2009
Performance Option Plan
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1.
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PURPOSE OF PLAN
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Potash Corporation of Saskatchewan
Inc. (the “Corporation”) by resolution of its Board of
Directors (the “Board”) has established, subject to
shareholder approval at the Corporation’s 2009 Annual and
Special Meeting of shareholders, this Potash Corporation of
Saskatchewan Inc. 2009 Performance Option Plan (the
“Plan”) to support the Corporation’s compensation
philosophy of providing selected employees and officers with an
opportunity to: promote the growth and profitability of the
Corporation; align their interests with shareholders; and earn
compensation commensurate with corporate performance. The
Corporation believes this Plan will directly assist in supporting
the Corporation’s compensation philosophy by providing
participants with the opportunity through stock options, which will
vest, if at all, based on corporate performance over a three-year
period, to acquire common shares of the Corporation (“Common
Shares”).
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2.
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DURATION OF THIS PLAN
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This Plan was adopted by the Board
on February 20, 2009 to be effective as of January 1,
2009 (the “Effective Date”), subject to shareholder
approval at the Corporation’s 2009 Annual and Special Meeting
of shareholders, and shall remain in effect, unless sooner
terminated as provided herein, until one (1) year from the
Effective Date, at which time it will terminate. After this Plan is
terminated, no stock options may be granted but stock options
previously granted shall remain outstanding in accordance with
their applicable terms and conditions and this Plan’s terms
and conditions.
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3.
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ADMINISTRATION
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This Plan shall be administered by
the Compensation Committee of the Board or any other committee
designated by the Board to administer this Plan (the
“Committee”). The Committee shall be responsible for
administering this Plan, subject to this Section 3 and the
other provisions of this Plan. The Committee may employ attorneys,
consultants, accountants, agents, and other individuals, any of
whom may be an employee, and the Committee, the Corporation, and
its officers and directors shall be entitled to rely upon the
advice, opinions, or valuations of any such individuals. All
actions taken and all interpretations and determinations made by
the Committee shall be made in the Committee’s sole
discretion and shall be final and binding upon the participants,
the Corporation, and all other interested individuals. To the
extent applicable, the Plan shall be administered with respect to
optionees subject to the laws of the U.S. so as to avoid the
application of penalties pursuant to Section 409A of the
Internal Revenue Code, and stock options hereunder may be subject
to such restrictions as the Committee determines are necessary to
avoid application of such Section 409A.
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4.
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AUTHORITY OF THE
COMMITTEE
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The
Committee shall have full and exclusive discretionary power to
interpret the terms and the intent of this Plan and any Stock
Option Award Agreement or other agreement or document ancillary to
or in connection with this Plan, to determine eligibility for stock
options and to adopt such rules, regulations, forms, instruments,
and guidelines for administering this Plan as the Committee may
deem necessary or proper. Such authority shall include adopting
modifications and amendments to any Stock Option Award Agreement
that are necessary to comply with the laws of the countries and
other jurisdictions in which the Corporation and/or its
subsidiaries operate.
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5.
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SHARES SUBJECT TO STOCK
OPTIONS
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The
aggregate number of Common Shares issuable after February 20,
2009 pursuant to stock options under this Plan may not exceed
1,000,000 Common Shares. The aggregate number of Common Shares in
respect of which stock options have been granted to any one person
pursuant to this Plan and which remain outstanding shall not at any
time exceed 250,000. The authorized limits under this Plan shall be
subject to adjustment under Sections 12 and 13.
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If
any stock option granted under this Plan, or any portion thereof,
expires or terminates for any reason without having been exercised
in full, the Common Shares with respect to which such option has
not been exercised shall again be
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available for
further stock options under this Plan; provided, however, that any
stock option that is granted under this Plan that does not vest as
a result of a failure to satisfy the Performance Measures, shall
not be again available for grant under this Plan.
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6.
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GRANT OF STOCK
OPTIONS
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From time to time the Board may
designate individual officers and employees of the Corporation and
its subsidiaries eligible to be granted options to purchase Common
Shares and the number of Common Shares which each such person will
be granted a stock option to purchase; provided that the aggregate
number of Common Shares subject to such stock options may not
exceed the number provided for in Section 5 of this Plan.
Non-employee directors and other non-employee contractors and third
party vendors are not eligible to participate in this
Plan.
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7.
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OPTION PRICE
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The
option price for any option granted under this Plan to any optionee
shall be fixed by the Board when the option is granted and shall be
not less than the fair market value of the Common Shares at such
time which, for optionees resident in the United States and any
other optionees designated by the Board, shall be deemed to be the
closing price per Common Share on the New York Stock Exchange on
the last trading day immediately preceding the day the option is
granted and, for all other optionees, shall be deemed to be the
closing price per Common Share on the Toronto Stock Exchange on the
last trading day immediately preceding the day the option is
granted; provided that, in either case, if the Common Shares did
not trade on such exchange on such day the option price shall be
the closing price per share on such exchange on the last day on
which the Common Shares traded on such exchange prior to the day
the option is granted.
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8.
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VESTING OF STOCK
OPTIONS
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Subject to achievement of
Performance Measures as certified and approved by the Audit
Committee of the Board, stock options granted under this Plan will
vest no later than thirty (30) days after the audited
financial statements for the applicable Performance Period have
been approved by the Board.
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9.
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PERFORMANCE MEASURES FOR VESTING OF
STOCK OPTIONS
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(a)
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The
Performance Measures which will be used to determine the degree to
which stock options will vest over the three-year period beginning
the first day of the fiscal year in which they are granted (the
“Performance Period”) shall be cash flow return on
investment (“CFROI”) and weighted average cost of net
debt and equity capital (“WACC”).
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(i)
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CFROI is the ratio of after tax
operating cash flow to average gross investment over the fiscal
year, calculated as A divided by B, where (1) A equals
operating income less/plus nonrecurring or unusual items less/plus
change in unrealized gains/losses on derivative instruments
included in net income plus accrued incentive awards plus
depreciation and amortization less current taxes, and (2) B
equals the average of total assets less/plus the fair value
adjustment for investments in available for sale securities less
the fair value of derivative instrument assets plus accumulated
depreciation plus accumulated amortization less cash and cash
equivalents less non interest bearing current liabilities excluding
derivatives.
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(ii)
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WACC is the weighted average cost of
net debt and equity capital, calculated as [A times the product of
B divided by C] plus [D times the product of E divided by C], where
(1) A equals the after-tax market yield cost of debt,
(2) B equals the market value of debt less cash and cash
equivalents (3) C equals the market value of debt less cash
and cash equivalents, plus the market value of equity, (4) D
equals the cost of equity, and (5) E equals the market value
of equity.
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(b)
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In
determining the number of stock options that will actually vest
based on the degree to which the Performance Measures have been
attained during the applicable Performance Period, the following
chart shall be utilized which shows the three year average excess
of CFROI being greater than WACC and the respective portion of the
stock option that will vest:
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Performance Measure
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Vesting Scale
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3 year average excess
of
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% of Stock Option
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CFROI > WACC
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Grant Vesting
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<0%
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0%
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0.20%
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30%
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1.20%
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70%
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2.20%
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90%
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2.50%
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100%
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(c)
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In
assessing the portion of the stock options that shall vest in
accordance with the above chart, the following shall be
done:
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(i)
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Each year, the CFROI and WACC will
be calculated in accordance with the definitions herein, based on
the audited financial statements and approved by the Audit
Committee.
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(ii)
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In
each Performance Period, the average of the three fiscal years
shall be calculated by taking the simple average of the individual
years’ results.
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(iii)
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The
resulting three-year average will then be applied, using the scale
above to determine the number of stock options, if any, that will
vest as of the end of the Performance Period.
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(iv)
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For
results falling between the reference points in the chart above,
the level of vesting shall be mathematically interpolated between
the reference points.
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10.
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TERMS OF STOCK
OPTIONS
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The
period during which a stock option is exercisable (the
“Term”) may not exceed 10 years from the date the
stock option is granted (the “Initial Exercise
Period”), plus any Additional Exercise Period (as defined
below). If such Initial Exercise Period would otherwise expire
(i) during a Blackout Period (as defined below) applicable to
the relevant optionee or (ii) within 10 trading days after the
expiration of the Blackout Period applicable to the relevant
optionee, the Term of the related stock option shall expire on the
date that is the tenth trading day after the end of such Blackout
Period (an “Additional Exercise Period”). For purposes
of this Plan, “Blackout Period” means any period during
which the relevant optionee is prohibited by the
Corporation’s trading policy from trading in the
Corporation’s securities. The Stock Option Award Agreement
may contain provisions limiting the number of Common Shares with
respect to which stock options may be exercised in any one year.
Each stock option agreement shall contain provisions to the effect
that:
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(a)
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if
the employment of an optionee as an officer or employee of the
Corporation or a subsidiary terminates, by reason of his or her
death, or if an optionee who is a retiree pursuant to
Section 10(b) dies, the legal personal representatives of the
optionee will be entitled to exercise any unexercised vested
options, including such stock options that may vest after the date
of death, during the period ending at the end of the twelfth
calendar month following the calendar month in which the optionee
dies, failing which exercise the stock options
terminate;
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(b)
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subject to the terms of
Section 10(a) above, if the employment of an optionee as an
officer or employee of the Corporation or a subsidiary terminates,
by reason of retirement in accordance with the then prevailing
retirement policy of the Corporation or subsidiary, the optionee
will be entitled to exercise any unexercised vested stock options,
including such stock options that may vest after the date of
retirement, during the period ending at the end of the 36
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month following
the calendar month in which the optionee retires, failing which
exercise the stock options terminate;
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(c)
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subject to the terms of
Section 14 below, if the employment of an optionee as an
officer or employee of the Corporation or a subsidiary terminates,
for any reason other than as provided in Sections 10(a) or
(b), the optionee will be entitled to exercise any unexercised
vested stock options, to the extent exercisable at the date of such
event, during the period ending at the end of the calendar month
immediately following the calendar month in which the event occurs,
failing which exercise the stock options terminate;
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(d)
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for
greater certainty and for these purposes, an optionee’s
employment with the Corporation or a subsidiary shall be considered
to have terminated effective on the last day of the
optionee’s actual and active employment with the Corporation
or subsidiary whether such day is selected by agreement with the
optionee or unilaterally by the Corporation or subsidiary and
whether with or without advance notice to the optionee. For the
avoidance of doubt, no period of notice that is given or ought to
have been given under applicable law in respect of such termination
of employment will be utilized in determining an optionee’s
entitlement under the Plan. The employment of an optionee with the
Corporation shall be deemed to have terminated for all purposes of
the Plan if such person is employed by or provides services to a
person that is a subsidiary of the Corporation and such person
ceases to be a subsidiary of the Corporation, unless the Committee
determines otherwise; and
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(e)
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each stock option is personal to the
optionee and is not assignable, except (i) as provided in
Section 10(a), and (ii) at the election of the Board, a
stock option may be assignable to the spouse, children and
grandchildren of the original optionee and to a trust, partnership
or limited liability company, the entire beneficial interest of
which is held by one or more of the foregoing.
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Nothing contained in
Sections 10(a), (b) or (c) shall extend the Term
beyond its stipulated expiration date or the date on which it is
otherwise terminated in accordance with the provisions of this
Plan.
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If
a stock option is assigned pursuant to Section 10(e)(ii), the
references in Sections 10(a), (b) and (c) to the
termination of employment or death of an optionee shall not relate
to the assignee of a stock option but shall relate to the original
optionee. In the event of such assignment, legal personal
representatives of the original optionee shall not be entitled to
exercise the assigned stock option, but the assignee of the stock
option or the legal personal representatives of the assignee may
exercise the stock option during the applicable specified
period.
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11.
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EXERCISE OF STOCK
OPTIONS
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Subject to the provisions of this
Plan, a vested stock option may be exercised from time to time by
delivering to the Corporation at its registered office a written
notice of exercise specifying the number of Common Shares with
respect to which the stock option is being exercised and
accompanied by payment in cash or certified cheque in full of the
purchase price of the Common Shares then being
purchased.
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12.
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ADJUSTMENTS
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Appropriate adjustments to the
authorized limits set forth in Section 5, in the number, class
and/or type of Common Shares optioned and in the option price per
share, both as to stock options granted or to be granted, shall be
made by the Board to give effect to adjustments in the number of
Common Shares which result from subdivisions, consolidations or
reclassifications of the Common Shares, the payment of share
dividends by the Corporation, the reconstruction, reorganization or
recapitalization of the Corporation or other relevant changes in
the capital of the Corporation.
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13.
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MERGERS
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If
the Corporation proposes to amalgamate or merge with another body
corporate, the Corporation shall give written notice thereof to
optionees in sufficient time to enable them to exercise outstanding
vested stock options, to the extent they are otherwise exercisable
by their terms, prior to the effective date of such amalgamation or
merger if they so elect. The Corporation shall use its best efforts
to provide for the reservation and issuance by the amalgamated or
continuing corporation of an appropriate number of Common Shares,
with appropriate adjustments, so as to give effect to the
continuance of the stock options to the extent reasonably
practicable. In the event that the Board determines in good faith
that such continuance is not in the circumstances practicable, it
may upon 30 days’ notice to optionees terminate the
stock options.
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14.
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CIRCUMSTANCES FOR ACCELERATED
VESTING
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If
a “change of control” of the Corporation occurs and at
least one of the two additional circumstances described below
occurs, each then outstanding stock option granted under this Plan
may be exercised, in whole or in part, even if such option is not
otherwise exercisable by its terms.
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(a)
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Additional circumstances
include:
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(i)
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Upon a “change of
control” the potential successor fails to assume the
obligations with respect to each option or fails to convert or
replace the options with equivalent options; or
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(ii)
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During the two-year period following
the effective date of a change of control, the optionee is
terminated without Cause (as defined below) or the optionee resigns
employment for Good Reason (as defined below).
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(b)
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For
purposes of this Plan, a change of control of the Corporation shall
be deemed to have occurred if any of the following occur, unless
the Board adopts a plan after the Effective Date of this Plan that
has a different definition (in which case such definition shall be
applied), or the Committee decides to modify or amend the following
definition through an amendment of this Plan:
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(i)
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within any period of two consecutive
years, individuals who at the beginning of such period constituted
the Board and any new directors whose appointment by the Board or
nomination for election by shareholders of the Corporation was
approved by a vote of at least a majority of the directors then
still in office who either were directors at the beginning of the
period or whose appointment or nomination for election was
previously so approved, cease for any reason to constitute a
majority of the Board;
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(ii)
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there occurs an amalgamation,
merger, consolidation, wind-up, reorganization or restructuring of
the Corporation with or into any other entity, or a similar event
or series of such events, other than any such event or series of
events which results in securities of the surviving or consolidated
corporation representing 50% or more of the combined voting power
of the surviving or consolidated corporation’s then
outstanding securities entitled to vote in the election of
directors of the surviving or consolidated corporation being
beneficially owned, directly or indirectly, by the persons who were
the holders of the Corporation’s outstanding securities
entitled to vote in the election of directors of the Corporation
prior to such event or series of events in substantially the same
proportions as their ownership immediately prior to such event of
the Corporation’s then outstanding securities entitled to
vote in the election of directors of the Corporation;
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(iii)
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50%
or more of the fixed assets (based on book value as shown on the
most recent available audited annual or unaudited quarterly
consolidated financial statements) of the Corporation are sold or
otherwise disposed of (by liquidation, dissolution, dividend or
otherwise) in one transaction or series of transactions within any
twelve month period;
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(iv)
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any
party, including persons acting jointly or in concert with that
party, becomes (through a take-over bid or otherwise) the
beneficial owner, directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power
of the Corporation’s then outstanding securities entitled to
vote in the election of directors of the Corporation, unless in any
particular situation the Board determines in advance of such event
that such event shall not constitute a change of
control; or
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(v)
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the
Board approves and/or recommends that shareholders accept, approve
or adopt any transaction that would constitute a change of control
under clause (ii), (iii) or (iv) of this Section 14(b)
and determines that the change of control resulting from such
transaction will be deemed to have occurred as of a specified date
earlier than the date under (ii), (iii) or (iv), as
applicable.
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(c)
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For
purposes of this Plan, “Cause” means dishonest or
willful misconduct or lack of good faith resulting in material harm
to the Corporation, financial or otherwise.
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