CONVERSION AGREEMENT

Exhibit 10.8

 

Execution Version

Final

 

CONVERSION AGREEMENT

 

By and Between

 

TERRA MISSISSIPPI NITROGEN, INC.

 

and

 

ORICA USA INC.

 

Dated as of July 21, 2005

TABLE OF CONTENTS

 

 

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Portions of this Exhibit were omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. Such portions are marked by a series of asterisks.

 

CONVERSION AGREEMENT

 

This CONVERSION AGREEMENT (the “ Agreement ”) is made the 21st day of July, 2005 (“ Effective Date ”), by and between TERRA MISSISSIPPI NITROGEN, INC. (“ Seller ”), a Delaware corporation with principal offices at 600 Fourth Street, Sioux City, Iowa 51101, and ORICA USA INC. (“ Buyer ”), a Delaware corporation with principal offices at 33101 East Quincy Avenue, Watkins, Colorado 80137.

 

RECITALS

 

WHEREAS, Seller owns and operates an ammonia, nitric acid, agricultural grade ammonium nitrate, ammonium nitrate solution (“ANS”) and urea ammonium nitrate solution manufacturing facility and site located in Yazoo County, Mississippi (the “ Plant ”); and

 

WHEREAS, Seller desires to modify, supplement and convert a portion of the Plant (such portion generally consisting of the #3 ammonium nitrate prilling plant, #4 finishing train, the Storage Dome (as defined below) and associated loadout equipment, the “ Facility ”) to produce prilled industrial grade ammonium nitrate (“ IGAN ”) pursuant to the Project Definition (as defined below) and pursuant to further design and engineering work undertaken by Seller (the “ Conversion Project ”); and

 

WHEREAS, Seller and Buyer have entered into that certain Interim Supply Agreement, dated as of July 21, 2005 (the “ Interim Supply Agreement ”), pursuant to which Seller has agreed to sell and Buyer has agreed to purchase IGAN and ANS as more particularly described therein;

 

WHEREAS, Seller and Buyer have entered into that certain Ammonium Nitrate Supply Agreement, dated as of July 21, 2005 (the “ Long Term Supply Agreement ”), pursuant to which Seller has agreed to sell and Buyer has agreed to purchase IGAN and ANS as more particularly described therein;

 

WHEREAS, the Conversion Project is necessary to enable Seller to perform its IGAN supply obligations under the Long Term Supply Agreement; and

 

WHEREAS, this Agreement, the Interim Supply Agreement, and the Long Term Supply Agreement shall be collectively referred to herein as the “ Related Agreements ”; and

 

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WHEREAS, Seller and Buyer desire to set forth their respective rights and obligations with respect to the Conversion Project and related matters.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement and the Related Agreements, the Parties covenant and agree as follows:

 

ARTICLE I.

INTERPRETATION

 

1.1 Definitions . The following terms shall have the meanings assigned thereto in this Agreement:

 

“Affiliate” means any Person that directly or indirectly controls, is controlled by, or is under common control with a specified Person. For purposes of this definition, “control” means an ability to directly or indirectly vote more than fifty percent (50%) of the shares or other equity interests at the time entitled to vote upon the election of directors or managers of a second Person.

 

“ANS” shall have the meaning set forth in the Recitals hereto.

 

“Buyer” shall have the meaning set forth in the Preamble hereto.

 

“Buyer Contact” means that individual designated from time-to-time by Buyer in writing as the individual with authority to represent Buyer’s interests with respect to the Conversion Project and to review the Conversion Work and approve Conversion Project expenditures as provided in Section 2.4 hereof.

 

“Buyer’s Indemnitees” means Buyer, its parent company, partners, subsidiaries and any other Affiliates, Buyer’s Representatives, and their respective directors, officers, employees, attorneys-in-fact, agents and Affiliates.

 

“Claim” means any action, suit, proceeding, hearing, investigation, audit, litigation, charge, complaint, claim, or demand by any Person.

 

“Commissioning” or “Commissioned” means the first business day after which the last of all of the following have occurred: (a) all materials, supplies, goods, tools, machinery and equipment comprising the converted Facility have been constructed, erected, installed, inspected and tested in accordance with the Project Definition and the design and engineering documents created by Seller based on the Project Definition, both as subsequently amended by mutual agreement, and the converted Facility has been tied in to the Plant, in each case to the extent necessary to permit the safe and sound startup and operation of the converted Facility as a fully integrated system (but excluding correction of minor non-operational matters such as painting, signage and landscaping), (b) the converted Facility has been in reasonably continuous operation (subject to storage limitations) and has produced at least an average daily volume of **** Tons of IGAN over a period of fourteen (14) consecutive days, as demonstrated by performance tests conducted by Seller, (c) Buyer has conducted testing establishing

 

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to its satisfaction that the converted Facility is producing IGAN meeting the Specifications during the time period in subparagraph (b) above, (d) the Parties have executed a writing indicating their agreement that the standards set forth in clauses (a) through (c) have been satisfied, and (e) Seller has obtained all Permits required by applicable Laws for operation of the Facility.

 

“Confidential Information” shall have the meaning set forth in Section 11.1 hereof.

 

“Contest Notice” shall have the meaning set forth in Section 8.4(b) hereof.

 

“Conversion Kit” shall mean the Drums, pre-dryer conveyors, pre-dryer air preheaters, pre-dryer fan, dryer elevator, dryer air preheater, dryer fan, pre-cooler elevator, pre-cooler conveyers, and other machinery and equipment constructed and installed in the converted Facility pursuant to the Project Definition.

 

“Conversion Project” shall have the meaning set forth in the Recitals hereto.

 

“Conversion Project Capital Budget” shall mean that certain budget agreed to by Seller and Buyer regarding the estimated costs (based on the Project Definition and on design and engineering work performed by Seller) of the Conversion Project and attached hereto as Exhibit A .

 

“Conversion Work” shall have the meaning set forth in Section 2.1 hereof.

 

“Damages” means any and all Claims, losses, liens, injuries to persons or property, and causes of action of every kind and character including strict liability claims and administrative law actions and orders, including but not limited to, the amounts of judgments, fines, penalties, interest, court costs, investigation expenses, and costs and legal fees (including but not limited to attorneys’ and experts’ fees), but shall in no event, as between or among Buyer, Buyer’s Indemnitees, Seller, and Seller’s Indemnitees, include special, indirect, consequential, punitive, exemplary or other similar damages, including Claims for lost profits, lost business opportunities or business interruption.

 

“Drums” shall have the meaning set forth in Section 2.6 hereof.

 

“Effective Date” shall have the meaning set forth in the Preamble hereto.

 

“Environmental Laws” means any applicable Laws relating to the environment, human health or safety, pollution or other environmental degradation or Hazardous Materials.

 

“Event of Force Majeure” means any strike or other labor trouble, fire, flood, riot, war, embargo, accident, act of God or terrorism, requisition or direction by Governmental or Regulatory Authority, priorities or compliance with governmental action or any Law, shortage of essential materials or equipment, or any other circumstance beyond reasonable control of the obligee, whether similar to or dissimilar from the above enumerated causes.

 

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“Facility” shall have the meaning set forth in the Recitals hereto.

 

“Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision.

 

“Hazardous Materials” means (a) petroleum or petroleum products, fractions, derivatives or additives, natural or synthetic gas, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls and radon gas, (b) any substances defined as or included in the definition of “hazardous wastes,” “hazardous materials,” “hazardous substances,” “extremely hazardous substances,” “restricted hazardous wastes,” “special wastes,” “toxic substances,” “toxic chemicals” or “toxic pollutants,” “contaminants” or “pollutants” or words of similar import under any Environmental Law, (c) radioactive materials, substances and waste, and radiation, and (d) any other substance exposure to which is regulated under any Environmental Law or could give rise to Liabilities under common law.

 

“IGAN” shall have the meaning set forth in the Recitals hereto.

 

“Indemnified Party” shall have the meaning set forth in Section 8.4(a) hereof.

 

“Indemnifying Party” shall have the meaning set forth in Section 8.4(a) hereof.

 

“Interim Supply Agreement” shall have the meaning set forth in the Recitals hereto.

 

“Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority and “Laws” includes, without limitation, all Environmental Laws.

 

“Liability” or “Liabilities” means all Claims and Damages, regardless of whether any such Claims or Damages would be required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles or are known as of the Effective Date.

 

“Long Term Supply Agreement” shall have the meaning set forth in the Recitals hereto.

 

“Month” means a calendar month.

 

“Notice of Claim” shall have the meaning set forth in Section 8.4(a) hereof.

 

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“Notice of Liability” shall have the meaning set forth in Section 8.4(b) hereof.

 

“OCI” shall have the meaning set forth in Section 2.6 hereof.

 

“Order” means any writ, judgment, judicial decision, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

 

“Party” means Buyer or Seller, as the case may be, and “Parties” shall, unless the context dictates otherwise, mean Buyer and Seller collectively.

 

“Permit” means any permit, license, exemption, action, certificate of authority, authorization, approval, or registration issued by or required to be issued by a Governmental or Regulatory Authority in connection with ownership or operation of the Facility.

 

“Person” means any natural person, corporation, limited liability company, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

 

“Plant” shall have the meaning set forth in the Recitals hereto.

 

“Process Design” shall mean Buyer’s process design concept and process descriptions incorporated into the Project Definition, including the process flow diagrams in Appendix A thereto.

 

“Project Definition” shall mean the document prepared by Buyer and agreed to by Seller entitled “Project South Project Definition” (No. EN2364 – PD – 001 (Rev F), which incorporates the Process Design and which Seller will rely upon and shall use a basis for carrying out the Conversion Work and completing the Conversion Project.

 

“Quarter” means a calendar quarter.

 

“Record Retention Period” shall have the meaning set forth in Section 6.7(a) hereof.

 

“Records” shall have the meaning set forth in Section 6.7(a) hereof.

 

“Related Agreements” shall have the meaning set forth in the Recitals hereto.

 

“Release” means the presence, release, issuance, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any property, including the movement of Hazardous Materials through the air, soil, surface water, ground water or property other than as specifically authorized by (and then only to the extent in compliance with) Environmental Laws and Permits.

 

“Representative” means any Person that is an agent, contractor, servant, employee or licensee of another Person.

 

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“Seller” shall have the meaning set forth in the Preamble hereto.

 

“Seller’s Indemnitees” means Seller, its parent company, partners, subsidiaries and any other Affiliates, Seller’s Representatives, and their respective directors, officers, employees, attorneys-in-fact, agents and Affiliates.

 

“Side Letter Agreement” means the letter agreement between the Parties and other Persons dated July 21, 2005 regarding the capital for the Conversion Project.

 

“Site” means that portion of land within the boundaries of the Plant more particularly described on Seller’s Engineering Drawing C-146-010-Z15 (April 2005) on which the Facility is situated.

 

“Storage Dome” means Seller’s ammonium nitrate storage dome at the Plant which is capable upon Commissioning of storing approximately 3,600 Tons of IGAN, based upon Buyer’s storage pile height recommendation.

 

“Submission Date” shall have the meaning set forth in Section 10.2 hereto.

 

“Term” shall have the meaning set forth in Section 3.1 hereto.

 

“Ton” means a short ton of two thousand (2,000) pounds avoirdupois.

 

1.2 Interpretation. In this Agreement:

 

(a) all terms defined in the singular shall have the same meanings in the plural and vice versa;

 

(b) all references to currency in this Agreement are references to the lawful currency of the United States;

 

(c) unless otherwise noted, all references to Sections and Subsections shall be deemed to be references to the Sections and Subsections of this Agreement;

 

(d) the captions and headings contained in this Agreement are for convenience of reference only and shall not be considered or given any effect in construing the provisions hereof if any question of intent should arise;

 

(e) reference to any Law or Laws means such Law or Laws as amended, modified, codified, re-enacted, supplemented or superseded in whole or in part; and in effect from time to time;

 

(f) no provision of this Agreement shall be interpreted or construed against either Party solely because that Party or its legal representative drafted such provision; and

 

(g) terms which are capitalized but not defined herein shall have the meanings assigned them in the Long Term Supply Agreement.

 

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1.3 Exhibit. The following Exhibits are attached to this Agreement and incorporated into and form an integral part of this Agreement:

 

 

ARTICLE II.

CONVERSION

 

2.1 Seller Undertakings . As an inducement for Buyer to enter into the Long Term Supply Agreement, Seller shall perform or provide, or cause to be performed or provided, all engineering, procurement, construction, erection, installation and Commissioning work, services, equipment, machinery and materials to accomplish and complete the Conversion Project in accordance with the Project Definition and the terms and conditions set forth in this Agreement (collectively, the “ Conversion Work ”). Seller has commenced the Conversion Work prior to the Effective Date and this Agreement shall be deemed to apply to and govern such Work. Subject to the receipt of all Permits necessary in connection with the Conversion Work and operation of the converted Facility (which Permits Seller shall promptly apply for and diligently pursue), Seller shall use its commercially reasonable efforts to complete the Conversion Project and cause the Commissioning to occur no later than September 1, 2006.

 

2.2 Performance Standards . Seller shall perform, and shall require its contractors, subcontractors and other Representatives to perform, the Conversion Work with reasonable diligence and dispatch, in a lawful, safe, cost-effective and otherwise commercially reasonable manner, and in accordance with (a) Seller’s documented operating and quality assurance procedures, (b) the Conversion Project Capital Budget, (c) the Project Definition, (d) the drawings, process flow diagrams, plans, schematics, and other design and engineering documents prepared by Seller based on the Project Definition and Process Design, (e) recognized industry standards and practices, and (f) all applicable Laws.

 

2.3 Control of Conversion Work . Except with respect to the development and provision of the Project Definition, and except as provided in Sections 2.4 and 2.5 , Seller shall at all times have sole authority and responsibility with respect to the performance of the Conversion Work and Buyer shall have no responsibilities with respect to the Conversion Work.

 

2.4 Consultation with Buyer . From time to time as necessary, Seller shall consult with the Buyer Contact concerning the Project Definition and the Conversion Work. Upon the reasonable request of Buyer, Seller shall provide Buyer with reasonably detailed information concerning the progress of, costs incurred and anticipated to be incurred in connection with, the Conversion Project, and other information concerning the Conversion Project as may reasonably be requested from time to time by Buyer. Seller shall obtain Buyer’s approval prior to incurring costs in connection with the Conversion Work which exceed the Conversion Project Capital Budget, or any material line item in the Conversion Project Capital Budget.

 

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2.5 Buyer Undertakings .

 

(a) Prior to the Effective Date, Buyer has developed and provided to Seller the Project Definition.

 

(b) Buyer agrees that it shall be responsible for all costs and expense contemplated by the Conversion Project Capital Budget and actually incurred by Seller (including any such amounts in excess of the Conversion Project Capital Budget approved by Buyer’s Contact) through to Commissioning, such costs and expenses to be reimbursed to Seller by Buyer’s payment of the Facility Fee under the Long Term Supply Agreement. In the event that, due to a defect in the Process Design, completion of the Conversion Project results in Conversion Project Capital Budget overruns, such additional cost to the extent attributable to such defect shall initially be incurred by Seller and thereafter reimbursed by Buyer within thirty (30) days after receiving Seller’s invoice; provided that, if the Parties agree to treat such costs and expense as a supplementary capital project, such costs and expense will be included in the Facility Fee to be paid by Buyer under the Long Term Supply Agreement. In the event that, due to a defect in the design and engineering documents of Seller or any negligence on the part of Seller in the performance of the Conversion Work, completion of the Conversion Project results in Conversion Project Capital Budget overruns, such additional costs and expense shall solely be Seller’s responsibility and not subject to reimbursement by Buyer .

 

(c) Buyer agrees that it shall be responsible for all costs and expense not contemplated by the Conversion Project Capital Budget in connection with any Expansion Capital Expenditure or which are required in order to comply with applicable Law; provided that, if the Parties agree to treat such costs and expense as a supplementary capital project, such costs and expense will be included in the Facility Fee to be paid by Buyer under the Long Term Supply Agreement.

 

(d) Buyer shall assist Seller in Commissioning the Facility. This assistance shall include a detailed review of the pre-Commissioning and Commissioning plan, the attendance of an Orica technical resource during Commissioning trials and acceptance trials and trouble shooting assistance if Process Design or technical issues arise during Commissioning.

 

2.6 Drums . The Project Definition will require the acquisition by Seller from Buyer’s Affiliate Orica Canada Inc. (“OCI”) and installation of two IGAN dryer drums and associated equipment more particularly itemized in Exhibit B hereto (the “ Drums ”). Seller agrees to inspect the Drums promptly after the Effective Date and, subject to the results of such inspection, Seller agrees to purchase, and Buyer shall cause OCI to supply and arrange for delivery to the Site of such Drums at a time mutually acceptable to Seller and OCI. Buyer shall bear the risk or loss or damage to the Drums prior to their delivery to the Site. The purchase price for the Drums will be an amount equal to

 

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the sum of OCI’s book values for the Drums as of the date of OCI’s most recent balance sheet prior to the Effective Date, plus the cost of loading and transporting the Drums to the Site. Such aggregate amount will be included in the Conversion Project Capital Budget and paid in cash by Seller to OCI within thirty (30) days from the arrival of the Drums at the Plant.

 

ARTICLE III.

TERM, TERMINATION AND PURCHASE RIGHT

 

3.1 Term . The term (“ Term ”) of this Agreement shall commence on the Effective Date and, unless earlier terminated pursuant to Sections 3.2 or 3.3 below, and subject to Section 3.4 below, shall expire on the first business day following the date the converted Facility is Commissioned.

 

3.2 Buyer’s Termination for Breach . Buyer may terminate this Agreement if Seller fails to perform its obligations hereunder, and such failure shall not have been cured within thirty (30) days after notice thereof shall have been received by Seller or such longer period as may be reasonably required to cure such breach or default (provided that Seller shall be using commercially reasonable efforts to cure such breach or default). Such termination shall be effective on the date specified in Buyer’s termination notice.

 

3.3 Seller’s Termination for Breach . Seller may terminate this Agreement if Buyer fails to perform its obligations hereunder, and such failure shall not have been cured within thirty (30) days after notice thereof shall have been received by Buyer or such longer period as may be reasonably required to cure such breach or default (provided that Buyer shall be using commercially reasonable efforts to cure such breach or default). Such termination shall be effective on the date specified in Seller’s termination notice.

 

3.4 Effect of Termination . Upon the expiration or earlier termination of this Agreement, this Agreement shall immediately become void and of no further force and effect; provided, however, that the following provisions shall survive the expiration or termination of this Agreement indefinitely or as otherwise set forth therein: Section 2.5 (b) and (c), except to the extent Buyer is relieved from payment therefor as provided in Section VI.D.2. of the Long Term Supply Agreement; Section 3.5; Article IV; Section 6.3; Article VII, Article VIII; Article X; and Section 11.1. Notwithstanding anything to the contrary contained in this Agreement, a termination of this Agreement for any reason shall not affect any rights or remedies of either Party arising out of any breach of this Agreement prior to such termination.

 

3.5 Purchase Rights . Buyer and Seller