loss) of unconsolidated subsidiaries | 146 | | 146 | |||||||
|
|
|
||||||||
Net earnings | $ | 7,155 | $ | 1,414 | $ | 8,569 | ||||
|
|
|
F-40
Reconciliation of Consolidated Statement of Comprehensive IncomeThree Months Ended March 31, 2004
|
Three Months Ended March 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2004
As Previously Reported |
Adjustments
|
2004
Restated |
||||||||
|
(unaudited)
(in thousands) |
||||||||||
Net earnings | $ | 7,155 | $ | 1,414 | (a) | $ | 8,569 | ||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustmentno tax effect | (556 | ) | | (556 | ) | ||||||
Unrealized gain (loss) on hedging derivativesnet of taxes | (3,205 | ) | | (3,205 | ) | ||||||
|
|
|
|||||||||
(3,761 | ) | | (3,761 | ) | |||||||
|
|
|
|||||||||
Comprehensive income |
|
$ |
3,394 |
|
$ |
1,414 |
|
$ |
4,808 |
|
|
|
|
|
F-41
Reconciliation of Consolidated Statement of Cash FlowsThree Months Ended March 31, 2004
|
Three Months Ended March 31,
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2004
As Previously Reported |
Adjustments
|
2004
Restated |
|||||||||
|
(unaudited)
(in thousands) |
|||||||||||
Operating Activities: | ||||||||||||
Net earnings | $ | 7,155 | $ | 1,414 | (a) | $ | 8,569 | |||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities | ||||||||||||
Minority interest | 5,141 | | 5,141 | |||||||||
Depreciation, depletion and amortization | 26,938 | | 26,938 | |||||||||
Deferred income taxes | 4,386 | 865 | (b) | 5,251 | ||||||||
Equity in losses (earnings) of unconsolidated subsidiaries | (240 | ) | | (240 | ) | |||||||
Changes in: | ||||||||||||
Accounts receivable | 19,939 | | 19,939 | |||||||||
Margin deposits | 13,504 | | 13,504 | |||||||||
Inventories | (84,761 | ) | | (84,761 | ) | |||||||
Accounts payable and accrued expenses | (10,468 | ) | (2,279 | ) (c) | (12,747 | ) | ||||||
Customer advancesnet | 20,487 | | 20,487 | |||||||||
Othernet | 3,992 | | 3,992 | |||||||||
|
|
|
||||||||||
Net cash provided by operating activities | 6,073 | | 6,073 | |||||||||
|
|
|
||||||||||
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
||
Additions to property, plant and equipmentnet | (4,199 | ) | | (4,199 | ) | |||||||
Purchases of short-term investments | (200,149 | ) | | (200,149 | ) | |||||||
Sales and maturities of short-term investments | 154,174 | | 154,174 | |||||||||
Distributions from unconsolidated subsidiaries | 600 | | 600 | |||||||||
|
|
|
||||||||||
Net cash provided by (used in) investing activities | (49,574 | ) | | (49,574 | ) | |||||||
|
|
|
||||||||||
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
||
Payments on long-term debt | (729 | ) | | (729 | ) | |||||||
Othernet | (27 | ) | | (27 | ) | |||||||
|
|
|
||||||||||
Net cash provided by (used in) financing activities | (756 | ) | | (756 | ) | |||||||
|
|
|
||||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(749 |
) |
|
|
|
|
(749 |
) |
||
|
|
|
||||||||||
Increase (decrease) in cash and cash equivalents |
|
|
(45,006 |
) |
|
|
|
|
(45,006 |
) |
||
Cash and cash equivalents at beginning of period |
|
|
77,146 |
|
|
|
|
|
77,146 |
|
||
|
|
|
||||||||||
Cash and cash equivalents at end of period |
|
$ |
32,140 |
|
|
|
|
$ |
32,140 |
|
||
|
|
|
F-42
3. New Accounting Standards
Following are summaries of recently issued accounting pronouncements which are or may be applicable to the Company's consolidated financial statements.
F-43
are incurred. The Issue is effective for the first reporting period in fiscal years beginning after December 15, 2005. The Company has determined that the Issue will not impact its accounting for mine stripping costs.
4. Pension and Other Postretirement Benefits
CF and its subsidiaries maintain noncontributory defined benefit pension plans. As a result of an amendment to CF's U.S. plan effective January 1, 2004, employees who began employment after December 31, 2003 are not eligible to participate in the plan.
The Company also provides group medical insurance to its retirees. Retirees in the U.S. are eligible to continue until age 65 the same Company subsidized medical coverage provided to active employees. After a participant becomes eligible for Medicare, generally at age 65, the offered coverage is a Medicare supplement and the participant pays the entire cost of the coverage. Retirees in Canada are eligible to continue until age 65 the same Company subsidized coverage in both the provincial health care plan and the supplemental medical plan provided to active employees. At age 65, the Company provided medical coverage ceases.
Net pension/retiree medical expense included the following components:
|
Pension Plans
Three Months Ended March 31, |
Retiree Medical
Three Months Ended March 31, |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2004
|
2005
|
2004
|
2005
|
||||||||
|
(in thousands)
|
|||||||||||
Service cost for benefits earned during the period | $ | 1,419 | $ | 1,969 | $ | 296 | $ | 254 | ||||
Interest cost on projected benefit obligation | 2,937 | 3,935 | 451 | 353 | ||||||||
Expected return on plan assets | (3,397 | ) | (4,783 | ) | | | ||||||
Amortization of transition obligation | (15 | ) | (11 | ) | 83 | 72 | ||||||
Amortization of prior service cost | 27 | 36 | | | ||||||||
Actuarial loss (gain) | 178 | 34 | 122 | 106 | ||||||||
|
|
|
|
|||||||||
Net expense | $ | 1,149 | $ | 1,180 | $ | 952 | $ | 785 | ||||
|
|
|
|
CF's estimated funding contribution to its U.S. pension plan in 2005 is $7.0 million. No funding contributions were made to the U.S. plan during the three months ended March 31, 2005.
In addition to qualified defined benefit pension plans, the Company also maintains nonqualified supplemental pension plans which are designed to restore participants' benefits under the qualified plans that are reduced by certain limiting provisions of the Internal Revenue Code and a closed plan in which no current employees are eligible to participate. The Company recognized expense for these plans of $93 thousand and $79 thousand for the three months ended March 31, 2004 and 2005, respectively.
F-44
5. Inventories
Inventories consist of the following:
|
December 31,
2004 |
March 31,
2005 |
||||
---|---|---|---|---|---|---|
|
(in thousands)
|
|||||
Fertilizer | $ | 188,291 | $ | 204,843 | ||
Spare parts, raw materials and supplies | 45,256 | 49,637 | ||||
|
|
|||||
$ | 233,547 | $ | 254,480 | |||
|
|
6. Derivative Financial Instruments
The Company uses natural gas in the manufacture of its nitrogen fertilizer products. Because natural gas prices are volatile, the Company's Natural Gas Acquisition Policy includes the objective of providing protection against significant adverse natural gas price movements. The Company manages the risk of changes in gas prices through the use of physical gas supply contracts and derivative financial instruments covering periods not exceeding 3 years. The derivative instruments currently used are swaps and futures. These contracts reference primarily NYMEX futures contract prices, which represent fair value at any given time. The contracts are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods.
The Company classifies a derivative financial instrument as a hedge if all of the following conditions are met: 1) the item to be hedged must expose the Company to commodity price risk, 2) it must be probable that the results of the hedge position substantially offset the effects of price changes on the hedged item (i.e., there is a high correlation between the hedge position and changes in market value of the hedged item) and 3) the derivative financial instrument must be designated as a hedge of the item at the inception of the hedge. The Company uses derivative instruments primarily to fix the natural gas price for product sold under its forward pricing program.
The Company designates, documents and assesses accounting for hedge relationships, which result primarily in cash flow hedges that require the Company to record the derivatives as assets and liabilities at their fair value on the balance sheet with an offset in other comprehensive income (OCI). The gain or loss of an effective cash flow hedge is deferred in OCI until the second month after the hedged natural gas is used to manufacture inventoried products, which approximates the period of inventory turns of upgraded products and the release of the cost of the hedged gas to cost of sales. Ineffective hedge gains and losses are recorded immediately in cost of sales.
Compared with spot gas prices, hedging activities decreased natural gas costs at the Company's Donaldsonville Nitrogen Complex by approximately $10.9 million for the three months ended March 31, 2004 and increased natural gas costs by approximately $10.8 million for the three months ended March 31, 2005. There was no ineffective gain or loss recognized for the three months ended March 31, 2004 and 2005. Cash flows related to natural gas hedges are reported as cash flows from operating activities.
The Company's natural gas requirements typically range from 100 million to 125 million MMBtus annually. At March 31, 2005, derivative positions were in place to cover approximately 19% of the
F-45
Company's anticipated natural gas requirements through December 2005. Open natural gas derivative contracts at December 31, 2004 and March 31, 2005 are summarized below.
|
December 31, 2004
|
March 31, 2005
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Contract
MMBtu |
Net Unrealized
Loss |
Contract
MMBtu |
Net Unrealized
Gain |
||||||
|
(Millions)
|
(Thousands)
|
(Millions)
|
(Thousands)
|
||||||
Swaps | 20.4 | $ | (14,077 | ) | 11.2 | $ | 10,300 | |||
Futures | 4.4 | (4,172 | ) | 1.6 | 1,248 | |||||
|
|
|
|
|||||||
24.8 | $ | (18,249 | ) | 12.8 | $ | 11,548 | ||||
|
|
Reconciliation of the unrealized gains and losses to amounts reported on the balance sheet at December 31, 2004 and March 31, 2005 are as follows:
|
December 31, 2004
|
March 31, 2005
|
||||||
---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
(in thousands)
|
||||||
Open positions: | ||||||||
Unrealized gains in other current assets | $ | 268 | $ | 11,656 | ||||
Unrealized losses in other current liabilities | (18,517 | ) | (108 | ) | ||||
|
|
|||||||
(18,249 | ) | 11,548 | ||||||
Plus: Closed positions for forward months settled in cash | (1,681 | ) | 1,663 | |||||
Plus: Closed positions from prior months in other current assets | 16,134 | (11,039 | ) | |||||
Less: Ineffective gain (loss) included in earnings | (259 | ) | | |||||
|
|
|||||||
Gross amount in accumulated other comprehensive income | (3,537 | ) | 2,172 | |||||
Less: Deferred income tax effect | (1,415 | ) | 869 | |||||
|
|
|||||||
Net amount in accumulated other comprehensive income (loss) | $ | (2,122 | ) | $ | 1,303 | |||
|
|
7. Other Comprehensive Income
Stockholders' equity includes accumulated other comprehensive income (loss), which consists of the following components:
|
Foreign
Currency Translation Adjustment |
Unrealized
Gain (Loss) on Derivatives |
Minimum
Pension Liability Adjustment |
Accumulated
Other Comprehensive Income (Loss) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
||||||||||||
Balance at December 31, 2004 | $ | (3,731 | ) | $ | (2,122 | ) | $ | (6,503 | ) | $ | (12,356 | ) | |
Net change | 88 | 3,425 | | 3,513 | |||||||||
|
|
|
|
||||||||||
Balance at March 31, 2005 | $ | (3,643 | ) | $ | 1,303 | $ | (6,503 | ) | $ | (8,843 | ) | ||
|
|
|
|
The unrealized gain or loss on derivatives is related to natural gas hedges. As described in Note 6, these amounts are reclassified into earnings as the product ultimately manufactured with the hedged gas is sold. The amount shown as net change in OCI is the net change associated with current period hedging transactions.
F-46
8. Litigation and Contingencies
The Company from time to time is subject to ordinary, routine legal proceedings related to the usual conduct of its business. The Company also is involved in proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of its various plants and facilities. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.
9. Segment Disclosures
The Company is organized and managed internally based on two segments, which are differentiated primarily by their products, the markets they serve and the regulatory environments in which they operate. The two segments are the nitrogen and phosphate fertilizer businesses.
Segment data for sales, cost of sales and gross margin for the three months ended March 31, 2004 and 2005, and assets at December 31, 2004 and March 31, 2005, are as follows. Other assets include amounts attributable to the corporate headquarters and unallocated corporate assets.
|
Nitrogen
|
Phosphate
|
Other
|
Consolidated
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in thousands)
|
|||||||||||||
Operating Results | ||||||||||||||
Three Months Ended March 31, 2004 (Restated) | ||||||||||||||
Net sales | ||||||||||||||
Anhydrous ammonia | $ | 56,446 | $ | | $ | | $ | 56,446 | ||||||
Granular urea | 121,538 | | | 121,538 | ||||||||||
UAN solutions | 72,281 | | | 72,281 | ||||||||||
DAP | | 62,172 | | 62,172 | ||||||||||
MAP | | 11,619 | | 11,619 | ||||||||||
Other | 570 | 38 | | 608 | ||||||||||
|
|
|
|
|||||||||||
250,835 | 73,829 | | 324,664 | |||||||||||
Cost of sales | 214,976 | 73,826 | | 288,802 | ||||||||||
|
|
|
|
|||||||||||
Gross margin | $ | 35,859 | $ | 3 | $ | | $ | 35,862 | ||||||
Three Months Ended March 31, 2005 | ||||||||||||||
Net sales | ||||||||||||||
Anhydrous ammonia | $ | 88,855 | $ | | $ | | $ | 88,855 | ||||||
Granular urea | 176,589 | | | 176,589 | ||||||||||
UAN solutions | 91,453 | | | 91,453 | ||||||||||
DAP | | 80,789 | | 80,789 | ||||||||||
MAP | | 21,265 | | 21,265 | ||||||||||
Other | 378 | | | 378 | ||||||||||
|
|
|
|
|||||||||||
357,275 | 102,054 | | 459,329 | |||||||||||
Cost of sales | 310,516 | 93,537 | | 404,053 | ||||||||||
|
|
|
|
|||||||||||
Gross margin | $ | 46,759 | $ | 8,517 | $ | | $ | 55,276 | ||||||
Assets | ||||||||||||||
December 31, 2004 | $ | 530,604 | $ | 414,419 | $ | 601,948 | $ | 1,546,971 | ||||||
March 31, 2005 | $ | 516,825 | $ | 407,830 | $ | 652,267 | $ | 1,576,922 |
F-47
10. Subsequent Events
CFL distributes all of its earnings from the sale of fertilizer as patronage dividends to its customers for fertilizer, including the Company. For Canadian income tax purposes CFL is permitted to deduct an amount equal to the patronage dividends it paid to its customers, provided that certain Canadian income tax requirements are met. While CFL is not currently under audit by the Canadian tax authorities, CFL has recently received a preliminary inquiry from the CRA which questions whether CFL's past patronage distributions have met the requirements for full deductibility under Canadian income tax law. The past years that would be affected by this inquiry are 2002, 2003 and 2004. While CFL believes its allocation method complied with applicable law, CFL could be subject to Canadian income tax liabilities (exclusive of interest and penalties) for 2002, 2003 and 2004 of $5.8 million, $7.6 million and $24.7 million, respectively, and additional material Canadian income tax liabilities for future periods if its allocation method were determined to fail to meet the requirements for deductibility under Canadian tax law. The Company has a 66% economic interest in CFL.
On July 15, 2005, the Company sold its interest in CF Martin Sulphur, L.P. to the other joint venture partner, an affiliate of Martin Resource Management, for $18.6 million. The transaction is not expected to have a material impact on the Company's consolidated statement of operations, as the selling price approximated the carrying value of the Company's investment in CF Martin Sulphur, L.P. Concurrent with the sale, the Company entered into a multi-year sulfur supply contract with CF Martin Sulphur, L.P.
F-48
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered. All amounts, except the SEC registration fee, the NASD filing fee, and the New York Stock Exchange listing fee, are estimates.
SEC registration fee | $ | 82,390 | |
NASD filing fee | 70,500 | ||
NYSE listing fee and expenses | * | ||
Printing and engraving expenses | * | ||
Legal fees and expenses | * | ||
Accounting fees and expenses | * | ||
Transfer agent and registrar fees and expenses | * | ||
Directors and officers insurance premiums | * | ||
Miscellaneous fees and expenses | * | ||
|
|||
Total | $ | * | |
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of the State of Delaware (the "DGCL") allows a corporation to eliminate the personal liability of directors to a corporation or its stockholders for monetary damages for a breach of a fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase or redemption in violation of Delaware corporate law or obtained an improper personal benefit.
Section 145 of the DGCL empowers a Delaware 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 (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner such person 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 such person's conduct was unlawful. A Delaware corporation may indemnify directors, officers, employees and other agents of such corporation in an action by or in the right of a corporation under the same conditions against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense and settlement of such action or suit, except that no indemnification is permitted without judicial approval if the person to be indemnified has been adjudged to be liable to the corporation. Where a present or former director or officer of the corporation is successful on the merits or otherwise in the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the
II-1
expenses (including attorneys' fees) which he or she actually and reasonably incurred in connection therewith.
Section 174 of the DGCL provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered into the books containing the minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.
The registrant's Amended and Restated Certificate of Incorporation contains provisions that provide for indemnification of officers and directors and their heirs and representatives to the full extent permitted by, and in the manner permissible under, the DGCL.
As permitted by Section 102(b)(7) of the DGCL, the registrant's Amended and Restated Certificate of Incorporation contains a provision eliminating the personal liability of a director to the registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, subject to some exceptions.
The registrant maintains, at its expense, a policy of insurance which insures its directors and officers, subject to exclusions and deductions as are usual in these kinds of insurance policies, against specified liabilities which may be incurred in those capacities.
Pursuant to the underwriting agreement, in the form filed as an exhibit to this registration statement, the underwriters will agree to indemnify directors and our officers and persons controlling us, within the meaning of the Securities Act against certain liabilities that might arise out of or are based upon certain information furnished to us by any such underwriter.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders
CF Industries, Inc.:
Under date of May 13, 2005, we reported on the consolidated balance sheets of CF Industries, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004, which are included in the prospectus. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/
KPMG LLP
Chicago, Illinois
May 13, 2005
II-2
(b) Financial Statement Schedule
Valuation and Qualifying AccountsYear 2002
(000s)
|
Beginning
Balance |
Charged to Costs
and Expenses |
Charged to
Other Accounts |
Deductions
Amt |
Description
|
Ending
Balance |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts Receivable | ||||||||||||||||||
Allowance for Bad Debts | $ | 889 | $ | 11 | $ | 0 | $ | (265 | ) | Accounts not collectible | $ | 635 |
Valuation and Qualifying AccountsYear 2003
(000s)
|
Beginning
Balance |
Charged to Costs
and Expenses |
Charged to
Other Accounts |
Deductions
Amt |
Description
|
Ending
Balance |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts Receivable | ||||||||||||||||||
Allowance for Bad Debts | $ | 635 | $ | 25 | $ | 0 | $ | (100 | ) | Accounts not collectible | $ | 560 |
Valuation and Qualifying AccountsYear 2004
(000s)
|
Beginning
Balance |
Charged to Costs
and Expenses |
Charged to
Other Accounts |
Deductions
Amt |
Description
|
Ending
Balance |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts Receivable | ||||||||||||||||||
Allowance for Bad Debts | $ | 560 | $ | 143 | $ | 0 | $ | (169 | ) | Accounts not collectible | $ | 534 |
See Accompanying Report of Independent Registered Public Accounting Firm.
II-3
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
|
Exhibit No.
|
Description
|
|
---|---|---|---|
1.1 | Form of Underwriting Agreement* | ||
2.1 | Agreement and Plan of Merger dated as of , 2005, by and among CF Industries Holdings, Inc., CF Merger Corp. and CF Industries, Inc.* | ||
3.1 | Form of Amended and Restated Certificate of Incorporation* | ||
3.2 | Form of Amended and Restated By-laws | ||
4.1 | Specimen common stock certificate | ||
4.2 | Rights Agreement, dated as of , 2005, between the Registrant and The Bank of New York, as the Rights Agent* | ||
4.3 | Form of Registration Rights Agreement* | ||
5.1 | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP* | ||
10.1 | Multiple Year Contract for the Purchase and Sale of Fertilizer by and between CF Industries, Inc. and Agriliance, LLC dated as of June 20, 2005** | ||
10.2 | Multiple Year Contract for the Purchase and Sale of Fertilizer by and between CF Industries, Inc. and GROWMARK, Inc. dated as of June 20, 2005** | ||
10.3 | Multiple Year Contract for the Purchase and Sale of Fertilizer by and between CF Industries, Inc. and Southern States Cooperative, Incorporated dated as of June 20, 2005** | ||
10.4 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Stephen R. Wilson | ||
10.5 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Ernest Thomas | ||
10.6 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Douglas C. Barnard | ||
10.7 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Stephen G. Chase | ||
10.8 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Philipp P. Koch | ||
10.9 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Monty R. Summa | ||
10.10 | Form of Indemnification Agreement with Officers and Directors | ||
21.1 | Subsidiaries of Registrant | ||
23.1 | Consent of KPMG LLP, independent registered public accounting firm | ||
23.2 | Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1)* | ||
23.3 | Consent of John T. Boyd Company*** | ||
24.1 | Power of Attorney (included on signature page)*** | ||
99.1 | Consent of Director Nominee (Robert C. Arzbaecher)*** | ||
99.2 | Consent of Director Nominee (Wallace W. Creek)*** | ||
99.3 | Consent of Director Nominee (David R. Harvey) | ||
99.4 | Consent of Director Nominee (Edward A. Schmitt) |
II-4
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Long Grove, State of Illinois, on July 19, 2005.
CF INDUSTRIES HOLDINGS, INC. | ||||
|
|
By: |
|
/s/ STEPHEN R. WILSON Name: Stephen R. Wilson Title: 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 indicated on July 19, 2005.
Signature
|
Title
|
|
||
---|---|---|---|---|
|
|
|
|
|
/s/
STEPHEN R. WILSON
Stephen R. Wilson |
President and Chief Executive Officer, Director
(Principal Executive Officer) |
|||
/s/ ERNEST THOMAS Ernest Thomas |
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
|
|
/s/ ROBERT D. WEBB Robert D. Webb |
|
Vice President and Corporate Controller (Principal Accounting Officer) |
|
|
|
Exhibit No.
|
Description
|
|
---|---|---|---|
1.1 | Form of Underwriting Agreement* | ||
2.1 | Agreement and Plan of Merger dated as of , 2005, by and among CF Industries Holdings, Inc., CF Merger Corp. and CF Industries, Inc.* | ||
3.1 | Form of Amended and Restated Certificate of Incorporation* | ||
3.2 | Form of Amended and Restated By-laws | ||
4.1 | Specimen common stock certificate | ||
4.2 | Rights Agreement, dated as of , 2005, between the Registrant and The Bank of New York, as the Rights Agent* | ||
4.3 | Form of Registration Rights Agreement* | ||
5.1 | Opinion of Skadden, Arps, Slate, Meagher & Flom LLP* | ||
10.1 | Multiple Year Contract for the Purchase and Sale of Fertilizer by and between CF Industries, Inc. and Agriliance, LLC dated as of June 20, 2005** | ||
10.2 | Multiple Year Contract for the Purchase and Sale of Fertilizer by and between CF Industries, Inc. and GROWMARK, Inc. dated as of June 20, 2005** | ||
10.3 | Multiple Year Contract for the Purchase and Sale of Fertilizer by and between CF Industries, Inc. and Southern States Cooperative, Incorporated dated as of June 20, 2005** | ||
10.4 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Stephen R. Wilson | ||
10.5 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Ernest Thomas | ||
10.6 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Douglas C. Barnard | ||
10.7 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Stephen G. Chase | ||
10.8 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Philipp P. Koch | ||
10.9 | Change in Control Severance Agreement, effective as of April 29, 2005, by and among CF Industries, Inc., CF Industries Holdings, Inc. and Monty R. Summa | ||
10.10 | Form of Indemnification Agreement with Officers and Directors | ||
21.1 | Subsidiaries of Registrant | ||
23.1 | Consent of KPMG LLP, independent registered public accounting firm | ||
23.2 | Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1)* | ||
23.3 | Consent of John T. Boyd Company*** | ||
24.1 | Power of Attorney (included on signature page)*** | ||
99.1 | Consent of Director Nominee (Robert C. Arzbaecher)*** | ||
99.2 | Consent of Director Nominee (Wallace W. Creek)*** | ||
99.3 | Consent of Director Nominee (David R. Harvey) | ||
99.4 | Consent of Director Nominee (Edward A. Schmitt) |
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
CF INDUSTRIES HOLDINGS, INC.
A Delaware Corporation
Effective [ ], 2005
|
|
Page
|
||
---|---|---|---|---|
ARTICLE I OFFICES | 1 | |||
Section 1. | Registered Office | 1 | ||
Section 2. | Other Offices | 1 | ||
ARTICLE II MEETINGS OF STOCKHOLDERS | 1 | |||
Section 1. | Place of Meetings | 1 | ||
Section 2. | Annual Meetings | 1 | ||
Section 3. | Special Meetings | 2 | ||
Section 4. | Nature of Business at Meetings of Stockholders | 2 | ||
Section 5. | Nomination of Directors | 4 | ||
Section 6. | Notice | 7 | ||
Section 7. | Adjournments | 7 | ||
Section 8. | Quorum | 7 | ||
Section 9. | Voting | 8 | ||
Section 10. | Proxies | 8 | ||
Section 11. | List of Stockholders Entitled to Vote | 10 | ||
Section 12. | Record Date | 10 | ||
Section 13. | Stock Ledger | 11 | ||
Section 14. | Conduct of Meetings | 11 | ||
Section 15. | Inspectors of Election | 12 | ||
ARTICLE III DIRECTORS | 13 | |||
Section 1. | Number and Election of Directors | 13 | ||
Section 2. | Vacancies | 14 | ||
Section 3. | Duties and Powers | 14 | ||
Section 4. | Meetings | 14 | ||
Section 5. | Organization | 15 | ||
Section 6. | Resignations and Removals of Directors | 15 | ||
Section 7. | Quorum | 16 | ||
Section 8. | Actions of the Board by Written Consent | 16 | ||
Section 9. | Meetings by Means of Conference Telephone | 17 | ||
Section 10. | Committees | 17 | ||
Section 11. | Compensation | 18 | ||
Section 12. | Interested Directors | 18 | ||
ARTICLE IV OFFICERS | 19 | |||
Section 1. | General | 19 | ||
Section 2. | Election | 19 | ||
Section 3. | Voting Securities Owned by the Corporation | 20 | ||
Section 4. | Chairman of the Board of Directors | 20 | ||
Section 5. | President | 21 |
i
Section 6. | Chief Financial Officer | 22 | ||
Section 7. | Vice Presidents | 22 | ||
Section 8. | Secretary | 22 | ||
Section 9. | Treasurer | 23 | ||
Section 10. | Assistant Secretaries | 24 | ||
Section 11. | Assistant Treasurers | 24 | ||
Section 12. | Other Officers | 25 | ||
ARTICLE V STOCK | 25 | |||
Section 1. | Form of Certificates | 25 | ||
Section 2. | Signatures | 26 | ||
Section 3. | Lost Certificates | 26 | ||
Section 4. | Transfers | 26 | ||
Section 5. | Dividend Record Date | 27 | ||
Section 6. | Record Owners | 27 | ||
Section 7. | Transfer and Registry Agents | 28 | ||
ARTICLE VI NOTICES | 28 | |||
Section 1. | Notices | 28 | ||
Section 2. | Waivers of Notice | 28 | ||
ARTICLE VII GENERAL PROVISIONS | 29 | |||
Section 1. | Dividends | 29 | ||
Section 2. | Disbursements | 30 | ||
Section 3. | Fiscal Year | 30 | ||
Section 4. | Corporate Seal | 30 | ||
ARTICLE VIII INDEMNIFICATION | 30 | |||
Section 1. | Power to Indemnify in Actions, Suits or Proceedings other than those by or in the Right of the Corporation | 30 | ||
Section 2. | Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation | 31 | ||
Section 3. | Authorization of Indemnification | 32 | ||
Section 4. | Good Faith Defined | 33 | ||
Section 5. | Indemnification by a Court | 33 | ||
Section 6. | Expenses Payable in Advance | 34 | ||
Section 7. | Nonexclusivity of Indemnification and Advancement of Expenses | 35 | ||
Section 8. | Insurance | 35 | ||
Section 9. | Certain Definitions | 36 | ||
Section 10. | Survival of Indemnification and Advancement of Expenses | 37 | ||
Section 11. | Limitation on Indemnification | 37 | ||
Section 12. | Indemnification of Employees and Agents | 37 | ||
ARTICLE IX AMENDMENTS | 38 | |||
Section 1. | Amendments | 38 | ||
Section 2. | Entire Board of Directors | 38 |
ii
BY-LAWS
OF
CF INDUSTRIES HOLDINGS, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices . The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings . Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors.
Section 2. Annual Meetings . The Annual Meeting of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the Annual Meeting of Stockholders.
Section 3. Special Meetings . Unless otherwise required by law, Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Chairman of the Board of Directors, if there be one, (ii) the President or (iii) the Board of Directors. The ability of the stockholders to call a Special Meeting of Stockholders is hereby specifically denied. At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto).
Section 4. Nature of Business at Meetings of Stockholders . No business may be transacted at an Annual Meeting of Stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 4 and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting and (ii) who complies with the notice procedures set forth in this Section 4.
In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
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To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided , however , that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting.
No business shall be conducted at the Annual Meeting of Stockholders except business brought before the Annual Meeting in accordance with the procedures set
3
forth in this Section 4; provided, however, that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 4 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. No business shall be conducted at a special meeting of stockholders except for such business as shall have been brought before the meeting pursuant to the Corporation's notice of meeting.
Section 5. Nomination of Directors . Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any Annual Meeting of Stockholders, or at any Special Meeting of Stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 5 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 5.
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In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an Annual Meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided , however , that in the event that the Annual Meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs; and (b) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by
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the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 5. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
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Section 6. Notice . Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting and, in the case of a Special Meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, written notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to notice of and to vote at such meeting.
Section 7. Adjournments . Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the requirements of Section 6 hereof shall be given to each stockholder of record entitled to notice of and to vote at the meeting.
Section 8. Quorum . Unless otherwise required by applicable law or the Certificate of Incorporation, the holders of a majority of the Corporation's capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present
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or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 7 hereof, until a quorum shall be present or represented.
Section 9. Voting . Unless otherwise required by law, the Certificate of Incorporation or these By-Laws, any question brought before any meeting of the stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the Corporation's capital stock represented and entitled to vote thereat, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, and subject to Section 12 of this Article II, each stockholder represented at a meeting of the stockholders shall be entitled to cast one (1) vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy as provided in Section 10 of this Article II. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of the stockholders, in such officer's discretion, may require that any votes cast at such meeting shall be cast by written ballot.
Section 10. Proxies . Each stockholder entitled to vote at a meeting of the stockholders may authorize another person or persons to act for such stockholder as proxy, but no such proxy shall be voted upon after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:
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(i) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder's authorized officer, director, employee or agent signing such writing or causing such person's signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram or cablegram to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such telegram or cablegram, provided that any such telegram or cablegram must either set forth or be submitted with information from which it can be determined that the telegram or cablegram was authorized by the stockholder. If it is determined that such telegrams or cablegrams are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information on which they relied.
Any copy, facsimile telecommunication or other reliable reproduction of the writing, telegram or cablegram authorizing another person or persons to act as proxy for a stockholder may be substituted or used in lieu of the original writing, telegram or cablegram for any and all purposes for which the original writing, telegram or cablegram
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could be used; provided, however, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing, telegram or cablegram.
Section 11. List of Stockholders Entitled to Vote . The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting (i) either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held or (ii) during ordinary business hours, at the principal place of business of the Corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 12. Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the
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Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of the stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 13. Stock Ledger . The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 11 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders.
Section 14. Conduct of Meetings . The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of any meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting;
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(iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.
Section 15. Inspectors of Election . In advance of any meeting of the stockholders, the Board of Directors, by resolution, the Chairman, if there be one, or the President shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector's ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law.
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ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors . The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors. The term of the initial Class I directors shall terminate on the date of the 2006 Annual Meeting; the term of the initial Class II directors shall terminate on the date of the 2007 Annual Meeting; and the term of the initial Class III directors shall terminate on the date of the 2008 Annual Meeting or, in each case, upon such director's earlier death, resignation or removal. At each succeeding Annual Meeting of Stockholders beginning in 2006, successors to the class of directors whose term expires at that Annual Meeting shall be elected for a three-year term and until their successors are duly elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class or from the removal from office, death, disability, resignation or disqualification of a director or other cause shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors have the effect of removing or shortening the term of any incumbent director. Except as provided in Section 2 of this Article III,
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directors shall be elected by a plurality of the votes cast at each Annual Meeting of Stockholders and each director so elected shall hold office until such director's term expires and until such director's successor is duly elected and qualified, or until such director's earlier death, resignation or removal. Directors need not be stockholders.
Section 2. Vacancies . Any vacancy on the Board of Directors that results from an increase in the number of directors may only be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors may only be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.
Section 3. Duties and Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders.
Section 4. Meetings . The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may
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from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, or the President. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, telegram or electronic means on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.
Section 5. Organization . At each meeting of the Board of Directors, the Chairman of the Board of Directors or, in the Chairman's absence or if there be none, a director chosen by a majority of the directors present, shall act as chairman. The Secretary of the Corporation shall act as secretary at each meeting of the Board of Directors. In case the Secretary shall be absent from any meeting of the Board of Directors, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the chairman of the meeting may appoint any person to act as secretary of the meeting.
Section 6. Resignations and Removals of Directors . Any director of the Corporation may resign at any time, by giving notice in writing or by electronic transmission to the Chairman of the Board of Directors, if there be one, the President or the Secretary of the Corporation. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective.
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Except as otherwise required by applicable law and subject to the rights, if any, of the holders of shares of preferred stock then outstanding, any director or the entire Board of Directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the voting power of the Corporation's then issued and outstanding capital stock entitled to vote generally at an election of directors of the Corporation.
Section 7. Quorum . Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.
Section 8. Actions of the Board by Written Consent . Unless otherwise provided in the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing
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shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 9. Meetings by Means of Conference Telephone . Unless otherwise provided in the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 9 shall constitute presence in person at such meeting.
Section 10. Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may
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authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required.
Section 11. Compensation . The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary for service as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for service as committee members.
Section 12. Interested Directors . No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such director's or officer's vote is counted for such purpose if: (i) the material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less
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than a quorum; or (ii) the material facts as to the director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General . The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Chief Executive Officer, a Chief Financial Officer, a Secretary and a Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.
Section 2. Election . The Board of Directors, at its first meeting held after each Annual Meeting of Stockholders, shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform
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such duties as shall be determined from time to time by the Board of Directors; and each officer of the Corporation shall hold office until such officer's successor is elected and qualified, or until such officer's earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation . Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors . The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to
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sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors.
Section 5. President . The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall be the Chief Executive Officer of the Corporation, unless the Board of Directors designates the Chairman as the Chief Executive Officer. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and, provided the President is also a director, the Board of Directors. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors.
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Section 6. Chief Financial Officer . The Chief Financial Officer, if there be one, shall, subject to the control of the Board of Directors, the Chairman of the Board of Directors, if there be one, and the President have the responsibility for the financial affairs of the Corporation and shall exercise supervisory responsibility for the performance of the duties of the Treasurer and the controller, if any, of the Corporation. The Chief Financial Officer shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors.
Section 7. Vice Presidents . At the request of the President or in the President's absence or in the event of the President's inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there are more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
Section 8. Secretary . The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings
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thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors, if there be one, or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer's signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.
Section 9. Treasurer . The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall
23
disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer's possession or under the Treasurer's control belonging to the Corporation.
Section 10. Assistant Secretaries . Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
Section 11. Assistant Treasurers . Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have
24
all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer's possession or under the Assistant Treasurer's control belonging to the Corporation.
Section 12. Other Officers . Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers and to prescribe their respective duties and powers in accordance with these By-laws.
ARTICLE V
STOCK
Section 1. Form of Certificates . Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation (i) by the Chairman of the Board of Directors, if there be one, or the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation.
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Section 2. Signatures . Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates . The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or such owner's legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.
Section 4. Transfers . Stock of the Corporation shall be transferable in the manner prescribed by applicable law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, properly endorsed for transfer and payment of all necessary transfer
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taxes; provided, however, that such surrender and endorsement or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Cancelled," with the date of cancellation, by the Secretary or Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.
Section 5. Dividend Record Date . In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 6. Record Owners . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to
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recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
Section 7. Transfer and Registry Agents . The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors.
ARTICLE VI
NOTICES
Section 1. Notices . Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex, cable or, where permitted herein, by means of electronic transmission.
Section 2. Waivers of Notice . Whenever any notice is required by applicable law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to notice, or, where permitted herein, a waiver by electronic transmission by the person or persons entitled to notice, whether before or after the time
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stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any Annual or Special Meeting of Stockholders or any regular or special meeting of the directors or members of a committee of directors need be specified in any written waiver of notice unless so required by law, the Certificate of Incorporation or these By-Laws.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends . Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 8 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation's capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing
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dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements . All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal . The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other than those by or in the Right of the Corporation . Subject to Section 3 of this Article VIII, the Corporation shall 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 (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys'
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fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person 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 such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person 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 reasonable cause to believe that such person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation . Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests
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of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification . Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding
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described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
Section 4. Good Faith Defined . For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court . Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may
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apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Section 1 or Section 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance . Expenses (including attorneys' fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses (including attorneys' fees)
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incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Section 1 and Section 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or Section 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise.
Section 8. Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.
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Section 9. Certain Definitions . For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. The term "another enterprise" as used in this Article VIII shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this Article VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and
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beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 11. Limitation on Indemnification . Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 of this Article VIII), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents . The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.
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ARTICLE IX
AMENDMENTS
Section 1. Amendments . In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporation's By-Laws. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter, change or repeal the Corporation's By-Laws. The Corporation's By-Laws also may be adopted, amended, altered, changed or repealed by the affirmative vote of the holders of at least two-thirds of the voting power of the Corporation's then issued and outstanding capital stock entitled to vote generally at an election of directors of the Corporation.
Section 2. Entire Board of Directors . As used in this Article IX and in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies.
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Adopted as of: |
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Last Amended as of: |
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NUMBER | SHARES | |
CF | ||
CF INDUSTRIES HOLDINGS, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE |
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CUSIP 125269 10 0 SEE REVERSE FOR CERTAIN DEFINITIONS |
This certifies that: |
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is the registered holder of |
SPECIMEN |
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FULLY PAID AND NON-ASSESABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF CF INDUSTRIES HOLDINGS, INC.
transferable
only on the books of the Corporation by the said holder in person or by Attorney, upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
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COUNTERSIGNED AND REGISTERED: THE BANK OF NEW YORK |
TRANSFER AGENT AND REGISTRAR | ||
AUTHORIZED SIGNATURE |
[Seal of CF Industries Holdings, Inc.] | ||||||
VICE PRESIDENT, GENERAL COUNSEL, AND SECRETARY |
PRESIDENT AND CHIEF EXECUTIVE OFFICER |
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS, A COPY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM | - | as tenants in common | UNIF GIFT MIN ACT- | Custodian | ||||||||
TEN ENT | - | as tenants by the entireties | (Cust) | (Minor) | ||||||||
JT TEN | - | as joint tenants with right | under Uniform Transfers to Minors | |||||||||
of survivorship and not as
tenants in common |
Act
(State) |
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
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(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) |
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shares |
of the common stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint |
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Attorney |
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises. |
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Dated |
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X |
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. |
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SIGNATURE(S) GUARANTEED: |
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THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. |
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KEEP THIS STOCK CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between CF Industries Holdings, Inc. (the "Company") and the Rights Agent thereunder (the "Rights Agent") as from time to time amended (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge, promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void.
***** PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMISSIONS HAVE BEEN INDICATED BY ASTERISKS ("*****"), AND THE OMITTED TEXT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MULTIPLE YEAR CONTRACT
FOR THE
PURCHASE AND SALE OF FERTILIZER
THIS AGREEMENT is made and entered into as of this 1st day of July, 2005 by and between CF INDUSTRIES, INC., a Delaware corporation, having its principal place of business at One Salem Lake Drive, Long Grove, Illinois 60047 (hereinafter referred to as "Supplier") and AGRILIANCE, LLC, a Delaware limited liability company, having its principal place of business at 5500 Cenex Drive, Inver Grove Heights, Minnesota 55075 (hereinafter referred to as "Customer").
WHEREAS, Supplier is engaged in selling ammonia, UAN solution (as 28% equivalent), urea, DAP and MAP ("Product");
WHEREAS, Customer desires to purchase, and Supplier desires to sell, Product in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained Customer and Supplier hereby agree as follows:
1. Purchase and Sale Commitment.
(a) Customer shall purchase and Supplier shall sell the Requirement Volume of Product set forth below during the initial Contract Year (as hereinafter defined) of this Agreement:
Product
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Requirement Volume
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Sales Target Volume
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Ammonia | ***** S.T. | ***** S.T. | ||
UAN Solution
(as 28% equivalent) |
***** S.T. | ***** S.T. | ||
Urea | ***** S.T. | ***** S.T. | ||
DAP | ***** S.T. | ***** S.T. | ||
MAP | ***** S.T. | ***** S.T. |
The Requirement Volume for each subsequent Contract Year shall be set forth in a notice from Customer to Supplier delivered on or before the first day of June preceding a Contract Year and, for each Product, shall be not less than sixty-five percent (65%) nor more than one-hundred percent (100%) of the Sales Target Volume for such Product for such Contract Year.
(b) Customer also intends, but shall not be obligated, to purchase and Supplier also intends, but shall not be obligated, to sell for each Product an additional volume (the "Additional Volume") equal to the Sales Target Volume less the Requirement Volume. The Sales Target Volume for the initial Contract Year is set forth in Section 1(a) of this Agreement. The Sales Target Volume for each Product for each subsequent Contract Year shall be set by mutual agreement of the parties on or before the first day of May preceding a Contract Year and, in the absence of such mutual agreement on or before the first day of May, shall be set by Supplier for each Product in a notice to Customer and shall be not more than one hundred percent (100%) nor less than ninety-five percent (95%) of the Sales Target Volume for such Product set at the beginning of the preceding Contract Year (i.e., unadjusted by any change pursuant to Section 1(c), Section 1(d), Section 1(f), Section 1(g) or Section 15(c) of this Agreement).
(c) In the event Customer receives a bona fide offer from a third party during any Contract Year, which offer (i) provides for the sale of Product to Customer, (ii) Customer desires to accept and (iii) may impact Customer's ability or willingness to purchase the Sales Target Volume, Customer shall notify Supplier (the "Third Party Purchase Notice") of the volume of Product it intends to purchase, the terms and conditions of such purchase and the date and time by which Supplier must respond to such Third Party Purchase Notice. Supplier shall have until the time and date set forth in such Third Party Purchase Notice to agree to sell the specified volume of Product to Customer on the terms and conditions set forth in the Third Party Purchase Notice. If Supplier fails to respond to the Third Party Purchase Notice within the time specified, or if Supplier declines to sell the specified volume of Product to Customer, Customer may purchase the specified volume of Product from such third party on the terms and conditions set forth in the Third Party Purchase Notice and the Sales Target Volume shall be reduced by an amount equal to the volume of Product so purchased by Customer (provided, however, that the Sales Target Volume shall not be reduced below the Requirement Volume).
(d) In the event Supplier receives a bona fide offer from a third party during any Contract Year, which offer (i) provides for the purchase of Product from Supplier, (ii) Supplier desires to accept and (iii) may impact Supplier's ability or willingness to supply the Sales Target Volume, Supplier shall notify Customer (the "Third Party Sale Notice") of the volume of Product it intends to sell, the terms and conditions of such sale and the date and time by which Customer must respond to such Third Party Sale Notice. Customer shall have until the time and date set forth in such Third Party Sale Notice to agree to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Third Party Sale Notice. If Customer fails to respond to the Third Party Sale Notice within the time specified, or if Customer declines to purchase the specified volume of Product from Supplier, Supplier shall be free to sell the specified volume of Product to such third party on the terms and conditions set forth in the Third Party Sale Notice and the Sales Target Volume shall be reduced by an amount equal to the volume of Product so sold by Supplier (provided, however, that the Sales Target Volume shall not be reduced below the Requirement Volume).
(e) Notwithstanding the provision of Section 17(b) of this Agreement, the Third Party Purchase Notice and the Third Party Sale Notice shall, as the case may be, be
delivered to the following individuals based upon the volume of Product which is the subject of the notice:
Volume
|
Supplier
|
Customer
|
||
---|---|---|---|---|
*****-***** S.T. | Product Sales Representative, Product Sales Manager and Director, Product Sales | Supply Manager | ||
> ***** S.T. |
|
Product Sales Representative, Product Sales Manager and Director, Product Sales |
|
Supply Manager, Director, Crop Nutrient Marketing, Director, Crop Nutrient Supply and Vice President of Supply and Logistics |
The Third Party Purchase Notice and the Third Party Sale Notice, again notwithstanding the provisions of Section 17(b) of this Agreement, may be sent by email provided the sender has been notified of the recipient's email address.
(f) Without limiting Supplier's obligations under Section 1(d) of this Agreement, in the event that, at any time during a Contract Year, Supplier reduces the volume of Product available for sale and such action may impact Supplier's ability to supply the Sales Target Volume, Supplier may reduce the Sales Target Volume for such Contract Year (but not below the Requirement Volume) by delivering notice to Customer advising Customer of such reduction in the Sales Target Volume.
(g) Supplier shall not be obligated to accept any order for Product if, at the time Customer orders such Product, the cumulative volume of such Product ordered by Customer is in excess of the volume set forth in the Take Pattern (as hereinafter defined). If, after accepting an order from Customer, Supplier determines that Supplier cannot supply the Product which has been ordered in accordance with the Take Pattern, Supplier shall promptly notify Customer (the "Order Modification") of the revised manner and date the Product will be supplied. Customer shall then have the option, exercisable by delivering notice to Supplier on or before 5:00 p.m. Central Time on the second business day following delivery of the Order Modification, of either (i) terminating the order without obligation for payment (in which case the volume of Product ordered shall reduce the Requirement Volume and the Sales Target Volume and shall be included in the Overall Annual Tonnage for purposes of calculating any incentive payment under Performance Incentive No. 5) and, at Customer's option, purchasing the Product ordered from a third party at a commercially reasonable price or (ii) accepting the changes set forth in the Order Modification. In the event Customer fails to notify Supplier of its election on or before 5:00 p.m. Central Time on the second business day following delivery of an Order Modification, Customer shall be deemed to have accepted the changes set forth in the Order Modification.
2. Price. Product purchased by Customer under this Agreement, except to the extent purchased under Section 1(c) or Section 1(d) of this Agreement, shall be purchased either as (i) a Cash Sale, (ii) an Index Sale, (iii) a Forward Pricing Sale or (iv) a Negotiated Sale (each of which "Sales" is hereinafter defined). Customer shall notify Supplier with each order for Product whether it will purchase Product as a Cash Sale, an Index Sale, a Forward Pricing Sale or a Negotiated Sale and the Delivery Terms (as hereinafter defined) subject, at all times, to the Take Pattern. In the absence of an election by Customer of the type of "Sale" applicable to a specific Product purchase, such purchase shall be deemed to be a Cash Sale. In the absence of an election by Customer of the Delivery Terms applicable to a specific Product purchase as set forth in Section 8 of this Agreement, such purchase shall be deemed to be on an FOB (Customer pays freight) basis.
Supplier covenants with Customer (which covenant is intended to be for the sole benefit of Customer) that the price published by Supplier (excluding prices published for turf sales and nonagricultural sales) at any specific time during the term of this Agreement for Cash Sales, Index Sales and Forward Pricing Sales shall be the same for all customers. The price published by Supplier for any Product may be changed from time to time by Supplier. The foregoing covenant shall not be deemed violated by spot sales or negotiated sales which sales, at times, may include incentives.
Supplier further covenants with Customer that, in the event Supplier has entered into an agreement for a negotiated sale of Product (i) at a price (before applicable incentives) which is less than the price published by Supplier for such Product by at least $***** per short ton under any "Sale" type available at the time of the negotiated sale and having the same mode of transport, the same source of supply as is available to Customer according to the Take Pattern and the same market of delivery and (ii) which is for a volume of ***** or more short tons, Supplier shall notify Customer (the "Negotiated Sale Notice") of the price, volume and other terms and conditions of such sale and the date and time by which Customer must respond to such Negotiated Sale Notice. Customer shall have until the time and date set forth in the Negotiated Sale Notice to agree to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Negotiated Sale Notice. If Customer fails to respond to the Negotiated Sale Notice within the time specified, or if Customer declines to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Negotiated Sale Notice, Customer shall be deemed to have waived its right to purchase the specified volume of Product at the price, in the manner and on the terms set forth in the Negotiated Sale Notice.
(a) Cash Sale. "Cash Sale" shall refer to a sale of Product at the price set forth in Supplier's published weekly cash price list in effect (i) on the requested ship date in the case of delivery by rail (or, if the Product is not available from Supplier for shipment on such date, on the earliest date thereafter that Product is available from Supplier for shipment) or (ii) on the actual date of shipment in all other cases.
(b) Index Sale. "Index Sale" shall refer to a sale of Product at the published index price specified under a special index based pricing program for purchase of Product that may, from time to time, be offered by Supplier (the "Index Pricing Program") plus applicable freight charges at the time of shipment to the extent such Index Pricing Program is offered by Supplier during the term of this Agreement and subject to the terms and conditions of such Index Pricing Program. The terms and conditions set forth in the Index Pricing Program shall supplement the terms and conditions set forth in this Agreement and, in the event of any conflict between specific terms or conditions set forth in the Index Pricing Program and specific terms or conditions set forth in this Agreement, the specific terms and conditions set forth in the Index Pricing Program shall control provided that Customer has agreed, in writing, to the terms and conditions set forth in the Index Pricing Program.
(c) Forward Pricing Sale. "Forward Pricing Sale" shall refer to a sale of Product at the published forward price specified under a special pricing program for advance purchase of Product (the "Forward Pricing Program") plus applicable freight charges at the time of shipment. Each Monday through Thursday afternoon that Supplier is open for business during the term of this Agreement Supplier shall offer Product for sale in those months identified by Supplier as "Forward Months" in the Forward Pricing Program provided that the New York Mercantile Exchange is scheduled to trade natural gas contracts in an Open Outcry session on the next business day following the offering of the Forward Pricing Program. Furthermore, Supplier shall offer for sale under the Forward Pricing Program at least seventy-five percent (75%) of the month's Sales Target Volume for each Product as set forth in the Take Pattern. The terms and conditions set forth in the Forward Pricing Program shall supplement the terms and conditions set forth in this Agreement and, in
the event of any conflict between specific terms and conditions set forth in the Forward Pricing Program and specific terms and conditions set forth in this Agreement, the specific terms and conditions set forth in the Forward Pricing Program shall control unless otherwise agreed to by Supplier and Customer.
(d) Negotiated Sale. "Negotiated Sale" shall refer to the sale of Product at a price offered by Customer and accepted by Supplier, or at a price offered by Supplier and accepted by Customer, as the case may be; provided, however, that except as otherwise provided in Section 2 of this Agreement Supplier shall have no obligation to accept any offer made by Customer, to make any offer to Customer or to make any sales of Product on a "Negotiated Sale" basis.
3. Term.
(a) The initial term of this Agreement shall commence on July 1, 2005 and shall continue through June 30, 2006. Provided that the common stock of Supplier first trades on the New York Stock Exchange or NASDAQ on or before January 1, 2006, the term of this Agreement shall be automatically renewed for a subsequent term commencing on July 1, 2006 and continuing through June 30, 2010. Provided that this Agreement is extended beyond July 1, 2006, then at the expiration of the then current term of the Agreement, the term of this Agreement shall be automatically renewed for successive periods of one-year each unless terminated in writing by either party on or before January 1 of the then current Contract Year. For purposes of this Agreement, "Contract Year" shall mean the twelve month period beginning on July 1 and including the following June 30.
(b) Until such time as the common stock of Supplier first trades on the New York Stock Exchange or NASDAQ, the parties agree that Supplier shall sell Products to Customer and Customer shall purchase Products from Supplier with Customer acting as agent for its members CHS, Inc., a Minnesota corporation ("CHS") and Land O'Lakes, Inc., a Minnesota corporation ("LOL"). During such time period, all patronage earned with respect to Customer's purchases of Product from Supplier shall remain with CHS and LOL. At such time as the common stock of Supplier first trades on the New York Stock Exchange or NASDAQ, any purchases by Customer from Supplier shall no longer be as an agent for CHS or LOL.
4. Incentives.
(a) The Performance Incentives set forth on Schedule A attached hereto and made a part hereof will be available to Customer and will be applied as an adjustment to the purchase price of Product in the manner and at the times set forth on Schedule A provided Customer satisfies the requirements for the Performance Incentives as set forth on Schedule A.
(b) The Performance Incentives offered to Customer under this Agreement shall be equal to the highest comparable Performance Incentives, calculated on a per ton basis, granted to any other customer under a Requirements Contract. A "Requirements Contract", for purposes of this Agreement, shall mean a contract by which a customer is obligated to purchase, over a fixed period of time, a fixed amount of Product or a fixed percentage of that customer's requirements for Product.
5. Scheduling. Supplier and Customer will agree, on or before June 15 preceding each Contract Year of this Agreement, to a mutually acceptable take pattern (the "Take Pattern") for the Sales Target Volume and the Requirement Volume including, among other things, the rate of delivery of Product (it being intended that Product will be supplied, to the extent possible, ratably during any specific month of the Contract Year), the source and region of delivery from which Product will be provided to Customer and the mode of transportation desired by Customer (truck, rail, barge, vessel or pipeline). The parties agree that the rate of delivery of the Requirement Volume shall be spread ratably over each quarter of the Contract Year on the same percentage basis as the Sale Target Volume. Supplier and Customer will revise, as necessary, and agree upon a mutually acceptable revised Take Pattern on or before September 15, December 15 and March 1 during
each Contract Year; provided, however, that the Take Pattern for ammonia shall be revised on or before December 15 of each Contract Year. Customer acknowledges that Supplier may have certain limitations on specific modes of transport that must be considered when establishing the Take Pattern and that Supplier reserves the right to determine the sources and regions of delivery from which Product will be provided to Customer; provided, however, that the established and the revised Take Pattern shall be generally consistent with the Take Pattern of the immediately preceding Contract Year.
6. Payment. Except in the case of Forward Pricing Sales (where payment terms are specified in the Forward Pricing Program), Customer shall pay Supplier in full for all Product purchased and for all other charges invoiced hereunder not later than twenty-five (25) calendar days after the date of Supplier's invoice in the case of shipments by rail, truck or pipeline, not later than ten (10) calendar days after the date of Supplier's invoice in the case of shipments by barge and upon receipt of Seller's invoice (and the Certificate of Analysis, Certificate of Weight and Draft Survey if not previously delivered to Customer) in the case of shipments by vessel. Payment for all invoices shall be made by electronic funds transfer (ACH) for the credit of Supplier to such banking institution as may be specified by Supplier. If the due date for any payment falls on a weekend or a holiday, the payment must be received by the Supplier on the next day on which the Federal Reserve Bank of Chicago is open for business.
7. Taxes and Other Charges. Any tax, duty, inspection fee or other charge levied upon the sale, shipment, delivery, use or storage of Product sold hereunder (but excluding any income taxes payable on the sale of Product and any taxes or duties on the import of Product into the United States) shall be separately itemized on Supplier's invoice and shall be paid by Customer. Any such payment shall either be made directly by Customer or added to the purchase price and remitted by Supplier as required by applicable law. Customer shall obtain, at its expense, any licenses, permits or other registrations required to accept delivery of Product.
8. Delivery Terms. Customer may elect among the following delivery types and freight payment options to the extent offered by Supplier when submitting an order for Product:
(a) FOB (Supplier pays freight). FOB (Supplier pays freight) means that Supplier arranges the transportation of Product, that Supplier advances the costs of transportation and that Customer reimburses Supplier for such costs;
(b) FOB (Customer pays freight). FOB (Customer pays freight) means that Customer arranges and pays for the transportation of Product;
(c) FOB (Consignee pays freight). FOB (Consignee pays freight) means that the consignee receiving the Product arranges and pays for the transportation of Product;
(d) FOB (Third Party pays freight). FOB (Third Party pays freight) means that a third party selected by Customer arranges and pays for the transportation of Product;
(e) FOB (Third Party Supplier pays freight). FOB (Third Party Supplier pays freight) applies in those cases where Product is sourced from a facility other than Supplier's and
the third party supplier arranges and pays for the transportation of Product. In such cases, Supplier reimburses the third party supplier for the cost of transportation and Customer reimburses Supplier for such costs;
(f) Delivered (other than truck shipments with freight allowance). Delivered (other than truck shipments with freight allowance) means that Supplier arranges and pays for the transportation of Product; and
(g) Delivered (truck shipments with freight allowance). Delivered (truck shipments with freight allowance) means that Customer arranges and pays for the transportation and that the Product price is reduced by Supplier's applicable freight allowance for the delivery point shown on Supplier's transportation documents. In the event the Product is delivered to a delivery point other than that shown on Supplier's transportation documents, (i) the price for the Product will be recalculated as of the date of shipment for the market of actual delivery and (ii) the applicable freight allowance (determined by Supplier) will be recalculated as of the date of shipment for the market of actual delivery (such freight allowance to be reduced by all costs incurred in such recalculation); provided, however, that the price for the Product shall not be reduced below the price for the Product in the market shown on Supplier's transportation documents and the freight allowance shall not be increased above the allowance (determined by Supplier) for the market shown on Supplier's transportation documents.
9. Title and Risk of Loss. Except in those cases described later in this Section, title to all Product and risk of loss shall pass to Customer at the time the Product is loaded onto barge, truck, railcar or other applicable transport (or, in the case of distribution by pipeline, at the time the Product passes the flange connection of Customer's intake manifold at Customer's terminal). In the case where the order or contract specifies that the Product will be "Delivered" and delivery is by a method other than truck with a freight allowance, title to all Product and risk of loss shall pass to Customer when the Product is constructively placed at its destination. In the case of a "Bulk" transfer (i.e., where the Product remains in storage and is not transported to a new location), title to all Product and risk of loss shall pass to Customer as of the date on Supplier's invoice for the Product.
10. Product Warranty. Supplier warrants that the Product will (i) conform to Supplier's Product Specification Sheets in effect at the time an order for Product is submitted, (ii) be delivered free and clear of all liens, claims, security interests, encumbrances or other agreements that create an interest in or encumbrance on the Product by any third party and (iii) comply with all applicable federal, state and local laws and ordinances applicable to the manufacture, sale and transportation of Product. A copy of Supplier's current Product Specification Sheets are attached hereto as Exhibit A. Supplier reserves the right, at any time and from time to time, to amend the Product specifications by sending to Customer revised Product Specification Sheets prior to shipment of the Product affected. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. If any Product purchased by Customer fails to comply with the warranties set forth in Section 10 of this Agreement, and in the case of the warranty under clause (i) above provided Customer so notifies Supplier immediately upon having knowledge that the Product fails to comply with the aforesaid warranty and in no event later than five (5) days after receipt of said Product, Supplier shall, as promptly as practical and at its expense (including all freight and handling charges), replace such Product.
11. Product Weight. The volume of Product purchased shall be equal to the weight of shipped Product determined in the manner set forth in this Section. For Product shipped by
trucks and railcars, the weight of the Product shipped shall be determined by the scale or metered weight measured at origin. For dry Product (for example, urea, DAP and MAP) shipped by barge, the weight of the Product shipped shall be determined by the origin barge survey. For liquid Product (for example, UAN Solution or ammonia) shipped by barge, the weight of the Product shipped shall be determined, in the case of FOB sales, by an origin survey and, in all other cases, by a destination shore tank survey. For Product shipped by vessel, the weight of the Product shipped shall be determined by an origin survey; provided, however, that in the case of liquid Product sold Delivered, the weight of the Product shipped shall be determined by a destination survey. All origin and destination surveys shall be performed by an independent surveyor selected and paid by Supplier.
12. Demurrage. Customer shall be responsible for the cost of demurrage based upon Supplier's demurrage policy in effect at the time the demurrage is incurred.
13. Force Majeure. Neither party shall be liable for any failure or delay in performance of any provision of this Agreement (other than to make payment due hereunder) if such failure or delay is caused by fire, flood, explosion, strike, war, insurrection, labor disputes, breakage of machinery or equipment, compliance with governmental orders, curtailment of operations to remedy violations of environmental, health or safety regulations, inability to obtain Product or fuel, supplies, materials or equipment or other similar causes beyond the reasonable control of a party hereunder. In the event a force majeure event renders a party unable to carry out its obligations under this Agreement, such party shall give notice and full particulars, including the expected duration of such force majeure event, to the other party within seventy-two (72) hours after the occurrence of such force majeure event. The obligations of the parties, so far as they are affected by such force majeure event, shall suspend during the continuance of any such force majeure event and the disabled party shall use commercially reasonable efforts to remedy the disability with all reasonable dispatch. In the event a force majeure condition occurs affecting Supplier, Supplier may elect to reduce the quantity of Product delivered or, upon the agreement of the parties, to postpone the delivery of Product. In the event Supplier elects to reduce the quantity of Product delivered, Supplier may, but shall not be obligated, to allocate its available supply among any or all customers and on such basis as Supplier, in its sole discretion, may elect without liability for failure to comply with the terms of this Agreement; provided, however, that Supplier shall use commercially reasonable efforts, after first filling orders from customers for which Supplier has received advance payment, to allocate its available supply among Requirements Contract customers.
14. Confidentiality. Each party shall keep and maintain, and shall cause its officers, employees, agents and contractors to keep and maintain, the confidentiality of all information contained in or relating to the performance of this Agreement and shall not disclose any information to any third party except (i) to the extent necessary to perform its obligations under this Agreement, (ii) to a party's professional advisors or (iii) to a possible purchaser of all or any portion of a party's business operations provided such prospective purchaser agrees to the terms and conditions of this confidentiality provision and (iv) that Supplier may disclose all or any portion of this Agreement as part of any federal or state securities law filings or disclosures and
except that neither party shall have any obligation of confidentiality with respect to information that (i) is generally available to the public, (ii) is or becomes known to such party through sources not bound by any obligation of confidentiality or (iii) is required to be disclosed under applicable law.
15. Certain Remedies.
(a)
(1) In the event that Customer shall at any time (i) fail to make payment when due and such failure continues for a period of ten (10) days after written notice from Supplier to Customer of such failure, (ii) become insolvent, (iii) commit any act of bankruptcy, (iv) take advantage of any law for the benefit of debtors, (v) have appointed a receiver for itself or its properties and such receiver is not discharged within sixty (60) days or (vi) fail to comply with any other terms or conditions of this Agreement and such failure continues for a period of thirty (30) days after written notice from Supplier of such failure, the Supplier may then or thereafter upon notice to Customer (a) refuse to make further deliveries hereunder, (b) terminate this Agreement (but in such event Customer shall remain liable for the payment of all Product theretofore delivered) and (c) exercise such other and further rights and remedies as it may have under this Agreement or otherwise in law or at equity. Such rights and remedies may be exercised independently and shall not be mutually exclusive.
(2) Customer shall provide Supplier with written notice if: (i) Land O'Lakes, Inc. and/or CHS Inc. (the "Current Owners") shall individually or collectively cease to own and control legally and beneficially, either directly or indirectly, equity securities in Customer representing fifty-one percent (51%) or more of the combined voting power of all of the equity securities of Customer entitled to vote for members of the board of directors or equivalent governing body of Customer ("Voting Securities") on a fully-diluted basis (except when as a result of an Initial Public Offering ("IPO") which directly or indirectly results in the change of the ownership and control of the equity securities in Customer or a sale or other transfer of equity securities in Customer to local cooperatives affiliated with the Current Owners); (ii) any single person or group acting in concert within the meaning of the federal securities laws (in either case other than a Current Owner, an underwriter in an IPO, a local cooperative affiliated with a Current Owner, or any combination thereof) is or becomes the legal or beneficial owner, either directly or indirectly, of securities of Customer representing fifty-one percent (51%) or more of the total voting power represented by Customer's then outstanding Voting Securities; or (iii) Customer liquidates or sells or otherwise transfers directly or indirectly (in one or a series of transaction) all or substantially all of Customer's assets or the assets of its fertilizer sales and distribution business. Such notice from Customer to Supplier shall identify the party or parties other than the Current Owners and Supplier who are involved in any such transaction. Supplier shall have ten (10) business days from the date it receives such notice to consent to such a transaction in writing or to provide Customer with written notice of its decision to withhold Supplier's consent. The parties agree that any decision to consent or to withhold consent shall be in the reasonable discretion of Supplier; provided, however, that any such decision to consent or to withhold consent shall be in the sole discretion of Supplier if Supplier in its sole judgment deems any party to such transaction to be a competitor of Supplier. In the event Supplier fails to respond within the ten (10) day period, its consent shall be presumed. The parties further agree that Supplier has irrevocably granted its consent to either the IPO or local cooperative transactions described above and no further consent is necessary for either such transaction. In the event Supplier withholds its consent, Supplier may then or thereafter upon notice to Customer (a) refuse to make further deliveries hereunder after the end of the then current Contract Year, (b) terminate this Agreement at the end of the then current Contract Year (but in such event Customer shall remain liable for the payment of all Product theretofore delivered) and (c) exercise such other and further rights and remedies as it may have under this Agreement or otherwise in law or at equity. Such rights and remedies may be exercised independently and shall not be mutually exclusive.
(3) In the event that Supplier shall at any time (i) become insolvent, (ii) commit any act of bankruptcy, (iii) take advantage of any law for the benefit of debtors, (iv) have appointed a receiver for itself or its properties and such receiver is not discharged within sixty (60) days or (v) fail to comply with any other terms or conditions of this Agreement and such failure continues for a period of thirty (30) days after written notice from Customer of such failure, the Customer may then or thereafter upon notice to Supplier (a) refuse to take further deliveries hereunder, (b) terminate this Agreement (but in such event Customer shall remain liable for the payment of all Product theretofore delivered) and (c) exercise such other and further rights and remedies as it may have under this Agreement or otherwise in law or at equity. Such rights and remedies may be exercised independently and shall not be mutually exclusive.
(b) If, at the end of any quarter (or, in the case of ammonia, each semi-annual period) during each Contract Year of this Agreement, or at the termination or expiration of this Agreement, Customer has not purchased the Requirement Volume for that period as established by the Take Pattern for reasons other than Force Majeure as set forth in Section 13 of this Agreement, Customer shall pay to Supplier an amount equal to the difference between the Customer's Requirement Volume for that period and the actual volume Customer purchased during that period (the "Unfulfilled Commitment") multiplied by the greater of (i) the weighted average (using the Take Pattern as of the first day of the period) of the Supplier's weekly cash price for the Product in effect during the period or (ii) the average of the Supplier's weekly cash price for the Product in effect during the last four weeks of the period. Customer shall be entitled to take delivery of the Unfulfilled Commitment at any time prior to the last day of the sixth (6th) month following the end of the applicable period provided, however, that Customer shall pay to Supplier (i) the increase, if any, in the freight cost incurred by Supplier and (ii) a storage fee of $5.00 per ton on the Unfulfilled Commitment beginning as of the first day of the second month following the month there is an Unfilled Commitment and then $5.00 per ton on the first day of each month thereafter and continuing until Customer takes delivery of the Unfulfilled Commitment. Customer's right to take delivery of any Unfulfilled Commitment shall cease, and Customer shall have no right to take delivery of any such Unfulfilled Commitment, from and after the first day of the seventh (7th) month following the end of the applicable period.
(c) If, at the end of any quarter (or, in the case of ammonia, each semi-annual period) during each Contract Year of this Agreement, or at the termination or expiration of this Agreement, Supplier has failed or refused to accept orders to supply the Requirement Volume for that period as established by the Take Pattern and such failure is not caused by (i) Force Majeure as set forth in Section 13 of this Agreement or (ii) Supplier's supply capability being impaired because of an Unfulfilled Commitment being stored for Customer as set forth in Section 15(b) of this Agreement, then the difference between the Requirement Volume for the period as established by the Take Pattern and the actual volume supplied by Supplier during such period (the "Unsupplied Commitment") shall reduce the Requirement Volume and the Sales Target Volume and shall be included in the Overall Annual Tonnage for purposes of calculating any incentive payment under Performance Incentive No. 5 and, as Customer's sole and exclusive remedy, Supplier shall pay to Customer a nonperformance fee which shall be determined based on the level of deficiency expressed as a percentage (i.e., the Unsupplied Commitment for each Product divided by the Requirement Volume for that Product) and shall be equal to the Unsupplied Commitment multiplied by the Fee determined in accordance with the following schedule:
Deficiency (per Product)
|
Fee
|
|
---|---|---|
0-20% | $*****/ton on the entire Unsupplied Commitment | |
>20%-50% | $*****/ton on the entire Unsupplied Commitment | |
>50% | $*****/ton on the entire Unsupplied Commitment |
(d) Any amounts due and owing from Customer to Supplier, and any amounts due and owing from Supplier to Customer, pursuant to this Section shall be paid not later than ten (10) days after the date of invoice.
16. Liability Limits. Customer's exclusive remedy against Supplier for any claim arising out of or in any way relating to this Agreement (whether in contract, tort, strict liability or otherwise) shall be for damages only and not for injunctive or other relief (whether at law or in equity); provided, however, that the parties agree that in the event of a breach or threatened breach of Section 14 of this Agreement, monetary damages would be an inadequate remedy and the parties shall be entitled to seek injunctive relief without recourse to Section 17(k) of this Agreement. In addition, Customer's sole and exclusive remedy for Supplier's failure or refusal to accept orders for the Requirement Volume shall be as set forth in Section 15(c) of this Agreement and Customer shall not be entitled to claim damages or other relief except as set forth in Section 15(c) of this Agreement. Supplier's liability for damages shall in no event exceed the purchase price of the Product with respect to which such matter arises or such claim relates. NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR BREACH OF THIS AGREEMENT OR ANY PROVISION HEREOF.
17. Miscellaneous.
(a) Assignment. All covenants and agreements contained in this Agreement by or on behalf of Customer or Supplier will bind and inure to the respective successors and assigns of the parties hereto; provided, however, that neither party may assign this Agreement, in whole or in part, without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed subject to Section 15(a)(2) of this Agreement).
(b) Notices. All notices, demands or other communications to be given or delivered hereunder will be deemed to have been given when delivered personally or two (2) business days after they have been mailed by certified or registered mail, postage prepaid and return receipt requested, or one (1) business day after they have been sent by a nationally recognized private courier service, to the recipient at the address specified below or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party:
If to Supplier: |
CF Industries, Inc.
One Salem Lake Drive Long Grove, Illinois 60047-8402 Attention: Vice President, Sales |
|
If to Customer: |
|
Agriliance, LLC 5500 Cenex Drive InverGrove Heights, Minnesota 55075 Attention: Vice President of Supply and Logistics |
(c) Descriptive Headings. The descriptive headings used herein are inserted for convenience only and do not constitute a part of this Agreement.
(d) Amendments and Waivers. This Agreement may be amended, or any provision hereof waived, only in a writing or writings signed by the party intended to be bound. The waiver by a party of any breach of this Agreement or the failure of any party to enforce any of the terms and conditions of this Agreement at any time shall not in any way affect, limit or waive that party's right thereafter to enforce and compel strict compliance with every term and condition hereof.
(e) Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.
(f) Survival of Claims. Termination or expiration of this Agreement shall not relieve either party of any obligation or deprive it of any right arising prior to termination.
(g) Conflicting Terms. No term in any purchase order, acknowledgement form or other document from Customer or Supplier which conflicts with the terms hereof or increases Customer's or Supplier's obligations hereunder shall be binding on either party unless issued in accordance with Section 17(d) of this Agreement notwithstanding any provision in any such purchase order, acknowledgement form or other document to the contrary.
(h) Time. Time is of the essence of this Agreement and of each and every provision thereof.
(i) Finance Charges. Amounts not paid when due, whether owed by Customer to Supplier or by Supplier to Customer, shall accrue interest from the date due until the date paid at a monthly rate determined at the end of each month (which rate shall be equal to the quotient of (i) the average prime rate as published in the Wall Street Journal over the preceding ninety (90) day period multiplied by two (2) and then increased by two (2) percentage points divided by (ii) twelve (12), rounded to the nearest whole percentage, or, if less, at the highest rate allowed by applicable law) and such interest shall be due immediately on demand.
(j) Credit Quality. Supplier shall have the right, at any time and from time to time during the term of this Agreement and upon notice to Customer, to change the payment terms applicable to Customer, in the event the financial condition or payment history of Customer is not satisfactory to Supplier in its sole discretion. Supplier shall have no liability to Customer, whether under Section 15(c) of this Agreement or otherwise, for any reduction or cessation in the supply of Product as a result of the application of this Section 17(j) of this Agreement.
(k) Arbitration. All claims of breach of this Agreement by either party not barred and foreclosed shall be resolved by arbitration between the parties in St. Louis, Missouri
under the auspices of and pursuant to the rules for commercial arbitration of the American Arbitration Association. Any award thereon may include monetary or, to the extent permitted by Section 16 of this Agreement, injunctive relief in the discretion of the arbitrators. Judgment upon an award duly rendered in such an arbitration proceeding may be entered by the party in whose favor the award has been made in any court having jurisdiction to do so and over the party against whom such award has been rendered.
(l) Transportation Equipment. In the event Customer supplies equipment for the transportation of Product, Supplier shall have the right to inspect such equipment and to reject such equipment if Supplier, in the exercise of its reasonable discretion, believes such equipment may pose a risk of injury or contamination to persons or property. In the case of barges or vessels supplied by or at the direction of Customer, the type, size and scheduled arrival date must be approved by Supplier in the exercise of Supplier's reasonable discretion.
(m) Examination of Records.
Customer shall have the right, at its expense and from time to time upon reasonable prior notice to Supplier, but not more frequently than once during each Contract Year of this Agreement, to retain an independent certified public accountant to examine the relevant sections of (i) Supplier's sales records covering the current Contract Year to verify compliance with Supplier's obligations as set forth in Section 1(d) and the third grammatical paragraph of Section 2 of this Agreement and (ii) Requirements Contracts entered into by Supplier to verify compliance with Supplier's obligations as set forth in Section 4(b) of this Agreement. Customer shall cause any accountant so retained to maintain the confidentiality of the records being examined and to report only to Customer and Supplier the amount of any discrepancy discovered by such examination.
Supplier shall have the right, at its expense and from time to time upon reasonable prior notice to Customer, but not more frequently than once during each Contract Year of this Agreement, to retain an independent certified public accountant to examine the relevant sections of Customer's sales records covering the current Contract Year to verify compliance with Customer's obligations as set forth in Section 1(c) of this Agreement. Supplier shall cause any accountant so retained to maintain the confidentiality of the records being examined and to report only to Supplier and Customer the amount of any discrepancy discovered by such examination.
(n) Calculation of Volume. For purposes of calculating the volume of Product purchased by Customer (which volume is relevant for purposes of calculating the Performance Incentives and the Unfulfilled Commitment), Product shall be deemed to have been purchased on a specific date determined in accordance with the following schedule:
Sales Type
|
Delivery Mode
|
Purchase Date
|
||
---|---|---|---|---|
Cash Sale | Truck | Shipment Date on Bill of Lading | ||
Cash Sale | Rail | Requested Date of Shipment from Customer and accepted by Supplier | ||
Index Sale |
|
Truck |
|
Shipment Date on Bill of Lading |
Index Sale | Rail and Barge | Requested Date of Shipment from Customer and accepted by Supplier | ||
Forward Pricing Sale |
|
All |
|
First day of the shipment month requested by Customer |
Negotiated Sale |
|
Truck |
|
Shipment Date on Bill of Lading |
Negotiated Sale | Rail, Barge, Vessel, Bulk and Pipeline | Requested Date of Shipment from Customer |
Notwithstanding the foregoing, (i) Product will only be deemed to have been purchased by Customer if the Product is paid for in full by Customer and (ii) in the case of orders
placed for delivery by truck, Product shall be deemed to have been purchased on the first day of the shipment period requested by Customer and accepted by Supplier and not on the shipment date on the bill of lading in those cases where the order placed by Customer is subject to a storage fee if Customer does not take possession of the Product prior to the expiration of the shipment period.
(o) Entire Agreement. Except as otherwise specifically provided in Sections 2(b), 2(c), 10, 12 and 17(o) of this Agreement, this Agreement embodies the complete agreement and understanding between the parties with respect to the subject matter hereof and supersedes and preempts any prior or contemporaneous understandings, agreements or representations by Supplier or Customer, written or oral, relating in any way to the subject matter hereof; excepting, however, that certain Turf Sales Agreement dated as of July 1, 2005 between Supplier and Customer (the "Turf Agreement"). Product purchased under the Turf Agreement shall not be included in or credited against the Requirement Volume or the Sales Target Volume or in calculating the Performance Incentives.
(p) Governing Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed in all instances by the law of the State of Illinois.
(q) Right of First Offer.
(A) If, during the term of this Agreement, Supplier desires to sell any or all of the real estate, with or without any or all of the machinery or equipment located thereon, commonly known as ***** Warehouse (*****),***** Ammonia/UAN Solution Terminal (*****),***** Warehouse/UAN Solution Terminal (*****) and ***** Ammonia Terminal (*****) (such real estate and such machinery and equipment as Supplier desires to sell being hereinafter referred to as the "Facility" or "Facilities"), Supplier shall notify Customer (the "Offer Notice") and shall include in the Offer Notice the price and other terms and conditions on which Supplier would agree to sell a Facility or Facilities. Customer will then have a period of time (the "Offer Period") (which, initially, shall be sixty (60) days from the date the Offer Notice is delivered to Customer) to either (i) accept such offer, (ii) reject such offer or (iii) notify Supplier of a counteroffer (the "Counter Offer Notice") setting forth the price and other terms and conditions on which Customer would purchase the Facility or Facilities (it being the intent of the parties that if the Offer Notice includes more than one Facility and Customer desires to accept the offer, Customer must purchase all, and not less than all, of the Facilities set forth in the Offer Notice). If Customer fails to respond to the Offer Notice within the Offer Period, Customer shall be deemed to have rejected such offer. If Customer (i) rejects the offer set forth in the Offer Notice, (ii) accepts the offer set forth in the Offer Notice but the parties fail to enter into a written agreement for the sale of the Facility or Facilities within the Offer Period or (iii) delivers to Seller a Counter Offer Notice but the parties fail to enter into a written agreement for the sale of the Facility or Facilities within the Counter Offer Period (which "Counter Offer Period" shall, initially, be one hundred twenty (120) days from the date the Offer Notice is delivered to Customer), then Supplier shall be permitted, commencing upon the rejection of the Offer Notice or upon the failure to enter into a written agreement for the sale of the Facility or Facilities within the Offer Period or Counter Offer Period and continuing for the next one hundred fifty (150) days, to sell the Facility or Facilities to any person or entity (i) at a price (taking into consideration all credits and other
discounts) which is not less than ninety percent (90%) of the price set forth in the Offer Notice or, in the case of a Counter Offer Notice, at a price (taking into consideration all credits and other discounts) not less than the price set forth in the Counter Offer Notice and (ii) on such other terms and conditions not materially more favorable to the purchaser than those contained in the initial Offer Notice. If, at the end of such one hundred fifty (150) day period, Supplier has not entered into an agreement for the sale of the Facility or Facilities, or sooner in the event Supplier elects to reduce the price or other terms and conditions below the minimum levels referred to above, Customer shall again have the right of first offer to purchase the Facility or Facilities as set forth herein; provided, however, that the Offer Period shall be reduced to thirty (30) days and the Counter Offer Period shall be reduced to sixty (60) days.
(B) Nothing in Section 17(q) of this Agreement is intended to grant a right of first offer to Customer in connection with any sale, assignment or other transfer of (i) any machinery or equipment separate from the real estate, (ii) any group of assets of Supplier that includes one or more of the Facilities along with other facilities or other assets of Supplier or (iii) any direct or indirect ownership interest in Supplier; provided, however, that if the fair market value of the Facility or Facilities included within any group of assets referred to in the preceding clause (ii) constitutes at least seventy-five percent (75%) of the aggregate fair market value of the entire group of assets, then Customer shall have a right of first offer under this Section 17(q) with respect to the Facility or Facilities included within such group, but not with respect to any of the other facilities or other assets of Supplier included within such group.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
SUPPLIER: | CUSTOMER: | |||
CF INDUSTRIES, INC. |
|
AGRILIANCE, LLC |
||
By: |
/s/ STEPHEN R. WILSON |
|
By: |
/s/ GEORGE C. THORNTON |
Name: | Stephen R. Wilson | Name: | George C. Thornton | |
|
|
|||
Title: | President and Chief Executive Officer | Title: | President and CEO | |
|
|
Incentive No. 1
Type: Actual purchase volume versus Sales Target Volume
Description: Incentive earned on a Product if (i) that Product is purchased in accordance with the Take Pattern and (ii) the total volume of that Product purchased for a Contract Year equals a minimum percentage of that Product's Sales Target Volume.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: Forty-five (45) days after the end of a quarter or semi-annual period, unless actual shipment of the Product purchased enabling the Customer to earn the incentive occurs after the expiration of the quarter or semi-annual period, whereby payment will then be made 45 days from the date of actual shipment.
Incentive Allowance by Product:
A) Quarterly: If total purchases for a specific quarter (January through March, etc.) of a Contract Year for a specific Product are equal to or greater than 95% of that Product's Sales Target Volume for that time period as set forth in the Take Pattern, the quarterly incentive allowance for such Product (see Table I) will be paid on the actual volume purchased for shipment for that Product for that time period. This incentive applies for urea, UAN solution (as equivalent 28%), DAP, and MAP.
B) Semi-Annual: If total purchases for a specific half of a Contract Year (January through June, etc.) for ammonia are equal to or greater than 95% of the Sales Target Volume for that time period as set forth in the Take Pattern, the semi-annual incentive allowance (see Table IA) will be paid on the actual volume purchased for shipment for that time period.
C) Base: If total purchases for a specific Product are equal to or greater than 95% of the Sales Target Volume for that Product for the Contract Year, a base incentive allowance for such Product (see Tables I and IA) will be paid on 95% of the Sales Target Volume for that Product for the Contract Year.
D) Annual: If total purchases for a specific Product are greater than 95% of the Sales Target Volume for that Product for the Contract Year, an annual incentive allowance for such individual Product (see Tables I and IA) will be paid on all purchases above 95% of the Sales Target Volume for the Contract Year.
Table I
$ Per Ton
|
Quarter
1 |
Quarter
2 |
Quarter
3 |
Quarter
4 |
Base
|
Annual
|
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Urea | ***** | ***** | ***** | ***** | ***** | ***** | ||||||
UAN-28 | ***** | ***** | ***** | ***** | ***** | ***** | ||||||
DAP/MAP | ***** | ***** | ***** | ***** | ***** | ***** |
Table IA
$ Per Ton
|
Half
1 |
Half
2 |
Base
|
Annual
|
||||
---|---|---|---|---|---|---|---|---|
Ammonia | ***** | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 1.
Incentive No. 2
Type: Timing of actual purchases under Supplier's Forward Pricing Program (FPP)
Description: Incentive earned on a Product if (i) that Product is purchased in accordance with the terms and conditions of Supplier's FPP and (ii) a minimum period of time exists between the date the Customer places the order and the first day of the contract ship month as defined in Table II.
Product: Ammonia, urea, UAN solution (as equivalent 28%)
Time of Payment: No later than forty-five (45) days after the end of the Contract Year in which the Product was scheduled for shipment (i.e., contract ship month)
Incentive Allowance by Product:
Table II
$ Per Ton
|
No. Of Months between Order Date on FPP & 1
st
Day of Contract Ship Month
|
|||||||
---|---|---|---|---|---|---|---|---|
|
12 months or greater
|
Greater than 6 months but less than 12 months
|
Greater than 4 months but less than or equal to 6 months
|
Greater than or equal to 1 months but less than or equal to 4 months
|
||||
Ammonia | ***** | ***** | ***** | ***** | ||||
Urea | ***** | ***** | ***** | ***** | ||||
UAN-28 | ***** | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 2.
Incentive No. 3
Type: Actual purchase volumes under Supplier's Forward Pricing Program
Description: Incentive earned on a Product if Customer purchases a minimum of 25% of that Product's Sales Target Volume for a Contract Year in accordance with the terms and conditions of the Supplier's FPP. Only those tons with a contract ship month which falls within the current Contract Year, and only those tons purchased in accordance with the terms and conditions of the Supplier's FPP are eligible for this incentive. If the minimum (or next threshold level e.g., 51%) is satisfied, the then applicable per ton Product incentive is earned on the total eligible volume.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: No later than forty-five (45) days after the end of a Contract Year.
Incentive Allowance by Product:
Table III
$ Per Ton
|
FPP tons as a Percent of Annual Sales Target Volume
|
|||||
---|---|---|---|---|---|---|
|
25% or greater but less than or equal to 50%
|
Greater than 50% but less than or equal to 75%
|
Greater than 75%
|
|||
Ammonia | ***** | ***** | ***** | |||
Urea | ***** | ***** | ***** | |||
UAN-28 | ***** | ***** | ***** | |||
DAP/MAP | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 3.
Incentive No. 4
Type: Requirement Volume above Contract Minimum
Description: Incentive earned for establishing, for any specific Product as of June 1 preceding a Contract Year, a Requirement Volume equal to or greater than 80% of the Sales Target Volume. This multiplier percentage is specific by Product and is available for application to Incentives No. 1, No. 2, and No. 3
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: The multiplier incentive (Table IV) will be applied to each incentive allowance (i.e., Incentives No. 1 through No. 3) whenever a particular incentive allowance is calculated and determined for payment. This incentive will be paid whenever the incentive allowances under No. 1 through No. 3 are paid.
Multiplier Percentage Incentive:
Table IV
Multiplier Percentage
Requirement Volume as a % of Sales Target Volume
|
Multiplier Percentage
|
||
---|---|---|---|
Equal to or greater than 80% | ***** | % |
Incentive No. 5
Type: Quantity discount for overall volume
Description: Incentive earned on Product purchased for a Contract Year if the volume of Product purchased (i) exceeds certain threshold volumes (Table V) and (ii) is equal to or greater than 80 percent of the Sales Target Volume for each Product. No incentive is paid unless the overall volume for all Products in a Contract Year is 300,000 tons or greater.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: Forty-five (45) days after the end of a Contract Year, unless actual shipment of the Product purchased enabling the Customer to earn the incentive occurs after the expiration of the Contract Year, whereby payment will then be made 45 days from the date of shipment.
Incentive Allowance:
Table V
Quantity Discount on Overall Purchases
Overall Annual Tonnage
Purchased by Customer |
Incentive
|
|
---|---|---|
Equal to or greater than 300,000 but equal to or less than 500,000 | $*****/ton on all tons | |
Greater than 500,000 but equal to or less than 1,500,000 |
|
$*****/ton on first 500,000 tons plus $*****/ton on all tons above 500,000 tons but equal to or less than 1,500,000 tons |
Greater than 1,500,000 but equal to or less than 2,000,000 |
|
$*****/ton on first 1.5 million tons plus $*****/ton on all tons above 1.5 million tons but equal to or less than 2.0 million tons |
Greater than 2,000,000 |
|
$*****/ton on first 2.0 million tons plus $*****/ton on all tons above 2.0 million tons |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, and Urea volumes sold under a turf agreement are excluded from both actual purchase volumes and the Sales Target Volume, and are excluded from all calculations for incentive allowances per Performance Incentive No. 5. UAN solution volumes sold from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, and any UAN solution vessel purchases delivered to US East Coast and Eastern Canada will be added to the volume purchased by Customer only for determining if Customer has satisfied the minimum threshold volume of 300,000 tons required per Performance Incentive No. 5, but those purchases will not be entitled to any per ton incentive available per Performance Incentive No. 5.
***** PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMISSIONS HAVE BEEN INDICATED BY ASTERISKS ("*****"), AND THE OMITTED TEXT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MULTIPLE YEAR CONTRACT
FOR THE
PURCHASE AND SALE OF FERTILIZER
THIS AGREEMENT is made and entered into as of this 1st day of July, 2005 by and between CF INDUSTRIES, INC., a Delaware corporation, having its principal place of business at One Salem Lake Drive, Long Grove, Illinois 60047 (hereinafter referred to as "Supplier") and GROWMARK, INC., a Delaware corporation, having its principal place of business at 1701 Towanda Avenue, Bloomington, Illinois (hereinafter referred to as "Customer").
WHEREAS, Supplier is engaged in selling ammonia, UAN solution (as 28% equivalent), urea, DAP and MAP ("Product");
WHEREAS, Customer desires to purchase, and Supplier desires to sell, Product in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained Customer and Supplier hereby agree as follows:
1. Purchase and Sale Commitment.
(a) Customer shall purchase and Supplier shall sell the Requirement Volume of Product set forth below during the initial Contract Year (as hereinafter defined) of this Agreement:
Product
|
Requirement Volume
|
Sales Target Volume
|
||
---|---|---|---|---|
Ammonia | ***** S.T. | ***** S.T. | ||
UAN Solution
(as 28% equivalent) |
***** S.T. | ***** S.T. | ||
Urea | ***** S.T. | ***** S.T. | ||
DAP | ***** S.T. | ***** S.T. | ||
MAP | ***** S.T. | ***** S.T. |
The Requirement Volume for each subsequent Contract Year shall be set forth in a notice from Customer to Supplier delivered on or before the first day of June preceding a Contract Year and, for each Product, shall be not less than sixty-five percent (65%) nor more than one-hundred percent (100%) of the Sales Target Volume for such Product for such Contract Year.
(b) Customer also intends, but shall not be obligated, to purchase and Supplier also intends, but shall not be obligated, to sell for each Product an additional volume (the "Additional Volume") equal to the Sales Target Volume less the Requirement Volume. The Sales Target Volume for the initial Contract Year is set forth in Section 1(a) of this Agreement. The Sales Target Volume for each Product for each subsequent Contract Year shall be set by mutual agreement of the parties on or before the first day of May preceding a Contract Year and, in the absence of such mutual agreement on or before the first day of May, shall be set by Supplier for each Product in a notice to Customer and shall be not more than one hundred percent (100%) nor less than ninety-five percent (95%) of the Sales Target Volume for such Product set at the beginning of the preceding Contract Year (i.e., unadjusted by any change pursuant to Section 1(c), Section 1(d), Section 1(f), Section 1(g) or Section 15(c) of this Agreement).
(c) In the event Customer receives a bona fide offer from a third party during any Contract Year, which offer (i) provides for the sale of Product to Customer, (ii) Customer desires to accept and (iii) may impact Customer's ability or willingness to purchase the Sales Target Volume, Customer shall notify Supplier (the "Third Party Purchase Notice") of the volume of Product it intends to purchase, the terms and conditions of such purchase and the date and time by which Supplier must respond to such Third Party Purchase Notice. Supplier shall have until the time and date set forth in such Third Party Purchase Notice to agree to sell the specified volume of Product to Customer on the terms and conditions set forth in the Third Party Purchase Notice. If Supplier fails to respond to the Third Party Purchase Notice within the time specified, or if Supplier declines to sell the specified volume of Product to Customer, Customer may purchase the specified volume of Product from such third party on the terms and conditions set forth in the Third Party Purchase Notice and the Sales Target Volume shall be reduced by an amount equal to the volume of Product so purchased by Customer (provided, however, that the Sales Target Volume shall not be reduced below the Requirement Volume).
(d) In the event Supplier receives a bona fide offer from a third party during any Contract Year, which offer (i) provides for the purchase of Product from Supplier, (ii) Supplier desires to accept and (iii) may impact Supplier's ability or willingness to supply the Sales Target Volume, Supplier shall notify Customer (the "Third Party Sale Notice") of the volume of Product it intends to sell, the terms and conditions of such sale and the date and time by which Customer must respond to such Third Party Sale Notice. Customer shall have until the time and date set forth in such Third Party Sale Notice to agree to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Third Party Sale Notice. If Customer fails to respond to the Third Party Sale Notice within the time specified, or if Customer declines to purchase the specified volume of Product from Supplier, Supplier shall be free to sell the specified volume of Product to such third party on the terms and conditions set forth in the Third Party Sale Notice and the Sales Target Volume shall be reduced by an amount equal to the volume of Product so sold by Supplier (provided, however, that the Sales Target Volume shall not be reduced below the Requirement Volume).
(e) Notwithstanding the provision of Section 17(b) of this Agreement, the Third Party Purchase Notice and the Third Party Sale Notice shall be delivered to the following individuals:
Supplier
|
Customer
|
|
---|---|---|
Product Sales Representative, Product Sales Manager and Director, Product Sales |
Marketing Manager Plant Food and Crops Division, Manager
Supply Manager, Plant Food |
The Third Party Purchase Notice and the Third Party Sale Notice, again notwithstanding the provisions of Section 17(b) of this Agreement, may be sent by email provided the sender has been notified of the recipient's email address.
(f) Without limiting Supplier's obligations under Section 1(d) of this Agreement, in the event that, at any time during a Contract Year, Supplier reduces the volume of Product available for sale and such action may impact Supplier's ability to supply the Sales Target Volume, Supplier may reduce the Sales Target Volume for such Contract Year (but not below the Requirement Volume) by delivering notice to Customer advising Customer of such reduction in the Sales Target Volume.
(g) Supplier shall not be obligated to accept any order for Product if, at the time Customer orders such Product, the cumulative volume of such Product ordered by Customer is in excess of the volume set forth in the Take Pattern (as hereinafter defined). If, after accepting an order from Customer, Supplier determines that Supplier cannot supply the Product ordered in accordance with the Take Pattern, Supplier shall promptly notify Customer (the "Order Modification") of the revised manner and date the Product will be supplied. Customer shall then have the option, exercisable by delivering notice to Supplier on or before 5:00 p.m. Central Time on the second business day following delivery of the Order Modification, of either (i) terminating the order without obligation for payment (in which case the volume of Product ordered shall reduce the Requirement Volume and the Sales Target Volume and shall be included in the Overall Annual Tonnage for purposes of calculating any incentive payment under Performance Incentive No. 5) and, at Customer's option, purchasing the Product ordered from a third party at a commercially reasonable price or (ii) accepting the changes set forth in the Order Modification. In the event Customer fails to notify Supplier of its election on or before 5:00 p.m. Central Time on the second business day following delivery of an Order Modification, Customer shall be deemed to have accepted the changes set forth in the Order Modification.
(h) The Requirement Volume and the Sales Target Volume set forth in Section 1(a) of this Agreement are based upon Customer receiving from ***** ("*****") an order for ***** tons of urea (the "***** Urea Commitment") and ***** tons of DAP (the "***** DAP Commitment") for the then current Contract Year. In the event Customer receives a reduced commitment (or no commitment) from ***** for urea or for DAP in the then current Contract Year, and provided Customer notifies Supplier of such reduced commitment on or before October 1 of the then current Contract Year, (i) the Requirement Volume and the Sales Target Volume for urea shall be reduced by the difference between the ***** Urea Commitment and the actual commitment received by Customer from ***** for urea for such Contract Year and (ii) the Requirement Volume and the Sales Target Volume for DAP shall be reduced by the difference between the ***** DAP Commitment and the actual commitment received by Customer from ***** for DAP for such Contract Year.
2. Price. Product purchased by Customer under this Agreement, except to the extent purchased under Section 1(c) or Section 1(d) of this Agreement, shall be purchased either as (i) a Cash Sale, (ii) an Index Sale, (iii) a Forward Pricing Sale or (iv) a Negotiated Sale (each of which "Sales" is hereinafter defined). Customer shall notify Supplier with each order for Product whether it will purchase Product as a Cash Sale, an Index Sale, a Forward Pricing Sale or a Negotiated Sale and the Delivery Terms (as hereinafter defined) subject, at all times, to the Take Pattern. In the absence of an election by Customer of the type of "Sale" applicable to a specific Product purchase, such purchase shall be deemed to be a Cash Sale. In the absence of an election by Customer of the Delivery Terms applicable to a specific Product purchase as set forth in Section 8 of this Agreement, such purchase shall be deemed to be on an FOB (Customer pays freight) basis.
Supplier covenants with Customer (which covenant is intended to be for the sole benefit of Customer) that the price published by Supplier (excluding prices published for turf sales and nonagricultural sales) at any specific time during the term of this Agreement for Cash Sales, Index Sales and Forward Pricing Sales shall be the same for all customers. The price published by Supplier for any Product may be changed from time to time by Supplier. The foregoing covenant shall not be deemed violated by spot sales or negotiated sales which sales, at times, may include incentives.
Supplier further covenants with Customer that, in the event Supplier has entered into an agreement for a negotiated sale of Product (i) at a price (before applicable incentives) which is less than the price published by Supplier for such Product by at least $***** per short ton under any "Sale" type available at the time of the negotiated sale and having the same mode of transport, the same source of supply as is available to customer according to the Take Pattern and the same market of delivery and (ii) which is for a volume of ***** or more short tons, Supplier shall notify Customer (the "Negotiated Sale Notice") of the price, volume and other terms and conditions of such sale and the date and time by which Customer must respond to such Negotiated Sale Notice. Customer shall have until the time and date set forth in the Negotiated Sale Notice to agree to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Negotiated Sale Notice. If Customer fails to respond to the Negotiated Sale Notice within the time specified, or if Customer declines to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Negotiated Sale Notice, Customer shall be deemed to have waived its right to purchase the specified volume of Product at the price, in the manner and on the terms set forth in the Negotiated Sale Notice.
(a) Cash Sale. "Cash Sale" shall refer to a sale of Product at the price set forth in Supplier's published weekly cash price list in effect (i) on the requested ship date in the case of delivery by rail (or, if the Product is not available from Supplier for shipment on such date, on the earliest date thereafter that Product is available from Supplier for shipment) or (ii) on the actual date of shipment in all other cases.
(b) Index Sale. "Index Sale" shall refer to a sale of Product at the published index price specified under a special index based pricing program for purchase of Product that may, from time to time, be offered by Supplier (the "Index Pricing Program") plus applicable freight charges at the time of shipment to the extent such Index Pricing Program is offered by Supplier during the term of this Agreement and subject to the terms and conditions of such Index Pricing Program. The terms and conditions set forth in the Index Pricing Program shall supplement the terms and conditions set forth in this Agreement and, in the event of any conflict between specific terms or conditions set forth in the Index Pricing Program and specific terms or conditions set forth in this Agreement, the specific terms and conditions set forth in the Index Pricing Program shall control provided that Customer has agreed, in writing, to the terms and conditions set forth in the Index Pricing Program.
(c) Forward Pricing Sale. "Forward Pricing Sale" shall refer to a sale of Product at the published forward price specified under a special pricing program for advance purchase of Product (the "Forward Pricing Program") plus applicable freight charges at the time of shipment. Each Monday through Thursday afternoon that Supplier
is open for business during the term of this Agreement Supplier shall offer Product for sale under the Forward Pricing Program provided that the New York Mercantile Exchange is scheduled to trade natural gas contracts in an Open Outcry session on the next business day following the offering of the Forward Pricing Program. Furthermore, Supplier shall offer for sale in those months identified by Supplier as "Forward Months" in the Forward Pricing Program at least seventy-five percent (75%) of the month's Sales Target Volume for each Product as set forth in the Take Pattern. The terms and conditions set forth in the Forward Pricing Program shall supplement the terms and conditions set forth in this Agreement and, in the event of any conflict between specific terms and conditions set forth in the Forward Pricing Program and specific terms and conditions set forth in this Agreement, the specific terms and conditions set forth in the Forward Pricing Program shall control unless otherwise agreed to by Supplier and Customer.
(d) Negotiated Sale. "Negotiated Sale" shall refer to the sale of Product at a price offered by Customer and accepted by Supplier, or at a price offered by Supplier and accepted by Customer, as the case may be; provided, however, that except as otherwise provided in Section 2 of this Agreement Supplier shall have no obligation to accept any offer made by Customer, to make any offer to Customer or to make any sales of Product on a "Negotiated Sale" basis.
3. Term. The initial term of this Agreement shall commence on July 1, 2005 and shall continue through June 30, 2006. Provided that the common stock of Supplier first trades on the New York Stock Exchange or NASDAQ on or before January 1, 2006, the term of this Agreement shall be automatically renewed for a subsequent term commencing on July 1, 2006 and continuing through June 30, 2008. Provided that this Agreement is extended beyond July 1, 2006, then at the expiration of the then current term of the Agreement, the term of this Agreement shall be automatically renewed for successive periods of one-year each unless terminated in writing by either party on or before January 1 of the then current Contract Year. For purposes of this Agreement, "Contract Year" shall mean the twelve month period beginning on July 1 and including the following June 30.
4. Incentives.
(a) The Performance Incentives set forth on Schedule A attached hereto and made a part hereof will be available to Customer and will be applied as an adjustment to the purchase price of Product in the manner and at the times set forth on Schedule A provided Customer satisfies the requirements for the Performance Incentives as set forth on Schedule A.
(b) The Performance Incentives offered to Customer under this Agreement shall be equal to the highest comparable Performance Incentives, calculated on a per ton basis, granted to any other customer under a Requirements Contract. A "Requirements Contract", for purposes of this Agreement, shall mean a contract by which a customer is obligated to purchase, over a fixed period of time, a fixed amount of Product or a fixed percentage of that customer's requirements for Product.
5. Scheduling. Supplier and Customer will agree, on or before June 15 preceding each Contract Year of this Agreement, to a mutually acceptable take pattern (the "Take Pattern") for the Sales Target Volume and the Requirement Volume including, among other things, the monthly rate of delivery of Product (it being intended that Product will be supplied, to the extent possible, ratably during any specific month of the Contract Year), the source and region of delivery from which Product will be provided to Customer and the mode of transportation desired by Customer (truck, rail, barge, vessel or pipeline). The parties agree that the rate of delivery of the Requirement Volume shall be spread ratably over each quarter of the Contract Year on the same percentage basis as the Sale Target Volume. Supplier and Customer will revise, as necessary, and agree upon a mutually acceptable revised Take Pattern on or before September 15, December 15 and March 1 during each Contract Year; provided, however, that the Take Pattern for ammonia shall be revised only on December 15 of each Contract Year. Customer acknowledges that Supplier may have certain limitations on specific modes of transport that must be considered when establishing the Take Pattern and that Supplier reserves the right to determine the sources and regions of delivery from which Product will be provided to Customer; provided, however, that the established and the revised Take Pattern shall be generally consistent with the Take Pattern of the immediately preceding Contract Year.
6. Payment. Except in the case of Forward Pricing Sales (where payment terms are specified in the Forward Pricing Program), Customer shall pay Supplier in full for all Product purchased and for all other charges invoiced hereunder not later than twenty-five (25) calendar days after the date of Supplier's invoice in the case of shipments by rail, truck or pipeline, not later than ten (10) calendar days after the date of Supplier's invoice in the case of shipments by barge and upon receipt of Seller's invoice (and the Certificate of Analysis, Certificate of Weight and Draft Survey if not previously delivered to Customer) in the case of shipments by vessel. Payment for all invoices shall be made by electronic funds transfer (ACH) for the credit of Supplier to such banking institution as may be specified by Supplier. If the due date for any payment falls on a weekend or a holiday, the payment must be received by the Supplier on the next day on which the Federal Reserve Bank of Chicago is open for business.
7. Taxes and Other Charges. Any tax, duty, inspection fee or other charge levied upon the sale, shipment, delivery, use or storage of Product sold hereunder (but excluding any income taxes payable on the sale of Product and any taxes or duties on the import of Product into the United States) shall be separately itemized on Supplier's invoice and shall be paid by Customer. Any such payment shall either be made directly by Customer or added to the purchase price and remitted by Supplier as required by applicable law. Customer shall obtain, at its expense, any licenses, permits or other registrations required to accept delivery of Product.
8. Delivery Terms. Customer may elect among the following delivery types and freight payment options to the extent offered by Supplier when submitting an order for Product:
(a) FOB (Supplier pays freight). FOB (Supplier pays freight) means that Supplier arranges the transportation of Product, that Supplier advances the costs of transportation and that Customer reimburses Supplier for such costs;
(b) FOB (Customer pays freight). FOB (Customer pays freight) means that Customer arranges and pays for the transportation of Product;
(c) FOB (Consignee pays freight). FOB (Consignee pays freight) means that the consignee receiving the Product arranges and pays for the transportation of Product;
(d) FOB (Third Party pays freight). FOB (Third Party pays freight) means that a third party selected by Customer arranges and pays for the transportation of Product;
(e) FOB (Third Party Supplier pays freight). FOB (Third Party Supplier pays freight) applies in those cases where Product is sourced from a facility other than Supplier's and the third party supplier arranges and pays for the transportation of Product. In such cases, Supplier reimburses the third party supplier for the cost of transportation and Customer reimburses Supplier for such costs;
(f) Delivered (other than truck shipments with freight allowance). Delivered (other than truck shipments with freight allowance) means that Supplier arranges and pays for the transportation of Product; and
(g) Delivered (truck shipments with freight allowance). Delivered (truck shipments with freight allowance) means that Customer arranges and pays for the transportation and that the Product price is reduced by Supplier's applicable freight allowance for the delivery point shown on Supplier's transportation documents. In the event the Product is delivered to a delivery point other than that shown on Supplier's transportation documents, (i) the price for the Product will be recalculated as of the date of shipment for the market of actual delivery and (ii) the applicable freight allowance (determined by Supplier) will be recalculated as of the date of shipment for the market of actual delivery (such freight allowance to be reduced by all costs incurred in such recalculation); provided, however, that the price for the Product shall not be reduced below the price for the Product in the market shown on Supplier's transportation documents and the freight allowance shall not be increased above the allowance (determined by Supplier) for the market shown on Supplier's transportation documents.
9. Title and Risk of Loss. Except in those cases described later in this Section, title to all Product and risk of loss shall pass to Customer at the time the Product is loaded onto barge, truck, railcar or other applicable transport (or, in the case of distribution by pipeline, at the time the Product passes the flange connection of Customer's intake manifold at Customer's terminal). In the case where the order or contract specifies that the Product will be "Delivered" and delivery is by a method other than truck with a freight allowance, title to all Product and risk of loss shall pass to Customer when the Product is constructively placed at its destination. In the case of a "Bulk" transfer (i.e., where the Product remains in storage and is not transported to a new location), title to all Product and risk of loss shall pass to Customer as of the date on Supplier's invoice for the Product.
10. Product Warranty. Supplier warrants that the Product will (i) conform to Supplier's Product Specification Sheet in effect at the time an order for Product is submitted, (ii) be delivered free and clear of all liens, claims, security interests, encumbrances or other agreements that create an interest in or encumbrance on the Product by any third party and (iii) comply with all applicable federal, state and local laws and ordinances applicable to the manufacture, sale and transportation of Product. A copy of Supplier's current Product Specification Sheet is attached hereto as Exhibit A. Supplier reserves the right, at any time and
from time to time, to amend the Product specifications by sending to Customer a revised Product Specification Sheet prior to shipment of the Product affected. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11. Product Weight. The volume of Product purchased shall be equal to the weight of shipped Product determined in the manner set forth in this Section. For Product shipped by trucks and railcars, the weight of the Product shipped shall be determined by the scale or metered weight measured at origin. For dry Product (for example, urea, DAP and MAP) shipped by barge, the weight of the Product shipped shall be determined by the origin barge survey. For liquid Product (for example, UAN Solution or ammonia) shipped by barge, the weight of the Product shipped shall be determined, in the case of FOB sales, by an origin survey and, in all other cases, by a destination shore tank survey. For Product shipped by vessel, the weight of the Product shipped shall be determined by an origin survey; provided, however, that in the case of liquid Product sold Delivered, the weight of the Product shipped shall be determined by a destination survey. All origin and destination surveys shall be performed by an independent surveyor selected and paid by Supplier.
12. Demurrage. Customer shall be responsible for the cost of demurrage based upon Supplier's demurrage policy in effect at the time the demurrage is incurred.
13. Force Majeure. Neither party shall be liable for any failure or delay in performance of any provision of this Agreement (other than to make payment due hereunder) if such failure or delay is caused by fire, flood, explosion, strike, war, insurrection, labor disputes, breakage of machinery or equipment, compliance with governmental orders, curtailment of operations to remedy violations of environmental, health or safety regulations, inability to obtain Product or fuel, supplies, materials or equipment or other similar causes beyond the reasonable control of a party hereunder. In the event a force majeure event renders a party unable to carry out its obligations under this Agreement, such party shall give notice and full particulars, including the expected duration of such force majeure event, to the other party within seventy-two (72) hours after the occurrence of such force majeure event. The obligations of the parties, so far as they are affected by such force majeure event, shall suspend during the continuance of any such force majeure event and the disabled party shall use commercially reasonable efforts to remedy the disability with all reasonable dispatch. In the event a force majeure condition occurs affecting Supplier, Supplier may elect to reduce the quantity of Product delivered or, upon the agreement of the parties, to postpone the delivery of Product. In the event Supplier elects to reduce the quantity of Product delivered, Supplier may, but shall not be obligated, to allocate its available supply among any or all customers and on such basis as Supplier, in its sole discretion, may elect without liability for failure to comply with the terms of this Agreement; provided, however, that Supplier shall use commercially reasonable efforts, after first filling orders from customers for which Supplier has received advance payment, to allocate its available supply among Requirements Contract customers.
14. Confidentiality. Each party shall keep and maintain, and shall cause its officers, employees, agents and contractors to keep and maintain, the confidentiality of all information contained in or relating to the performance of this Agreement and shall not disclose any information to any third party except (i) to the extent necessary to perform its obligations under this Agreement, (ii) to a party's professional advisors or (iii) to a possible purchaser of all or any portion of a party's business operations provided such prospective purchaser agrees to the terms and conditions of this confidentiality provision and (iv) that Supplier may disclose all or any portion of this Agreement as part of any federal or state securities law filings or disclosures and except that neither party shall have any obligation of confidentiality with respect to information that (i) is generally available to the public, (ii) is or becomes known to such party through sources not bound by any obligation of confidentiality or (iii) is required to be disclosed under applicable law.
15. Certain Remedies.
(a)
(1) In the event that Customer shall at any time (i) fail to make payment when due and such failure continues for a period of 10 (ten) business days after written notice from Supplier to Customer of such failure, (ii) become insolvent, (iii) commit any act of bankruptcy, (iv) take advantage of any law for the benefit of debtors, (v) have appointed a receiver for itself or its properties and such receiver is not discharged within sixty (60) days or (vi) fail to comply with any other terms or conditions of this Agreement and such failure continues for a period of thirty (30) days after written notice from Supplier of such failure, the Supplier may then or thereafter upon notice to Customer (a) refuse to make further deliveries hereunder, (b) terminate this Agreement (but in such event Customer shall remain liable for the payment of all Product theretofore delivered) and (c) exercise such other and further rights and remedies as it may have under this Agreement or otherwise in law or at equity. Such rights and remedies may be exercised independently and shall not be mutually exclusive.
(2) In the event that Supplier shall at any time (i) become insolvent, (ii) commit any act of bankruptcy, (iii) take advantage of any law for the benefit of debtors, (iv) have appointed a receiver for itself or its properties and such receiver is not discharged within sixty (60) days or (v) fail to comply with any other terms or conditions of this Agreement and such failure continues for a period of thirty (30) days after written notice from Customer of such failure, the Customer may then or thereafter upon notice to Supplier (a) refuse to take further deliveries hereunder, (b) terminate this Agreement (but in such event Customer shall remain liable for the payment of all Product theretofore delivered) and (c) exercise such other and further rights and remedies as it may have under this Agreement or otherwise in law or at equity. Such rights and remedies may be exercised independently and shall not be mutually exclusive.
(b) If, at the end of any quarter (or, in the case of ammonia, each semi-annual period) during each Contract Year of this Agreement, or at the termination or expiration of this Agreement, Customer has not purchased the Requirement Volume for
that period as established by the Take Pattern for reasons other than Force Majeure as set forth in Section 13 of this Agreement, Customer shall pay to Supplier an amount equal to the difference between the Customer's Requirement Volume for that period and the actual volume Customer purchased during that period (the "Unfulfilled Commitment") multiplied by the greater of (i) the weighted average (using the Take Pattern as of the first day of the period) of the Supplier's weekly cash price for the Product in effect during the period or (ii) the average of the Supplier's weekly cash price for the Product in effect during the last four weeks of the period. Customer shall be entitled to take delivery of the Unfulfilled Commitment at any time prior to the last day of the sixth (6th) month following the end of the applicable period provided, however, that Customer shall pay to Supplier (i) the increase, if any, in the freight cost incurred by Supplier and (ii) a storage fee of $5.00 per ton on the Unfulfilled Commitment beginning as of the first day of the second month following the month there is an Unfilled Commitment and then $5.00 per ton on the first day of each month thereafter and continuing until Customer takes delivery of the Unfulfilled Commitment. Customer's right to take delivery of any Unfulfilled Commitment shall cease, and Customer shall have no right to take delivery of any such Unfulfilled Commitment, from and after the first day of the seventh (7th) month following the end of the applicable period.
(c) If, at the end of any quarter (or, in the case of ammonia, each semi-annual period) during each Contract Year of this Agreement, or at the termination or expiration of this Agreement, Supplier has failed or refused to accept orders to supply the Requirement Volume for that period as established by the Take Pattern and such failure is not caused by (i) Force Majeure as set forth in Section 13 of this Agreement or (ii) Supplier's supply capability being impaired because of an Unfulfilled Commitment being stored for Customer as set forth in Section 15(b) of this Agreement, then the difference between the Requirement Volume for the period as established by the Take Pattern and the actual volume supplied by Supplier during such period (the "Unsupplied Commitment") shall reduce the Requirement Volume and the Sales Target Volume and shall be included in the Overall Annual Tonnage for purposes of calculating any incentive payment under Performance Incentive No. 5 and, as Customer's sole and exclusive remedy, Supplier shall pay to Customer a nonperformance fee which shall be determined based on the level of deficiency expressed as a percentage (i.e., the Unsupplied Commitment for each Product divided by the Requirement Volume for that Product) and shall be equal to the Unsupplied Commitment multiplied by the Fee determined in accordance with the following schedule:
Deficiency (per Product)
|
Fee
|
|
---|---|---|
0-20% | $*****/ton on the entire Unsupplied Commitment | |
>20%-50% | $*****/ton on the entire Unsupplied Commitment | |
>50% | $*****/ton on the entire Unsupplied Commitment |
(d) Any amounts due and owing from Customer to Supplier, and any amounts due and owing from Supplier to Customer, pursuant to this Section shall be paid not later than ten (10) days after the date of invoice.
16. Liability Limits. Customer's exclusive remedy against Supplier for any claim arising out of or in any way relating to this Agreement (whether in contract, tort, strict liability or otherwise) shall be for damages only and not for injunctive or other relief (whether at law or in equity); provided, however, that the parties agree that in the event of a breach or threatened breach of Section 14 of this Agreement, monetary damages would be an inadequate remedy and the parties shall be entitled to seek injunctive relief without recourse to Section 17(k) of this Agreement. In addition, Customer's sole and exclusive remedy for Supplier's failure or refusal to accept orders for the Requirement Volume shall be as set forth in Section 15(c) of this Agreement and Customer shall not be entitled to claim damages or other relief except as set forth in Section 15(c) of this Agreement. Supplier's liability for damages shall in no event exceed the purchase price of the Product with respect to which such matter arises or such claim relates. NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR BREACH OF THIS AGREEMENT OR ANY PROVISION HEREOF.
17. Miscellaneous.
(a) Assignment. All covenants and agreements contained in this Agreement by or on behalf of Customer or Supplier will bind and inure to the respective successors and assigns of the parties hereto; provided, however, that neither party may assign this Agreement, in whole or in part, without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed).
(b) Notices. All notices, demands or other communications to be given or delivered hereunder will be deemed to have been given when delivered personally or two (2) business days after they have been mailed by certified or registered mail, postage prepaid and return receipt requested, or one (1) business day after they have been sent by a nationally recognized private courier service, to the recipient at the address specified below or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party:
If to Supplier: |
CF Industries, Inc.
One Salem Lake Drive Long Grove, Illinois 60047-8402 Attention: Vice President, Sales |
|
If to Customer: |
|
GROWMARK, Inc. 1701 Towanda Avenue Bloomington, Illinois Attention: Vice President, Corporate Marketing and Operations |
(c) Descriptive Headings. The descriptive headings used herein are inserted for convenience only and do not constitute a part of this Agreement.
(d) Amendments and Waivers. This Agreement may be amended, or any provision hereof waived, only in a writing or writings signed by the party intended to be bound. The waiver by a party of any breach of this Agreement or the failure of any party to enforce any of the terms and conditions of this Agreement at any time shall not in any way affect, limit or waive that party's right thereafter to enforce and compel strict compliance with every term and condition hereof.
(e) Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.
(f) Survival of Claims. Termination or expiration of this Agreement shall not relieve either party of any obligation or deprive it of any right arising prior to termination.
(g) Conflicting Terms. No term in any purchase order, acknowledgement form or other document from Customer or Supplier which conflicts with the terms hereof or increases Customer's or Supplier's obligations hereunder shall be binding on either party unless issued in accordance with Section 17(d) of this Agreement notwithstanding any provision in any such purchase order, acknowledgement form or other document to the contrary.
(h) Time. Time is of the essence of this Agreement and of each and every provision thereof.
(i) Finance Charges. Amounts not paid when due, whether owed by Customer to Supplier or by Supplier to Customer, shall accrue interest from the date due until the date paid at a monthly rate determined at the end of each month (which rate shall be equal to the quotient of (i) the average prime rate as published in the Wall Street Journal over the preceding ninety (90) day period multiplied by two (2) and then increased by two (2) percentage points divided by (ii) twelve (12), rounded to the nearest whole percentage, or, if less, at the highest rate allowed by applicable law) and such interest shall be due immediately on demand.
(j) Credit Quality. Supplier shall have the right, at any time and from time to time during the term of this Agreement and upon notice to Customer, to change the payment terms applicable to Customer, in the event the financial condition or payment history of Customer is not satisfactory to Supplier in its sole discretion. Supplier shall have no liability to Customer, whether under Section 15(c) of this Agreement or otherwise, for any reduction or cessation in the supply of Product as a result of the application of this Section 17(j) of this Agreement.
(k) Arbitration. All claims of breach of this Agreement by either party not barred and foreclosed shall be resolved by arbitration between the parties in St. Louis, Missouri under the auspices of and pursuant to the rules for commercial arbitration of the American Arbitration Association. Any award thereon may include monetary or, to the extent permitted by Section 16 of this Agreement, injunctive relief in the discretion of the arbitrators. Judgment upon an award duly rendered in such an arbitration proceeding may be entered by the party in whose favor the award has been made in any court having jurisdiction to do so and over the party against whom such award has been rendered.
(l) Transportation Equipment. In the event Customer supplies equipment for the transportation of Product, Supplier shall have the right to inspect such equipment and to reject such equipment if Supplier, in the exercise of its reasonable discretion, believes such equipment may pose a risk of injury or contamination to persons or property. In the case of barges or vessels supplied by or at the direction of Customer, the type, size and scheduled arrival date must be approved by Supplier in the exercise of Supplier's reasonable discretion.
(m) Examination of Records.
Customer shall have the right, at its expense and from time to time upon reasonable prior notice to Supplier, but not more frequently than once during each Contract Year of this Agreement, to retain an independent certified public accountant to examine the relevant sections of (i) Supplier's sales records covering the current Contract Year to verify compliance with Supplier's obligations as set forth in Section 1(d) and the third grammatical paragraph of Section 2 of this Agreement and (ii) Requirements Contracts entered into by Supplier to verify compliance with Supplier's obligations as set forth in Section 4(b) of this Agreement. Customer shall cause any accountant so retained to maintain the confidentiality of the records being examined and to report only to Customer and Supplier the amount of any discrepancy discovered by such examination.
Supplier shall have the right, at its expense and from time to time upon reasonable prior notice to Customer, but not more frequently than once during each Contract Year of this Agreement, to retain an independent certified public accountant to examine the relevant sections of Customer's sales records covering the current Contract Year to verify compliance with Customer's obligations as set forth in Section 1(c) of this Agreement. Supplier shall cause any accountant so retained to maintain the confidentiality of the records being examined and to report only to Supplier and Customer the amount of any discrepancy discovered by such examination.
(n) Calculation of Volume. For purposes of calculating the volume of Product purchased by Customer (which volume is relevant for purposes of calculating the Performance Incentives and the Unfulfilled Commitment), Product shall be deemed to have been purchased on a specific date determined in accordance with the following schedule:
Sales Type
|
Delivery Mode
|
Purchase Date
|
||
---|---|---|---|---|
Cash Sale | Truck | Shipment Date on Bill of Lading | ||
Cash Sale | Rail | Requested Date of Shipment from Customer and accepted by Supplier | ||
Index Sale |
|
Truck |
|
Shipment Date on Bill of Lading |
Index Sale | Rail and Barge | Requested Date of Shipment from Customer and accepted by Supplier | ||
Forward Pricing Sale |
|
All |
|
First day of the shipment month requested by Customer |
Negotiated Sale |
|
Truck |
|
Shipment Date on Bill of Lading |
Negotiated Sale | Rail, Barge, Vessel, Bulk and Pipeline | Requested Date of Shipment from Customer |
Notwithstanding the foregoing, (i) Product will only be deemed to have been purchased by Customer if the Product is paid for in full by Customer and (ii) in the case of orders placed for delivery by truck, Product shall be deemed to have been purchased on the first day of the shipment period requested by Customer and accepted by Supplier and not on the shipment date on the bill of lading in those cases where the order placed by Customer is subject to a storage fee if Customer does not take possession of the Product prior to the expiration of the shipment period.
(o) Entire Agreement. Except as otherwise specifically provided in Sections 2(b), 2(c), 10, 12 and 17(o) of this Agreement, this Agreement embodies the complete agreement and understanding between the parties with respect to the subject matter hereof and supersedes and preempts any prior or contemporaneous understandings, agreements or representations by Supplier or Customer, written or oral, relating in any way to the subject matter hereof; excepting, however, that certain Nitrogen Solution Sales Agreement dated as of July 1, 2005 between Supplier and Customer (the "East Coast UAN Agreement"). Product purchased under the East Coast UAN Agreement shall not be included in or credited against the Requirement Volume or the Sales Target Volume or in calculating the Performance Incentives; provided, however, that such Product purchases shall be considered solely for purposes of qualifying Customer for the ***** minimum ton Contract Year purchase requirement necessary to qualify for Performance Incentive No. 5 but will not be included in the Overall Annual Tonnage for calculating any incentive payment under Performance Incentive No. 5.
(p) Governing Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed in all instances by the law of the State of Illinois.
(q) Right of First Offer.
(A) If, during the term of this Agreement, Supplier desires to sell any or all of the real estate, with or without any or all of the machinery or equipment located thereon, commonly known as ***** Ammonia Terminal (*****), ***** Terminal/Warehouse (*****),***** Warehouse (*****) or ***** Ammonia/UAN Solution Terminal (*****) (such real estate and such machinery and equipment as Supplier desires to sell being hereinafter referred to as the "Facility" or "Facilities"), Supplier shall notify Customer (the "Offer Notice") and shall include in the Offer Notice the price and other terms and conditions on which Supplier would agree to sell a Facility or Facilities. Customer will then have a period of time (the "Offer Period") (which, initially, shall be sixty (60) days from the date the Offer Notice is delivered to Customer) to either (i) accept such offer, (ii) reject such offer or (iii) notify Supplier of a counteroffer (the "Counter Offer Notice") setting forth the price and other terms and conditions on which Customer would purchase the Facility or Facilities (it being the intent of the parties that if the Offer Notice includes more than one Facility and Customer desires to accept the offer, Customer must purchase all, and not less than all, of the Facilities set forth in the Offer Notice). If Customer fails to respond to the Offer Notice within the Offer Period, Customer shall be deemed to have rejected such offer. If Customer (i) rejects the offer set forth in the Offer Notice, (ii) accepts the offer set forth in the Offer Notice but the parties fail to enter into a written agreement for the sale of the Facility or Facilities within the Offer Period or (iii) delivers to Seller a Counter Offer Notice but the parties fail to enter into a written
agreement for the sale of the Facility or Facilities within the Counter Offer Period (which "Counter Offer Period" shall, initially, be one hundred twenty (120) days from the date the Offer Notice is delivered to Customer), then Supplier shall be permitted, commencing upon the rejection of the Offer Notice or upon the failure to enter into a written agreement for the sale of the Facility or Facilities within the Offer Period or Counter Offer Period and continuing for the next one hundred fifty (150) days, to sell the Facility or Facilities to any person or entity (i) at a price (taking into consideration all credits and other discounts) which is not less than ninety percent (90%) of the price set forth in the Offer Notice or, in the case of a Counter Offer Notice, at a price (taking into consideration all credits and other discounts) not less than the price set forth in the Counter Offer Notice and (ii) on such other terms and conditions not materially more favorable to the purchaser than those contained in the initial Offer Notice. If, at the end of such one hundred fifty (150) day period, Supplier has not entered into an agreement for the sale of the Facility or Facilities, or sooner in the event Supplier elects to reduce the price or other terms and conditions below the minimum levels referred to above, Customer shall again have the right of first offer to purchase the Facility or Facilities as set forth herein; provided, however, that the Offer Period shall be reduced to thirty (30) days and the Counter Offer Period shall be reduced to sixty (60) days.
(B) Nothing in Section 17(q) of this Agreement is intended to grant a right of first offer to Customer in connection with any sale, assignment or other transfer of (i) any machinery or equipment separate from the real estate, (ii) any group of assets of Supplier that includes one or more of the Facilities along with other facilities or other assets of Supplier or (iii) any direct or indirect ownership interest in Supplier; provided, however, that if the fair market value of the Facility or Facilities included within any group of assets referred to in the preceding clause (ii) constitutes at least seventy-five percent (75%) of the aggregate fair market value of the entire group of assets, then Customer shall have a right of first offer under this Section 17(q) with respect to the Facility or Facilities included within such group, but not with respect to any of the other facilities or other assets of Supplier included within such group.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
SUPPLIER: | CUSTOMER: | |||
CF INDUSTRIES, INC. |
|
GROWMARK, INC. |
||
By: |
/s/ STEPHEN R. WILSON |
|
By: |
/s/ STEVEN J. BARWICK |
Name: |
Stephen R. Wilson
|
Name: |
Steven J. Barwick
|
|
Title: |
President and Chief Executive Officer
|
Title: |
Vice President, Corporate Marketing and Operations
|
Schedule A
Performance Incentives
Incentive No. 1
Type: Actual purchase volume versus Sales Target Volume
Description: Incentive earned on a Product if (i) that Product is purchased in accordance with the Take Pattern and (ii) the total volume of that Product purchased for a Contract Year equals a minimum percentage of that Product's Sales Target Volume.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: Forty-five (45) days after the end of a quarter or semi-annual period, unless actual shipment of the Product purchased enabling the Customer to earn the incentive occurs after the expiration of the quarter or semi-annual period, whereby payment will then be made 45 days from the date of actual shipment.
Incentive Allowance by Product:
A) Quarterly: If total purchases for a specific quarter (January through March, etc.) of a Contract Year for a specific Product are equal to or greater than 95% of that Product's Sales Target Volume for that time period as set forth in the Take Pattern, the quarterly incentive allowance for such Product (see Table I) will be paid on the actual volume purchased for shipment for that Product for that time period. This incentive applies for urea, UAN solution (as equivalent 28%), DAP, and MAP.
B) Semi-Annual: If total purchases for a specific half of a Contract Year (January through June, etc.) for ammonia are equal to or greater than 95% of the Sales Target Volume for that time period as set forth in the Take Pattern, the semi-annual incentive allowance (see Table IA) will be paid on the actual volume purchased for shipment for that time period.
C) Base: If total purchases for a specific Product are equal to or greater than 95% of the Sales Target Volume for that Product for the Contract Year, a base incentive allowance for such Product (see Tables I and IA) will be paid on 95% of the Sales Target Volume for that Product for the Contract Year.
D) Annual: If total purchases for a specific Product are greater than 95% of the Sales Target Volume for that Product for the Contract Year, an annual incentive allowance for such individual Product (see Tables I and IA) will be paid on all purchases above 95% of the Sales Target Volume for the Contract Year.
Table I
$ Per Ton
|
Quarter 1
|
Quarter 2
|
Quarter 3
|
Quarter 4
|
Base
|
Annual
|
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Urea | ***** | ***** | ***** | ***** | ***** | ***** | ||||||
UAN-28 | ***** | ***** | ***** | ***** | ***** | ***** | ||||||
DAP/MAP | ***** | ***** | ***** | ***** | ***** | ***** |
Table IA
$ Per Ton
|
Half 1
|
Half 2
|
Base
|
Annual
|
||||
---|---|---|---|---|---|---|---|---|
Ammonia | ***** | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 1.
Incentive No. 2
Type: Timing of actual purchases under Supplier's Forward Pricing Program (FPP)
Description: Incentive earned on a Product if (i) that Product is purchased in accordance with the terms and conditions of Supplier's FPP and (ii) a minimum period of time exists between the date the Customer places the order and the first day of the contract ship month as defined in Table II.
Product: Ammonia, urea, UAN solution (as equivalent 28%)
Time of Payment: No later than forty-five (45) days after the end of the Contract Year in which the Product was scheduled for shipment (i.e., contract ship month)
Incentive Allowance by Product:
Table II
$ Per Ton
|
No. Of Months between Order Date on FPP & 1st Day of Contract Ship Month
|
|||||||
---|---|---|---|---|---|---|---|---|
|
12 months or
greater |
Greater than 6
months but less than 12 months |
Greater than 4
months but less than or equal to 6 months |
Greater than or
equal to 1 months but less than or equal to 4 months |
||||
Ammonia | ***** | ***** | ***** | ***** | ||||
Urea | ***** | ***** | ***** | ***** | ||||
UAN-28 | ***** | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 2.
Incentive No. 3
Type: Actual purchase volumes under Supplier's Forward Pricing Program
Description: Incentive earned on a Product if Customer purchases a minimum of 25% of that Product's Sales Target Volume for a Contract Year in accordance with the terms and conditions of the Supplier's FPP. Only those tons with a contract ship month which falls within the current Contract Year, and only those tons purchased in accordance with the terms and conditions of the Supplier's FPP are eligible for this incentive. If the minimum (or next threshold level e.g., 51%) is satisfied, the then applicable per ton Product incentive is earned on the total eligible volume.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: No later than forty-five (45) days after the end of a Contract Year.
Incentive Allowance by Product:
Table III
$ Per Ton
|
FPP tons as a Percent of Annual Sales Target Volume
|
|||||
---|---|---|---|---|---|---|
|
25 % or greater but
less than or equal to 50% |
Greater than 50%
but less than or equal to 75% |
Greater than 75%
|
|||
Ammonia | ***** | ***** | ***** | |||
Urea | ***** | ***** | ***** | |||
UAN-28 | ***** | ***** | ***** | |||
DAP/MAP | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 3.
Incentive No. 4
Type: Requirement Volume above Contract Minimum
Description: Incentive earned for establishing, for any specific Product as of June 1 preceding a Contract Year, a Requirement Volume equal to or greater than 80% of the Sales Target Volume. This multiplier percentage is specific by Product and is available for application to Incentives No.1, No.2, and No.3
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: The multiplier incentive (Table IV) will be applied to each incentive allowance (i.e., Incentives No. 1 through No. 3) whenever a particular incentive allowance is calculated and determined for payment. This incentive will be paid whenever the incentive allowances under No. 1 through No. 3 are paid.
Multiplier Percentage Incentive:
Table IV
Multiplier Percentage
Requirement Volume as a %
of Sales Target Volume |
Multiplier Percentage |
|
---|---|---|
Equal to or greater than 80% | *****% |
Incentive No. 5
Type: Quantity discount for overall volume
Description: Incentive earned on Product purchased for a Contract Year if the volume of Product purchased (i) exceeds certain threshold volumes (Table V) and (ii) is equal to or greater than 80 percent of the Sales Target Volume for each Product. No incentive is paid unless the overall volume for all Products in a Contract Year is 300,000 tons or greater.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: Forty-five (45) days after the end of a Contract Year, unless actual shipment of the Product purchased enabling the Customer to earn the incentive occurs after the expiration of the Contract Year, whereby payment will then be made 45 days from the date of shipment.
Incentive Allowance:
Table V
Quantity Discount on Overall Purchases
Overall Annual Tonnage
Purchased by Customer |
Incentive
|
|
---|---|---|
Equal to or greater than 300,000 but equal to or less than 500,000 | $*****/ton on all tons | |
Greater than 500,000 but equal to or less than 1,500,000 |
|
$*****/ton on first 500,000 tons plus $*****/ton on all tons above 500,000 tons but equal to or less than 1,500,000 tons |
Greater than 1,500,000 but equal to or less than 2,000,000 |
|
$*****/ton on first 1.5 million tons plus $*****/ton on all tons above 1.5 million tons but equal to or less than 2.0 million tons |
Greater than 2,000,000 |
|
$*****/ton on first 2.0 million tons plus $*****/ton on all tons above 2.0 million tons |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, and Urea volumes sold under a turf agreement are excluded from both actual purchase volumes and the Sales Target Volume, and are excluded from all calculations for incentive allowances per Performance Incentive No. 5. UAN solution volumes sold from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, and any UAN solution vessel purchases delivered to US East Coast and Eastern Canada will be added to the volume purchased by Customer only for determining if Customer has satisfied the minimum threshold volume of 300,000 tons required per Performance Incentive No. 5, but those purchases will not be entitled to any per ton incentive available per Performance Incentive No. 5.
***** PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE OMISSIONS HAVE BEEN INDICATED BY ASTERISKS ("*****"), AND THE OMITTED TEXT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MULTIPLE YEAR CONTRACT
FOR THE
PURCHASE AND SALE OF FERTILIZER
THIS AGREEMENT is made and entered into as of this 1st day of July, 2005 by and between CF INDUSTRIES, INC., a Delaware corporation, having its principal place of business at One Salem Lake Drive, Long Grove, Illinois 60047 (hereinafter referred to as "Supplier") and SOUTHERN STATES COOPERATIVE, INCORPORATED, a Virginia corporation, having its principal place of business at 6606 West Broad Street, Richmond, Virginia 23230 (hereinafter referred to as "Customer").
WHEREAS, Supplier is engaged in selling ammonia, UAN solution (as 28% equivalent), urea, DAP and MAP ("Product");
WHEREAS, Customer desires to purchase, and Supplier desires to sell, Product in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained Customer and Supplier hereby agree as follows:
1. Purchase and Sale Commitment.
(a) Customer shall purchase and Supplier shall sell the Requirement Volume of Product set forth below during the initial Contract Year (as hereinafter defined) of this Agreement:
Product
|
Requirement Volume
|
Sales Target Volume
|
||
---|---|---|---|---|
Ammonia | ***** S.T. | ***** S.T. | ||
UAN Solution
(as 28% equivalent) |
***** S.T. | ***** S.T. | ||
Urea | ***** S.T. | ***** S.T. | ||
DAP | ***** S.T. | ***** S.T. | ||
MAP | ***** S.T. | ***** S.T. |
The Requirement Volume for each subsequent Contract Year shall be set forth in a notice from Customer to Supplier delivered on or before the first day of June preceding a Contract Year and, for each Product, shall be not less than sixty-five percent (65%) nor more than one-hundred percent (100%) of the Sales Target Volume for such Product for such Contract Year.
(b) Customer also intends, but shall not be obligated, to purchase and Supplier also intends, but shall not be obligated, to sell for each Product an additional volume (the "Additional Volume") equal to the Sales Target Volume less the Requirement Volume. The Sales Target Volume for the initial Contract Year is set forth in Section 1(a) of this Agreement. The Sales Target Volume for each Product for each subsequent Contract Year shall be set by mutual agreement of the parties on or before the first day of May preceding a Contract Year and, in the absence of such mutual agreement on or before the first day of May, shall be set by Supplier for each Product in a notice to Customer and shall be not more than one hundred percent (100%) nor less than ninety-five percent (95%) of the Sales Target Volume for such Product set at the beginning of the preceding Contract Year (i.e., unadjusted by any change pursuant to Section 1(c), Section 1(d), Section 1(f), Section 1(g) or Section 15(c) of this Agreement).
(c) In the event Customer receives a bona fide offer from a third party during any Contract Year, which offer (i) provides for the sale of Product to Customer, (ii) Customer desires to accept and (iii) may impact Customer's ability or willingness to purchase the Sales Target Volume, Customer shall notify Supplier (the "Third Party Purchase Notice") of the volume of Product it intends to purchase, the terms and conditions of such purchase and the date and time by which Supplier must respond to such Third Party Purchase Notice. Supplier shall have until the time and date set forth in such Third Party Purchase Notice to agree to sell the specified volume of Product to Customer on the terms and conditions set forth in the Third Party Purchase Notice. If Supplier fails to respond to the Third Party Purchase Notice within the time specified, or if Supplier declines to sell the specified volume of Product to Customer, Customer may purchase the specified volume of Product from such third party on the terms and conditions set forth in the Third Party Purchase Notice and the Sales Target Volume shall be reduced by an amount equal to the volume of Product so purchased by Customer (provided, however, that the Sales Target Volume shall not be reduced below the Requirement Volume).
(d) In the event Supplier receives a bona fide offer from a third party during any Contract Year, which offer (i) provides for the purchase of Product from Supplier, (ii) Supplier desires to accept and (iii) may impact Supplier's ability or willingness to supply the Sales Target Volume, Supplier shall notify Customer (the "Third Party Sale Notice") of the volume of Product it intends to sell, the terms and conditions of such sale and the date and time by which Customer must respond to such Third Party Sale Notice. Customer shall have until the time and date set forth in such Third Party Sale Notice to agree to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Third Party Sale Notice. If Customer fails to respond to the Third Party Sale Notice within the time specified, or if Customer declines to purchase the specified volume of Product from Supplier, Supplier shall be free to sell the specified volume of Product to such third party on the terms and conditions set forth in the Third Party Sale Notice and the Sales Target Volume shall be reduced by an amount
equal to the volume of Product so sold by Supplier (provided, however, that the Sales Target Volume shall not be reduced below the Requirement Volume).
(e) Notwithstanding the provision of Section 17(b) of this Agreement, the Third Party Purchase Notice and the Third Party Sale Notice shall be delivered to the following individuals:
Supplier
|
Customer
|
|
---|---|---|
Product Sales Representative, Product Sales Manager and Director, Product Sales | Manager Fertilizer Merchandising and Vice President, Crops Division |
The Third Party Purchase Notice and the Third Party Sale Notice, again notwithstanding the provisions of Section 17(b) of this Agreement, may be sent by email provided the sender has been notified of the recipient's email address.
(f) Without limiting Supplier's obligations under Section 1(d) of this Agreement, in the event that, at any time during a Contract Year, Supplier reduces the volume of Product available for sale and such action may impact Supplier's ability to supply the Sales Target Volume, Supplier may reduce the Sales Target Volume for such Contract Year (but not below the Requirement Volume) by delivering notice to Customer advising Customer of such reduction in the Sales Target Volume.
(g) Supplier shall not be obligated to accept any order for Product if, at the time Customer orders such Product, the cumulative volume of such Product ordered by Customer is in excess of the volume set forth in the Take Pattern (as hereinafter defined). If, after accepting an order from Customer, Supplier determines that Supplier cannot supply the Product ordered in accordance with the Take Pattern, Supplier shall promptly notify Customer (the "Order Modification") of the revised manner and date the Product will be supplied. Customer shall then have the option, exercisable by delivering notice to Supplier on or before 5:00 p.m. Central Time on the second business day following delivery of the Order Modification, of either (i) terminating the order without obligation for payment (in which case the volume of Product ordered shall reduce the Requirement Volume and the Sales Target Volume and shall be included in the Overall Annual Tonnage for purposes of calculating any incentive payment under Performance Incentive No. 5) and, at Customer's option, purchasing the Product ordered from a third party at a commercially reasonable price or (ii) accepting the changes set forth in the Order Modification. In the event Customer fails to notify Supplier of its election on or before 5:00 p.m. Central Time on the second business day following delivery of an Order Modification, Customer shall be deemed to have accepted the changes set forth in the Order Modification.
2. Price. Product purchased by Customer under this Agreement, except to the extent purchased under Section 1(c) or Section 1(d) of this Agreement, shall be purchased either as (i) a Cash Sale, (ii) an Index Sale, (iii) a Forward Pricing Sale or (iv) a Negotiated Sale (each of which "Sales" is hereinafter defined). Customer shall notify Supplier with each order for Product whether it will purchase Product as a Cash Sale, an Index Sale, a Forward Pricing Sale or a Negotiated Sale and the Delivery Terms (as hereinafter defined) subject, at all times, to the Take Pattern. In the absence of an election by Customer of the type of "Sale" applicable to a specific Product purchase, such purchase shall be deemed to be a Cash Sale. In the absence of an election by Customer of the Delivery Terms applicable to a specific Product purchase as set forth in Section 8 of this Agreement, such purchase shall be deemed to be on an FOB (Customer pays freight) basis.
Supplier covenants with Customer (which covenant is intended to be for the sole benefit of Customer) that the price published by Supplier (excluding prices published for turf sales and nonagricultural sales) at any specific time during the term of this Agreement for Cash Sales, Index Sales and Forward Pricing Sales shall be the same for all customers. The price published by Supplier for any Product may be changed from time to time by Supplier. The foregoing covenant shall not be deemed violated by spot sales or negotiated sales which sales, at times, may include incentives.
Supplier further covenants with Customer that, in the event Supplier has entered into an agreement for a negotiated sale of Product (i) at a price (before applicable incentives) which is less than the price published by Supplier for such Product by at least ***** per short ton under any "Sale" type available at the time of the negotiated sale and having the same mode of transport, the same source of supply as is available to Customer according to the Take Pattern and the same market of delivery and (ii) which is for a volume of ***** or more short tons, Supplier shall notify Customer (the "Negotiated Sale Notice") of the price, volume and other terms and conditions of such sale and the date and time by which Customer must respond to such Negotiated Sale Notice. Customer shall have until the time and date set forth in the Negotiated Sale Notice to agree to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Negotiated Sale Notice. If Customer fails to respond to the Negotiated Sale Notice within the time specified, or if Customer declines to purchase the specified volume of Product from Supplier on the terms and conditions set forth in the Negotiated Sale Notice, Customer shall be deemed to have waived its right to purchase the specified volume of Product at the price, in the manner and on the terms set forth in the Negotiated Sale Notice.
(a) Cash Sale. "Cash Sale" shall refer to a sale of Product at the price set forth in Supplier's published weekly cash price list in effect (i) on the requested ship date in the case of delivery by rail (or, if the Product is not available from Supplier for shipment on such date, on the earliest date thereafter that Product is available from Supplier for shipment) or (ii) on the actual date of shipment in all other cases.
(b) Index Sale. "Index Sale" shall refer to a sale of Product at the published index price specified under a special index based pricing program for purchase of Product that may, from time to time, be offered by Supplier (the "Index Pricing Program") plus applicable freight charges at the time of shipment to the extent such Index Pricing Program is offered by Supplier during the term of this Agreement and subject to the terms and conditions of such Index Pricing Program. The terms and conditions set forth in the Index Pricing Program shall supplement the terms and conditions set forth in this Agreement and, in the event of any conflict between specific terms or conditions set forth in the Index Pricing Program and specific terms or conditions set forth in this Agreement, the specific terms and conditions set forth in the Index Pricing Program shall control provided that Customer has agreed, in writing, to the terms and conditions set forth in the Index Pricing Program.
(c) Forward Pricing Sale. "Forward Pricing Sale" shall refer to a sale of Product at the published forward price specified under a special pricing program for advance purchase of Product (the "Forward Pricing Program") plus applicable freight charges at the time of shipment. Each Monday through Thursday afternoon that Supplier is open for business during the term of this Agreement Supplier shall offer Product for sale under the Forward Pricing Program provided that the New York Mercantile Exchange is scheduled to trade natural gas contracts in an Open Outcry session on the next business day following the offering of the Forward Pricing Program. Furthermore, Supplier shall offer for sale in those months identified by Supplier as "Forward Months" in the Forward Pricing Program at least seventy-five percent (75%) of the month's Sales Target Volume for each Product as set forth in the Take Pattern. The terms and conditions set forth in the Forward Pricing Program shall supplement the terms and conditions set forth in this Agreement and, in
the event of any conflict between specific terms and conditions set forth in the Forward Pricing Program and specific terms and conditions set forth in this Agreement, the specific terms and conditions set forth in the Forward Pricing Program shall control unless otherwise agreed to by Supplier and Customer.
(d) Negotiated Sale. "Negotiated Sale" shall refer to the sale of Product at a price offered by Customer and accepted by Supplier, or at a price offered by Supplier and accepted by Customer, as the case may be; provided, however, that except as otherwise provided in Section 2 of this Agreement Supplier shall have no obligation to accept any offer made by Customer, to make any offer to Customer or to make any sales of Product on a "Negotiated Sale" basis.
3. Term. The initial term of this Agreement shall commence on July 1, 2005 and shall continue through June 30, 2006. Provided that the common stock of Supplier first trades on the New York Stock Exchange or NASDAQ on or before January 1, 2006, the term of this Agreement shall be automatically renewed for a subsequent term commencing on July 1, 2006 and continuing through June 30, 2008. Provided that this Agreement is extended beyond July 1, 2006, then at the expiration of the then current term of the Agreement, the term of this Agreement shall be automatically renewed for successive periods of one-year each unless terminated in writing by either party on or before January 1 of the then current Contract Year. For purposes of this Agreement, "Contract Year" shall mean the twelve month period beginning on July 1 and including the following June 30.
4. Incentives.
(a) The Performance Incentives set forth on Schedule A attached hereto and made a part hereof will be available to Customer and will be applied as an adjustment to the purchase price of Product in the manner and at the times set forth on Schedule A provided Customer satisfies the requirements for the Performance Incentives as set forth on Schedule A.
(b) The Performance Incentives offered to Customer under this Agreement shall be equal to the highest comparable Performance Incentives, calculated on a per ton basis, granted to any other customer under a Requirements Contract. A "Requirements Contract", for purposes of this Agreement, shall mean a contract by which a customer is obligated to purchase, over a fixed period of time, a fixed amount of Product or a fixed percentage of that customer's requirements for Product.
5. Scheduling. Supplier and Customer will agree, on or before June 15 preceding each Contract Year of this Agreement, to a mutually acceptable take pattern (the "Take Pattern") for the Sales Target Volume and the Requirement Volume including, among other things, the rate of delivery of Product (it being intended that Product will be supplied, to the extent possible, ratably during any specific month of the Contract Year), the source and region of delivery from which Product will be provided to Customer and the mode of transportation desired by Customer (truck, rail, barge, vessel or pipeline). The parties agree that the rate of delivery of the Requirement Volume shall be spread ratably over each quarter of the Contract Year on the same percentage basis as the Sale Target Volume. Supplier and Customer will revise, as necessary, and agree upon a mutually acceptable revised Take Pattern on or before September 15, December 15 and March 1 during
each Contract Year; provided, however, that the Take Pattern for ammonia shall be revised only on December 15 of each Contract Year. Customer acknowledges that Supplier may have certain limitations on specific modes of transport that must be considered when establishing the Take Pattern and that Supplier reserves the right to determine the sources and regions of delivery from which Product will be provided to Customer; provided, however, that the established and the revised Take Pattern shall be generally consistent with the Take Pattern of the immediately preceding Contract Year.
6. Payment. Except in the case of Forward Pricing Sales (where payment terms are specified in the Forward Pricing Program), Customer shall pay Supplier in full for all Product purchased and for all other charges invoiced hereunder not later than twenty-five (25) calendar days after the date of Supplier's invoice in the case of shipments by rail, truck or pipeline, not later than ten (10) calendar days after the date of Supplier's invoice in the case of shipments by barge and upon receipt of Seller's invoice (and the Certificate of Analysis, Certificate of Weight and Draft Survey if not previously delivered to Customer) in the case of shipments by vessel. Payment for all invoices shall be made by electronic funds transfer (ACH) for the credit of Supplier to such banking institution as may be specified by Supplier. If the due date for any payment falls on a weekend or a holiday, the payment must be received by the Supplier on the next day on which the Federal Reserve Bank of Chicago is open for business.
7. Taxes and Other Charges. Any tax, duty, inspection fee or other charge levied upon the sale, shipment, delivery, use or storage of Product sold hereunder (but excluding any income taxes payable on the sale of Product and any taxes or duties on the import of Product into the United States) shall be separately itemized on Supplier's invoice and shall be paid by Customer. Any such payment shall either be made directly by Customer or added to the purchase price and remitted by Supplier as required by applicable law. Customer shall obtain, at its expense, any licenses, permits or other registrations required to accept delivery of Product.
8. Delivery Terms. Customer may elect among the following delivery types and freight payment options to the extent offered by Supplier when submitting an order for Product:
(a) FOB (Supplier pays freight). FOB (Supplier pays freight) means that Supplier arranges the transportation of Product, that Supplier advances the costs of transportation and that Customer reimburses Supplier for such costs;
(b) FOB (Customer pays freight). FOB (Customer pays freight) means that Customer arranges and pays for the transportation of Product;
(c) FOB (Consignee pays freight). FOB (Consignee pays freight) means that the consignee receiving the Product arranges and pays for the transportation of Product;
(d) FOB (Third Party pays freight). FOB (Third Party pays freight) means that a third party selected by Customer arranges and pays for the transportation of Product;
(e) FOB (Third Party Supplier pays freight). FOB (Third Party Supplier pays freight) applies in those cases where Product is sourced from a facility other than Supplier's and
the third party supplier arranges and pays for the transportation of Product. In such cases, Supplier reimburses the third party supplier for the cost of transportation and Customer reimburses Supplier for such costs;
(f) Delivered (other than truck shipments with freight allowance). Delivered (other than truck shipments with freight allowance) means that Supplier arranges and pays for the transportation of Product; and
(g) Delivered (truck shipments with freight allowance). Delivered (truck shipments with freight allowance) means that Customer arranges and pays for the transportation and that the Product price is reduced by Supplier's applicable freight allowance for the delivery point shown on Supplier's transportation documents. In the event the Product is delivered to a delivery point other than that shown on Supplier's transportation documents, (i) the price for the Product will be recalculated as of the date of shipment for the market of actual delivery and (ii) the applicable freight allowance (determined by Supplier) will be recalculated as of the date of shipment for the market of actual delivery (such freight allowance to be reduced by all costs incurred in such recalculation); provided, however, that the price for the Product shall not be reduced below the price for the Product in the market shown on Supplier's transportation documents and the freight allowance shall not be increased above the allowance (determined by Supplier) for the market shown on Supplier's transportation documents.
9. Title and Risk of Loss. Except in those cases described later in this Section, title to all Product and risk of loss shall pass to Customer at the time the Product is loaded onto barge, truck, railcar or other applicable transport (or, in the case of distribution by pipeline, at the time the Product passes the flange connection of Customer's intake manifold at Customer's terminal). In the case where the order or contract specifies that the Product will be "Delivered" and delivery is by a method other than truck with a freight allowance, title to all Product and risk of loss shall pass to Customer when the Product is constructively placed at its destination. In the case of a "Bulk" transfer (i.e., where the Product remains in storage and is not transported to a new location), title to all Product and risk of loss shall pass to Customer as of the date on Supplier's invoice for the Product.
10. Product Warranty. Supplier warrants that the Product will (i) conform to Supplier's Product Specification Sheet in effect at the time an order for Product is submitted, (ii) be delivered free and clear of all liens, claims, security interests, encumbrances or other agreements that create an interest in or encumbrance on the Product by any third party and (iii) comply with all applicable federal, state and local laws and ordinances applicable to the manufacture, sale and transportation of Product. A copy of Supplier's current Product Specificaton Sheet is attached hereto as Exhibit A. Supplier reserves the right, at any time and from time to time, to amend the Product specifications by sending to Customer a revised Product Specification Sheet prior to shipment of the Product affected. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11. Product Weight. The volume of Product purchased shall be equal to the weight of shipped Product determined in the manner set forth in this Section. For Product shipped by
trucks and railcars, the weight of the Product shipped shall be determined by the scale or metered weight measured at origin. For dry Product (for example, urea, DAP and MAP) shipped by barge, the weight of the Product shipped shall be determined by the origin barge survey. For liquid Product (for example, UAN Solution or ammonia) shipped by barge, the weight of the Product shipped shall be determined, in the case of FOB sales, by an origin survey and, in all other cases, by a destination shore tank survey. For Product shipped by vessel, the weight of the Product shipped shall be determined by an origin survey; provided, however, that in the case of liquid Product sold Delivered, the weight of the Product shipped shall be determined by a destination survey. All origin and destination surveys shall be performed by an independent surveyor selected and paid by Supplier.
12. Demurrage. Customer shall be responsible for the cost of demurrage based upon Supplier's demurrage policy in effect at the time the demurrage is incurred.
13. Force Majeure. Neither party shall be liable for any failure or delay in performance of any provision of this Agreement (other than to make payment due hereunder) if such failure or delay is caused by fire, flood, explosion, strike, war, insurrection, labor disputes, breakage of machinery or equipment, compliance with governmental orders, curtailment of operations to remedy violations of environmental, health or safety regulations, inability to obtain Product or fuel, supplies, materials or equipment or other similar causes beyond the reasonable control of a party hereunder. In the event a force majeure event renders a party unable to carry out its obligations under this Agreement, such party shall give notice and full particulars, including the expected duration of such force majeure event, to the other party within seventy-two (72) hours after the occurrence of such force majeure event. The obligations of the parties, so far as they are affected by such force majeure event, shall suspend during the continuance of any such force majeure event and the disabled party shall use commercially reasonable efforts to remedy the disability with all reasonable dispatch. In the event a force majeure condition occurs affecting Supplier, Supplier may elect to reduce the quantity of Product delivered or, upon the agreement of the parties, to postpone the delivery of Product. In the event Supplier elects to reduce the quantity of Product delivered, Supplier may, but shall not be obligated, to allocate its available supply among any or all customers and on such basis as Supplier, in its sole discretion, may elect without liability for failure to comply with the terms of this Agreement; provided, however, that Supplier shall use commercially reasonable efforts, after first filling orders from customers for which Supplier has received advance payment, to allocate its available supply among Requirements Contract customers.
14. Confidentiality. Each party shall keep and maintain, and shall cause its officers, employees, agents and contractors to keep and maintain, the confidentiality of all information contained in or relating to the performance of this Agreement and shall not disclose any information to any third party except (i) to the extent necessary to perform its obligations under this Agreement, (ii) to a party's professional advisors or (iii) to a possible purchaser of all or any portion of a party's business operations provided such prospective purchaser agrees to the terms and conditions of this confidentiality provision and (iv) that Supplier may disclose all or any portion of this Agreement as part of any federal or state securities law filings or disclosures and
except that neither party shall have any obligation of confidentiality with respect to information that (i) is generally available to the public, (ii) is or becomes known to such party through sources not bound by any obligation of confidentiality or (iii) is required to be disclosed under applicable law.
15. Certain Remedies.
(a)
(1) In the event that Customer shall at any time (i) fail to make payment when due and such failure continues for a period of five (5) business days after written notice from Supplier to Customer of such failure, (ii) become insolvent, (iii) commit any act of bankruptcy, (iv) take advantage of any law for the benefit of debtors, (v) have appointed a receiver for itself or its properties and such receiver is not discharged within sixty (60) days or (vi) fail to comply with any other terms or conditions of this Agreement and such failure continues for a period of thirty (30) days after written notice from Supplier of such failure, the Supplier may then or thereafter upon notice to Customer (a) refuse to make further deliveries hereunder, (b) terminate this Agreement (but in such event Customer shall remain liable for the payment of all Product theretofore delivered) and (c) exercise such other and further rights and remedies as it may have under this Agreement or otherwise in law or at equity. Such rights and remedies may be exercised independently and shall not be mutually exclusive.
(2) In the event that Supplier shall at any time (i) become insolvent, (ii) commit any act of bankruptcy, (iii) take advantage of any law for the benefit of debtors, (iv) have appointed a receiver for itself or its properties and such receiver is not discharged within sixty (60) days or (v) fail to comply with any other terms or conditions of this Agreement and such failure continues for a period of thirty (30) days after written notice from Customer of such failure, the Customer may then or thereafter upon notice to Supplier (a) refuse to take further deliveries hereunder, (b) terminate this Agreement (but in such event Customer shall remain liable for the payment of all Product theretofore delivered) and (c) exercise such other and further rights and remedies as it may have under this Agreement or otherwise in law or at equity. Such rights and remedies may be exercised independently and shall not be mutually exclusive.
(b) If, at the end of any quarter (or, in the case of ammonia, each semi-annual period) during each Contract Year of this Agreement, or at the termination or expiration of this Agreement, Customer has not purchased the Requirement Volume for that period as established by the Take Pattern for reasons other than Force Majeure as set forth in Section 13 of this Agreement, Customer shall pay to Supplier an amount equal to the difference between the Customer's Requirement Volume for that period and the actual volume Customer purchased during that period (the "Unfulfilled Commitment") multiplied by the greater of (i) the weighted average (using the Take Pattern as of the first day of the period) of the Supplier's weekly cash price for the Product in effect during the period or (ii) the average of the Supplier's weekly cash price for the Product in effect during the last four weeks of the period. Customer shall be entitled to take delivery of the Unfulfilled Commitment at any time prior to the last day of the
sixth (6th) month following the end of the applicable period provided, however, that Customer shall pay to Supplier (i) the increase, if any, in the freight cost incurred by Supplier and (ii) a storage fee of $5.00 per ton on the Unfulfilled Commitment beginning as of the first day of the second month following the month there is an Unfilled Commitment and then $5.00 per ton on the first day of each month thereafter and continuing until Customer takes delivery of the Unfulfilled Commitment. Customer's right to take delivery of any Unfulfilled Commitment shall cease, and Customer shall have no right to take delivery of any such Unfulfilled Commitment, from and after the first day of the seventh (7th) month following the end of the applicable period.
(c) If, at the end of any quarter (or, in the case of ammonia, each semi-annual period) during each Contract Year of this Agreement, or at the termination or expiration of this Agreement, Supplier has failed or refused to accept orders to supply the Requirement Volume for that period as established by the Take Pattern and such failure is not caused by (i) Force Majeure as set forth in Section 13 of this Agreement or (ii) Supplier's supply capability being impaired because of an Unfulfilled Commitment being stored for Customer as set forth in Section 15(b) of this Agreement, then the difference between the Requirement Volume for the period as established by the Take Pattern and the actual volume supplied by Supplier during such period (the "Unsupplied Commitment") shall reduce the Requirement Volume and the Sales Target Volume and shall be included in the Overall Annual Tonnage for purposes of calculating any incentive payment under Performance Incentive No. 5 and, as Customer's sole and exclusive remedy, Supplier shall pay to Customer a nonperformance fee which shall be determined based on the level of deficiency expressed as a percentage (i.e., the Unsupplied Commitment for each Product divided by the Requirement Volume for that Product) and shall be equal to the Unsupplied Commitment multiplied by the Fee determined in accordance with the following schedule:
Deficiency (per Product)
|
Fee
|
|
---|---|---|
0-20% | $*****/ton on the entire Unsupplied Commitment | |
>20%-50% | $*****/ton on the entire Unsupplied Commitment | |
>50% | $*****/ton on the entire Unsupplied Commitment |
(d) Any amounts due and owing from Customer to Supplier, and any amounts due and owing from Supplier to Customer, pursuant to this Section shall be paid not later than ten (10) days after the date of invoice.
16. Liability Limits. Customer's exclusive remedy against Supplier for any claim arising out of or in any way relating to this Agreement (whether in contract, tort, strict liability or otherwise) shall be for damages only and not for injunctive or other relief (whether at law or in equity); provided, however, that the parties agree that in the event of a breach or threatened breach of Section 14 of this Agreement, monetary damages would be an inadequate remedy and
the parties shall be entitled to seek injunctive relief without recourse to Section 17(k) of this Agreement. In addition, Customer's sole and exclusive remedy for Supplier's failure or refusal to accept orders for the Requirement Volume shall be as set forth in Section 15(c) of this Agreement and Customer shall not be entitled to claim damages or other relief except as set forth in Section 15(c) of this Agreement. Supplier's liability for damages shall in no event exceed the purchase price of the Product with respect to which such matter arises or such claim relates. NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR BREACH OF THIS AGREEMENT OR ANY PROVISION HEREOF.
17. Miscellaneous.
(a) Assignment. All covenants and agreements contained in this Agreement by or on behalf of Customer or Supplier will bind and inure to the respective successors and assigns of the parties hereto; provided, however, that neither party may assign this Agreement, in whole or in part, without the prior written consent of the other party (which consent shall not be unreasonably withheld or delayed).
(b) Notices. All notices, demands or other communications to be given or delivered hereunder will be deemed to have been given when delivered personally or two (2) business days after they have been mailed by certified or registered mail, postage prepaid and return receipt requested, or one (1) business day after they have been sent by a nationally recognized private courier service, to the recipient at the address specified below or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party:
If to Supplier: |
CF Industries, Inc.
One Salem Lake Drive Long Grove, Illinois 60047-8402 Attention: Vice President, Sales |
|
If to Customer: |
|
Southern States Cooperative, Incorporated 6606 West Broad Street Richmond, Virginia 23230 Attention: Vice President, Crops Division |
(c) Descriptive Headings. The descriptive headings used herein are inserted for convenience only and do not constitute a part of this Agreement.
(d) Amendments and Waivers. This Agreement may be amended, or any provision hereof waived, only in a writing or writings signed by the party intended to be bound. The waiver by a party of any breach of this Agreement or the failure of any party to enforce any of the terms and conditions of this Agreement at any time shall not in any way affect, limit or waive that party's right thereafter to enforce and compel strict compliance with every term and condition hereof.
(e) Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.
(f) Survival of Claims. Termination or expiration of this Agreement shall not relieve either party of any obligation or deprive it of any right arising prior to termination.
(g) Conflicting Terms. No term in any purchase order, acknowledgement form or other document from Customer or Supplier which conflicts with the terms hereof or increases Customer's or Supplier's obligations hereunder shall be binding on either party unless issued in accordance with Section 17(d) of this Agreement notwithstanding any provision in any such purchase order, acknowledgement form or other document to the contrary.
(h) Time. Time is of the essence of this Agreement and of each and every provision thereof.
(i) Finance Charges. Amounts not paid when due, whether owed by Customer to Supplier or by Supplier to Customer, shall accrue interest from the date due until the date paid at a monthly rate determined at the end of each month (which rate shall be equal to the quotient of (i) the average prime rate as published in the Wall Street Journal over the preceding ninety (90) day period multiplied by two (2) and then increased by two (2) percentage points divided by (ii) twelve (12), rounded to the nearest whole percentage, or, if less, at the highest rate allowed by applicable law) and such interest shall be due immediately on demand.
(j) Credit Quality. Supplier shall have the right, at any time and from time to time during the term of this Agreement and upon notice to Customer, to change the payment terms applicable to Customer in the event the financial condition or payment history of Customer is not satisfactory to Supplier in its sole discretion. Supplier shall have no liability to Customer, whether under Section 15(c) of this Agreement or otherwise, for any reduction or cessation in the supply of Product as a result of the application of this Section 17(j) of this Agreement.
(k) Arbitration. All claims of breach of this Agreement by either party not barred and foreclosed shall be resolved by arbitration between the parties in St. Louis, Missouri under the auspices of and pursuant to the rules for commercial arbitration of the American Arbitration Association. Any award thereon may include monetary or, to the extent permitted by Section 16 of this Agreement, injunctive relief in the discretion of the arbitrators. Judgment upon an award duly rendered in such an arbitration proceeding may be entered by the party in whose favor the award has been made in any court having jurisdiction to do so and over the party against whom such award has been rendered.
(l) Transportation Equipment. In the event Customer supplies equipment for the transportation of Product, Supplier shall have the right to inspect such equipment and to reject such equipment if Supplier, in the exercise of its reasonable discretion, believes such equipment may pose a risk of injury or contamination to persons or property. In the case of barges or vessels supplied by or at the direction of Customer, the type, size and scheduled arrival date must be approved by Supplier in the exercise of Supplier's reasonable discretion.
(m) Examination of Records.
Customer shall have the right, at its expense and from time to time upon reasonable prior notice to Supplier, but not more frequently than once during each Contract Year of this Agreement, to retain an independent certified public accountant to examine the relevant sections of (i) Supplier's sales records covering the current Contract Year to verify compliance with Supplier's obligations as set forth in Section 1(d) and the third grammatical paragraph of Section 2 of this Agreement and (ii) Requirements Contracts entered into by Supplier to verify compliance with Supplier's obligations as set forth in Section 4(b) of this Agreement. Customer shall cause any accountant so retained to maintain the confidentiality of the records being examined and to report only to Customer and Supplier the amount of any discrepancy discovered by such examination.
Supplier shall have the right, at its expense and from time to time upon reasonable prior notice to Customer, but not more frequently than once during each Contract Year of this Agreement, to retain an independent certified public accountant to examine the relevant sections of Customer's sales records covering the current Contract Year to verify compliance with Customer's obligations as set forth in Section 1(c) of this Agreement. Supplier shall cause any accountant so retained to maintain the confidentiality of the records being examined and to report only to Supplier and Customer the amount of any discrepancy discovered by such examination.
(n) Calculation of Volume. For purposes of calculating the volume of Product purchased by Customer (which volume is relevant for purposes of calculating the Performance Incentives and the Unfulfilled Commitment), Product shall be deemed to have been purchased on a specific date determined in accordance with the following schedule:
Sales Type
|
Delivery Mode
|
Purchase Date
|
||
---|---|---|---|---|
Cash Sale | Truck | Shipment Date on Bill of Lading | ||
Cash Sale | Rail | Requested Date of Shipment from Customer and accepted by Supplier | ||
Index Sale |
|
Truck |
|
Shipment Date on Bill of Lading |
Index Sale | Rail and Barge | Requested Date of Shipment from Customer and accepted by Supplier | ||
Forward Pricing Sale |
|
All |
|
First day of the shipment month requested by Customer |
Negotiated Sale |
|
Truck |
|
Shipment Date on Bill of Lading |
Negotiated Sale | Rail, Barge, Vessel, Bulk and Pipeline | Requested Date of Shipment from Customer |
Notwithstanding the foregoing, (i) Product will only be deemed to have been purchased by Customer if the Product is paid for in full by Customer and (ii) in the case of orders placed for delivery by truck, Product shall be deemed to have been purchased on the first day of the shipment period requested by Customer and accepted by Supplier and not on the shipment date on the bill of lading in those cases where the order placed by Customer is subject to a storage fee if Customer does not take possession of the Product prior to the expiration of the shipment period.
(o) Entire Agreement. Except as otherwise specifically provided in Sections 2(b), 2(c), 10, 12 and 17(o) of this Agreement, this Agreement embodies the complete agreement and understanding between the parties with respect to the subject matter hereof and supersedes and preempts any prior or contemporaneous understandings, agreements or representations by Supplier or Customer, written or oral, relating in any way to the subject matter
hereof; excepting, however, that certain Nitrogen Solution Sales Agreement dated as of July 1, 2005 between Supplier and Customer (the "East Coast UAN Agreement"). Product purchased under the East Coast UAN Agreement shall not be included in or credited against the Requirement Volume or the Sales Target Volume or in calculating the Performance Incentives; provided, however, that such Product purchases shall be considered solely for purposes of qualifying Customer for the 300,000 minimum ton Contract Year purchase requirement necessary to qualify for Performance Incentive No. 5 but will not be included in the Overall Annual Tonnage for calculating any incentive payment under Performance Incentive No. 5.
(p) Governing Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed in all instances by the law of the State of Illinois.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
SUPPLIER: | CUSTOMER: | |||
CF INDUSTRIES, INC. |
|
SOUTHERN STATES COOPERATIVE, INCORPORATED |
||
By: |
/s/ STEPHEN R. WILSON |
|
By: |
/s/ GREG ADLICH |
Name: |
Stephen R. Wilson
|
Name: |
Greg Adlich
|
|
Title: |
President and Chief Executive Officer
|
Title: |
Vice-President
|
Schedule A
Performance Incentives
Incentive No. 1
Type: Actual purchase volume versus Sales Target Volume
Description: Incentive earned on a Product if (i) that Product is purchased in accordance with the Take Pattern and (ii) the total volume of that Product purchased for a Contract Year equals a minimum percentage of that Product's Sales Target Volume.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: Forty-five (45) days after the end of a quarter or semi-annual period, unless actual shipment of the Product purchased enabling the Customer to earn the incentive occurs after the expiration of the quarter or semi-annual period, whereby payment will then be made 45 days from the date of actual shipment.
Incentive Allowance by Product:
A) Quarterly: If total purchases for a specific quarter (January through March, etc.) of a Contract Year for a specific Product are equal to or greater than 95% of that Product's Sales Target Volume for that time period as set forth in the Take Pattern, the quarterly incentive allowance for such Product (see Table I) will be paid on the actual volume purchased for shipment for that Product for that time period. This incentive applies for urea, UAN solution (as equivalent 28%), DAP, and MAP.
B) Semi-Annual: If total purchases for a specific half of a Contract Year (January through June, etc.) for ammonia are equal to or greater than 95% of the Sales Target Volume for that time period as set forth in the Take Pattern, the semi-annual incentive allowance (see Table IA) will be paid on the actual volume purchased for shipment for that time period.
C) Base: If total purchases for a specific Product are equal to or greater than 95% of the Sales Target Volume for that Product for the Contract Year, a base incentive allowance for such Product (see Tables I and IA) will be paid on 95% of the Sales Target Volume for that Product for the Contract Year.
D) Annual: If total purchases for a specific Product are greater than 95% of the Sales Target Volume for that Product for the Contract Year, an annual incentive allowance for such individual Product (see Tables I and IA) will be paid on all purchases above 95% of the Sales Target Volume for the Contract Year.
Table I
$ Per Ton
|
Quarter
1 |
Quarter
2 |
Quarter
3 |
Quarter
4 |
Base
|
Annual
|
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Urea | ***** | ***** | ***** | ***** | ***** | ***** | ||||||
UAN-28 | ***** | ***** | ***** | ***** | ***** | ***** | ||||||
DAP/MAP | ***** | ***** | ***** | ***** | ***** | ***** |
Table IA
$ Per Ton
|
Half
1 |
Half
2 |
Base
|
Annual
|
||||
---|---|---|---|---|---|---|---|---|
Ammonia | ***** | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 1.
Incentive No. 2
Type: Timing of actual purchases under Supplier's Forward Pricing Program (FPP)
Description: Incentive earned on a Product if (i) that Product is purchased in accordance with the terms and conditions of Supplier's FPP and (ii) a minimum period of time exists between the date the Customer places the order and the first day of the contract ship month as defined in Table II.
Product: Ammonia, urea, UAN solution (as equivalent 28%)
Time of Payment: No later than forty-five (45) days after the end of the Contract Year in which the Product was scheduled for shipment (i.e., contract ship month)
Incentive Allowance by Product:
Table II
$ Per Ton
|
No. Of Months between Order Date on FPP & 1
st
Day of Contract Ship Month
|
|||||||
---|---|---|---|---|---|---|---|---|
|
12 months or greater
|
Greater than 6 months but less than 12 months
|
Greater than 4 months but less than or equal to 6 months
|
Greater than or equal to 1 months but less than or equal to 4 months
|
||||
Ammonia | ***** | ***** | ***** | ***** | ||||
Urea | ***** | ***** | ***** | ***** | ||||
UAN-28 | ***** | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 2.
Incentive No. 3
Type: Actual purchase volumes under Supplier's Forward Pricing Program
Description: Incentive earned on a Product if Customer purchases a minimum of 25% of that Product's Sales Target Volume for a Contract Year in accordance with the terms and conditions of the Supplier's FPP. Only those tons with a contract ship month which falls within the current Contract Year, and only those tons purchased in accordance with the terms and conditions of the Supplier's FPP are eligible for this incentive. If the minimum (or next threshold level e.g., 51%) is satisfied, the then applicable per ton Product incentive is earned on the total eligible volume.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: No later than forty-five (45) days after the end of a Contract Year.
Incentive Allowance by Product:
|
FPP tons as a Percent of Annual Sales Target Volume
|
|||||
---|---|---|---|---|---|---|
|
25% or greater
but less than or equal to 50% |
Greater than 50%
but less than or equal to 75% |
Greater than
75% |
|||
Ammonia | ***** | ***** | ***** | |||
Urea | ***** | ***** | ***** | |||
UAN-28 | ***** | ***** | ***** | |||
DAP/MAP | ***** | ***** | ***** |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, UAN solution purchases from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, any UAN solution vessel purchases delivered to US East Coast and Eastern Canada, and urea purchases sold under a turf agreementboth actual and Sales Target Volume amountsare excluded from all calculations for incentive allowances available per Performance Incentive No. 3.
Incentive No. 4
Type: Requirement Volume above Contract Minimum
Description: Incentive earned for establishing, for any specific Product as of June 1 preceding a Contract Year, a Requirement Volume equal to or greater than 80% of the Sales Target Volume. This multiplier percentage is specific by Product and is available for application to Incentives No. 1, No. 2, and No. 3
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: The multiplier incentive (Table IV) will be applied to each incentive allowance (i.e., Incentives No. 1 through No. 3) whenever a particular incentive allowance is calculated and determined for payment. This incentive will be paid whenever the incentive allowances under No. 1 through No. 3 are paid.
Multiplier Percentage Incentive:
Table IV
Multiplier Percentage
|
Requirement Volume as a % of
Sales Target Volume |
Multiplier Percentage
|
|
|||
---|---|---|---|---|---|---|
|
|
Equal to or greater than 80% |
|
*****% |
|
|
Incentive No. 5
Type: Quantity discount for overall volume
Description: Incentive earned on Product purchased for a Contract Year if the volume of Product purchased (i) exceeds certain threshold volumes (Table V) and (ii) is equal to or greater than 80 percent of the Sales Target Volume for each Product. No incentive is paid unless the overall volume for all Products in a Contract Year is 300,000 tons or greater.
Product: Ammonia, urea, UAN solution (as equivalent 28%), DAP, MAP
Time of Payment: Forty-five (45) days after the end of a Contract Year, unless actual shipment of the Product purchased enabling the Customer to earn the incentive occurs after the expiration of the Contract Year, whereby payment will then be made 45 days from the date of shipment.
Incentive Allowance:
Table V
Quantity Discount on Overall Purchases
Overall Annual Tonnage
Purchased by Customer |
Incentive
|
|
---|---|---|
Equal to or greater than 300,000 but equal to or less than 500,000 |
|
$*****/ton on all tons |
Greater than 500,000 but equal to or less than 1,500,000 |
|
$*****/ton on first 500,000 tons plus $*****/ton on all tons above 500,000 tons but equal to or less than 1,500,000 tons |
Greater than 1,500,000 but equal to or less than 2,000,000 |
|
$*****/ton on first 1.5 million tons plus $*****/ton on all tons above 1.5 million tons but equal to or less than 2.0 million tons |
Greater than 2,000,000 |
|
$*****/ton on first 2.0 million tons plus $*****/ton on all tons above 2.0 million tons |
Exclusion: Ammonia purchases from Supplier's Tampa Ammonia terminal, and Urea volumes sold under a turf agreement are excluded from both actual purchase volumes and the Sales Target Volume, and are excluded from all calculations for incentive allowances per Performance Incentive No. 5. UAN solution volumes sold from Supplier's terminals at Baltimore, Chesapeake, Wilmington and any future East Coast or Canadian terminal, and any UAN solution vessel purchases delivered to US East Coast and Eastern Canada will be added to the volume purchased by Customer only for determining if Customer has satisfied the minimum threshold volume of 300,000 tons required per Performance Incentive No. 5, but those purchases will not be entitled to any per ton incentive available per Performance Incentive No. 5.
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, effective as of April 29, 2005, is made by and among CF Industries, Inc., a Delaware corporation, CF Industries Holdings, Inc., a Delaware corporation (collectively or individually, as the context requires, the "Company"), and Stephen R. Wilson (the "Executive").
WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Board recognizes that the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the effective date hereof and shall continue in effect through December 31, 2007; provided , however , that commencing on January 1, 2007 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following
a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive's employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the Executive's target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which the Date of Termination occurs or, if higher, the fiscal year in which the first event or circumstance constituting Good Reason occurs.
(B) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Executive than the after tax cost to the Executive immediately prior to such
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date or occurrence; provided , however , that, unless the Executive consents to a different method, such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided , however , that the Company shall reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C) The Executive's aggregate accrued benefits under the Company's non-qualified DB Plans will be calculated, and he will be treated for all purposes, as if he was credited with three (3) additional years of age and service as of the Date of Termination under such plans with compensation equal to the Executive's compensation (as defined in the DB Pension Plans) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder). The Executive shall also be paid a lump sum amount, in cash, equal to the excess of (i) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the third anniversary of the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive would have accrued under the terms of all tax-qualified DB Pension Plans in which he was a participant (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) thirty-six (36) additional months of service credit thereunder and had been credited under each such DB Pension Plan during such period with compensation equal to the Executive's compensation (as defined in such DB Pension Plan) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, over (ii) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive had accrued pursuant to the provisions of the DB Pension
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Plans as of the Date of Termination. For purposes of this Section 6.1(D), "actuarial equivalent" shall be determined using the same assumptions utilized under the applicable DB Pension Plan immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason. In addition to the benefits to which the Executive is entitled under each DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (1) the amount that would have been contributed or allocated to each DC Pension Plan by the Company on the Executive's behalf (without regard to whether such amount would be vested) during the three years immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive's compensation (as defined in the DC Pension Plans) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plans made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder and (2) all other amounts credited to the Executive's account under each DC Pension Plan to the extent such amounts were unvested on the Date of Termination.
(D) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive's employment terminated at any time during the period of thirty-six (36) months after the Date of Termination, the Company shall provide such post-retirement health care or life insurance benefits to the Executive and the Executive's dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of three years or, if earlier, until the first acceptance by the Executive of an offer of employment.
(F) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued
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employment of the Executive to a subsequent date, and (ii) a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level (or, if greater, based on actual results to Date of Termination), of the individual and corporate performance goals established with respect to such award, by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period.
6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up
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Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A),(C) and (F) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided , however , that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has
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received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
6.5 The Executive agrees that prior to and following the Date of Termination, he shall retain in confidence any confidential information known to him concerning the Company and its Affiliates and their respective businesses for as long as such information is not publicly disclosed.
6.6 Notwithstanding anything to the contrary, all compensation and benefits payable to Executive pursuant to this Section 6 (other than Sections 6.2 and 6.4) are conditioned on receipt by the Company of an executed release of claims by Executive in the form attached hereto as Exhibit A and the expiration of any revocation period in such release.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ( 3 / 4 ) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for
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Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided , however , that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, except as specifically provided in Section 6.1(B) hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
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9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
To the Company:
CF
Industries, Inc.
One Salem Lake Drive
Long Grove, Illinois 60046
Attention: William Eppel
11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party
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hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party (including, but not limited to, the Executive Change in Control Agreement between the Company and the Executive effective January 29, 2004); provided , however , that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by the arbitrator.
14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect; provided , however , that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be
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entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in or not opposed to the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(G) "Change in Control" shall mean, prior to an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following: (i) any person who is not a stockholder of CF Industries, Inc. on April 15, 2005 (or a group of such persons acting in concert other than an underwriter) acquires, during any period of twelve consecutive calendar months, stock of CF Industries, Inc. representing a majority of the voting power of all stock of the Company having the right to vote for the election of directors; (ii) a merger or consolidation of CF Industries, Inc.
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with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of CF Industries, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of CF Industries, Inc. or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of CF Industries, Inc.; or (iii) the sale or disposition by CF Industries, Inc. of all or substantially all of CF Industries, Inc.'s assets or any transaction having a similar effect. Notwithstanding anything to the contrary, the initial public offering of the common stock of CF Industries Holdings, Inc. or any transactions or events contemplated by such offering shall not constitute a Change in Control.
"Change in Control" shall mean, following an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CF Industries Holdings, Inc. (not including in the securities beneficially owned by such Person any securities acquired directly from CF Industries Holdings, Inc. or any of its subsidiaries) representing 25% or more of the combined voting power of CF Industries Holdings, Inc.'s then outstanding securities; or
(II) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date of the initial public offering, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CF Industries Holdings, Inc.) whose appointment or election by the Board or nomination for election by CF Industries Holdings, Inc.'s stockholders was approved or recommended by a vote of at least two-thirds ( 2 / 3 ) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of CF Industries Holdings, Inc. or any direct or indirect subsidiary of CF Industries Holdings, Inc. with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if CF Industries Holdings, Inc. or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or
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(IV) the stockholders of CF Industries Holdings, Inc. approve a plan of complete liquidation or dissolution of CF Industries Holdings, Inc. or there is consummated an agreement for the sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets, other than (a) a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of CF Industries Holdings, Inc. following the completion of such transaction in substantially the same proportions as their ownership of CF Industries Holdings, Inc. immediately prior to such sale or (b) other than a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of CF Industries Holdings, Inc. immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CF Industries Holdings, Inc. immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(I) "Company" shall mean CF Industries, Inc. or CF Industries Holdings, Inc., as applicable, and except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(J) "DB Pension Plan" shall mean any tax-qualified, supplemental or excess defined benefit pension plan maintained by the Company and any other defined benefit plan or agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits.
(K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
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(L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof.
(M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code.
(P) "Executive" shall mean the individual named in the first paragraph of this Agreement.
(Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions
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similarly affecting all executives of the Company and all executives of any Person in control of the Company;
(III) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days after the date demand for payment is made provided such compensation is due;
(V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all executives of the Company and all executives of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled with the Company in accordance with the vacation policy applicable to the Executive in effect at the time of the Change in Control; or
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(VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) CF Industries Holdings, Inc. or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of CF Industries, Inc. or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of CF Industries, Inc. in substantially the same proportions as their ownership of stock of CF Industries, Inc.
(U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not
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including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(V) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.
(W) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.
(X) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof.
(Y) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).
(Z) "Total Payments" shall mean those payments so described in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
CF INDUSTRIES, INC. | |||
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/s/ ERNEST THOMAS Ernest Thomas Senior Vice President and Chief Financial Officer |
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CF INDUSTRIES HOLDINGS, INC. |
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/s/ ERNEST THOMAS Ernest Thomas Senior Vice President and Chief Financial Officer |
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/s/ STEPHEN R. WILSON Stephen R. Wilson |
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EXHIBIT A
RELEASE
(a) Stephen R. Wilson (" Executive ") for and in consideration of benefits provided pursuant to the Change in Control Severance Agreement with CF Industries, Inc. and CF Industries Holdings, Inc. (collectively, referred to herein as the " Company ") entered into effective as of April 29, 2005 (the " Severance Agreement "), on behalf of Executive and Executive's heirs, executors, administrators, successors and assigns, voluntarily, knowingly and willingly releases and discharges the Company and its parents, subsidiaries and affiliates (collectively, the " Company Group "), together with their respective present and former partners, officers, directors, employees and agents, and each of their predecessors, heirs, executors, administrators, successors and assigns, and any and all employee pension or welfare benefit plans of the Company, including current and former trustees and administrators of these plans (collectively, the " Company Releasees ") from any and all charges, complaints, claims, promises, agreements, controversies, causes of action, demands, damages and liabilities (" Claims ") of any nature whatsoever, known or unknown, suspected or unsuspected, which against the Company Releasees, jointly or severally, Executive or Executive's heirs, executors, administrators, successors or assigns ever had or now have by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time Executive executes this release (the " Release "). This Release includes, without limitation, any Claims arising out of or relating in any way to Executive's employment or director relationship with the Company, or the termination thereof, any Claims arising under any statute or regulation, including but not limited to the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, or the Employee Retirement Income Security Act of 1974, each as amended, or any other federal, state or local law, regulation, ordinance or common law, or under any policy, agreement, understanding or promise, written or oral, formal or informal, between any Company Releasee and Executive. Executive shall not be entitled to any recovery, in any action or proceeding that may be commenced on Executive's behalf in any way arising out of or relating to the matters released under this Release. Notwithstanding the foregoing, nothing herein shall release any Company Releasee from any Claim based on (i) Executive's rights under the Severance Agreement or any other agreement with the Company (including, but not limited to, any stock option agreements), (ii) any right or claim that arises after the date Executive executes this Release, (iii) Executive's eligibility for indemnification in accordance with applicable laws or the certificate of incorporation or by-laws of the Company (or any affiliate or subsidiary) or any applicable insurance policy, with respect to any liability Executive incurs or incurred as a director, officer or employee of the Company or any affiliate or subsidiary (including as a trustee, director or officer of any employee benefit plan) or (iv) any rights Executive may have to vested benefits under any employee benefit plan or program.
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(b) Executive has been advised to consult with an attorney of Executive's choice prior to signing this Release, has done so and enters into this Release freely and voluntarily.
[(c) Executive acknowledges that the Company has enclosed with this Release information concerning (i) the ages and job titles of all employees who are eligible to receive severance pay and (ii) the ages of all employees in the same job classification or organizational unit who are not eligible to receive severance pay. ] 1
(d) Executive has had at least [ twenty-one (21) ] [ forty-five (45) ] 2 calendar days to consider the terms of this Release. Once Executive has signed this Release, Executive has seven (7) additional days to revoke Executive's consent and may do so by writing to the Company as provided in Section 10 of the Severance Agreement. Executive's Release shall not be effective, and no payments or benefits shall be due under Section 6 of the Severance Agreement, until the eighth day after Executive has executed this Release and returned it to the Company, assuming that Executive has not revoked Executive's consent to this Release during such time (the "Revocation Date").
(e) In the event that any one or more of the provisions of this Release shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder thereof shall not in any way be affected or impaired thereby.
(f) This Release shall be governed by the law of the State of Illinois without reference to its choice of law rules.
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CF INDUSTRIES HOLDINGS, INC. |
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__________________________________ Stephen R. Wilson |
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Signed as of this ______ day of _____________________. |
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, effective as of April 29, 2005, is made by and among CF Industries, Inc., a Delaware corporation, CF Industries Holdings, Inc., a Delaware corporation (collectively or individually, as the context requires, the "Company"), and Ernest Thomas (the "Executive").
WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Board recognizes that the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the effective date hereof and shall continue in effect through December 31, 2007; provided , however , that commencing on January 1, 2007 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following
a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive's employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the Executive's target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which the Date of Termination occurs or, if higher, the fiscal year in which the first event or circumstance constituting Good Reason occurs.
(B) For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Executive than the after tax cost to the
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Executive immediately prior to such date or occurrence; provided , however , that, unless the Executive consents to a different method, such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the twenty-four (24) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided , however , that the Company shall reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C) In addition to the benefits to which the Executive is entitled under each DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (1) the amount that would have been contributed or allocated to each DC Pension Plan by the Company on the Executive's behalf (without regard to whether such amount would be vested) during the two years immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive's compensation (as defined in the DC Pension Plans) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plans made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder and (2) all other amounts credited to the Executive's account under each DC Pension Plan to the extent such amounts were unvested on the Date of Termination.
(D) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive's employment terminated at any time during the period of twenty-four (24) months after the Date of Termination, the Company shall provide such post-retirement health care or life insurance benefits to the Executive and the Executive's dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two
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years or, if earlier, until the first acceptance by the Executive of an offer of employment.
(F) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii) a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level (or, if greater, based on actual results to Date of Termination), of the individual and corporate performance goals established with respect to such award, by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period.
6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
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the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A),(C) and (F) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided , however , that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B)
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of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
6.5 The Executive agrees that prior to and following the Date of Termination, he shall retain in confidence any confidential information known to him concerning the Company and its Affiliates and their respective businesses for as long as such information is not publicly disclosed.
6.6 Notwithstanding anything to the contrary, all compensation and benefits payable to Executive pursuant to this Section 6 (other than Sections 6.2 and 6.4) are conditioned on receipt by the Company of an executed release of claims by Executive in the form attached hereto as Exhibit A and the expiration of any revocation period in such release.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ( 3 / 4 ) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering
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such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided , however , that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the
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Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, except as specifically provided in Section 6.1(B) hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
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To the Company:
CF
Industries, Inc.
One Salem Lake Drive
Long Grove, Illinois 60046
Attention: William Eppel
11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party (including, but not limited to, the Executive Change in Control Agreement between the Company and the Executive effective May 14, 2004); provided , however , that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this
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Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by the arbitrator.
14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect; provided , however , that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part
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shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in or not opposed to the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(G) "Change in Control" shall mean, prior to an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following: (i) any person who is not a stockholder of CF Industries, Inc. on April 15, 2005 (or a group of such persons acting in concert other than an underwriter) acquires, during any period of twelve consecutive calendar months, stock of CF Industries, Inc. representing a majority of the voting power of all stock of the Company having the right to vote for the election of directors; (ii) a merger or consolidation of CF Industries, Inc. with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of CF Industries, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of CF Industries, Inc. or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of CF Industries, Inc.; or (iii) the sale or disposition by CF Industries, Inc. of all or substantially all of CF Industries, Inc.'s assets or any transaction having a similar effect. Notwithstanding anything to the contrary, the initial public offering of the common stock of CF Industries Holdings, Inc. or any transactions or events contemplated by such offering shall not constitute a Change in Control.
"Change in Control" shall mean, following an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CF Industries Holdings, Inc. (not including in the securities beneficially owned by such Person any securities acquired directly from CF Industries Holdings, Inc. or any of its subsidiaries) representing 25% or more of the combined voting power of CF Industries Holdings, Inc.'s then outstanding securities; or
(II) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date of the initial public offering, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CF Industries Holdings, Inc.) whose appointment or election by the Board or nomination for election by CF Industries
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Holdings, Inc.'s stockholders was approved or recommended by a vote of at least two-thirds ( 2 / 3 ) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of CF Industries Holdings, Inc. or any direct or indirect subsidiary of CF Industries Holdings, Inc. with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if CF Industries Holdings, Inc. or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or
(IV) the stockholders of CF Industries Holdings, Inc. approve a plan of complete liquidation or dissolution of CF Industries Holdings, Inc. or there is consummated an agreement for the sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets, other than (a) a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of CF Industries Holdings, Inc. following the completion of such transaction in substantially the same proportions as their ownership of CF Industries Holdings, Inc. immediately prior to such sale or (b) other than a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of CF Industries Holdings, Inc. immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CF Industries Holdings, Inc. immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
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(I) "Company" shall mean CF Industries, Inc. or CF Industries Holdings, Inc., as applicable, and except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(J) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
(K) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first paragraph of this Agreement.
(P) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the
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Executive's responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any Person in control of the Company;
(III) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days after the date demand for payment is made provided such compensation is due;
(V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all executives of the Company and all executives of any Person in control of the Company), the taking of
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any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled with the Company in accordance with the vacation policy applicable to the Executive in effect at the time of the Change in Control; or
(VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(Q) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof.
(R) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof.
(S) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) CF Industries Holdings, Inc. or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of CF Industries, Inc. or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of CF Industries, Inc. in substantially the same proportions as their ownership of stock of CF Industries, Inc.
(T) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
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(II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(U) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.
(V) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.
(W) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof.
(X) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).
(Y) "Total Payments" shall mean those payments so described in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
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CF INDUSTRIES, INC. |
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/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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CF INDUSTRIES HOLDINGS, INC. |
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By: |
/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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/s/ ERNEST THOMAS Ernest Thomas |
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EXHIBIT A
RELEASE
(a) Ernest Thomas (" Executive ") for and in consideration of benefits provided pursuant to the Change in Control Severance Agreement with CF Industries, Inc. and CF Industries Holdings, Inc. (collectively, referred to herein as the " Company ") entered into effective as of April 29, 2005 (the " Severance Agreement "), on behalf of Executive and Executive's heirs, executors, administrators, successors and assigns, voluntarily, knowingly and willingly releases and discharges the Company and its parents, subsidiaries and affiliates (collectively, the " Company Group "), together with their respective present and former partners, officers, directors, employees and agents, and each of their predecessors, heirs, executors, administrators, successors and assigns, and any and all employee pension or welfare benefit plans of the Company, including current and former trustees and administrators of these plans (collectively, the " Company Releasees ") from any and all charges, complaints, claims, promises, agreements, controversies, causes of action, demands, damages and liabilities (" Claims ") of any nature whatsoever, known or unknown, suspected or unsuspected, which against the Company Releasees, jointly or severally, Executive or Executive's heirs, executors, administrators, successors or assigns ever had or now have by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time Executive executes this release (the " Release "). This Release includes, without limitation, any Claims arising out of or relating in any way to Executive's employment or director relationship with the Company, or the termination thereof, any Claims arising under any statute or regulation, including but not limited to the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, or the Employee Retirement Income Security Act of 1974, each as amended, or any other federal, state or local law, regulation, ordinance or common law, or under any policy, agreement, understanding or promise, written or oral, formal or informal, between any Company Releasee and Executive. Executive shall not be entitled to any recovery, in any action or proceeding that may be commenced on Executive's behalf in any way arising out of or relating to the matters released under this Release. Notwithstanding the foregoing, nothing herein shall release any Company Releasee from any Claim based on (i) Executive's rights under the Severance Agreement or any other agreement with the Company (including, but not limited to, any stock option agreements), (ii) any right or claim that arises after the date Executive executes this Release, (iii) Executive's eligibility for indemnification in accordance with applicable laws or the certificate of incorporation or by-laws of the Company (or any affiliate or subsidiary) or any applicable insurance policy, with respect to any liability Executive incurs or incurred as a director, officer or employee of the Company or any affiliate or subsidiary (including as a trustee, director or officer of any employee benefit plan) or (iv) any rights Executive may have to vested benefits under any employee benefit plan or program.
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(b) Executive has been advised to consult with an attorney of Executive's choice prior to signing this Release, has done so and enters into this Release freely and voluntarily.
[(c) Executive acknowledges that the Company has enclosed with this Release information concerning (i) the ages and job titles of all employees who are eligible to receive severance pay and (ii) the ages of all employees in the same job classification or organizational unit who are not eligible to receive severance pay. ] 1
(d) Executive has had at least [ twenty-one (21) ] [ forty-five (45) ] 2 calendar days to consider the terms of this Release. Once Executive has signed this Release, Executive has seven (7) additional days to revoke Executive's consent and may do so by writing to the Company as provided in Section 10 of the Severance Agreement. Executive's Release shall not be effective, and no payments or benefits shall be due under Section 6 of the Severance Agreement, until the eighth day after Executive has executed this Release and returned it to the Company, assuming that Executive has not revoked Executive's consent to this Release during such time (the "Revocation Date").
(e) In the event that any one or more of the provisions of this Release shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder thereof shall not in any way be affected or impaired thereby.
(f) This Release shall be governed by the law of the State of Illinois without reference to its choice of law rules.
CF INDUSTRIES, INC. | ||||
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_____________________________________ Ernest Thomas |
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Signed as of this ______ day of _____________________. |
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, effective as of April 29, 2005, is made by and among CF Industries, Inc., a Delaware corporation, CF Industries Holdings, Inc., a Delaware corporation (collectively or individually, as the context requires, the "Company"), and Douglas C. Barnard (the "Executive").
WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Board recognizes that the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the effective date hereof and shall continue in effect through December 31, 2007; provided , however , that commencing on January 1, 2007 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following
a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive's employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the Executive's target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which the Date of Termination occurs or, if higher, the fiscal year in which the first event or circumstance constituting Good Reason occurs.
(B) For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Executive than the after tax cost to the
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Executive immediately prior to such date or occurrence; provided , however , that, unless the Executive consents to a different method, such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the twenty-four (24) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided , however , that the Company shall reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C) In addition to the benefits to which the Executive is entitled under each DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (1) the amount that would have been contributed or allocated to each DC Pension Plan by the Company on the Executive's behalf (without regard to whether such amount would be vested) during the two years immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive's compensation (as defined in the DC Pension Plans) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plans made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder and (2) all other amounts credited to the Executive's account under each DC Pension Plan to the extent such amounts were unvested on the Date of Termination.
(D) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive's employment terminated at any time during the period of twenty-four (24) months after the Date of Termination, the Company shall provide such post-retirement health care or life insurance benefits to the Executive and the Executive's dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two
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years or, if earlier, until the first acceptance by the Executive of an offer of employment.
(F) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued employment of the Executive to a subsequent date, and (ii) a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level (or, if greater, based on actual results to Date of Termination), of the individual and corporate performance goals established with respect to such award, by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period.
6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
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the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A),(C) and (F) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided , however , that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B)
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of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
6.5 The Executive agrees that prior to and following the Date of Termination, he shall retain in confidence any confidential information known to him concerning the Company and its Affiliates and their respective businesses for as long as such information is not publicly disclosed.
6.6 Notwithstanding anything to the contrary, all compensation and benefits payable to Executive pursuant to this Section 6 (other than Sections 6.2 and 6.4) are conditioned on receipt by the Company of an executed release of claims by Executive in the form attached hereto as Exhibit A and the expiration of any revocation period in such release.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ( 3 / 4 ) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering
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such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided , however , that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the
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Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, except as specifically provided in Section 6.1(B) hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
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To the Company:
CF
Industries, Inc.
One Salem Lake Drive
Long Grove, Illinois 60046
Attention: William Eppel
11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party (including, but not limited to, the Executive Change in Control Agreement between the Company and the Executive effective October 27, 2004); provided , however , that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this
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Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by the arbitrator.
14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect; provided , however , that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part
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shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in or not opposed to the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(G) "Change in Control" shall mean, prior to an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following: (i) any person who is not a stockholder of CF Industries, Inc. on April 15, 2005 (or a group of such persons acting in concert other than an underwriter) acquires, during any period of twelve consecutive calendar months, stock of CF Industries, Inc. representing a majority of the voting power of all stock of the Company having the right to vote for the election of directors; (ii) a merger or consolidation of CF Industries, Inc. with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of CF Industries, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of CF Industries, Inc. or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of CF Industries, Inc.; or (iii) the sale or disposition by CF Industries, Inc. of all or substantially all of CF Industries, Inc.'s assets or any transaction having a similar effect. Notwithstanding anything to the contrary, the initial public offering of the common stock of CF Industries Holdings, Inc. or any transactions or events contemplated by such offering shall not constitute a Change in Control.
"Change in Control" shall mean, following an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CF Industries Holdings, Inc. (not including in the securities beneficially owned by such Person any securities acquired directly from CF Industries Holdings, Inc. or any of its subsidiaries) representing 25% or more of the combined voting power of CF Industries Holdings, Inc.'s then outstanding securities; or
(II) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date of the initial public offering, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CF Industries Holdings, Inc.) whose appointment or election by the Board or nomination for election by CF Industries
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Holdings, Inc.'s stockholders was approved or recommended by a vote of at least two-thirds ( 2 / 3 ) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of CF Industries Holdings, Inc. or any direct or indirect subsidiary of CF Industries Holdings, Inc. with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if CF Industries Holdings, Inc. or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or
(IV) the stockholders of CF Industries Holdings, Inc. approve a plan of complete liquidation or dissolution of CF Industries Holdings, Inc. or there is consummated an agreement for the sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets, other than (a) a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of CF Industries Holdings, Inc. following the completion of such transaction in substantially the same proportions as their ownership of CF Industries Holdings, Inc. immediately prior to such sale or (b) other than a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of CF Industries Holdings, Inc. immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CF Industries Holdings, Inc. immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
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(I) "Company" shall mean CF Industries, Inc. or CF Industries Holdings, Inc., as applicable, and except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(J) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
(K) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof.
(L) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.
(M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(N) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code.
(O) "Executive" shall mean the individual named in the first paragraph of this Agreement.
(P) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the
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Executive's responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all executives of the Company and all executives of any Person in control of the Company;
(III) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days after the date demand for payment is made provided such compensation is due;
(V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all executives of the Company and all executives of any Person in control of the Company), the taking
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of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled with the Company in accordance with the vacation policy applicable to the Executive in effect at the time of the Change in Control; or
(VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(Q) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof.
(R) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof.
(S) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) CF Industries Holdings, Inc. or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of CF Industries, Inc. or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of CF Industries, Inc. in substantially the same proportions as their ownership of stock of CF Industries, Inc.
(T) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
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(II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(U) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.
(V) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.
(W) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof.
(X) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).
(Y) "Total Payments" shall mean those payments so described in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
CF INDUSTRIES, INC. | |||
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/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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CF INDUSTRIES HOLDINGS, INC. |
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By: |
/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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/s/ DOUGLAS C. BARNARD Douglas C. Barnard |
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EXHIBIT A
RELEASE
(a) Douglas C. Barnard (" Executive ") for and in consideration of benefits provided pursuant to the Change in Control Severance Agreement with CF Industries, Inc. and CF Industries Holdings, Inc. (collectively, referred to herein as the " Company ") entered into effective as of April 29, 2005 (the " Severance Agreement "), on behalf of Executive and Executive's heirs, executors, administrators, successors and assigns, voluntarily, knowingly and willingly releases and discharges the Company and its parents, subsidiaries and affiliates (collectively, the " Company Group "), together with their respective present and former partners, officers, directors, employees and agents, and each of their predecessors, heirs, executors, administrators, successors and assigns, and any and all employee pension or welfare benefit plans of the Company, including current and former trustees and administrators of these plans (collectively, the " Company Releasees ") from any and all charges, complaints, claims, promises, agreements, controversies, causes of action, demands, damages and liabilities (" Claims ") of any nature whatsoever, known or unknown, suspected or unsuspected, which against the Company Releasees, jointly or severally, Executive or Executive's heirs, executors, administrators, successors or assigns ever had or now have by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time Executive executes this release (the " Release "). This Release includes, without limitation, any Claims arising out of or relating in any way to Executive's employment or director relationship with the Company, or the termination thereof, any Claims arising under any statute or regulation, including but not limited to the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, or the Employee Retirement Income Security Act of 1974, each as amended, or any other federal, state or local law, regulation, ordinance or common law, or under any policy, agreement, understanding or promise, written or oral, formal or informal, between any Company Releasee and Executive. Executive shall not be entitled to any recovery, in any action or proceeding that may be commenced on Executive's behalf in any way arising out of or relating to the matters released under this Release. Notwithstanding the foregoing, nothing herein shall release any Company Releasee from any Claim based on (i) Executive's rights under the Severance Agreement or any other agreement with the Company (including, but not limited to, any stock option agreements), (ii) any right or claim that arises after the date Executive executes this Release, (iii) Executive's eligibility for indemnification in accordance with applicable laws or the certificate of incorporation or by-laws of the Company (or any affiliate or subsidiary) or any applicable insurance policy, with respect to any liability Executive incurs or incurred as a director, officer or employee of the Company or any affiliate or subsidiary (including as a trustee, director or officer of any employee benefit plan) or (iv) any rights Executive may have to vested benefits under any employee benefit plan or program.
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(b) Executive has been advised to consult with an attorney of Executive's choice prior to signing this Release, has done so and enters into this Release freely and voluntarily.
[(c) Executive acknowledges that the Company has enclosed with this Release information concerning (i) the ages and job titles of all employees who are eligible to receive severance pay and (ii) the ages of all employees in the same job classification or organizational unit who are not eligible to receive severance pay. ] 1
(d) Executive has had at least [ twenty-one (21) ] [ forty-five (45) ] 2 calendar days to consider the terms of this Release. Once Executive has signed this Release, Executive has seven (7) additional days to revoke Executive's consent and may do so by writing to the Company as provided in Section 10 of the Severance Agreement. Executive's Release shall not be effective, and no payments or benefits shall be due under Section 6 of the Severance Agreement, until the eighth day after Executive has executed this Release and returned it to the Company, assuming that Executive has not revoked Executive's consent to this Release during such time (the "Revocation Date").
(e) In the event that any one or more of the provisions of this Release shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder thereof shall not in any way be affected or impaired thereby.
(f) This Release shall be governed by the law of the State of Illinois without reference to its choice of law rules.
CF INDUSTRIES, INC. | ||||
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Signed as of this ______ day of _____________________. |
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CF INDUSTRIES HOLDINGS, INC. |
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Name: | ||||
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Signed as of this ______ day of _____________________. |
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________________________________________ Douglas C. Barnard |
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Signed as of this ______ day of _____________________. |
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, effective as of April 29, 2005, is made by and among CF Industries, Inc., a Delaware corporation, CF Industries Holdings, Inc., a Delaware corporation (collectively or individually, as the context requires, the "Company"), and Stephen G. Chase (the "Executive").
WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Board recognizes that the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the effective date hereof and shall continue in effect through December 31, 2007; provided , however , that commencing on January 1, 2007 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following
a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive's employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the Executive's target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which the Date of Termination occurs or, if higher, the fiscal year in which the first event or circumstance constituting Good Reason occurs.
(B) For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Executive than the after tax cost to the
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Executive immediately prior to such date or occurrence; provided , however , that, unless the Executive consents to a different method, such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the twenty-four (24) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided , however , that the Company shall reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C) The Executive's aggregate accrued benefits under the Company's non-qualified DB Plans will be calculated, and he will be treated for all purposes, as if he was credited with two (2) additional years of age and service as of the Date of Termination under such plans with compensation equal to the Executive's compensation (as defined in the DB Pension Plans) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder). The Executive shall also be paid a lump sum amount, in cash, equal to the excess of (i) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the second anniversary of the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive would have accrued under the terms of all tax-qualified DB Pension Plans in which he was a participant (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) twenty-four (24) additional months of service credit thereunder and had been credited under each such DB Pension Plan during such period with compensation equal to the Executive's compensation (as defined in such DB Pension Plan) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, over (ii) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive had accrued pursuant to the provisions of the DB Pension
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Plans as of the Date of Termination. For purposes of this Section 6.1(D), "actuarial equivalent" shall be determined using the same assumptions utilized under the applicable DB Pension Plan immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason. In addition to the benefits to which the Executive is entitled under each DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (1) the amount that would have been contributed or allocated to each DC Pension Plan by the Company on the Executive's behalf (without regard to whether such amount would be vested) during the two years immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive's compensation (as defined in the DC Pension Plans) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plans made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder and (2) all other amounts credited to the Executive's account under each DC Pension Plan to the extent such amounts were unvested on the Date of Termination.
(D) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive's employment terminated at any time during the period of twenty-four (24) months after the Date of Termination, the Company shall provide such post-retirement health care or life insurance benefits to the Executive and the Executive's dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two years or, if earlier, until the first acceptance by the Executive of an offer of employment.
(F) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued
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employment of the Executive to a subsequent date, and (ii) a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level (or, if greater, based on actual results to Date of Termination), of the individual and corporate performance goals established with respect to such award, by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period.
6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up
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Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A),(C) and (F) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided , however , that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has
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received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
6.5 The Executive agrees that prior to and following the Date of Termination, he shall retain in confidence any confidential information known to him concerning the Company and its Affiliates and their respective businesses for as long as such information is not publicly disclosed.
6.6 Notwithstanding anything to the contrary, all compensation and benefits payable to Executive pursuant to this Section 6 (other than Sections 6.2 and 6.4) are conditioned on receipt by the Company of an executed release of claims by Executive in the form attached hereto as Exhibit A and the expiration of any revocation period in such release.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ( 3 / 4 ) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for
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Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided , however , that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, except as specifically provided in Section 6.1(B) hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
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9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
To the Company:
CF
Industries, Inc.
One Salem Lake Drive
Long Grove, Illinois 60046
Attention: William Eppel
11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party
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hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party (including, but not limited to, the Executive Change in Control Agreement between the Company and the Executive effective October 27, 2004); provided , however , that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by the arbitrator.
14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect; provided , however , that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be
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entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in or not opposed to the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(G) "Change in Control" shall mean, prior to an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following: (i) any person who is not a stockholder of CF Industries, Inc. on April 15, 2005 (or a group of such persons acting in concert other than an underwriter) acquires, during any period of twelve consecutive calendar months, stock of CF Industries, Inc. representing a majority of the voting power of all stock of the Company having the right to vote for the election of directors; (ii) a merger or consolidation of CF Industries, Inc.
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with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of CF Industries, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of CF Industries, Inc. or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of CF Industries, Inc.; or (iii) the sale or disposition by CF Industries, Inc. of all or substantially all of CF Industries, Inc.'s assets or any transaction having a similar effect. Notwithstanding anything to the contrary, the initial public offering of the common stock of CF Industries Holdings, Inc. or any transactions or events contemplated by such offering shall not constitute a Change in Control.
"Change in Control" shall mean, following an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CF Industries Holdings, Inc. (not including in the securities beneficially owned by such Person any securities acquired directly from CF Industries Holdings, Inc. or any of its subsidiaries) representing 25% or more of the combined voting power of CF Industries Holdings, Inc.'s then outstanding securities; or
(II) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date of the initial public offering, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CF Industries Holdings, Inc.) whose appointment or election by the Board or nomination for election by CF Industries Holdings, Inc.'s stockholders was approved or recommended by a vote of at least two-thirds ( 2 / 3 ) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of CF Industries Holdings, Inc. or any direct or indirect subsidiary of CF Industries Holdings, Inc. with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if CF Industries Holdings, Inc. or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or
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(IV) the stockholders of CF Industries Holdings, Inc. approve a plan of complete liquidation or dissolution of CF Industries Holdings, Inc. or there is consummated an agreement for the sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets, other than (a) a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of CF Industries Holdings, Inc. following the completion of such transaction in substantially the same proportions as their ownership of CF Industries Holdings, Inc. immediately prior to such sale or (b) other than a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of CF Industries Holdings, Inc. immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CF Industries Holdings, Inc. immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(I) "Company" shall mean CF Industries, Inc. or CF Industries Holdings, Inc., as applicable, and except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(J) "DB Pension Plan" shall mean any tax-qualified, supplemental or excess defined benefit pension plan maintained by the Company and any other defined benefit plan or agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits.
(K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
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(L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof.
(M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code.
(P) "Executive" shall mean the individual named in the first paragraph of this Agreement.
(Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions
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similarly affecting all executives of the Company and all executives of any Person in control of the Company;
(III) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days after the date demand for payment is made provided such compensation is due;
(V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all executives of the Company and all executives of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled with the Company in accordance with the vacation policy applicable to the Executive in effect at the time of the Change in Control; or
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(VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) CF Industries Holdings, Inc. or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of CF Industries, Inc. or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of CF Industries, Inc. in substantially the same proportions as their ownership of stock of CF Industries, Inc.
(U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not
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including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(V) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.
(W) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.
(X) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof.
(Y) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).
(Z) "Total Payments" shall mean those payments so described in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
CF INDUSTRIES, INC. | |||
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/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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CF INDUSTRIES HOLDINGS, INC. |
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By: |
/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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/s/ STEPHEN G. CHASE Stephen G. Chase |
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EXHIBIT A
RELEASE
(a) Stephen G. Chase (" Executive ") for and in consideration of benefits provided pursuant to the Change in Control Severance Agreement with CF Industries, Inc. and CF Industries Holdings, Inc. (collectively, referred to herein as the " Company ") entered into effective as of April 29, 2005 (the " Severance Agreement "), on behalf of Executive and Executive's heirs, executors, administrators, successors and assigns, voluntarily, knowingly and willingly releases and discharges the Company and its parents, subsidiaries and affiliates (collectively, the " Company Group "), together with their respective present and former partners, officers, directors, employees and agents, and each of their predecessors, heirs, executors, administrators, successors and assigns, and any and all employee pension or welfare benefit plans of the Company, including current and former trustees and administrators of these plans (collectively, the " Company Releasees ") from any and all charges, complaints, claims, promises, agreements, controversies, causes of action, demands, damages and liabilities (" Claims ") of any nature whatsoever, known or unknown, suspected or unsuspected, which against the Company Releasees, jointly or severally, Executive or Executive's heirs, executors, administrators, successors or assigns ever had or now have by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time Executive executes this release (the " Release "). This Release includes, without limitation, any Claims arising out of or relating in any way to Executive's employment or director relationship with the Company, or the termination thereof, any Claims arising under any statute or regulation, including but not limited to the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, or the Employee Retirement Income Security Act of 1974, each as amended, or any other federal, state or local law, regulation, ordinance or common law, or under any policy, agreement, understanding or promise, written or oral, formal or informal, between any Company Releasee and Executive. Executive shall not be entitled to any recovery, in any action or proceeding that may be commenced on Executive's behalf in any way arising out of or relating to the matters released under this Release. Notwithstanding the foregoing, nothing herein shall release any Company Releasee from any Claim based on (i) Executive's rights under the Severance Agreement or any other agreement with the Company (including, but not limited to, any stock option agreements), (ii) any right or claim that arises after the date Executive executes this Release, (iii) Executive's eligibility for indemnification in accordance with applicable laws or the certificate of incorporation or by-laws of the Company (or any affiliate or subsidiary) or any applicable insurance policy, with respect to any liability Executive incurs or incurred as a director, officer or employee of the Company or any affiliate or subsidiary (including as a trustee, director or officer of any employee benefit plan) or (iv) any rights Executive may have to vested benefits under any employee benefit plan or program.
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(b) Executive has been advised to consult with an attorney of Executive's choice prior to signing this Release, has done so and enters into this Release freely and voluntarily.
[(c) Executive acknowledges that the Company has enclosed with this Release information concerning (i) the ages and job titles of all employees who are eligible to receive severance pay and (ii) the ages of all employees in the same job classification or organizational unit who are not eligible to receive severance pay. ] 1
(d) Executive has had at least [ twenty-one (21) ] [ forty-five (45) ] 2 calendar days to consider the terms of this Release. Once Executive has signed this Release, Executive has seven (7) additional days to revoke Executive's consent and may do so by writing to the Company as provided in Section 10 of the Severance Agreement. Executive's Release shall not be effective, and no payments or benefits shall be due under Section 6 of the Severance Agreement, until the eighth day after Executive has executed this Release and returned it to the Company, assuming that Executive has not revoked Executive's consent to this Release during such time (the "Revocation Date").
(e) In the event that any one or more of the provisions of this Release shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder thereof shall not in any way be affected or impaired thereby.
(f) This Release shall be governed by the law of the State of Illinois without reference to its choice of law rules.
CF INDUSTRIES, INC. | ||||
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Signed as of this ______ day of _____________________. |
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CF INDUSTRIES HOLDINGS, INC. |
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Signed as of this ______ day of _____________________. |
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__________________________________ Stephen G. Chase |
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Signed as of this ______ day of _____________________. |
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, effective as of April 29, 2005, is made by and among CF Industries, Inc., a Delaware corporation, CF Industries Holdings, Inc., a Delaware corporation (collectively or individually, as the context requires, the "Company"), and Philipp P. Koch (the "Executive").
WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Board recognizes that the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the effective date hereof and shall continue in effect through December 31, 2007; provided , however , that commencing on January 1, 2007 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following
a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive's employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the Executive's target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which the Date of Termination occurs or, if higher, the fiscal year in which the first event or circumstance constituting Good Reason occurs.
(B) For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Executive than the after tax cost to the
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Executive immediately prior to such date or occurrence; provided , however , that, unless the Executive consents to a different method, such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the twenty-four (24) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided , however , that the Company shall reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C) The Executive's aggregate accrued benefits under the Company's non-qualified DB Plans will be calculated, and he will be treated for all purposes, as if he was credited with two (2) additional years of age and service as of the Date of Termination under such plans with compensation equal to the Executive's compensation (as defined in the DB Pension Plans) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder). The Executive shall also be paid a lump sum amount, in cash, equal to the excess of (i) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the second anniversary of the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive would have accrued under the terms of all tax-qualified DB Pension Plans in which he was a participant (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) twenty-four (24) additional months of service credit thereunder and had been credited under each such DB Pension Plan during such period with compensation equal to the Executive's compensation (as defined in such DB Pension Plan) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, over (ii) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive had accrued pursuant to the provisions of the DB Pension
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Plans as of the Date of Termination. For purposes of this Section 6.1(D), "actuarial equivalent" shall be determined using the same assumptions utilized under the applicable DB Pension Plan immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason. In addition to the benefits to which the Executive is entitled under each DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (1) the amount that would have been contributed or allocated to each DC Pension Plan by the Company on the Executive's behalf (without regard to whether such amount would be vested) during the two years immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive's compensation (as defined in the DC Pension Plans) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plans made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder and (2) all other amounts credited to the Executive's account under each DC Pension Plan to the extent such amounts were unvested on the Date of Termination.
(D) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive's employment terminated at any time during the period of twenty-four (24) months after the Date of Termination, the Company shall provide such post-retirement health care or life insurance benefits to the Executive and the Executive's dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two years or, if earlier, until the first acceptance by the Executive of an offer of employment.
(F) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued
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employment of the Executive to a subsequent date, and (ii) a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level (or, if greater, based on actual results to Date of Termination), of the individual and corporate performance goals established with respect to such award, by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period.
6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up
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Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A),(C) and (F) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided , however , that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has
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received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
6.5 The Executive agrees that prior to and following the Date of Termination, he shall retain in confidence any confidential information known to him concerning the Company and its Affiliates and their respective businesses for as long as such information is not publicly disclosed.
6.6 Notwithstanding anything to the contrary, all compensation and benefits payable to Executive pursuant to this Section 6 (other than Sections 6.2 and 6.4) are conditioned on receipt by the Company of an executed release of claims by Executive in the form attached hereto as Exhibit A and the expiration of any revocation period in such release.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ( 3 / 4 ) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for
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Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided , however , that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, except as specifically provided in Section 6.1(B) hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
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9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
To the Company:
CF
Industries, Inc.
One Salem Lake Drive
Long Grove, Illinois 60046
Attention: William Eppel
11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party
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hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party (including, but not limited to, the Executive Change in Control Agreement between the Company and the Executive effective October 27, 2004); provided , however , that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by the arbitrator.
14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect; provided , however , that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be
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entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in or not opposed to the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(G) "Change in Control" shall mean, prior to an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following: (i) any person who is not a stockholder of CF Industries, Inc. on April 15, 2005 (or a group of such persons acting in concert other than an underwriter) acquires, during any period of twelve consecutive calendar months, stock of CF Industries, Inc. representing a majority of the voting power of all stock of the Company having the right to vote for the election of directors; (ii) a merger or consolidation of CF Industries, Inc.
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with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of CF Industries, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of CF Industries, Inc. or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of CF Industries, Inc.; or (iii) the sale or disposition by CF Industries, Inc. of all or substantially all of CF Industries, Inc.'s assets or any transaction having a similar effect. Notwithstanding anything to the contrary, the initial public offering of the common stock of CF Industries Holdings, Inc. or any transactions or events contemplated by such offering shall not constitute a Change in Control.
"Change in Control" shall mean, following an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CF Industries Holdings, Inc. (not including in the securities beneficially owned by such Person any securities acquired directly from CF Industries Holdings, Inc. or any of its subsidiaries) representing 25% or more of the combined voting power of CF Industries Holdings, Inc.'s then outstanding securities; or
(II) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date of the initial public offering, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CF Industries Holdings, Inc.) whose appointment or election by the Board or nomination for election by CF Industries Holdings, Inc.'s stockholders was approved or recommended by a vote of at least two-thirds ( 2 / 3 ) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of CF Industries Holdings, Inc. or any direct or indirect subsidiary of CF Industries Holdings, Inc. with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if CF Industries Holdings, Inc. or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or
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(IV) the stockholders of CF Industries Holdings, Inc. approve a plan of complete liquidation or dissolution of CF Industries Holdings, Inc. or there is consummated an agreement for the sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets, other than (a) a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of CF Industries Holdings, Inc. following the completion of such transaction in substantially the same proportions as their ownership of CF Industries Holdings, Inc. immediately prior to such sale or (b) other than a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of CF Industries Holdings, Inc. immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CF Industries Holdings, Inc. immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(I) "Company" shall mean CF Industries, Inc. or CF Industries Holdings, Inc., as applicable, and except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(J) "DB Pension Plan" shall mean any tax-qualified, supplemental or excess defined benefit pension plan maintained by the Company and any other defined benefit plan or agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits.
(K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
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(L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof.
(M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code.
(P) "Executive" shall mean the individual named in the first paragraph of this Agreement.
(Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions
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similarly affecting all executives of the Company and all executives of any Person in control of the Company;
(III) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days after the date demand for payment is made provided such compensation is due;
(V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all executives of the Company and all executives of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled with the Company in accordance with the vacation policy applicable to the Executive in effect at the time of the Change in Control; or
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(VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) CF Industries Holdings, Inc. or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of CF Industries, Inc. or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of CF Industries, Inc. in substantially the same proportions as their ownership of stock of CF Industries, Inc.
(U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not
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including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(V) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.
(W) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.
(X) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof.
(Y) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).
(Z) "Total Payments" shall mean those payments so described in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
CF INDUSTRIES, INC. | |||
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/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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CF INDUSTRIES HOLDINGS, INC. |
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By: |
/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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/s/ PHILIPP P. KOCH Philipp P. Koch |
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EXHIBIT A
RELEASE
(a) Philipp P. Koch (" Executive ") for and in consideration of benefits provided pursuant to the Change in Control Severance Agreement with CF Industries, Inc. and CF Industries Holdings, Inc. (collectively, referred to herein as the " Company ") entered into effective as of April 29, 2005 (the " Severance Agreement "), on behalf of Executive and Executive's heirs, executors, administrators, successors and assigns, voluntarily, knowingly and willingly releases and discharges the Company and its parents, subsidiaries and affiliates (collectively, the " Company Group "), together with their respective present and former partners, officers, directors, employees and agents, and each of their predecessors, heirs, executors, administrators, successors and assigns, and any and all employee pension or welfare benefit plans of the Company, including current and former trustees and administrators of these plans (collectively, the " Company Releasees ") from any and all charges, complaints, claims, promises, agreements, controversies, causes of action, demands, damages and liabilities (" Claims ") of any nature whatsoever, known or unknown, suspected or unsuspected, which against the Company Releasees, jointly or severally, Executive or Executive's heirs, executors, administrators, successors or assigns ever had or now have by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time Executive executes this release (the " Release "). This Release includes, without limitation, any Claims arising out of or relating in any way to Executive's employment or director relationship with the Company, or the termination thereof, any Claims arising under any statute or regulation, including but not limited to the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, or the Employee Retirement Income Security Act of 1974, each as amended, or any other federal, state or local law, regulation, ordinance or common law, or under any policy, agreement, understanding or promise, written or oral, formal or informal, between any Company Releasee and Executive. Executive shall not be entitled to any recovery, in any action or proceeding that may be commenced on Executive's behalf in any way arising out of or relating to the matters released under this Release. Notwithstanding the foregoing, nothing herein shall release any Company Releasee from any Claim based on (i) Executive's rights under the Severance Agreement or any other agreement with the Company (including, but not limited to, any stock option agreements), (ii) any right or claim that arises after the date Executive executes this Release, (iii) Executive's eligibility for indemnification in accordance with applicable laws or the certificate of incorporation or by-laws of the Company (or any affiliate or subsidiary) or any applicable insurance policy, with respect to any liability Executive incurs or incurred as a director, officer or employee of the Company or any affiliate or subsidiary (including as a trustee, director or officer of any employee benefit plan) or (iv) any rights Executive may have to vested benefits under any employee benefit plan or program.
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(b) Executive has been advised to consult with an attorney of Executive's choice prior to signing this Release, has done so and enters into this Release freely and voluntarily.
[(c) Executive acknowledges that the Company has enclosed with this Release information concerning (i) the ages and job titles of all employees who are eligible to receive severance pay and (ii) the ages of all employees in the same job classification or organizational unit who are not eligible to receive severance pay. ] 1
(d) Executive has had at least [ twenty-one (21) ] [ forty-five (45) ] 2 calendar days to consider the terms of this Release. Once Executive has signed this Release, Executive has seven (7) additional days to revoke Executive's consent and may do so by writing to the Company as provided in Section 10 of the Severance Agreement. Executive's Release shall not be effective, and no payments or benefits shall be due under Section 6 of the Severance Agreement, until the eighth day after Executive has executed this Release and returned it to the Company, assuming that Executive has not revoked Executive's consent to this Release during such time (the "Revocation Date").
(e) In the event that any one or more of the provisions of this Release shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder thereof shall not in any way be affected or impaired thereby.
(f) This Release shall be governed by the law of the State of Illinois without reference to its choice of law rules.
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CF INDUSTRIES HOLDINGS, INC. |
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Signed as of this ______ day of _____________________. |
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__________________________________ Philipp P. Koch |
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Signed as of this ______ day of _____________________. |
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CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT, effective as of April 29, 2005, is made by and among CF Industries, Inc., a Delaware corporation, CF Industries Holdings, Inc., a Delaware corporation (collectively or individually, as the context requires, the "Company"), and Monty R. Summa (the "Executive").
WHEREAS, the Company considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel; and
WHEREAS, the Board recognizes that the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall commence on the effective date hereof and shall continue in effect through December 31, 2007; provided , however , that commencing on January 1, 2007 and each January 1 thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided , however , that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company following
a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive's employment is terminated by the Company for Disability.
5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.
5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.
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6. Severance Payments.
6.1 If the Executive's employment is terminated following a Change in Control and during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. For purposes of this Agreement, the Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason, if (i) the Executive's employment is terminated by the Company without Cause prior to a Change in Control (whether or not a Change in Control ever occurs) and such termination was at the request or direction of a Person who has entered into an agreement with the Company the consummation of which would constitute a Change in Control, (ii) the Executive terminates his employment for Good Reason prior to a Change in Control (whether or not a Change in Control ever occurs) and the circumstance or event which constitutes Good Reason occurs at the request or direction of such Person, or (iii) the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason and such termination or the circumstance or event which constitutes Good Reason is otherwise in connection with or in anticipation of a Change in Control (whether or not a Change in Control ever occurs). For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Executive shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that such position is not correct.
(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the Executive's target annual bonus pursuant to any annual bonus or incentive plan maintained by the Company in respect of the fiscal year in which the Date of Termination occurs or, if higher, the fiscal year in which the first event or circumstance constituting Good Reason occurs.
(B) For the twenty-four (24) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents life, disability, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater after tax cost to the Executive than the after tax cost to the
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Executive immediately prior to such date or occurrence; provided , however , that, unless the Executive consents to a different method, such health insurance benefits shall be provided through a third-party insurer. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the twenty-four (24) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided , however , that the Company shall reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.
(C) The Executive's aggregate accrued benefits under the Company's non-qualified DB Plans will be calculated, and he will be treated for all purposes, as if he was credited with two (2) additional years of age and service as of the Date of Termination under such plans with compensation equal to the Executive's compensation (as defined in the DB Pension Plans) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder). The Executive shall also be paid a lump sum amount, in cash, equal to the excess of (i) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the second anniversary of the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive would have accrued under the terms of all tax-qualified DB Pension Plans in which he was a participant (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) twenty-four (24) additional months of service credit thereunder and had been credited under each such DB Pension Plan during such period with compensation equal to the Executive's compensation (as defined in such DB Pension Plan) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, over (ii) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive had accrued pursuant to the provisions of the DB Pension
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Plans as of the Date of Termination. For purposes of this Section 6.1(D), "actuarial equivalent" shall be determined using the same assumptions utilized under the applicable DB Pension Plan immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason. In addition to the benefits to which the Executive is entitled under each DC Pension Plan, the Company shall pay the Executive a lump sum amount, in cash, equal to the sum of (1) the amount that would have been contributed or allocated to each DC Pension Plan by the Company on the Executive's behalf (without regard to whether such amount would be vested) during the two years immediately following the Date of Termination, determined (x) as if the Executive made the maximum permissible contributions thereto during such period, (y) as if the Executive earned compensation during such period at a rate equal to the Executive's compensation (as defined in the DC Pension Plans) during the twelve (12) months immediately preceding the Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plans made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder and (2) all other amounts credited to the Executive's account under each DC Pension Plan to the extent such amounts were unvested on the Date of Termination.
(D) If the Executive would have become entitled to benefits under the Company's post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive's employment terminated at any time during the period of twenty-four (24) months after the Date of Termination, the Company shall provide such post-retirement health care or life insurance benefits to the Executive and the Executive's dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.
(E) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of two years or, if earlier, until the first acceptance by the Executive of an offer of employment.
(F) Notwithstanding any provision of any annual or long-term incentive plan to the contrary, the Company shall pay to the Executive a lump sum amount, in cash, equal to the sum of (i) any unpaid incentive compensation which has been allocated or awarded to the Executive for a completed fiscal year or other measuring period preceding the Date of Termination under any such plan and which, as of the Date of Termination, is contingent only upon the continued
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employment of the Executive to a subsequent date, and (ii) a pro rata portion to the Date of Termination of the aggregate value of all contingent incentive compensation awards to the Executive for all then uncompleted periods under any such plan, calculated as to each such award by multiplying the award that the Executive would have earned on the last day of the performance award period, assuming the achievement, at the target level (or, if greater, based on actual results to Date of Termination), of the individual and corporate performance goals established with respect to such award, by the fraction obtained by dividing the number of full months and any fractional portion of a month during such performance award period through the Date of Termination by the total number of months contained in such performance award period.
6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive (including any payment or benefits received in connection with a Change in Control or the Executive's termination of employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments.
(B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up
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Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.
6.3 The payments provided in subsections (A),(C) and (F) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided , however , that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Executive or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has
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received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require.
6.5 The Executive agrees that prior to and following the Date of Termination, he shall retain in confidence any confidential information known to him concerning the Company and its Affiliates and their respective businesses for as long as such information is not publicly disclosed.
6.6 Notwithstanding anything to the contrary, all compensation and benefits payable to Executive pursuant to this Section 6 (other than Sections 6.2 and 6.4) are conditioned on receipt by the Company of an executed release of claims by Executive in the form attached hereto as Exhibit A and the expiration of any revocation period in such release.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control and during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters ( 3 / 4 ) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for
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Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such thirty (30) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (i) the date on which the Term ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided , however , that the Date of Termination shall be extended by a notice of dispute given by the Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the Term and the Date of Termination is extended in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof or Section 7.4 hereof. Further, except as specifically provided in Section 6.1(B) hereof, no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise.
9. Successors; Binding Agreement.
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9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt:
To the Company:
CF
Industries, Inc.
One Salem Lake Drive
Long Grove, Illinois 60046
Attention: William Eppel
11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party
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hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party (including, but not limited to, the Executive Change in Control Agreement between the Company and the Executive effective October 27, 2004); provided , however , that this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive's employment with the Company only in the event that the Executive's employment with the Company is terminated on or following a Change in Control, by the Company other than for Cause or by the Executive for Good Reason. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration.
12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. 14.1 All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Board a decision of the Board within sixty (60) days after notification by the Board that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Board hereunder shall be subject to a de novo review by the arbitrator.
14.2 Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois in accordance with the rules of the American Arbitration Association then in effect; provided , however , that the evidentiary standards set forth in this Agreement shall apply. Judgment may be entered on the arbitrator's award in any court having jurisdiction. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be
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entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement.
15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in or not opposed to the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board by clear and convincing evidence that Cause exists.
(G) "Change in Control" shall mean, prior to an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following: (i) any person who is not a stockholder of CF Industries, Inc. on April 15, 2005 (or a group of such persons acting in concert other than an underwriter) acquires, during any period of twelve consecutive calendar months, stock of CF Industries, Inc. representing a majority of the voting power of all stock of the Company having the right to vote for the election of directors; (ii) a merger or consolidation of CF Industries, Inc.
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with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of CF Industries, Inc. outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of CF Industries, Inc. or such surviving entity outstanding immediately after such merger or consolidation or (b) a merger or consolidation effected to implement a recapitalization of CF Industries, Inc.; or (iii) the sale or disposition by CF Industries, Inc. of all or substantially all of CF Industries, Inc.'s assets or any transaction having a similar effect. Notwithstanding anything to the contrary, the initial public offering of the common stock of CF Industries Holdings, Inc. or any transactions or events contemplated by such offering shall not constitute a Change in Control.
"Change in Control" shall mean, following an initial public offering of the common stock of CF Industries Holdings, Inc., the first to occur of any of the following:
(I) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of CF Industries Holdings, Inc. (not including in the securities beneficially owned by such Person any securities acquired directly from CF Industries Holdings, Inc. or any of its subsidiaries) representing 25% or more of the combined voting power of CF Industries Holdings, Inc.'s then outstanding securities; or
(II) the following individuals cease for any reason to constitute a majority of the number of directors then serving on the Board: individuals who, on the date of the initial public offering, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of CF Industries Holdings, Inc.) whose appointment or election by the Board or nomination for election by CF Industries Holdings, Inc.'s stockholders was approved or recommended by a vote of at least two-thirds ( 2 / 3 ) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of CF Industries Holdings, Inc. or any direct or indirect subsidiary of CF Industries Holdings, Inc. with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or, if CF Industries Holdings, Inc. or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or
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(IV) the stockholders of CF Industries Holdings, Inc. approve a plan of complete liquidation or dissolution of CF Industries Holdings, Inc. or there is consummated an agreement for the sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets, other than (a) a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of CF Industries Holdings, Inc. following the completion of such transaction in substantially the same proportions as their ownership of CF Industries Holdings, Inc. immediately prior to such sale or (b) other than a sale or disposition by CF Industries Holdings, Inc. of all or substantially all of CF Industries Holdings, Inc.'s assets immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed or, if such entity is a subsidiary, the ultimate parent thereof.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of CF Industries Holdings, Inc. immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of CF Industries Holdings, Inc. immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
(I) "Company" shall mean CF Industries, Inc. or CF Industries Holdings, Inc., as applicable, and except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise.
(J) "DB Pension Plan" shall mean any tax-qualified, supplemental or excess defined benefit pension plan maintained by the Company and any other defined benefit plan or agreement entered into between the Executive and the Company which is designed to provide the Executive with supplemental retirement benefits.
(K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company which is designed to provide the executive with supplemental retirement benefits.
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(L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof.
(M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties.
(N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code.
(P) "Executive" shall mean the individual named in the first paragraph of this Agreement.
(Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent which specifically references this Agreement) after any Change in Control, or prior to a Change in Control under the circumstances described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all references in paragraphs (I) through (VII) below to a "Change in Control" as references to a "Potential Change in Control"), of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof:
(I) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to the Change in Control including, without limitation, if the Executive was, immediately prior to the Change in Control, an executive officer of a public company, the Executive ceasing to be an executive officer of a public company;
(II) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions
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similarly affecting all executives of the Company and all executives of any Person in control of the Company;
(III) the relocation of the Executive's principal place of employment to a location more than 35 miles from the Executive's principal place of employment immediately prior to the Change in Control or the Company's requiring the Executive to be based anywhere other than such principal place of employment (or permitted relocation thereof) except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations;
(IV) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days after the date demand for payment is made provided such compensation is due;
(V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount or timing of payment of benefits provided and the level of the Executive's participation relative to other participants, as existed immediately prior to the Change in Control;
(VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, savings, life insurance, medical, health and accident, or disability plans in which the Executive was participating immediately prior to the Change in Control (except for across the board changes similarly affecting all executives of the Company and all executives of any Person in control of the Company), the taking of any other action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled with the Company in accordance with the vacation policy applicable to the Executive in effect at the time of the Change in Control; or
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(VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness.
The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Board by clear and convincing evidence that Good Reason does not exist.
(R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof.
(S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof.
(T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) CF Industries Holdings, Inc. or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of CF Industries, Inc. or any of its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of CF Industries, Inc. in substantially the same proportions as their ownership of stock of CF Industries, Inc.
(U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities (not
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including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.
(V) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees.
(W) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof.
(X) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof.
(Y) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein).
(Z) "Total Payments" shall mean those payments so described in Section 6.2 hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
CF INDUSTRIES, INC. | |||
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/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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CF INDUSTRIES HOLDINGS, INC. |
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By: |
/s/ STEPHEN R. WILSON Stephen R. Wilson President and CEO |
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/s/ MONTY R. SUMMA Monty R. Summa |
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EXHIBIT A
RELEASE
(a) Monty R. Summa (" Executive ") for and in consideration of benefits provided pursuant to the Change in Control Severance Agreement with CF Industries, Inc. and CF Industries Holdings, Inc. (collectively, referred to herein as the " Company ") entered into effective as of April 29, 2005 (the " Severance Agreement "), on behalf of Executive and Executive's heirs, executors, administrators, successors and assigns, voluntarily, knowingly and willingly releases and discharges the Company and its parents, subsidiaries and affiliates (collectively, the " Company Group "), together with their respective present and former partners, officers, directors, employees and agents, and each of their predecessors, heirs, executors, administrators, successors and assigns, and any and all employee pension or welfare benefit plans of the Company, including current and former trustees and administrators of these plans (collectively, the " Company Releasees ") from any and all charges, complaints, claims, promises, agreements, controversies, causes of action, demands, damages and liabilities (" Claims ") of any nature whatsoever, known or unknown, suspected or unsuspected, which against the Company Releasees, jointly or severally, Executive or Executive's heirs, executors, administrators, successors or assigns ever had or now have by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time Executive executes this release (the " Release "). This Release includes, without limitation, any Claims arising out of or relating in any way to Executive's employment or director relationship with the Company, or the termination thereof, any Claims arising under any statute or regulation, including but not limited to the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, or the Employee Retirement Income Security Act of 1974, each as amended, or any other federal, state or local law, regulation, ordinance or common law, or under any policy, agreement, understanding or promise, written or oral, formal or informal, between any Company Releasee and Executive. Executive shall not be entitled to any recovery, in any action or proceeding that may be commenced on Executive's behalf in any way arising out of or relating to the matters released under this Release. Notwithstanding the foregoing, nothing herein shall release any Company Releasee from any Claim based on (i) Executive's rights under the Severance Agreement or any other agreement with the Company (including, but not limited to, any stock option agreements), (ii) any right or claim that arises after the date Executive executes this Release, (iii) Executive's eligibility for indemnification in accordance with applicable laws or the certificate of incorporation or by-laws of the Company (or any affiliate or subsidiary) or any applicable insurance policy, with respect to any liability Executive incurs or incurred as a director, officer or employee of the Company or any affiliate or subsidiary (including as a trustee, director or officer of any employee benefit plan) or (iv) any rights Executive may have to vested benefits under any employee benefit plan or program.
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(b) Executive has been advised to consult with an attorney of Executive's choice prior to signing this Release, has done so and enters into this Release freely and voluntarily.
[(c) Executive acknowledges that the Company has enclosed with this Release information concerning (i) the ages and job titles of all employees who are eligible to receive severance pay and (ii) the ages of all employees in the same job classification or organizational unit who are not eligible to receive severance pay. ] 1
(d) Executive has had at least [ twenty-one (21) ] [ forty-five (45) ] 2 calendar days to consider the terms of this Release. Once Executive has signed this Release, Executive has seven (7) additional days to revoke Executive's consent and may do so by writing to the Company as provided in Section 10 of the Severance Agreement. Executive's Release shall not be effective, and no payments or benefits shall be due under Section 6 of the Severance Agreement, until the eighth day after Executive has executed this Release and returned it to the Company, assuming that Executive has not revoked Executive's consent to this Release during such time (the "Revocation Date").
(e) In the event that any one or more of the provisions of this Release shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder thereof shall not in any way be affected or impaired thereby.
(f) This Release shall be governed by the law of the State of Illinois without reference to its choice of law rules.
CF INDUSTRIES, INC. | ||||
By: |
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Name: | ||||
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Signed as of this ______ day of _____________________. |
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CF INDUSTRIES HOLDINGS, INC. |
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Name: | ||||
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Signed as of this ______ day of _____________________. |
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__________________________________ Monty R. Summa |
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Signed as of this ______ day of _____________________. |
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This INDEMNIFICATION AGREEMENT, dated as of , 2005, between CF Industries Holdings, Inc., a Delaware corporation (the "Company"), and ("Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today's environment;
WHEREAS, basic protection against undue risk of personal liability of directors and officers heretofore has been provided through insurance coverage providing reasonable protection at reasonable cost, and Indemnitee has relied on the availability of such coverage; but as a result of substantial changes in the marketplace for such insurance it has become increasingly more difficult to obtain such insurance on terms providing reasonable protection at reasonable cost;
WHEREAS, the Certificate of Incorporation of the Company ("Certificate of Incorporation") and By-laws of the Company ("By-laws") require the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted by law and the Indemnitee has been serving and continues to serve as a director and/or officer of the Company in part in reliance on such Certificate of Incorporation and By-laws;
WHEREAS, the current difficulty in obtaining adequate director and officer liability insurance coverage at a reasonable cost and uncertainties as to the availability of indemnification created by recent court decisions have increased the risk that the Company will be unable to retain and attract as directors and officers the most capable persons available;
WHEREAS, the Board of Directors of the Company has determined that the inability of the Company to retain and attract as directors and officers the most capable persons would be detrimental to the interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance coverage will be available in the future;
WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the increasing difficulty in obtaining satisfactory director and officer liability insurance coverage, and Indemnitee's reliance on the Company's Certificate of Incorporation and By-laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Certificate of Incorporation and By-laws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Certificate of Incorproation and By-laws or any change in the composition of the Company's Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement:
beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets.
2. Basic Indemnification Arrangement; Advancement of Expenses.
(a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by
2
law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Indemnifiable Amounts.
(b) If so requested by Indemnitee, the Company shall advance (within two business days of such request) any and all Expenses incurred by Indemnitee (an "Expense Advance"). The Company shall, in accordance with such request (but without duplication), either (i) pay such Expenses on behalf of Indemnitee, or (ii) reimburse Indemnitee for such Expenses. Indemnitee's right to an Expense Advance is absolute and shall not be subject to any prior determination by the Reviewing Party that the Indemnitee has satisfied any applicable standard of conduct for indemnification.
(c) Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification or advancement of Expenses pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless (i) the Company has joined in or Company's Board of Directors has authorized or consented to the initiation of such Claim or (ii) the Claim is one to enforce Indemnitee's rights under this Agreement.
(d) Notwithstanding the foregoing, (i) the indemnification obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(b) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid (it being understood and agreed that the foregoing agreement by Indemnitee shall be deemed to satisfy any requirement that Indemnitee provide the Company with an undertaking to repay any Expense Advance if it is ultimately determined that the Indemnitee is not entitled to indemnification under applicable law); provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's undertaking to repay such Expense Advances shall be unsecured and interest-free. If there has not been a Change in Control, the Reviewing Party shall be selected by the Company's Board of Directors, and if there has been such a Change in Control, the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party within thirty days after written demand is presented to the Company or if the Reviewing Party determines that Indemnitee would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the States of Illinois or Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in Control of the Company then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any Certificate of Incorporation or By-law provision now or hereafter in effect, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably delayed, conditioned or withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Legal Counsel and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
4. Indemnification for Additional Expenses. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall advance such Expenses to Indemnitee subject to and in accordance with Section 2(b), which are incurred by Indemnitee in connection with any action brought by
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Indemnitee for (i) indemnification or an Expense Advance by the Company under this Agreement or any Certificate of Incorporation or By-law provision now or hereafter in effect and/or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advance or insurance recovery, as the case may be.
5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses or other Indemnifiable Amounts in respect of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.
6. Burden of Proof. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the Reviewing Party or court shall presume that the Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled.
7. Reliance as Safe Harbor. For purposes of this Agreement, Indemnitee shall be deemed to have 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 Company if Indemnitee's actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company in the course of their duties, or by committees of the Company's Board of Directors, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.
8. No Other Presumptions. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.
9. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Certificate of Incorporation or By-laws or the Delaware General Corporation Law or otherwise. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Certificate of Incorporation or By-laws or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.
10. Liability Insurance. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.
11. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any
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claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.
12. Amendments, Etc. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
13. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers reasonably required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
14. No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, by-law, charter provision or otherwise) of the amounts otherwise indemnifiable hereunder.
15. Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (i) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict of interest, (ii) the named parties in any such Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee concludes that there may be one or more legal defenses available to him or her that are different from or in addition to those available to the Company, or (iii) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Claim) at the Company's expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any Claim relating to an Indemnifiable Event effected without the Company's prior written consent. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any Claim relating to an Indemnifiable Event in which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of Indemnitee from all liability on all claims that are the subject matter of such Claim. Neither the Company nor Indemnitee shall unreasonably withhold its or his or her consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.
16. Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee and his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer and/or director of the Company or of any other entity or enterprise at the Company's request.
17. Security. To the extent requested by Indemnitee and approved by the Company's Board of Directors, the Company may at any time and from time to time provide security to Indemnitee for the obligations of the Company hereunder through an irrevocable bank line of credit, funded trust or other collateral or by other means. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of such Indemnitee.
18. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court
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of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law.
19. Specific Performance, Etc. The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.
20. Counterparts. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
21. Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.
22. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
CF INDUSTRIES HOLDINGS, INC. | ||
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By:
Name: Title: |
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List of Subsidiaries of CF Industries Holdings, Inc.
The following entities will be the subsidiaries of CF Industries Holdings, Inc. upon completion of the offering. Certain subsidiaries are omitted from this exhibit because, when considered individually or in the aggregate, they would not constitute a significant subsidiary, as defined in Regulation S-X, Rule 1-02(w).
Name
|
Jurisdiction of Organization
|
|
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CF Industries, Inc. | Delaware |
Consent of Independent Registered Public Accounting Firm
The
Board of Directors
CF Industries, Inc.:
We consent to the use of our reports dated May 13, 2005, with respect to the consolidated balance sheets of CF Industries, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity, cash flows and comprehensive income (loss) for each of the years in the three-year period ended December 31, 2004, and the related consolidated financial statement schedule, included herein and to the reference to our firm under the heading "Experts" in the prospectus.
/s/KPMG
LLP
Chicago, Illinois
July 19, 2005
Consent of Person Nominated to Become a Director
14 July, 2005
CF
Industries Holdings, Inc.
One Salem Lake Drive
Long Grove, IL 60047
I, David Harvey, hereby consent to the use in the Registration Statement on Form S-1 of CF Industries Holdings, Inc., a Delaware corporation (the "Company"), to which this Consent is filed as an exhibit, of my name as a person nominated to become a director of the Company.
/s/
DAVID HARVEY
David Harvey |
Consent of Person Nominated to Become a Director
July 8, 2005
CF
Industries Holdings, Inc.
One Salem Lake Drive
Long Grove, IL 60047
I, Edward A. Schmitt, hereby consent to the use in the Registration Statement on Form S-1 of CF Industries Holdings, Inc., a Delaware corporation (the "Company"), to which this Consent is filed as an exhibit, of my name as a person nominated to become a director of the Company.
/s/
EDWARD A. SCHMITT
Edward A. Schmitt |