EMPLOYMENT
SEVERANCE AGREEMENT (the “ Agreement ”), dated
as of October 5, 2006, between Terra Industries Inc., a
Maryland corporation (the “ Company ”), and
[NAME] (the “ Executive ”).
WHEREAS
the Executive is currently employed by the Company;
WHEREAS
the Company acknowledges the importance of, and wishes to secure,
the Executive’s continued services as contemplated in this
Agreement, and considers such continued services essential to the
best interests of its shareholders;
WHEREAS
the Company recognizes the importance of providing the Executive
with reasonable protection against the risks of termination of
employment in circumstances that are unrelated to a Change in
Control in order to retain the Executive’s continued
services, and therefore, the Company wishes to enter into this
Agreement, which will replace and supersede the Executive Retention
Agreement in its entirety, in order to address a termination of the
Executive’s employment in circumstances that are both related
to and unrelated to a Change in Control; and
WHEREAS,
pursuant to this Agreement, the Executive has agreed not to compete
with the Company or solicit its employees or customers for a
one-year period after his employment terminates and to provide
other benefits to the Company to which the Company would not
otherwise be entitled, all as described herein.
NOW,
THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
For purposes of
this Agreement:
(a)
“ 280G Gross-Up Payment ” shall have the meaning
set forth in Section 5(a).
(b)
“ Accounting Firm ” shall have the meaning set
forth in Section 5(b).
(c)
“ Accrued Rights ” shall have the meaning set
forth in Section 4(a).
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(d)
“ Affiliate(s) ” means, with respect to any
specified Person, any other Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or
is under common control with, such specified Person.
(e)
“ Base Salary ” means the Executive’s per
annum base salary in effect on the relevant date (without regard to
any reduction during a CIC Period giving rise to Good
Reason).
(f)
“ Board ” means the board of directors of the
Company.
(g)
“ Cause ” shall have the meaning set forth in
Section 4(b)(ii).
(h)
“ Change in Control ” means the occurrence of
any of the following:
(i) individuals
who, as of the date of this Agreement, were members of the Board
(the “ Incumbent Directors ”) cease for any
reason to constitute at least a majority of the Board;
provided , however , that any individual becoming a
director subsequent to the date of this Agreement whose election,
or nomination for election, by the Company’s shareholders was
approved by a vote of at least a majority of the Incumbent
Directors shall be considered as though such individual were an
Incumbent Director, but excluding, for purposes of this proviso,
any such individual whose assumption of office after the date of
this Agreement occurs as a result of an actual or threatened proxy
contest with respect to election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person, other than the Board;
(ii) the
consummation of (A) a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving
(x) the Company or (y) any of its Subsidiaries, but in
the case of this clause (y) only if Company Voting Securities
(as defined below) are issued or issuable (each of the events
referred to in this clause (A) being hereinafter referred to
as a “ Reorganization ”) or (B) a sale or
other disposition of all or substantially all the assets of the
Company (a “ Sale ”), unless, immediately
following such Reorganization or Sale, (1) all or substantially all
the individuals and entities who were the “beneficial
owners” (as such term is defined in Rule 13d-3 under the
Exchange Act (or a successor rule thereto)) of shares of the
Company’s common stock or other securities eligible to vote
for the election of the Board outstanding immediately prior to the
consummation of such Reorganization or Sale (such securities, the
“ Company Voting Securities ”) beneficially own,
directly or indirectly, more than 60% of the combined voting power
of the then outstanding voting securities of the corporation or
other entity resulting from such Reorganization or Sale (including
a corporation or other entity that, as a result of such
transaction, owns the Company or all or substantially all the
Company’s assets either directly or through one or more
subsidiaries) (the “ Continuing Entity ”) in
substantially the same proportions as their ownership, immediately
prior to the consummation of such Reorganization or Sale, of the
outstanding Company Voting Securities (excluding any outstanding
voting securities of the Continuing Entity that such beneficial
owners hold immediately following the consummation of the
Reorganization or Sale as a result of their ownership prior to
such
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consummation of
voting securities of any corporation or other entity involved in or
forming part of such Reorganization or Sale other than the Company
or a Subsidiary), (2) no Person (excluding any employee
benefit plan (or related trust) sponsored or maintained by the
Continuing Entity or any corporation or other entity controlled by
the Continuing Entity) beneficially owns, directly or indirectly,
25% or more of the combined voting power of the then outstanding
voting securities of the Continuing Entity and (3) at least a
majority of the members of the board of directors or other
governing body of the Continuing Entity were Incumbent Directors at
the time of the execution of the definitive agreement providing for
such Reorganization or Sale or, in the absence of such an
agreement, at the time at which approval of the Board was obtained
for such Reorganization or Sale;
(iii) the
shareholders of the Company approve a plan of complete liquidation
or dissolution of the Company; or
(iv) any
Person, corporation or other entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the
beneficial owner, directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of
the Company Voting Securities; provided , however ,
that for purposes of this subparagraph (iv), the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition by the Company or any Subsidiary, (B) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary,
(C) any acquisition by an underwriter temporarily holding such
Company Voting Securities pursuant to an offering of such
securities or (D) any acquisition pursuant to a Reorganization
or Sale that does not constitute a Change in Control for purposes
of subparagraph (ii) of this Section 1(h).
(i)
“ CIC Period ” shall have the meaning set forth
in Section 4(b)(iii).
(j)
“ COBRA ” means the Consolidated Omnibus
Reconciliation Act of 1985, as amended.
(k)
“ Code ” means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated
thereunder.
(l)
“ Competitive Activity ” shall have the meaning
set forth in Section 6(a)(i).
(m)
“ Confidential Information ” shall have the
meaning set forth in Section 7(b).
(n)
“ Equity-Based Award ” shall have the meaning
set forth in Section 4(c)(iii).
(o)
“ Exchange Act ” means the Securities Exchange
Act of 1934, as amended from time to time, or any successor statute
thereto.
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(p)
“ Excise Tax ” means the excise tax imposed by
Section 4999 of the Code, together with any interest or
penalties imposed with respect to such tax.
(q)
“ Good Reason ” shall have meaning set forth in
Section 4(b)(iii).
(r)
“ Non-CIC Period ” shall have the meaning set
forth in Section 4(b)(iii).
(s)
“ Notice of Termination for Good Reason ” shall
have the meaning set forth in Section 4(b)(iii).
(t)
“ Notification Date ” shall have the meaning set
forth in Section 2.
(u)
“ Payment ” means any payment, benefit or
distribution (or combination thereof) by the Company, any of its
Affiliates or any trust established by the Company or its
Affiliates, to or for the benefit of the Executive, whether paid,
payable, distributed, distributable or provided pursuant to this
Agreement or otherwise, including any payment, benefit or other
right that constitutes a “parachute payment” within the
meaning of Section 280G of the Code.
(v)
“ Permanent Disability ” shall have the meaning
set forth in Section 4(g)(ii).
(w)
“ Person ” means any individual, corporation,
partnership, trust, association, limited liability company, joint
venture, joint-stock company or any other entity or organization,
including a government or governmental agency.
(x)
“ Release Effective Date ” means the date the
release of claims described in Section 4(f) becomes effective and
irrevocable.
(y)
“ Restriction Period ” shall have the meaning
set forth in Section 6(a).
(z)
“ Review Period ” shall have the meaning set
forth in Section 2.
(aa)
“ Subsidiary ” means any entity in which the
Company, directly or indirectly, possesses 50% or more of the total
combined voting power of all classes of its stock.
(bb)
“ Successor ” shall have the meaning set forth
in Section 14(c).
(cc)
Target Bonus ” means the Executive’s target cash
incentive annual bonus in effect on the relevant date (without
regard to any reduction during a CIC Period giving rise to Good
Reason).
(dd)
“ Term ” shall have the meaning set forth in
Section 2.
(ee)
“ Underpayment ” shall have the meaning set
forth in Section 5(b).
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SECTION
2. Effective Date; Term. This Agreement shall become
effective when one or more counterparts have been signed by each of
the parties and delivered to the other party and shall remain in
effect until the third anniversary of the date it becomes effective
(such period, including any extension thereof pursuant to the
remainder of this Section 2, the “ Term ”);
provided , however , that not later than 60 days
prior to (a) the second anniversary of the effective date and
(b) each anniversary thereafter (each, a “
Notification Date ”), the Company’s General
Counsel, Vice President of Human Resources or another senior
officer authorized to act on behalf of the Company shall deliver to
the Board a written notice alerting the Board of the duration of
the period that remains prior to the scheduled expiration of this
Agreement. Prior to the end of the 60-day period that begins upon
receipt of such notice (such period, the “ Review
Period ”), the Board shall determine whether it wishes to
extend this Agreement for an additional one-year period following
the scheduled expiration date, and in the event that the Board does
wish to so extend, it shall communicate such extension to the
Executive in writing prior to the end of the Review Period. Unless
the Board notifies the Executive of an extension prior to the end
of the applicable Review Period, the Board shall be deemed to have
decided not to extend this Agreement, and this Agreement shall
expire on its scheduled expiration date (which shall be
approximately one year following the end of the Review Period).
Notwithstanding the foregoing, this Agreement shall not be
terminated by the Company during any CIC Period.
SECTION
3. Duties and Responsibilities. (a) During the period
of the Executive’s employment with the Company, the Executive
agrees to be employed and devote substantially all the
Executive’s business time and attention to the Company and
its Subsidiaries and Affiliates and the promotion of their
interests and the performance of the Executive’s duties and
responsibilities hereunder, upon the terms and conditions of this
Agreement. During the period of the Executive’s employment
with the Company, the Executive will conduct his duties in
accordance with the Company’s policies, as in effect from
time to time.
(b) During
the period of the Executive’s employment with the Company,
the Executive shall not act in any capacity that is in conflict
with the Executive’s duties and responsibilities hereunder,
and shall not accept employment with, or provide services as a
consultant or in any other capacity for, any Person or entity other
than the Company and its Subsidiaries and Affiliates.
SECTION
4. Termination of Employment; Compensation Upon Certain
Termination Events. (a) Generally. The Executive’s
employment may be terminated by the Executive or the Company at any
time and for any reason; provided , however , that
the Executive shall be required to give the Company at least
90 days’ advance written notice of any resignation of
the Executive’s employment hereunder (other than for Good
Reason). Except as otherwise expressly provided below in
Sections 4(c), 4(d), 4(e) and 5, following any termination of
the Executive’s employment, the obligations of the Company to
pay or provide the Executive with compensation and benefits shall
cease, and the Company shall have no further obligations to the
Executive hereunder except (i) for payment of any unpaid Base
Salary accrued through the date of termination of employment and
for payment of any unreimbursed business expenses incurred
through
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the date of
termination of employment, (ii) as explicitly set forth in any
other benefit plans, programs or arrangements in which the
Executive participates and (iii) as otherwise expressly
required by applicable law (the amounts described in clauses (i),
(ii) and (iii) of this Section 4(a) being referred to
herein as the “ Accrued Rights ”). Upon
termination of the Executive’s employment for any reason, the
Executive agrees to resign, as of the date of such termination of
employment, from the Board and any committees thereof (and, if
applicable, from the board of directors (and any committees
thereof) of any Subsidiary) to the extent the Executive is then
serving thereon.
(b)
Termination by the Company for Cause; Voluntary Resignation by
the Executive without Good Reason. (i) If the
Executive’s employment is terminated either by the Company
for Cause or by resignation of the Executive without Good Reason,
the Executive shall not be entitled to any compensation or benefits
in addition to the Accrued Rights.
(ii) For
purposes of this Agreement, “ Cause ” means the
occurrence of any of the following events or circumstances, except
as provided below:
(A)
the willful and continued failure of the Executive to perform
substantially the Executive’s duties with the Company (other
than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance
is delivered to the Executive by the Company which specifically
identifies the manner in which the Company believes that the
Executive has not substantially performed the Executive’s
duties;
(B)
the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company; or
(C)
the Executive’s willful and material breach of this
Agreement, including, without limitation, Section 6 or
7.
For purposes of
this provision, no act or failure to act, on the part of the
Executive, shall be considered “willful” unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or
omission was in the best interests of the Company. All
determinations relating to a termination of the Executive’s
employment for “Cause” shall be made by the Company in
its sole discretion.
(iii) For
purposes of this Agreement, “ Good Reason ”
means (A) during the period prior to a Change in Control and
during the period following the second anniversary thereof (each
such period, a “ Non-CIC Period ”), the
occurrence of any of the events or circumstances set forth in
clauses (1) and (2) below and (B) during the
two-year period following a Change in Control (the “ CIC
Period ”), the occurrence of any of the events or
circumstances set forth in clauses (1) through (8) below,
in each such case during the Term, without the Executive’s
express prior written consent and other than as a result of the
Executive’s Permanent Disability:
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(1) the
failure of the Company to pay the Executive any compensation when
due (other than an inadvertent failure that is remedied within ten
business days after receipt of notice thereof given by the
Executive);
(2) delivery
by the Company or any Subsidiary of a notice to the Executive of
the intent to terminate the Executive’s employment for any
reason, other than for Cause or Permanent Disability, in each case
in accordance with this Agreement, regardless of whether such
termination is intended to become effective during or after the
Term;
(3) any
reduction of the Executive’s Base Salary;
(4) the
change of the Executive’s principal place of employment to a
location more than 25 miles from Executive’s principal place
of employment immediately prior to the change;
(5) any
reduction in the Executive’s Target Bonus from the level in
effect immediately prior to the Change in Control;
(6) any
diminution in the Executive’s titles, duties,
responsibilities or status from the positions, duties,
responsibilities or status existing immediately prior to the Change
in Control;
(7) the
removal of the Executive from, or any failure to re-elect the
Executive to, any of the offices the Executive held immediately
prior to the Change in Control; or
(8) any
material reduction in Executive’s retirement, insurance or
fringe benefits from the levels in effect immediately prior to the
Change in Control.
A termination
of employment by the Executive for Good Reason for purposes of this
Agreement shall be effectuated by giving the Company written notice
(“ Notice of Termination for Good Reason ”) of
the termination setting forth in reasonable detail the specific
conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement on which the Executive
relied. The Company shall be entitled, during the 30-day period
following receipt of a Notice of Termination for Good Reason, to
cure the circumstances that gave rise to Good Reason, provided that
the Company shall be entitled to waive its right to cure or reduce
the cure period by delivery of written notice to that effect to the
Executive. Unless the parties agree otherwise, and provided that
the Company fails to cure the circumstances that gave rise to Good
Reason, a termination of employment by the Executive for Good
Reason shall be effective on the 30th day following the termination
of the Company’s right to cure, unless the notice sets forth
a later date (which date shall in no event be later than
60 days after the notice is given); provided ,
however , that so long as an event that constitutes Good
Reason occurs during the Non-CIC Period or the CIC Period, as
applicable, and the Executive delivers the Notice of Termination
for Good Reason at any time prior to the expiration of the Non-CIC
Period or the CIC Period, for purposes of the payments, benefits
and other entitlements set forth in Section 4(c) or 4(d), as
applicable, and Section 4(e), the
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termination of
the Executive’s employment pursuant thereto shall be deemed
to be a resignation for Good Reason during the Non-CIC Period or
the CIC Period. If the Company disputes the existence of Good
Reason, the Company shall have the burden of proof to establish
that Good Reason does not exist or that the circumstances that gave
rise to Good Reason have been cured. If the Executive continues to
provide services to the Company after one of the events giving rise
to Good Reason has occurred, the Executive shall not be deemed to
have consented to such event or to have waived the
Executive’s right to terminate his employment at any time
during the Term for Good Reason in connection with such
event.
(c)
Termination During the Non-CIC Period by the Company Without
Cause or by the Executive for Good Reason. (i) Subject to
Section 4(f), if the Executive’s employment under this
Agreement is terminated by the Company without Cause or the
Executive terminates his employment hereunder for Good Reason, in
each case during the Non-CIC Period (the effective date of such
termination is hereafter referred to as the “ Termination
Date ”), then, in addition to the Accrued Rights, the
Executive shall be entitled to the payments and benefits provided
in this Section 4(c) and Section 4(e). Notwithstanding any
provision of this Agreement to the contrary, the Executive shall
not be entitled to any payments or benefits under this Section 4(c)
if he becomes entitled to any payments or benefits pursuant to the
Section 4(d), and the Executive shall not become entitled to
any payments or benefits pursuant to Section 4(d) if he becomes
entitled to any payments or benefits pursuant to this
Section 4(c).
(ii)
Severance Pay. The Company shall pay the Executive an amount
equal to 1.5 times the sum of (A) the Executive’s
current Base Salary plus (B) the Executive’s current
Target Bonus, in a lump-sum payment payable on the tenth business
day after the Release Effective Date.
(iii)
Equity-Based Awards. The treatment of all outstanding stock
options, restricted shares, phantom shares, performance share
awards and other equity-based awards (the “ Equity-Based
Awards ”) held by the Executive as of the Termination
Date shall be governed by the terms and conditions of the equity
compensation plans and award agreements pursuant to which they were
granted.
(d)
Termination During the CIC Period by the Company Without Cause
or by the Executive for Good Reason. (i) Subject to
Section 4(f), if the Executive’s employment under this
Agreement is terminated by the Company without Cause or the
Executive terminates his employment hereunder for Good Reason, in
each case during the CIC Period, then, in addition to the Accrued
Rights, the Executive shall be entitled to the payments and
benefits provided in this Section 4(d) and Section 4(e).
(ii)
Severance Pay. The Company shall pay the Executive an amount
equal to two times the sum of (A) the Executive’s
current Base Salary plus (B) the Executive’s current
Target Bonus, in a lump-sum payment payable on the tenth business
day after the date the Release Effective Date.
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(iii)
Equity-Based Awards. Notwithstanding anything to the
contrary in any equity compensation plan or any award agreement
thereunder and subject to Section 4(f), (A) all
outstanding Equity-Based Awards held by the Executive as of the
Termination Date that are subject to vesting based on the passage
of time and without regard to attainment of performance criteria
that are unvested shall become fully vested (and, if applicable,
exercisable in full), and (B) all outstanding Equity-Based
Awards then held by the Executive that are subject to
performance-based vesting criteria shall become vested and earned
(and, if applicable, immediately exercisable) at a deemed
performance level equal to the target performance level with
respect to such Equity-Based Awards. In addition, all outstanding
Equity-Based Awards held by the Executive as of the Termination
Date that are vested as of such date (including any Equity-Based
Awards that become vested in accordance with clause (A) or
(B) of the preceding sentence) shall remain outstanding, shall
be settled and shall otherwise be treated in accordance with the
terms and conditions of the equity compensation plans and award
agreements pursuant to which they were granted.
(iv) SERP
Benefits. On the Termination Date, the Executive shall become
vested in the benefits accrued by the Executive under the Terra
Industries Inc. Excess Benefit Plan (the “ SERP
”) as of the Termination Date and shall become entitled to
payment of benefits in accordance with the terms of the SERP, as in
effect from time to time. For purposes of computing the
Executive’s accrued benefits under the SERP, the Company
shall credit the Executive with two (2) years of participation
in the SERP and two (2) years of age in addition to the actual
years of participation and age credited to the Executive under the
SERP as of the Termination Date.
(e)
Termination During the Term by the Company Without Cause or by
the Executive for Good Reason. (i) Subject to
Section 4(f), if the Executive’s employment under this
Agreement is terminated by the Company without Cause or the
Executive terminates his employment hereunder for Good Reason, in
each case during the Term (whether during the CIC Period or the
Non-CIC Period), then, in addition to the Accrued Rights and the
payments and benefits provided in Section 4(c) or 4(d), as
applicable, the Executive shall be entitled to the benefits
provided in this Section 4(e).
(ii)
Continued Welfare Benefits. Commencing on the Release
Effective Date and for two years thereafter or, if earlier, the
date on which the Executive becomes employed by a new employer, the
Company shall, at its expense (subject to the Executive’s
payment of the normal premium, if any, then in effect at the time
of payment for employees generally), provide the Executive with
medical and dental benefits at the level provided to the
Company’s active employees during such period;
provided , however , that if the Executive becomes
employed by a new employer that maintains a major medical plan that
either (A) does not cover the Executive with respect to a
preexisting condition which was covered under the Company’s
major medical plan, or (B) does not cover the Executive for a
designated waiting period, the Executive’s coverage under the
Company’s major medical plan shall continue (but shall be
limited in the event of noncoverage due to a preexisting condition,
to the preexisting condition itself) until the earlier of the end
of the applicable period of
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