Date of Award: February [
• ], 2008
Target Number of Performance Shares Awarded: x,xxx
I am pleased to inform you that as an executive
of Terra Industries Inc. (“Terra”) or a subsidiary
thereof, you have been awarded, under Terra’s 2007 Omnibus
Incentive Compensation Plan (the “Plan”), the number of
Performance Shares set forth above, subject to certain
restrictions, terms and conditions set forth in this letter and in
the Plan. Shares (or cash based on the value of Shares) may be
issued to you in the future for the Performance Shares granted to
you if Terra achieves certain financial results described below in
paragraph 1. A Share shall mean a share of common stock of Terra,
without par value, or such other securities of Terra (a) into
which such shares shall be changed by reason of a recapitalization,
merger, consolidation, split-up, combination, exchange of shares or
other similar transaction or (b) as may be determined by the
Committee (as defined in the Plan) pursuant to Section 4(b) of the
Plan. Pursuant to the Plan, the Performance Shares are Restricted
Stock Units that may be settled in Shares or cash, as determined by
the Committee in its sole discretion, and are designated as
Performance Compensation Awards. Unless otherwise defined, the
capitalized terms herein shall have the meanings assigned to them
in the Plan.
1. Subject to the terms and conditions set
forth in this Agreement, you will be eligible to earn (or be deemed
to earn) a number of Performance Shares that is between 0% and 200%
of the target number of Performance Shares set forth above, such
number of earned Performance Shares to be determined based on
Terra’s annualized average return on capital employed
(“ROCE”), described as follows:
a. The ROCE period will be the thirty-six
month period ending on December 31, 2010 (referred to
hereafter as the “Period”).
b. The numerator of the calculation will be
the annualized average of the sum of income from operations for the
Period (as reported in Terra’s Consolidated Statement of
Operations for 2008, 2009 and 2010), reduced by 35% representing
normal income tax expense, plus income or earnings from equity
investments and results from discontinued operations.
c. The denominator of the calculation will
be the average of the amounts reported on the twelve Terra
quarterly balance sheets for the Period for the following items:
Common shareholders and preferred shareholders equity, short and
long-term debt, deferred income taxes and minority interest,
liability for customer prepayments, less cash.
d. The determination of the numerator and
denominator used for the calculation of ROCE will not include the
following items:
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i.
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Losses that are the direct result of
a major casualty, force majeure or natural disaster;
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ii.
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Losses for new legislation that
directly affects Terra’s existing product mix;
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iii.
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Losses that are the result of a
terrorist attack;
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iv.
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Losses associated with shipping
restrictions imposed by Terra’s freight vendors for
Terra’s products;
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v.
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Impairment of long-lived assets,
goodwill or other intangible assets;
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vi.
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Losses on the early retirement of
debt;
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vii.
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Equity-based or other employee
retention awards granted in the connection with any
acquisition;
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viii.
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Amortization of goodwill;
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ix.
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Expenses classified as provisions
for restructuring;
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x.
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Losses on the disposal of assets or
segments of an acquired business within three years of the
acquisition date;
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xi.
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Losses on the disposition of a
business;
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xii.
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Expenses associated with changes in
tax or accounting regulations or laws; and
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xiii.
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Other expenses or losses that are
unusual in nature or infrequent in occurrence and are disclosed as
a separate item in Terra’s Consolidated Statement of
Operations.
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e. In each instance, the above-referenced
items must be determined in accordance with generally accepted
accounting principles and appear on the face of Terra’s
Consolidated Statement of Operations contained in its Consolidated
Financial Statements for such performance year.
f. The Compensation Committee may, in its
sole discretion, include any of the preceding items in its
calculation of the return amount if the inclusion of such item or
items has the effect of decreasing level of ROCE
achieved.
g. If Terra’s annualized average ROCE
for the Period is [ ]or less, none of the Performance Shares will
be earned.
h. If Terra’s annualized average ROCE
for the Period is greater than [ ] but less than or equal to [ ], [
] of the target number of Performance Shares will be earned for
each [ ] by which annualized average ROCE exceeds [ ].
-2-
i. If Terra’s annualized average ROCE
for the Period is greater than [ ] but less than [ ], an additional
[ ] of the target number Performance Shares will be earned for each
[ ] by which annualized average ROCE exceeds [ ].
j. If Terra’s annualized average ROCE
for the Period equals or exceeds [ ], then 200% of the target
number of Performance Shares (which is the maximum number of
Performance Shares that may be earned pursuant to this Award) will
be earned.
2. The calculation of ROCE will be
determined by the Committee following the end of the Period. Until
the Committee has made its determination about the level of
achievement of ROCE and the percentage of the Performance Shares
that have been earned, you will not be entitled to receive any
Shares pursuant to this Agreement or to receive any cash in lieu of
such Shares. In determining the percentage of Performance Shares
that you have earned during the Period, the Compensation Committee
may not award more Performance Shares than the maximum amount
in
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