-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MY7tNH7c+li8FqPs4L2g1KE0SZT6LoqaxzMEKf3+Q0LL/bIQsvn7JneSPruYUUbJ Mns1IumBG+I4imIiZTZJXA== 0000950131-95-001809.txt : 199507050000950131-95-001809.hdr.sgml : 19950705 ACCESSION NUMBER: 0000950131-95-001809 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19950703 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERRA INDUSTRIES INC CENTRAL INDEX KEY: 0000722079 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISCELLANEOUS NONDURABLE GOODS [5190] IRS NUMBER: 521145429 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 033-60853 FILM NUMBER: 95551926 BUSINESS ADDRESS: STREET 1: TERRA CENTRE 600 4TH ST STREET 2: P.O. BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 BUSINESS PHONE: 7122771340 MAIL ADDRESS: STREET 1: TERRA CENTER STREET 2: 600 4TH ST P O BOX 6000 CITY: SIOUX CITY STATE: IA ZIP: 51102-6000 FORMER COMPANY: FORMER CONFORMED NAME: INSPIRATION RESOURCES CORP DATE OF NAME CHANGE: 19920517 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1995 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- TERRA INDUSTRIES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- MARYLAND 2873 52-1145429 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) TERRA CENTRE 600 FOURTH STREET, P.O. BOX 6000 SIOUX CITY, IOWA 51102-6000 (712) 277-1340 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- GEORGE H. VALENTINE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY TERRA CENTRE 600 FOURTH STREET, P.O. BOX 6000 SIOUX CITY, IOWA 51102-6000 (712) 277-1340 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: CARTER W. EMERSON KIRKLAND & ELLIS 200 EAST RANDOLPH DRIVE CHICAGO, ILLINOIS 60601 (312) 861-2052 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM AMOUNT MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE - --------------------------------------------------------------------------------------------- 10 1/2% Senior Notes due 2005, Series B....................... $200,000,000 100% $200,000,000 $68,965.52
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee. ---------------- 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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT INDEX APPEARS ON PAGE TERRA INDUSTRIES INC. CROSS REFERENCE SHEET (PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-4)
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS ----------------------- --------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus..... Outside Front Cover Page 2. Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover Cover Pages of Prospectus.... Page 3. Risk Factors, Ratio of Summary; Risk Factors; The Company; Earnings to Fixed Charges and Selected Financial Data; Exchange Offer; Other Information............ Tax Considerations 4. Terms of the Transaction...... Outside Front Cover Page; Summary; Exchange Offer; Description of Exchange Notes; Tax Considerations 5. Pro-Forma Financial Summary--Summary Financial Data; Selected Information.................. Financial Data 6. Material Contracts with the Company Being Acquired....... Inapplicable 7. Additional Information Required..................... Inapplicable 8. Interests of Named Experts and Counsel...................... Legal Matters; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................. Inapplicable 10. Information with Respect to S- Incorporation of Certain Documents by 3 Registrants................ Reference 11. Incorporation of Certain Incorporation of Certain Documents by Information by Reference..... Reference 12. Information with Respect to S- 3 or S-2 Registrants......... Inapplicable 13. Incorporation of Certain Information by Reference..... Inapplicable 14. Information with Respect to Registrants other than S-3 or S-2 Registrants.............. Inapplicable 15. Information with Respect to S- 3 Companies.................. Inapplicable 16. Information with Respect to S- 3 or S-2 Companies........... Inapplicable 17. Information with Respect to Companies Other Than S-3 or S-2 Companies................ Inapplicable 18. Information if Proxies, Consents or Authorizations are to be Solicited.......... Inapplicable 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in Incorporation of Certain Documents by an Exchange Offer............ Reference
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JULY 3, 1995 PROSPECTUS TERRA INDUSTRIES INC. OFFER TO EXCHANGE ITS 10 1/2% SENIOR NOTES DUE 2005, SERIES B, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING 10 1/2% SENIOR NOTES DUE 2005, SERIES A THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1995, UNLESS EXTENDED. ----------- Terra Industries Inc., a Maryland corporation (the "Company"), hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 10 1/2% Senior Notes due 2005, Series B (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 10 1/2% Senior Notes due 2005, Series A (the "Notes"), of which $200,000,000 principal amount is outstanding. The form and terms of the Exchange Notes are the same as the form and terms of the Notes (which they replace), except that as of the date hereof the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions included in the terms of the Notes relating to an increase in the interest rate in certain circumstances relating to the timing of the Exchange Offer. The Exchange Notes will evidence the same debt as the Notes (which they replace) and will be issued under and be entitled to the benefits of the Indenture, dated as of June 22, 1995 (the "Indenture"), between the Company and First Trust National Association, as Trustee (the "Trustee"), which also governs the Notes. See "The Exchange Offer" and "Description of Exchange Notes." The Company will accept for exchange any and all Notes duly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on , 1995, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Notes may be withdrawn at any time prior to 5:00 p.m. New York City time on the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Notes were sold by the Company on June 22, 1995 to the Initial Purchasers (as defined) in transactions not registered under the Securities Act in reliance upon an exemption from registration under the Securities Act (the "Offering"). The Initial Purchasers subsequently resold the Notes to qualified institutional buyers in reliance upon Rule 144A under the Securities Act and to a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. Accordingly, the Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder in order to satisfy the obligations of the Company under the Registration Rights Agreement (as defined) entered into by the Company in connection with the offering of the Notes. See "Exchange Offer." Based on no-action letters issued by the staff of the Securities and Exchange Commission (the "Commission") to third parties, the Company believes the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. See "Exchange Offer" and "--Resale of the Exchange Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale and Participating Broker-Dealers shall be authorized to deliver this Prospectus for a period not exceeding 180 days after the Expiration Date. See "Plan of Distribution." Holders of Notes not tendered and accepted in the Exchange Offer will continue to hold such Notes and will be entitled to all the rights and benefits and will be subject to the limitations applicable thereto under the Indenture and with respect to transfer under the Securities Act. Holders of Notes not tendered in the Exchange Offer will not retain any rights under the Registration Rights Agreement, except in limited circumstances. The Company will pay all the expenses incurred by it incident to the Exchange Offer. See "Exchange Offer." There has not previously been any public market for the Exchange Notes. The Company does not intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Exchange Notes will develop. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp Securities, Inc. (the "Initial Purchasers") have informed the Company that they currently intend to make a market in the Exchange Notes, but are not obligated to do so and any such market making may be discontinued at any time without notice. The Initial Purchasers may act as principal or as agent in such transactions. If a market for the Exchange Notes should develop, the Exchange Notes could trade at a discount from their principal amount. See "Risk Factors--Absence of Public Market ." Moreover, to the extent that Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Notes could be adversely affected. ----------- SEE "RISK FACTORS" ON PAGE 14 HEREIN FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1995 [MAP OF PRINCIPAL FACILITIES APPEARS HERE] This map contains the principal facilities associated with the nitrogen products and methanol business segments of the Company as of March 1995 and does not contain farm service centers or affiliated dealer locations associated with the distribution of the Company. The Company's distribution segment serves the United States and eastern region of Canada and, as of March 1995, includes approximately 370 farm service centers and 780 affiliated dealer locations. 2 SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the more detailed information and consolidated financial statements (and notes thereto) included and incorporated by reference elsewhere in this Prospectus. Except as otherwise indicated, all financial information is presented on the basis of generally accepted accounting principles. Unless otherwise referred to herein or the context otherwise requires, references to the "Company" or "Terra" shall mean Terra Industries Inc., including, where the context so requires, its direct and indirect subsidiaries. Terms defined in this Summary shall have the same meanings when used elsewhere in this Prospectus. Prospective investors are urged to read this Prospectus in its entirety. See "Risk Factors" for a discussion of certain factors that should be considered carefully by holders who tender their Notes in the Exchange Offer. THE COMPANY The Company is a leader in each of its three business segments: (i) the distribution of crop production inputs and services, (ii) the manufacture of nitrogen products and (iii) the manufacture of methanol. The Company owns and operates the largest independent farm service center network in North America and is the second largest supplier of crop production inputs in the United States. The Company is also the third largest producer of anhydrous ammonia and one of the two largest producers of nitrogen solutions in the United States and Canada. In addition, the Company is one of the largest U.S. manufacturers and marketers of methanol. In October 1994, the Company acquired Agricultural Minerals and Chemicals Inc. ("AMCI"), a manufacturer and marketer of both nitrogen products and methanol. In 1994, on a pro forma basis including AMCI's operations for the full year, the Company generated revenues and operating income of $2.1 billion and $266.2 million, respectively. The Company's distribution network for fertilizer, crop protection products and seed has grown over the last several years to include, as of March 31, 1995, approximately 370 farm service centers, 100 fertilizer storage facilities and 780 affiliated dealer locations serving the United States and the eastern region of Canada. This growth generally has been the result of a healthy farm economy, acquisitions, additional facilities and aggressive marketing. The Company's distribution network is supplied by both independent sources and the Company's own production facilities, which presently include one crop protection chemical dry flowable and liquid formulation plant and seven other liquid chemical formulation facilities in addition to its nitrogen production facilities. In 1994, on a pro forma basis including AMCI's operations for the full year, distribution revenues constituted approximately 63% of the Company's total revenues. Nitrogen fertilizer is a basic crop nutrient which is applied seasonally by farmers to improve crop yield and quality. Nitrogen fertilizer is produced by combining gaseous nitrogen with hydrogen to form anhydrous ammonia, the simplest form of nitrogen fertilizer, which can be further processed or upgraded into other fertilizer products such as urea and nitrogen solutions. The Company presently owns five nitrogen fertilizer facilities with total annual gross production capacity of 2.7 million tons of ammonia. In 1994, approximately 10% of the Company's fertilizer production tonnage was sold through its farm service center locations to retail customers, while the rest was sold to outside customers. The Company believes that it is among the lowest cost providers of nitrogen fertilizer in the markets it serves, benefiting from favorable transportation logistics and other operating synergies, in part as a result of the AMCI acquisition which provided the Company with two fertilizer plants and 1.4 million tons of annual gross production capacity of ammonia. The Company suffered a major explosion in December 1994 at one of its nitrogen fertilizer facilities, for which it was insured. The Company expects the facility, representing approximately 15% of its annual ammonia production capacity, to be fully operational in mid-1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors Affecting Operating Results." In 1994, on a pro forma basis including AMCI's operations for the full year, nitrogen products revenues (including intercompany sales) constituted approximately 25% of the Company's total revenues. Methanol is used primarily as a feedstock in the production of other chemical products such as formaldehyde, acetic acid, adhesives and plastics. Methanol is also used as a feedstock in the production of 3 methyl tertiary butyl ether ("MTBE"), an oxygenate and octane enhancer used as an additive in reformulated gasoline to provide cleaner burning fuels. The Company's methanol production capacity is currently approximately 320 million gallons per year, representing approximately 15% of the total United States rated capacity. The Company's methanol facility in Beaumont, Texas (the "Beaumont Facility") is the largest such facility in the U.S. In 1994, on a pro forma basis including AMCI's operations for the full year, methanol revenues constituted approximately 12% of the Company's total revenues. The Company's long-term strategy for growth is to: (i) acquire and upgrade production and distribution facilities, (ii) increase distribution volumes by expanding sales from Company-operated locations and its affiliated dealer network, (iii) change its product mix to include more profitable value-added products and (iv) continue to build customer loyalty by providing value-added services. As part of this strategy, in April 1993, the Company acquired a fertilizer manufacturing facility and 32 farm service centers in Canada; in December 1993, the Company acquired 12 farm service centers in Florida; in September 1994, the Company acquired a minority interest in a 100 location distributor of crop input and protection products in the mid-Atlantic region; and in October 1994, the Company acquired AMCI. Terra's common shares are traded on the NYSE and the Toronto Stock Exchange under the symbol "TRA." As of March 31, 1995, Minorco, an international natural resources company with operations in gold, base metals, industrial minerals, paper and packaging and agribusiness ("Minorco"), owned approximately 53% of Terra's outstanding common shares. Six of the Company's ten directors are also officers and/or directors of Minorco or its affiliates. RECENT DEVELOPMENTS On March 27, 1995, the Company offered to acquire by merger all of the outstanding Senior Preference Units ("Senior Preference Units" or "SPUs") of Terra Nitrogen Company, L.P., a subsidiary of the Company ("TNCLP"), for $30.00 per SPU (less the amount of any distributions declared per SPU in excess of $0.66 per SPU for the quarter ended March 31, 1995). The SPUs, which represent preferred limited partner interests in TNCLP, are publicly held and traded on the NYSE under the symbol "TNH." See "Company Structure" and "Description of Other Indebtedness--TNCLP Senior Preference Units." The Company and an independent committee of the Board of Directors of Terra Nitrogen Corporation ("TNC") designated to represent the holders of the SPUs were unable to reach an agreement on price and, on May 11, 1995, the Company withdrew its offer. On May 11, 1995, the Board of Directors of the Company approved an open market purchase program pursuant to which the Company may purchase up to five million SPUs from time to time at prices and in quantities determined by the Company's management. As of , 1995, the Company had purchased SPUs for an aggregate purchase price of $ . See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Open Market Purchase Program for TNCLP SPUs." The Company reported total revenues for the five-month period ended May 31, 1995 of $1.10 billion, a 32% increase over total revenues of $833.7 million for the comparable period in 1994 and a 7% increase over total revenues of $1.02 billion for the comparable period in 1994 including AMCI (which was acquired by the Company in October 1994) on a pro forma basis. Pro forma revenues reflect the Company's acquisition of AMCI as though the acquisition had occurred as of January 1, 1994. See "Selected Financial Data." Results for 1995 include the operations of AMCI and do not include any revenues from the Company's nitrogen fertilizer facility located in Iowa which was the site of a major explosion in December 1994. The increase over 1994 results was achieved despite an extremely late planting season in the Midwest. Based on published sources, only 71% of the U.S. corn crop and 31% of the U.S. soybean crop had been planted as of May 28, 1995, as compared to 97% and 75%, respectively, as of the comparable date in 1994. 4 Total revenues by business segment for the five-month periods ended May 31, 1995 and 1994 and for the five-month period ended May 31, 1994 including AMCI on a pro forma basis were as follows:
FIVE MONTHS ENDED MAY 31, --------------------------- PRO FORMA FOR AMCI ACQUISITION 1994 1994 1995 ------- -------- -------- (IN MILLIONS) Revenues: Distribution............................... $ 730.1 $ 730.1 $ 745.6 Nitrogen Products.......................... 110.0 239.1 273.2 Methanol................................... 0.7 62.2 96.2 Other--net................................. (7.1) (7.1) (16.8) ------- -------- -------- $ 833.7 $1,024.3 $1,098.2 ======= ======== ========
The Company's business is seasonal and is affected by weather and other factors. Results for the five-month period ended May 31, 1995 may not be indicative of results for the quarter ended June 30, 1995 or the full year. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." SOURCES AND USES OF FUNDS The Company will not receive any cash proceeds from the Exchange Offer. The net proceeds from the Offering are available to finance any open market purchases of SPUs through December 31, 1995. On or prior to December 31, 1995, the Company will apply the net proceeds from the Offering less the amount used to purchase SPUs to reduce term loans under the Credit Agreement (as defined in "Description of Other Indebtedness--Credit Agreement"). See "Use of Proceeds." 5 COMPANY STRUCTURE The following chart represents the organization of the Company and certain of its subsidiaries as of the date hereof. Terra Capital Holdings, Inc. ("Terra Holdings") and Terra Capital, Inc. ("Terra Capital") are wholly owned subsidiaries of the Company formed in connection with the acquisition of AMCI and the financing thereof. Terra International, Inc. ("Terra International") owns three of the Company's five nitrogen fertilizer plants and also conducts the distribution segment of the Company's business. Terra International (Canada) Inc. ("Terra Canada"), a wholly owned subsidiary of Terra International, conducts the Company's Canadian operations. TNC owns a general partner interest and limited partner interests consisting of all the outstanding Junior Preference Units and Common Units (as defined in TNCLP's limited partnership agreement) of TNCLP, for a total 60.2% equity interest in TNCLP. The other 39.8% limited partner interest in TNCLP is represented by the Senior Preference Units. See "Description of Other Indebtedness--TNCLP Senior Preference Units." All of the operating assets of TNCLP, which include two of the Company's five nitrogen fertilizer plants, are owned by Terra Nitrogen, Limited Partnership ("TNLP"), in which TNC holds a 1% general partner interest and TNCLP holds a 99% limited partner interest. The methanol business of the Company is conducted principally through Beaumont Methanol, Limited Partnership ("BMLP"). BMC Holdings, Inc. ("BMCH") is the sole limited partner of BMLP and holds a 99% limited partner interest in BMLP and Terra Methanol Corporation ("TMC") is the general partner of BMLP and holds a 1% general partner interest in BMLP. The Company acquired the operations of BMLP together with TNC in the AMCI acquisition. Terra Capital owns 100% of the capital stock of Terra International, TNC, BMCH and TMC. [COMPANY STRUCTURE CHART] 6 THE OFFERING Notes..................... The Notes were sold by the Company on June 22, 1995 to Merrill Lynch, Pierce, Fenner & Smith Incorporated and to Citicorp Securities, Inc. (the "Initial Purchasers") pursuant to a Purchase Agreement, dated as of June 15, 1995 (the "Purchase Agreement"). The Initial Purchasers subsequently resold the Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. Registration Rights Pursuant to the Purchase Agreement, the Company Agreement................ and the Initial Purchasers entered into a Registration Rights Agreement, dated as of June 22, 1995 (the "Registration Rights Agreement"), which grants the holders of the Notes certain exchange and registration rights. The Exchange Offer is being made pursuant to the Registration Rights Agreement and such exchange rights terminate upon the consummation of the Exchange Offer. THE EXCHANGE OFFER Securities Offered........ $200,000,000 aggregate principal amount of 10 1/2% Senior Notes due 2005, Series B. The Exchange Offer........ $1,000 principal amount of the Exchange Notes in exchange for each $1,000 principal amount of Notes. As of the date hereof, $200,000,000 aggregate principal amount of Notes are outstanding. The Company will issue the Exchange Notes on or promptly after the Expiration Date. Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and that such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This 7 Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale and Participating Broker-Dealers shall be authorized to deliver this Prospectus for a period not exceeding 180 days after the Expiration Date. See "Plan of Distribution." Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes cannot rely on the position of the staff of the Commission enunciated in no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Company. Expiration Date........... 5:00 p.m., New York City time, on , 1995, unless the Exchange Offer is extended by the Company in its sole discretion, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. Accrued Interest on the Exchange Notes and Notes.................... Interest on each Exchange Note will accrue from the last date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issuance of such Note. No interest will be paid on the Notes accepted for exchange, and holders of Notes whose Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Notes accrued up to the date of the issuance of the Exchange Notes. Holders of Notes that are not exchanged will receive the accrued interest payable on December 15, 1995 in accordance with the Indenture. See "Exchange Offer--Interest on the Exchange Notes." Conditions to the The Exchange Offer is subject to certain Exchange Offer........... customary conditions, which may be waived by the Company. See "Exchange Offer--Conditions." Procedures for Tendering Each holder of Notes wishing to accept the Notes.................... Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Notes to be exchanged and any other required documentation to the Exchange Agent (as defined) at the address set forth herein or effect a tender of such Notes pursuant to the procedures for book-entry transfer as provided herein. By executing the Letter of Transmittal, each holder 8 will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. See "Exchange Offer--Purpose and Effect of the Exchange Offer" and "-- Procedures for Tendering." Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Exchange Offer--Procedures for Tendering" and "Plan of Distribution." Untendered Notes.......... Following the consummation of the Exchange Offer, holders of Notes eligible to participate but who do not tender their Notes will not have any further registration rights and such Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Notes could be adversely affected. Consequences of Failure to Exchange.............. The Notes that are not exchanged pursuant to the Exchange Offer will remain outstanding and continue to accrue interest and will also remain restricted securities. Accordingly, such Notes may be resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption from registration under the Securities Act, (iii) outside the United States to a foreign person pursuant to the requirements of Regulation S under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act. See "Exchange Offer-- Consequences of Failure to Exchange." Shelf Registration In the event that any changes in law or the Statement................ applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, if for any other reason the Exchange Offer is not consummated within 120 days after the original issuance of the Notes, upon the request of the Initial Purchasers under certain circumstances or if a holder of Notes is not permitted to participate in the Exchange Offer or would not receive fully tradable Exchange Notes if it were to participate in the Exchange Offer, subject to certain conditions, the Company will use its best efforts to cause to become effective by the 120th day after the original issue of the Notes a shelf registration statement with respect to the resale of the Notes (the "Shelf Registration Statement") and to keep the Shelf Registration Statement effective for up to three years after the date of the original issue of the Notes. See "Exchange Offer-- Purpose and Effect of the Exchange Offer." 9 Special Procedures for Beneficial Owners........ Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Notes, either make appropriate arrangements to register ownership of the Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Holders of Notes who wish to tender their Notes Procedures............... and whose Notes are not immediately available or who cannot deliver their Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book- entry transfer) prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth in "Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Notes and Delivery of Exchange Notes.................... The Company will accept for exchange any and all Notes which are duly tendered in the Exchange Offer and not validly withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "Exchange Offer--Terms of the Exchange Offer." Certain Tax Consequences.. The exchange pursuant to the Exchange Offer should not be a taxable event for Federal income tax purposes. See "Tax Considerations." Use of Proceeds........... There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. See "Use of Proceeds." Exchange Agent............ First Trust National Association. THE EXCHANGE NOTES General................... The form and terms of the Exchange Notes are the same as the form and terms of the Notes (which they replace) except that (i) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, (ii) the Exchange Notes do not include provisions providing for an increase in the interest rate in certain circumstances relating to the timing of the Exchange Offer and (iii) the holders of Exchange Notes will not be entitled to certain rights under the Registration Rights 10 Agreement, which rights will terminate when the Exchange Offer is consummated. The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture. See "Description of Exchange Notes." Securities Offered........ $200,000,000 principal amount of 10 1/2% Senior Notes due 2005, Series B. Maturity Date............. June 15, 2005. Interest Payment Dates.... June 15 and December 15 of each year, commencing December 15, 1995. Optional Redemption....... The Exchange Notes will be redeemable at the option of the Company, in whole or in part, on or after June 15, 2000, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of repurchase. Change of Control......... Upon the occurrence of a Change of Control (as defined below), each holder of the Exchange Notes may require the Company to repurchase all or a portion of such holder's Exchange Notes at a cash purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. Ranking................... The Exchange Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with all senior indebtedness of the Company and senior in right of payment to all subordinated indebtedness of the Company. In addition, the business operations of the Company are conducted substantially through its subsidiaries and, accordingly, the Exchange Notes will be effectively subordinated to all existing and future obligations of such subsidiaries. As of March 31, 1995, on a pro forma basis after giving effect to the Offering and the Exchange Offer and the application of the net proceeds from the Offering to repay bank indebtedness of the Company's subsidiaries, the Company would have had $158.8 million in aggregate principal amount of indebtedness outstanding which ranked pari passu in right of payment with the Exchange Notes and no indebtedness outstanding which ranked subordinate in right of payment to the Exchange Notes and the aggregate principal amount of indebtedness of the Company's subsidiaries would have been approximately $236.1 million (excluding intercompany indebtedness), approximately $192.9 million of which was secured. As of March 31, 1995, the Company's subsidiaries also had trade payables of approximately $301.0 million. The Company's businesses are seasonal and historically the borrowings and other liabilities of the Company and its subsidiaries are greatest in the late spring and fall. Amounts payable to holders of SPUs also will be effectively senior to the Exchange Notes. See "Risk Factors--Holding Company Structure" and "--Leverage." Restrictive Covenants..... The Indenture contains certain covenants, including, but not limited to, covenants with respect to the following matters: (i) limitation on 11 indebtedness; (ii) limitation on restricted payments; (iii) limitation on transactions with affiliates; (iv) limitation on liens; (v) limitation on sale-leaseback transactions; (vi) limitation on asset sales; (vii) limitation on the issuance of capital stock of subsidiaries; (viii) limitation on dividend and other payment restrictions affecting subsidiaries; and (ix) restriction on consolidation, merger and sale of assets. Absence of a Public Market for the Notes..... The Exchange Notes will be new securities for which there currently is no market. Although Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp Securities, Inc. have informed the Company that they currently intend to make a market in the Exchange Notes, they are not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. RISK FACTORS Before purchasing the Notes offered hereby, potential investors should consider the factors described in "Risk Factors." SUMMARY FINANCIAL DATA The following table presents: (i) summary consolidated historical financial data for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 derived from the Company's audited consolidated financial statements, (ii) summary consolidated historical financial data for the three months ended March 31, 1994 and 1995 derived from the Company's unaudited consolidated financial statements for such period, and (iii) unaudited pro forma consolidated data for each of the periods indicated. The historical data includes the Company's Canadian acquisition effective as of March 31, 1993, the Company's Florida acquisition since January 1, 1994 and AMCI from October 20, 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General." The pro forma data for 1994 and the three months ended March 31, 1994 was prepared to illustrate and give effect to the acquisition of AMCI and related transactions, including (i) the issuance of 9.7 million common shares of the Company for aggregate net proceeds of $113.7 million, (ii) the assumption of the 10 3/4% Senior Notes due 2003 (the "10 3/4% Notes") of AMCI, and (iii) the incurrence of $310.0 million of debt under the Credit Agreement, as if such transactions had occurred as of January 1, 1994. In addition, the unaudited pro forma interest expense and related ratios presented under the caption "Other Data and Selected Ratios" give effect to the Offering and the application of the net proceeds therefrom as of January 1, 1994. The unaudited pro forma financial data are presented for informational purposes only and are not necessarily indicative of the results that actually would have occurred had the transactions been consummated on the dates indicated or the results that may occur or be obtained in the future. In addition, quarterly results may not be indicative of results for the full year. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Financial Data" and the consolidated financial statements of the Company and related notes thereto included elsewhere and incorporated by reference herein. 12 SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------------- -------------------------------- PRO FORMA PRO FORMA FOR AMCI FOR AMCI ACQUISITION ACQUISITION 1990 1991 1992 1993 1994 1994 1994 1994 1995 -------- ---------- ---------- ---------- ---------- ----------- -------- ----------- ---------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Total revenues...... $962,202 $1,022,597 $1,082,191 $1,238,001 $1,665,947 $2,084,827 $259,504 $356,088 $ 443,340 Cost of sales....... 806,772 849,684 904,246 1,021,187 1,330,202 1,543,212 221,974 280,444 291,772 Depreciation and amortization....... 14,997 14,399 14,994 15,470 27,218 60,567 4,456 15,006 15,559 Selling, general and administrative expenses........... 138,315 132,845 137,232 161,791 193,975 215,624 40,306 45,537 52,995 Operating income.... 2,118 25,669 25,719 41,828 115,295 266,167 (7,786) 14,547 81,817 Net interest expense............ (17,056) (12,563) (7,533) (9,683) (16,541) (49,367) (2,079) (12,700) (11,341) Income (loss) from continuing operations before income taxes....... (14,938) 13,106 18,186 32,145 89,945 181,884 (9,865) (3,879) 53,883 Income tax (provision) benefit............ 816 (1,073) (7,757) (9,300) (33,700) (71,517) 3,580 1,410 (20,930) Income (loss) from continuing operations......... $(14,122) $ 12,033 $ 10,429 $ 22,845 $ 56,245 $ 110,367 $ (6,285) $ (2,469) $ 32,953 Per Common Share: Income (loss) from continuing operations........ $ (0.21) $ 0.18 $ 0.15 $ 0.33 $ 0.77 $ 1.37 $ (0.09) $ (0.03) $ 0.41 Dividends.......... $ 0.12 -- -- $ 0.02 $ 0.08 $ 0.08 $ 0.02 $ 0.02 $ 0.02 SUMMARY OPERATING DATA: Net fertilizer production (thousands of tons) Ammonia............ 393.6 399.3 404.2 686.1 780.6 1,217.1 205.4 323.4 262.0 Urea............... 145.3 138.7 126.7 222.6 297.9 623.4 55.3 171.0 154.1 UAN................ 765.1 810.0 759.8 987.3 1,295.2 2,757.3 243.6 760.9 662.5 Methanol production (millions of gallons)........... -- -- -- -- 81.2 310.3 -- 69.2 64.9 Revenues by business segment (1) Distribution....... $841,742 $ 899,250 $ 958,725 $1,019,438 $1,318,416 $1,318,416 $206,478 $206,478 $ 238,454 Nitrogen Products.. 120,751 126,664 125,659 228,910 296,557 539,152 54,156 114,670 147,188 Methanol........... -- -- -- -- 70,274 246,404 -- 36,096 65,874 OTHER DATA AND SELECTED RATIOS: Capital expenditures....... $ 10,689 $ 12,728 $ 17,620 $ 21,620 $ 31,213 $ 40,509 $ 10,463 $ 11,443 $ 14,007 EBITDA (2).......... 17,115 40,068 40,713 55,023 141,770 325,991 (2,776) 30,107 98,573 EBITDA less SPU distributions...... 17,115 40,068 40,713 55,023 136,730 305,831 (2,776) 25,067 93,533 Pro forma net interest expense (3)................ -- -- -- -- -- 55,753 -- 14,296 12,487 EBITDA/Net interest expense............ 1.00x 3.19x 5.40x 5.68x 8.57x 6.60x -- 2.37x 8.69x EBITDA/Pro forma net interest expense (3)................ -- -- -- -- -- 5.85 -- 2.11 7.89 EBITDA less SPU distributions/Pro forma net interest expense (3)........ -- -- -- -- -- 5.49 -- 1.75 7.49 Long-term debt/EBITDA (4).... 10.77 2.87 3.28 2.21 3.94 1.71 -- -- -- Long-term debt/EBITDA less SPU distributions (4)................ 10.77 2.87 3.28 2.21 4.08 1.83 -- -- -- Ratio of earnings to fixed charges (5).. -- 1.63 2.06 2.35 3.45 3.47 -- -- 4.06 BALANCE SHEET DATA (AT END OF PERIOD): Net working capital....................................................................................... $ 315,963 Net property, plant and equipment......................................................................... 569,348 Total assets.............................................................................................. 1,964,427 Minority interest......................................................................................... 182,183 Long-term debt (including current maturities)............................................................. 560,522 Total stockholders' equity................................................................................ 450,088
- ------- (1) Includes intercompany sales and excludes revenues not included in any of the three business segments. (2) Earnings before interest, taxes, depreciation and amortization ("EBITDA") represents income (loss) from continuing operations before income taxes, plus minority interest, plus net interest expense, less equity in earnings, or plus equity in losses, of unconsolidated affiliates, plus depreciation and amortization. EBITDA should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flow as a measure of liquidity, but rather to provide additional information related to the Company's ability to service debt. (3) Pro forma net interest expense is calculated assuming the net proceeds of the Offering of the Notes were applied to repay term loans under the Credit Agreement as of January 1, 1994. To the extent such net proceeds are applied to make open market purchases of SPUs, the amount of such term loan repayments will be decreased commensurately. Minority interest and SPU distributions to unaffiliated third parties would also decrease as a result of any open market purchases of SPUs. (4) Long-term debt includes current maturities. (5) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense on all debt, amortization of deferred financing costs and the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of minimum operating lease rentals). Earnings available for fixed charges were insufficient to cover fixed charges by $14.9 million for the year ended December 31, 1990, and $9.2 million and $3.3 million for the historical and pro forma three-month periods ended March 31, 1994, respectively. As a result, the financial ratios for such periods are not meaningful and, therefore, not included. 13 RISK FACTORS Prospective investors should consider carefully, in addition to the other information in this Prospectus, the following factors before tendering their Notes in the Exchange Offer. HOLDING COMPANY STRUCTURE The Company's assets consist primarily of investments in its subsidiaries. As a result, the Company's rights, and the rights of its creditors (including holders of the Exchange Notes), to participate in the distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization will be subject to the prior claims of such subsidiary's creditors (including trade creditors), except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subject to the claims of any secured creditor of such subsidiary and of any holder of indebtedness of such subsidiary senior to that held by the Company. In addition, TNCLP's assets (including cash generated by its business) are subject to the rights of the holders of Senior Preference Units under the terms of TNCLP's limited partnership agreement. See "--Rights of TNCLP Limited Partners." As of March 31, 1995, the Company's subsidiaries had trade payables of approximately $301.0 million and approximately $430.1 million of indebtedness (excluding intercompany liabilities and not including amounts payable with respect to the Senior Preference Units). Indebtedness of the Company outstanding at March 31, 1995 consisted of $158.8 million in aggregate principal of the 10 3/4% Notes. The Exchange Notes will rank pari passu with the Notes, if any, and the 10 3/4% Notes. The Exchange Notes are obligations exclusively of the Company. Since the operations of the Company are currently conducted through subsidiaries, the Company's cash flow and its ability to service its debt, including the Exchange Notes, the Notes, if any, and the 10 3/4% Notes, is dependent upon the earnings of its subsidiaries and the distribution of those earnings to the Company or upon loans or other payments of funds by those subsidiaries to the Company. The subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due pursuant to the Exchange Notes, the Notes, if any, or the 10 3/4% Notes or to make any funds available therefor, whether by dividends, loans or other payments. In addition, the Company and certain of its wholly-owned subsidiaries have guaranteed the obligations of Terra Capital and TNLP under the Credit Agreement. See "Description of Other Indebtedness--Credit Agreement." Moreover, the payment of dividends and the making of loan advances to the Company by its subsidiaries are contingent upon the earnings of those subsidiaries and are subject to various business considerations and restrictive loan covenants. See "Description of Other Indebtedness." RIGHTS OF TNCLP LIMITED PARTNERS TNCLP's limited partnership agreement requires the quarterly distribution to the partners of TNCLP of all "Available Cash," which is generally defined to mean all cash receipts from all sources, less the sum of all cash disbursements, adjusted for changes in certain reserves established as TNC (as general partner of TNCLP) determines to be necessary or appropriate in its reasonable discretion to provide for the proper conduct of the business of TNCLP or TNLP (including reserves for future capital expenditures) or to provide funds for distributions with respect to any of the next four calendar quarters. The Senior Preference Units (which represent a 39.8% interest in TNCLP) are entitled to receive a minimum quarterly distribution of $0.605 per unit, plus arrearages, before any amounts are paid to TNC as distributions on its Junior Preference Units and Common Units. The Senior Preference Units also participate in distributions greater than $0.605 per unit. Based on the number of Senior Preference Units currently outstanding, the minimum annual distributions on Senior Preference Units aggregates $18.5 million. In 1994, an aggregate of $20.2 million was paid as distributions on the Senior Preference Units. See "Description of Other Indebtedness--TNCLP Senior Preference Units." The Indenture will not limit the amount of distributions that may be paid on the Senior Preference Units pursuant to the terms of TNCLP's limited partnership agreement or purchases of SPUs by the Company and its subsidiaries. See "Description of Exchange Notes--Covenants--Limitation on Restricted Payments." See also "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Open Market Purchase Program for TNCLP SPUs." 14 The nature of the businesses of the Company and TNCLP may give rise to conflicts of interest between the two. Conflicts could arise, for example, with respect to transactions involving purchases, sales and transportation of fertilizer and natural gas and potential acquisitions of businesses or properties. LEVERAGE As of March 31, 1995, the Company had outstanding long-term debt of $512.8 million and debt due within one year of $76.0 million. See "Capitalization." The Indenture permits, subject to certain limitations, the Company and its subsidiaries to incur additional indebtedness, some of which may be secured by the assets of the Company and its subsidiaries and all of which may be borrowed at subsidiary levels with the result that such indebtedness would effectively rank senior to the Exchange Notes. See "Description of Exchange Notes-- Covenants--Limitation on Indebtedness." The degree to which the Company is leveraged could have important consequences to holders of the Exchange Notes, including the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of the principal of and interest on indebtedness; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be limited; (iii) the Indenture and other agreements governing the Company's long-term indebtedness contain certain restrictive financial and operating covenants, including limitations on the amount of acquisitions (which have been an important part of the Company's growth strategy over the last several years); (iv) the Company will be more leveraged than certain of its competitors, which might place the Company at a competitive disadvantage; (v) pursuant to the Credit Agreement and other debt agreements, a substantial portion of the Company's borrowings are at floating rates of interest, causing the Company to be sensitive to increases in interest rates; and (vi) the Company could be more sensitive to a downturn in general economic conditions or in the agricultural or methanol industries. VOTING CONTROL BY PRINCIPAL STOCKHOLDER As of March 31, 1995, Minorco and its affiliates owned approximately 53% of the outstanding common shares of the Company. Since the Company became publicly-owned in 1983, Minorco and its affiliates have owned a majority of the Company's outstanding equity securities. As a result of its beneficial ownership of common shares of the Company, Minorco and its affiliates are able to control the election of the Company's directors and the management and policies of the Company. As of the date hereof, six of the Company's ten directors are also officers and/or directors of Minorco or its affiliates. DEPENDENCE ON NATURAL GAS; INDUSTRY CONSIDERATIONS The principal raw material used to produce manufactured nitrogen products and methanol is natural gas. Natural gas costs comprise almost 50% of the Company's total costs and expenses associated with nitrogen production and in excess of 50% of the Company's total costs and expenses associated with methanol production. A significant increase in the price of natural gas that could not be recovered through an increase in nitrogen fertilizer or methanol prices could have a material adverse effect on the Company's profitability and cash flow. The Company's natural gas procurement policy is to fix or cap the price of approximately 40% to 80% of its natural gas requirements for a 12-month period through various supply contracts, financial derivatives and other forward-pricing techniques. Depending on market conditions, the Company may also fix or cap the price for natural gas for longer periods of time. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors Affecting Operating Results" and "Business--Raw Materials." The Company's future operating results are also subject to other external factors which are beyond the Company's control, including the number of planted acres; the types of crops planted; the effects of general weather patterns on the timing and duration of field work for crop planting and harvesting; the supply of crop inputs; the relative balance of worldwide supply and demand for nitrogen fertilizers and methanol; the U.S. government's agricultural policy; and market prices of methanol. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 15 CYCLICAL MARKETS FOR PRODUCTS The markets for and profitability of the Company's products have been, and are likely to continue to be, cyclical. Periods of high demand, high capacity utilization and increasing operating margins tend to result in new plant investment and increased production until supply exceeds demand, followed by periods of declining prices and declining capacity utilization until the cycle is repeated. In addition, markets for the Company's products are affected by general economic conditions. The cyclicality of the Company's products or a downturn in the economy could materially adversely affect the Company, including its ability to service its debt obligations, including the Exchange Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." SEASONALITY AND VOLATILITY The agricultural products business is seasonal, based upon the planting, growing and harvesting cycles. Inventories must be accumulated in the first few months of the calendar year to be available for seasonal sales, requiring significant storage capacity. Inventory accumulations are financed by suppliers or short-term borrowings, which are retired with the proceeds of the sales of such inventory. In times of lower demand, the Company can reduce purchases, thereby decreasing inventory carrying costs. In the past, over half of the Company's sales generally occurred during the second quarter of each year. This seasonality also generally results in higher fertilizer prices during peak periods, with prices typically reaching their highest point in the spring, dropping in the summer, increasing in the fall (as depleted inventories are restored) and through the spring. The agricultural products business can also be volatile as a result of a number of other factors, the most important of which, for U.S. markets, are weather patterns and field conditions (particularly during periods of high fertilizer consumption), current and projected grain stocks and prices and the U.S. government's agricultural policy. Among the governmental policies that influence the markets for fertilizer are those directly or indirectly influencing the number of acres planted, the level of grain stocks, the mix of crops planted and crop prices. In 1994, nitrogen product prices increased dramatically and have remained at a high level to date. There can be no assurances that such conditions will continue. As with any commodity chemical, the price of methanol is volatile. During 1994, increased world demand for methanol combined with a large number of plant shutdowns and maintenance turnarounds in the industry and the phase-in of U.S. federally mandated standards for oxygenated gasoline resulted in a tight market and dramatically increased prices over 1993 levels. Demand for methanol also increased due to increased demand for wood building products in the construction industry. Since January 1995, however, methanol prices have decreased markedly due to lower demand for MTBE production and increased methanol imports that resulted from the 1994 price increases. See also "-- Factors Affecting Demand For Methanol and MTBE." FACTORS AFFECTING DEMAND FOR METHANOL AND MTBE Methanol is used as a feedstock in the production of MTBE, an oxygenate and octane enhancer used in reformulated gasoline. Reformulated gasoline has lower volatility and is less aromatic than gasoline. The price of methanol has been greatly influenced by the demand for MTBE, and future MTBE demand is dependent on a number of market and regulatory forces that are beyond the control of the Company and difficult to predict. Demand for methanol also increases with increases in demand for wood building products in the construction industry. Federally mandated standards promulgated under amendments to the Clean Air Act (the "Clean Air Act Amendments") mandate comprehensive specifications for motor vehicle fuel, including increased oxygenate content and lower volatility. Since 1992, the Clean Air Act Amendments have required the use of oxygenated gasoline in over 30 metropolitan areas during the portion of the year, generally the winter months, 16 when maximum allowable carbon monoxide levels are likely to be exceeded. Effective January 1, 1995, the second phase of the Clean Air Act Amendments requires the year-round use of reformulated gasoline in the nine metropolitan areas having the highest levels of ozone pollution plus non-attainment areas in a state that elects to participate in the reformulated gasoline program. The areas in which reformulated gasoline is required to be sold represented approximately 30% of total U.S. gasoline demand as of February 1994. Future demand for MTBE and methanol will depend, in part, on the degree to which the Clean Air Act Amendments are implemented and enforced, potential additional legislation, the effect of health concerns regarding the use of MTBE as a fuel additive, the willingness of regulatory agencies to grant waivers for specific cities or regions, and the extent to which regions not required to sell reformulated gasoline opt-in to the program. Certain of the areas that had initially opted-in to the reformulated gasoline program have already requested approval from the United States Environmental Protection Agency (the "EPA") to opt-out of the program, alleging either conflicts with other pollution control requirements or that they are no longer non-attainment areas. Representatives of such areas are in discussions with the EPA with respect to these matters. Additionally, future demand for MTBE will be impacted by the availability and use of alternative oxygenates, principally ETBE, which is manufactured from ethanol, a renewable resource. The EPA has mandated that, effective January 1, 1995, 15%, and effective January 1, 1996, 30%, of reformulated gasoline use an oxygenate from a renewable resource. The EPA anticipates that oxygenates derived from ethanol feedstocks will be the most utilized renewable oxygenates. This mandate, however, was reversed by a federal appeals court on April 28, 1995, which ruled that the EPA lacked authority to promulgate a renewable oxygenate requirement. On June 12, 1995, the EPA appealed the ruling. Currently, MTBE is the oxygenate most used in the U.S. refining industry. However, there are alternative oxygenates, principally ethanol, ETBE, an ethanol derivative, and tertiary amyl methyl ether, a methanol derivative. Although there is a petroleum industry preference for MTBE, there can be no assurance that MTBE will not be replaced by alternative oxygenates as a result of price, regulatory changes or other factors. COMPETITION The market for the fertilizer, crop protection products and seed distributed by the Company is highly competitive. In 1994, sales attributable to the Company's farm service centers accounted for less than 10% of total crop production products sold in the U.S. Within the specific market areas served by its farm service centers, however, the Company's share of the market was substantially higher in most instances. The Company's competitors include cooperatives, divisions of diversified agribusiness companies, regional distributors and independent dealers, some of which have substantially greater financial and other resources than the Company. Nitrogen fertilizer is a global commodity, and customers, including end- users, dealers and other fertilizer producers and distributors, base their purchasing decisions principally on the delivered price and availability of the product. The Company competes with a number of U.S. producers, and producers in other countries, including state-owned and government-subsidized entities. Some of the Company's principal competitors may have greater total resources and may be less dependent on earnings from nitrogen fertilizer sales than the Company. Some foreign competitors may have access to lower cost or government-subsidized natural gas supplies. The methanol industry, like the fertilizer industry, is highly competitive, and such competition is based largely on price, reliability and deliverability. The relative cost and availability of natural gas and the efficiency of production facilities are important competitive factors. Significant determinants of a plant's competitive position are the natural gas acquisition and transportation contracts that a plant negotiates with its major suppliers. Domestic competitors for methanol include a number of large integrated petrochemical producers, many of which are better capitalized than the Company. In addition, the production and trade of methanol has become increasingly global, and a number of foreign competitors produce methanol primarily for the export market. See "--Factors Affecting Demand for Methanol and MTBE" and "Business-- Competition." 17 DAMAGE TO FACILITIES; NATURAL HAZARDS The operations of the Company may be subject to significant interruption if one or more of its facilities were to experience a major accident or were damaged by severe weather or other natural disaster. However, the Company currently maintains, and expects that it will, to the extent economically feasible, continue to maintain, insurance (including business interruption insurance) in an amount which the Company believes is sufficient to allow the Company to withstand major damage to any of its facilities. The Company's nitrogen fertilizer plant in Iowa (the "Port Neal Facility") was the site of a major explosion on December 13, 1994. The Company has decided to repair the facility and expects it to be fully operational in mid-1996. At the time of the explosion, the Port Neal Facility accounted for approximately 15% of the Company's annual ammonia production capacity. The Company will recover insurance proceeds for substantially all of its property damage, third party liability claims and business interruption losses. The Company has reserved $7.0 million to cover insurance deductibles and uninsured costs related to the explosion. As a result of an investigation of the explosion by the Iowa Occupational Safety and Health Administration ("IOSHA") the Company received allegations of safety and health violations from IOSHA on May 25, 1995. The allegations of violation were accompanied by a proposed fine of $461,900. The Company intends to contest vigorously the alleged violations and the proposed fine. The Company believes that the IOSHA allegations, including the proposed fine, will not have a material adverse effect on the Company's business or financial condition. ENVIRONMENTAL REGULATION The Company's business activities are subject to stringent U.S. and foreign environmental regulations. The Company is also involved in the manufacture, handling, transportation, storage and disposal of materials that are or may be classified as hazardous or toxic by applicable laws and regulations. If such materials have been or are disposed of at sites that are targeted for investigation and remediation by regulatory authorities, the Company or subsidiaries thereof, as applicable, may be among those responsible under such laws for all or part of the costs of such cleanup. The Company has been designated as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and analogous state laws with respect to a number of sites. Under such laws, certain classes of persons, including generators of hazardous substances, are subject to claims for response costs, regardless of fault or the legality of original disposal. Such persons may be held jointly and severally liable for such claims. In addition, there can be no assurance that existing environmental regulations will not be revised or that new regulations will not be adopted or become applicable so as to have a material adverse affect on the Company's business or financial condition. See "Business-- Environmental and Other Regulatory Matters." The Company endeavors to comply (and has incurred substantial costs in connection with such compliance) in all material respects with applicable environmental, safety and health regulations. The Company does not expect its continued operation in compliance with such regulations to have a material adverse effect on its earnings or competitive position. ABSENCE OF PUBLIC MARKET The Exchange Notes will be new securities for which there currently is no market. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes, they are not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. 18 THE COMPANY The Company is a leader in each of its three business segments: (i) the distribution of crop production inputs and services, (ii) the manufacture of nitrogen products and (iii) the manufacture of methanol. The Company owns and operates the largest independent farm service center network in North America and is the second largest supplier of crop production inputs in the United States. The Company is also the third largest producer of anhydrous ammonia and one of the two largest producers of nitrogen solutions in the United States and Canada. In addition, the Company is one of the largest U.S. manufacturers and marketers of methanol. In October 1994, the Company acquired AMCI, a manufacturer and marketer of both nitrogen products and methanol. In 1994, on a pro forma basis including AMCI's operations for a full year, the Company generated revenues and operating income of $2.1 billion and $266.2 million, respectively. The Company's distribution network for fertilizer, crop protection products and seed has grown over the last several years to include, as of March 31, 1995, approximately 370 farm service centers, 100 fertilizer storage facilities and 780 affiliated dealer locations serving the United States and the eastern region of Canada. This growth generally has been the result of a healthy farm economy, acquisitions, additional facilities and aggressive marketing. The Company's distribution network is supplied by both independent sources and the Company's own production facilities, which presently include one crop protection chemical dry flowable and liquid formulation plant and seven other liquid chemical formulation facilities in addition to its nitrogen production facilities. In 1994, on a pro forma basis including AMCI's operations for the full year, distribution revenues constituted approximately 63% of the Company's total revenues. Nitrogen fertilizer is a basic crop nutrient which is applied seasonally by farmers to improve crop yield and quality. Nitrogen fertilizer is produced by combining gaseous nitrogen with hydrogen to form anhydrous ammonia, the simplest form of nitrogen fertilizer, which can be further processed or upgraded into other fertilizer products such as urea and nitrogen solutions. The Company presently owns five nitrogen fertilizer facilities with total annual gross production capacity of 2.7 million tons of ammonia. In 1994, approximately 10% of the Company's fertilizer production tonnage was sold through its farm service center locations to retail customers, while the rest was sold to outside customers. The Company believes that it is among the lowest cost providers of nitrogen fertilizer in the markets it serves, benefiting from favorable transportation logistics and other operating synergies, in part as a result of the AMCI acquisition which provided the Company with two fertilizer plants and 1.4 million tons of annual gross production capacity of ammonia. The Company suffered a major explosion in December 1994 at the Port Neal Facility, for which it was insured. The Company expects the facility, representing approximately 15% of its annual ammonia production capacity, to be fully operational in mid-1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors Affecting Operating Results." In 1994, on a pro forma basis including AMCI's operations for the full year, nitrogen products revenues (including intercompany sales) constituted approximately 25% of the Company's total revenues. Methanol is used primarily as a feedstock in the production of other chemical products such as formaldehyde, acetic acid, adhesives and plastics. Methanol is also used as a feedstock in the production of MTBE, an oxygenate and octane enhancer used as an additive in reformulated gasoline to provide cleaner burning fuels. The Company's methanol production capacity is currently approximately 320 million gallons per year, representing approximately 15% of the total United States rated capacity. The Beaumont Facility is the largest such facility in the U.S. In 1994, on a pro forma basis including AMCI's operations for the full year, methanol revenues constituted approximately 12% of the Company's total revenues. The Company's long-term strategy for growth is to: (i) acquire and upgrade production and distribution facilities, (ii) increase distribution volumes by expanding sales from Company-operated locations and its affiliated dealer network, (iii) change its product mix to include more profitable value-added products and (iv) continue to build customer loyalty by providing value-added services. As part of this strategy, in April 1993, the Company acquired a fertilizer manufacturing facility and 32 farm service centers in Canada; in 19 December 1993, the Company acquired 12 farm service centers in Florida; in September 1994, the Company acquired a minority interest in a 100 location distributor of crop input and protection products in the mid-Atlantic region; and in October 1994, the Company acquired AMCI. The Company's principal executive offices are located at Terra Centre, 600 Fourth Street, P. O. Box 6000, Sioux City, Iowa 51102-6000 and its telephone number is (712) 277-1340. USE OF PROCEEDS The Company will not receive any cash proceeds from the Exchange Offer. The net proceeds from the sale of the Notes, after deducting expenses of the Offering, including any commissions paid to the Initial Purchasers and any expenses in connection with the Exchange Offer, are estimated to be approximately $194.0 million. The net proceeds from the Offering are available to finance purchases of SPUs through December 31, 1995. As of , 1995, the Company had purchased SPUs for an aggregate purchase price of $ . See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Open Market Purchase Program of TNCLP SPUs." On or prior to December 31, 1995, the Company will apply the net proceeds of the Offering less the amount used to purchase SPUs to reduce term loans under the Credit Agreement. Until so applied, amounts may be used from time to time to repay temporarily revolving loans under the Credit Agreement. For a description of the Credit Agreement, see "Description of Other Indebtedness--Credit Agreement." 20 CAPITALIZATION Set forth below is the capitalization of the Company as of March 31, 1995 and as adjusted to reflect: (i) the issuance and sale by the Company of the Notes and the issuance of the Exchange Notes pursuant to the Exchange Offer and (ii) the application of the net proceeds of the Offering to the prepayment of outstanding term loans under the Credit Agreement. The Company may, however, use such net proceeds to fund purchases of Senior Preference Units through December 31, 1995. To the extent such net proceeds are applied to fund open market purchases of SPUs, the amount of such term loan repayments will be decreased proportionately. Minority interest and SPU distributions to unaffiliated third parties would also decrease as a result of any open market purchases of SPUs. The unaudited information set forth below should be read in conjunction with the consolidated financial statements of the Company and the related notes and other financial information included elsewhere and incorporated by reference herein.
AS OF MARCH 31, 1995 --------------------- AS ACTUAL ADJUSTED ---------- ---------- (DOLLARS IN THOUSANDS) Long-term debt (including current maturities): Credit Agreement term loans..................... $ 345,000 $ 151,000 Exchange Notes and Notes, if any................ -- 200,000 10 3/4% Notes................................... 158,755 158,755 Other long-term debt............................ 56,767 56,767 ---------- ---------- Total long-term debt.......................... 560,522 566,522 Minority interest................................. 182,183 182,183 Stockholders' equity(1)........................... 450,088 447,388 ---------- ---------- Total capitalization(2)....................... $1,192,793 $1,196,093 ========== ==========
- -------- (1) Adjusted to reflect write-off of pro-rata portion of deferred financing fees for prepayment of Credit Agreement term loans. (2) Excludes short-term borrowings under revolving credit agreements of $28.3 million and cash and short-term investments of $133.1 million. 21 EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Notes were originally sold by the Company on June 22, 1995 to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold the Notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act and to a limited number of institutional accredited investors that agreed to comply with certain transfer restrictions and other conditions. As a condition to the closing under the Purchase Agreement, the Company entered into the Registration Rights Agreement with the Initial Purchasers, pursuant to which the Company agreed, for the benefit of the holders of the Notes, at the Company's cost, among other things, (i) to use its best efforts to cause a registration statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto and of which this Prospectus is a part) to be declared effective under the Securities Act within 90 days after the date of the original issue of the Notes and (ii) to use its best efforts to cause the Exchange Offer to be consummated not later than 120 days after the date of the original issue of the Notes. Promptly after the Exchange Offer Registration Statement has been declared effective, the Company agreed to offer the Exchange Notes in exchange for Notes. The Company will keep the Exchange Offer open until the Expiration Date. For each Note validly tendered to the Company pursuant to the Exchange Offer and not withdrawn by the holder thereof, the holder of such Note will receive an Exchange Note having a principal amount equal to that of the tendered Note. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the tendered Note in exchange therefor or, if no interest has been paid on such Note, from the date of the original issue of the Note. Based on an interpretation of the Securities Act by the staff of the Commission set forth in several no-action letters to third parties, and subject to the immediately following sentence, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any Purchaser of Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (i) will not be able to rely on the interpretation by the staff of the Commission set forth in the above referenced no-action letters, (ii) will not be able to tender Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. Each holder of the Notes who wishes to exchange Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including that (i) it is neither an affiliate of the Company nor a broker-dealer tendering Notes acquired directly from the Company for its own account, (ii) any Exchange Notes to be received by it will be acquired in the ordinary course of its business and (iii) at the time of commencement of the Exchange Offer, it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes. In addition, in connection with any resales of Exchange Notes, any broker-dealer (a "Participating Broker-Dealer") who acquired the Notes for its own account as a result of market-making activities or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) with the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Company agreed that it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale and Participating Broker-Dealers shall be authorized to deliver this Prospectus for a period not exceeding 180 days after the Expiration Date. In the event that any changes in law or the applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, if for any other reason the Exchange Offer is not 22 consummated within 120 days after the original issue of the Notes, upon the request of the Initial Purchasers under certain circumstances or if a holder of Notes is not permitted to participate in the Exchange Offer or would not receive fully tradable Exchange Notes if it were to participate in the Exchange Offer, subject to certain conditions, the Company will, at its cost, (a) as promptly as practicable, file with the Commission the Shelf Registration Statement covering resales of the Notes, (b) use its best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act as promptly as praticable and (c) use its best efforts to keep effective the Shelf Registration Statement for a period of three years after its effective date (or for a period of one year after such effective date if such Shelf Registration Statement is filed at the request of the Initial Purchasers or, for such shorter period, when all of the Notes covered by the Shelf Registration Statement have been sold pursuant thereto or cease to be outstanding). The Company will, in the event of the filing of a Shelf Registration Statement, provide to each holder of the Notes copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement for the Notes has become effective and take certain other actions as are required to permit unrestricted resales of the Notes. A holder of Notes who sells such Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver the prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). In addition, each holder of the Notes will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is available upon request to the Company and which is filed as an exhibit to this Exchange Offer Registration Statement. See "Available Information." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Notes accepted in the Exchange Offer. Holders may tender some or all of their Notes pursuant to the Exchange Offer. However, Notes may be tendered only in integral multiples of $1,000. The Company has fixed the close of business on , 1995 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. The form and terms of the Exchange Notes are the same as the form and terms of the Notes (which they replace), except that as of the date hereof the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions included in the terms of the Notes relating to an increase in the interest rate in certain circumstances relating to the timing of the Exchange Offer. The holders of the Exchange Notes will not be entitled to certain rights under the Registration Rights Agreement, which rights will terminate when the Exchange Offer is consummated. The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture. Holders of Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Maryland or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. 23 The Company shall be deemed to have accepted validly tendered Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from the Company. If any tendered Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Notes will be returned to the tendering holder thereof, at the Company's expense, as promptly as practicable after the Expiration Date. Holders who tender Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1995, unless the Company in its sole discretion extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. INTEREST ON THE EXCHANGE NOTES Interest on each Exchange Note will accrue from the last date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issuance of such Note. No interest will be paid on the Notes accepted for exchange, and holders of Notes whose Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Notes accrued up to the date of the issuance of the Exchange Notes. Holders of Notes whose Notes are not exchanged will receive the accrued interest payable thereon on December 15, 1995, on such date in accordance with the Indenture. Interest on the Exchange Notes is payable semi-annually on each June 15 and December 15, commencing on December 15, 1995. PROCEDURES FOR TENDERING Only a holder of Notes may tender such Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Notes and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered effectively, the Notes, Letter of Transmittal and other required documents must be completed and received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the 24 Expiration Date. Delivery of the Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. By executing the Letter of Transmittal, each holder will make to the Company the representations set forth above in the fourth paragraph under "Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by the Company will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an other "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible Institution"), unless the Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by an Eligible Institution. If the Letter of Transmittal is signed by a person other than the registered holder of any Notes listed therein, such Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Notes at the book-entry transfer facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book- entry delivery of Notes by causing such Book-Entry Transfer Facility to transfer such Notes into the Exchange Agent's account with respect to the Notes in accordance with the 25 Book-Entry Transfer Facility's procedures for such transfer. Although delivery of the Notes may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are compiled with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Notes not properly tendered or any Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right in its sole discretion to waive any defects, irregularities or conditions of tender as to particular Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Notes and (i) whose Notes are not immediately available, (ii) who cannot deliver their Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Notes and principal amount of Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Notes in proper form for transfer (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent upon three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Notes according to the guaranteed delivery procedures set forth above. 26 WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Notes in the Exchange Offer, a telegram, telex, facsimile transmission or letter must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Notes to be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn (including the certificate number(s) and principal amount of such delivered Notes, or, in the case of Notes transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited), (iii) state that such Depositor is withdrawing its election to have the Notes exchanged and specify the name in which any such Notes are to be registered, if different from that of the Depositor and (iv) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Notes register the transfer of such Notes into the name of the person withdrawing the tender. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Notes so withdrawn are validly retendered. Any Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Notes may be retendered by following one of the procedures described above under "Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange Exchange Notes for, any Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Notes, if: (a) the Exchange Offer or the making of any exchange by a holder of Notes violates applicable law or any applicable interpretation by the Staff of the Commission; or (b) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the judgment of the Company, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer; or (c) any law, statute, rule or regulation is adopted or enacted which, in the judgment of the Company, would reasonably be expected to impair materially the ability of the Company to proceed with the Exchange Offer. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Notes and return all tendered Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Notes theretofore tendered in the Exchange Offer, subject, however, to the rights of holders to withdraw such Notes (see "Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Notes which have not been withdrawn. 27 EXCHANGE AGENT First Trust National Association has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Registered or Certified Mail, Facsimile Transmission: Overnight Courier or Hand: (612) 244-1145 First Trust National Association Attention: Theresa Shackett, 180 East Fifth Street Specialized Finance St. Paul, Minnesota 55101 Attention: Theresa Shackett, Confirm by Telephone: Specialized Finance (612) 244-1196 For general information contact the Exchange Agent's Bondholder Relations Department at (612) 244-0444. Delivery to an address other than as set forth above, or transmission of instructions via a facsimile number other than the one set forth above, will not constitute a valid delivery. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Notes, which is face value, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company. The expenses of the Exchange Offer will be expensed over the term of the Exchange Notes. CONSEQUENCES OF FAILURE TO EXCHANGE The Notes that are not exchanged for Exchange Notes pursuant to the Exchange Offer will remain outstanding and continue to accrue interest and will also remain restricted securities. Accordingly, such Notes may be resold only (i) to the Company, (ii) pursuant to a registration statement which has been declared effective under the Securities Act, (iii) for so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person the seller reasonably believes is a "qualified institutional buyer" within the meaning of Rule 144A that purchases for its own account or for the account of a qualified institutional buyer and to whom notice is given that the transfer is being made in reliance on Rule 144A, (iv) pursuant to offers and sale to non- U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act, (v) to an institutional "accredited investor" within the meaning of subparagraphs 28 (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act that is acquiring the Notes for its own account or for the account of such an institutional "accredited investor" for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or (vi) pursuant to any other available exemption from the registration requirements of the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States and in accordance with the Indenture. Holders of Notes not tendered in the Exchange Offer will not retain any rights under the Registration Rights Agreement, except in limited circumstances. RESALE OF THE EXCHANGE NOTES With respect to resales of Exchange Notes, based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives Exchange Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Company with the meaning of Rule 405 under the Securities Act), who receives Exchange Notes in exchange for Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with a person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. 29 SELECTED FINANCIAL DATA The following table presents (i) selected consolidated historical financial data for the years ended December 31, 1990, 1991, 1992, 1993 and 1994 derived from the Company's audited consolidated financial statements, (ii) selected consolidated historical financial data as of and for the three months ended March 31, 1994 and 1995 derived from the Company's unaudited consolidated financial statements for such period, and (iii) unaudited pro forma consolidated data for each of the periods indicated. The historical data includes the Company's Canadian acquisition effective as of March 31, 1993, the Company's Florida acquisition since January 1, 1994 and AMCI from October 20, 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General." The pro forma data was prepared to illustrate and give effect to the acquisition of AMCI and related transactions, including (i) the issuance of 9.7 million common shares of the Company for aggregate net proceeds of $113.7 million, (ii) the assumption of the 10 3/4% Notes, and (iii) the incurrence of $310.0 million of debt under the Credit Agreement as if such transactions had occurred as of January 1, 1994. In addition, the unaudited pro forma interest expense and related ratios presented under the caption "Other Data and Selected Ratios" give effect to the Offering and the application of the net proceeds therefrom as of January 1, 1994. The unaudited pro forma financial data are presented for informational purposes only and are not necessarily indicative of the results that actually would have occurred had the transactions been consummated on the dates indicated or the results that may occur or be obtained in the future. In addition, quarterly results may not be indicative of results for the full year. The information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and related notes thereto and other financial information included elsewhere and incorporated by reference herein. 30 SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------------- -------------------------------- PRO FORMA PRO FORMA FOR AMCI FOR AMCI ACQUISITION ACQUISITION 1990 1991 1992 1993 1994 1994 1994 1994 1995 -------- ---------- ---------- ---------- ---------- ----------- -------- ----------- ---------- (DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Total revenues...... $962,202 $1,022,597 $1,082,191 $1,238,001 $1,665,947 $2,084,827 $259,504 $356,088 $ 443,340 Cost of sales....... 806,772 849,684 904,246 1,021,187 1,330,202 1,543,212 221,974 280,444 291,772 Depreciation and amortization....... 14,997 14,399 14,994 15,470 27,218 60,567 4,456 15,006 15,559 Selling, general and administrative expenses........... 138,315 132,845 137,232 161,791 193,975 215,624 40,306 45,537 52,995 Equity in (earnings) loss of unconsolidated affiliates......... -- -- -- (2,275) (743) (743) 554 554 1,197 -------- ---------- ---------- ---------- ---------- ---------- -------- -------- ---------- Income (loss) from operations......... 2,118 25,669 25,719 41,828 115,295 266,167 (7,786) 14,547 81,817 Net interest expense............ (17,056) (12,563) (7,533) (9,683) (16,541) (49,367) (2,079) (12,700) (11,341) Minority interest... -- -- -- -- (8,809) (34,916) -- (5,726) (16,593) -------- ---------- ---------- ---------- ---------- ---------- -------- -------- ---------- Income (loss) from continuing operations before income taxes....... (14,938) 13,106 18,186 32,145 89,945 181,884 (9,865) (3,879) 53,883 Income tax provision (benefit).......... 816 (1,073) (7,757) (9,300) (33,700) (71,517) 3,580 1,410 (20,930) -------- ---------- ---------- ---------- ---------- ---------- -------- -------- ---------- Income (loss) from continuing operations......... $(14,122) $ 12,033 $ 10,429 $ 22,845 $ 56,245 $ 110,367 $ (6,285) $ (2,469) $ 32,953 ======== ========== ========== ========== ========== ========== ======== ======== ========== Per Common Share: Income (loss) from continuing operations......... $ (0.21) $ 0.18 $ 0.15 $ 0.33 $ 0.77 $ 1.37 $ (0.09) $ (0.03) $ 0.41 Dividends........... $ 0.12 -- -- $ 0.02 $ 0.08 $ 0.08 $ 0.02 $ 0.02 $ 0.02 SUMMARY OPERATING DATA: Net fertilizer production (thousands of tons) Ammonia............ 393.6 399.3 404.2 686.1 780.6 1,217.1 205.4 323.42 262.0 Urea............... 145.3 138.7 126.7 222.6 297.9 623.4 55.3 171.0 154.1 UAN................ 765.1 810.0 759.8 987.3 1,295.2 2,757.3 243.6 760.9 662.5 Methanol Production (millions of gallons). -- -- -- -- 81.2 310.3 -- 69.2 64.9 Revenues by business segment (1) Distribution....... $841,742 $ 899,250 $ 958,725 $1,019,438 $1,318,416 $1,318,416 $206,478 $206,478 $ 234,454 Nitrogen Products.. 120,751 126,664 125,659 228,910 296,557 539,152 54,156 114,670 147,188 Methanol........... -- -- -- -- 70,274 246,404 -- 36,096 65,874 OTHER DATA AND SELECTED RATIOS: Capital Expenditures....... $ 10,689 $ 12,728 $ 17,620 $ 21,620 $ 31,213 $ 40,509 $ 10,463 $ 11,443 $ 14,007 EBITDA (2).......... 17,115 40,068 40,713 55,023 141,770 325,991 (2,776) 30,107 98,573 EBITDA less SPU distributions...... 17,115 40,068 40,713 55,023 136,730 305,831 (2,776) 25,067 93,533 Pro forma net interest expense (3)................ -- -- -- -- -- 55,753 -- 14,296 12,487 EBITDA/Net interest expense............ 1.00x 3.19x 5.40x 5.68x 8.57x 6.60x -- 2.37x 8.69x EBITDA/Pro forma net interest expense (3) -- -- -- -- -- 5.85 -- 2.11 7.89 EBITDA less SPU distributions/Pro forma net interest expense (3)........ -- -- -- -- -- 5.49 -- 1.75 7.49 Long-term debt/EBITDA (4).... 10.77 2.87 3.28 2.21 3.94 1.71 -- -- -- Long-term debt/EBITDA less SPU distributions (4)................ 10.77 2.87 3.28 2.21 4.08 1.83 -- -- -- Ratio of earnings to fixed charges (5).. -- 1.63 2.06 2.35 3.45 3.47 -- -- 4.06 BALANCE SHEET DATA (AT END OF PERIOD): Net working capital. $135,374 $ 156,587 $ 215,817 $ 231,287 $ 273,941 -- $150,618 -- $ 315,963 Net property, plant and equipment...... 327,219 112,195 91,969 110,670 552,843 -- 116,583 -- 569,348 Total assets........ 805,279 517,162 580,192 634,482 1,687,970 -- 817,504 -- 1,964,427 Minority interest... -- -- -- -- 170,630 -- -- -- 182,183 Long-term debt (including current maturities)........ 184,324 114,805 133,679 121,384 558,256 -- 48,307 -- 560,522 Total stockholders' equity............. 321,961 190,296 221,476 242,980 418,429 -- 243,610 -- 450,088
- ------- (1) Includes intercompany sales and excludes revenues not included in any of the three business segments. (2) Earnings before interest, taxes, depreciation and amortization ("EBITDA") represents income (loss) from continuing operations before income taxes, plus minority interest, plus net interest expense, less equity in earnings, or plus equity in losses, of unconsolidated affiliates, plus depreciation and amortization. EBITDA should not be considered as an alternative to net income as an indicator of the Company's operating performance or to cash flow as a measure of liquidity, but rather to provide additional information related to the Company's ability to service debt. (3) Pro forma net interest expense is calculated assuming the net proceeds of the Offering of the Notes were applied to repay term loans under the Credit Agreement as of January 1, 1994. To the extent such net proceeds are applied to make open market purchases of SPUs, the amount of such term loan repayments will be decreased commenserately. Minority interest and SPU distributions to unaffiliated third parties would also decrease as a result of any open market purchases of SPUs. (4) Long-term debt includes current maturities. (5) For purposes of computing the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before income taxes plus fixed charges. Fixed charges consist of interest expense on all debt, amortization of deferred financing costs and the portion of operating lease rental expense that is representative of the interest factor (deemed to be one-third of minimum operating lease rentals). Earnings available for fixed charges were insufficient to cover fixed charges by $14.9 million for the year ended December 31, 1990, and $9.2 million and $3.3 million for the historical and pro forma three-month periods ended March 31, 1994, respectively. As a result, the financial ratios for such periods are not meaningful and, therefore, not included. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the financial condition and results of operations of the Company. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the notes thereto included elsewhere and incorporated by reference herein. The Company has expanded its operations over the last two years by increasing its manufacturing capability, expanding its distribution business and increasing the volume of more profitable value-added products. On October 20, 1994, the Company acquired the stock of AMCI for $400.0 million in cash plus working capital adjustments approximating $100 million. Through the AMCI acquisition, the Company acquired TNC, which owns interests in TNCLP and TNLP. TNLP owns ammonia production and upgrading facilities located in Verdigris, Oklahoma (the "Verdigris Facility") and Blytheville, Arkansas (the "Blytheville Facility"). In the AMCI acquisition, the Company also acquired the Beaumont Facility. On September 15, 1994, the Company acquired an approximate one-third interest in Royster-Clark, Inc. ("Royster-Clark") for $12.2 million in cash. Royster- Clark is a 100 location distributor of crop input and protection products in the mid-Atlantic region. On December 31, 1993, the Company's Florida operations ("Terra Asgrow Florida") purchased the assets and business of Asgrow Florida, Inc. ("Asgrow"), a distributor of crop input and protection products, for $39 million. Terra Asgrow Florida operates 16 distribution centers and is a supplier to the vegetable and ornamental plant markets, primarily in Florida. Effective as of March 31, 1993, for $19.9 million in cash plus an operating lease, the Company acquired the rights to an ammonia production and upgrading facility near Sarnia, Ontario (the "Canadian Facility") and ownership interests in 32 farm service centers in Ontario, New Brunswick and Nova Scotia. Thirty of the farm service centers are 50% owned and two are 100% owned. With the acquisition of AMCI, the Company has classified its operations into three business segments: Distribution, Nitrogen Products and Methanol. The Distribution segment includes sales of products purchased from manufacturers, including the Company, and resold by the Company. Distribution revenues are derived primarily from grower and dealer customers through sales of chemicals, fertilizer, seed and related services. The Nitrogen Products segment represents only those operations directly related to wholesale sales of nitrogen products from the Company's five ammonia manufacturing and upgrading facilities (including two owned by TNLP). The Methanol segment represents only wholesale sales of methanol from the Company's two methanol manufacturing facilities. FACTORS AFFECTING OPERATING RESULTS Factors that may affect the Company's future operating results include: the relative balance of world-wide supply and demand for nitrogen fertilizers and methanol, the number of planted acres, the types of crops planted, the effects general weather patterns have on the timing and duration of field work for crop planting and harvesting, the supply of crop inputs, the availability and cost of natural gas, the effect of environmental legislation on demand for the Company's products, the availability of financing sources to fund seasonal working capital needs, and the potential for interruption to operations due to accident or natural disaster. Prices for nitrogen products are influenced by the world supply and demand balance for ammonia and nitrogen-based products. Demand is affected by population growth and increasing living standards that 32 determine food consumption. Supply is affected by worldwide capacity and the availability of nitrogen product exports from major producing regions such as the former Soviet Union, the Middle East and South America. Methanol is used as a raw material in the production of formaldehyde, MTBE, acetic acid and numerous other chemical derivatives. The price of methanol has been greatly influenced by the demand for MTBE, an oxygen and octane enhancer used in reformulated gasoline. Beginning in 1992, federally-mandated standards (the Clean Air Act Amendments) require the use of oxygenated gasoline in over 30 metropolitan areas during the portion of the year, generally the winter months, when maximum allowable carbon monoxide levels are likely to be exceeded. Effective January 1, 1995, the second phase of the Clean Air Act Amendments require the year-round use of reformulated gasoline in the nine metropolitan areas having the highest levels of ozone pollution plus any non- attainment areas in a state that elects to participate in the reformulated gasoline program. Future demand for MTBE and methanol will depend on the degree to which the Clean Air Act Amendments are implemented and enforced, potential additional legislation, the effect of health concerns regarding the use of MTBE as a fuel additive, the willingness of regulatory agencies to grant waivers, and the extent to which other regions voluntarily opt-in to the reformulated gasoline program. Additionally, future demand will be impacted by the availability and use of alternative oxygenates, principally ETBE which is manufactured from ethanol, a renewable resource. The EPA anticipates that oxygenates derived from ethanol feedstocks will be the most utilized renewable oxygenates. The EPA mandated that, effective January 1, 1995, 15%, and effective January 1, 1996, 30%, of reformulated gasoline use an oxygenate from a renewable resource. This mandate, however, was reversed by a federal appeals court on April 28, 1995, which ruled that the EPA lacked the authority to promulgate a renewable oxygenate requirement. On June 12, 1995 the EPA appealed the ruling. Although there is a petroleum industry preference for MTBE, there can be no assurance that MTBE will not be replaced by alternative oxygenates as a result of price, regulatory changes, or other factors. As with any commodity chemical, the price of methanol is volatile. During 1994, increased world demand for methanol combined with a large number of plant shutdowns and maintenance turnarounds in the industry and the phase-in of U.S. federally-mandated standards for oxygenated gasoline resulted in a tight market and dramatically increased prices over 1993 levels. Demand for methanol also increased due to increased demand for wood building products in the construction industry. Since January 1995, however, methanol prices have decreased markedly due to lower demand for MTBE production and increased methanol imports that resulted from the 1994 price increases. See also "Risk Factors--Factors Affecting Demand For Methanol and MTBE." With the acquisition of AMCI, the Company raised its annual production capacity for methanol from 40 million to 320 million gallons. BMLP is a party to a methanol hedging agreement (the "Methanol Hedging Agreement") entered into in October 1994, at which time the Company received $4 million in cash. Approximately 45% of the Company's methanol production capacity is subject to the Methanol Hedging Agreement, which will affect margins on this portion of the Company's methanol production through December 31, 1997 should average methanol prices exceed average natural gas prices by certain amounts. See "Business--Methanol--Methanol Contracts" and Note 12 to the Company's consolidated financial statements included elsewhere and incorporated by reference herein. The number of acres planted and types of crops planted are influenced by government programs designed to manage carryover stocks and commodity prices of certain crops. Due to the higher quantities of crop inputs per acre for corn and cotton, compared with other major crops, changes in corn and cotton acreages have a more significant effect on the demand for the Company's products and services than changes in other crops. 1994 was a record year for corn in both the number of planted acres and crop yields. Based upon industry sources, the Company expects planted corn acreage to decrease from 79.2 million acres in 1994 to no more than 77 million acres in 1995 and planted cotton acreage to increase from 14.1 million acres in 1994 to 16.2 million acres in 1995. Weather can have a significant effect on operations. Weather conditions that delay or intermittently disrupt field work during the planting and growing season may result in fewer crop inputs being applied than 33 normal and/or shift plantings to crops with shorter growing seasons. Similar 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 pay for inputs purchased from the Company. During 1994, favorable conditions prevailed during most of the spring and fall and allowed for unimpeded application of fertilizer and other crop inputs. Reliable sources for supply of crop inputs at competitive prices are critical to the distribution portion of the Company's business. The Company's sources for fertilizer, agricultural chemicals and seed are typically manufacturers without the capability to distribute products to the North American grower. The Company has entered into annual purchase agreements intended to provide an adequate supply of products for its grower and dealer customers through 1995. The principal raw material used to produce manufactured nitrogen products and methanol is natural gas. Natural gas costs comprise almost 50% of the total costs and expenses associated with nitrogen production and in excess of 50% of the total costs and expenses associated with methanol production. The Company's natural gas procurement policy is to fix or cap the price of approximately 40% to 80% of its natural gas requirements for a 12-month period through various supply contracts, financial derivatives and other forward pricing techniques. Depending on market conditions, the Company may also fix or cap the price for natural gas for longer periods of time. In the first quarter of 1995, due to the decline in natural gas prices, the Company extended its forward pricing positions for natural gas. The Company believes that there is sufficient supply to allow stable costs for the foreseeable future and has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies during the heating season. As of March 31, 1995, the Company had fixed prices for approximately 65% of its natural gas requirements for the remainder of 1995, 42% for 1996 and 22% for 1997. At March 31, 1995, liquidation of these financial derivatives based on market prices would have resulted in a loss of $10.0 million. As of March 31, 1995, realized losses of $3.1 million relating to future periods had been deferred. The Company's distribution business segment is highly seasonal with the majority of sales occurring during the second quarter in conjunction with spring planting activity. Due to the seasonality of the business and the relatively brief periods during which products can be used by customers, the Company builds inventories during the first quarter of the year in order to ensure timely product availability during the peak sales season. The Company's ability to purchase product at off-season prices and carry inventory until periods of peak demand generally contributes to higher margins. For its current level of sales, the Company requires lines of credit to fund inventory increases as well as to support customer credit terms. The Company believes that its credit facilities are adequate for expected 1995 sales levels. The Company's operations may be subject to significant interruption if one or more of its facilities were to experience a major accident or were damaged by severe weather or other natural disaster. The Company currently maintains insurance (including business interruption insurance) and expects that it will continue to do so in an amount which it believes is sufficient to allow the Company to withstand major damage to any of its facilities. The Port Neal Facility was the site of a major explosion on December 13, 1994. The Company has decided to repair the facility and expects it to be fully operational in mid-1996. At the time of the explosion, the Port Neal Facility accounted for approximately 15% of the Company's annual ammonia production capacity. The Company will recover insurance proceeds for substantially all its property damage, third party liability claims and business interruption losses. The Company has reserved $7.0 million to cover insurance deductibles and uninsured costs related to the explosion. As a result of an investigation of the explosion by IOSHA the Company received allegations of safety and health violations from IOSHA on May 25, 1995. The allegations of violation were accompanied by a proposed fine of $461,900. The Company intends to contest vigorously the alleged violations and the proposed fine. The Company believes that the IOSHA allegations, including the proposed fine, will not have a material adverse effect on the Company's business or financial condition. 34 DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments to manage risk in the areas of (a) foreign currency fluctuations, (b) changes in natural gas supply prices, (c) changes in interest rates and (d) the effect of methanol prices relative to natural gas prices. See Note 12 to the Company's consolidated financial statements included elsewhere and incorporated by reference herein for information on the use of derivative financial instruments. RESULTS OF CONTINUING OPERATIONS First Quarter 1995 Compared with First Quarter 1994 Consolidated Results. The Company reported income from continuing operations of $33.0 million on revenues of $443.3 million for the first quarter of 1995, compared with a loss from continuing operations before extraordinary items of $6.3 million on revenues of $259.5 million in the first quarter of 1994. 1995 results include the operations of AMCI, which was acquired by the Company in October 1994. The AMCI acquisition added approximately $144.0 million to revenues and $25.0 million to operating income during the first quarter 1995. Excluding the impact of the AMCI acquisition, revenues increased $40.0 million, or 15%, over the comparable period in 1994 and operating income increased $14.2 million primarily as a result of improved selling prices for nitrogen products caused by tight supplies. Total revenues and operating income (loss) by business segment and income (loss) from continuing operations before income taxes for the three month periods ended March 31, 1994 and 1995 were as set forth below. Pro forma results for the 1994 period including AMCI are included in "Selected Financial Data."
1994 1995 -------- -------- (IN THOUSANDS) Revenues: Distribution........................................ $206,478 $238,454 Nitrogen Products................................... 54,156 147,188 Methanol............................................ -- 65,874 Other--net.......................................... (1,130) (8,176) -------- -------- $259,504 $443,340 ======== ======== Operating income (loss): Distribution........................................ $(12,899) $(14,635) Nitrogen Products................................... 6,988 57,384 Methanol............................................ -- 39,608 Other expense--net.................................. (1,875) (540) -------- -------- (7,786) 81,817 Interest expense--net............................... (2,079) (11,341) Minority interest................................... -- (16,593) -------- -------- Income (loss) from continuing operations before income taxes..................................... $ (9,865) $ 53,883 ======== ========
Distribution. Distribution revenues were $238.5 million during the first quarter of 1995, an increase of $32 million, or 15%, over 1994 results for the comparable period. Approximately $10 million of the growth relates to a 7.6% increase in chemical sales resulting principally from sales to new dealer affiliates and expansion into new locations. Growth in the Company's own brand of Riverside(R) chemical products accounted for $5 million of the increase. Distributed fertilizer, seed and other sales and services increased $22.0 million primarily as a result of expansion of the Company's distribution network. 35 The operating loss for the Distribution business was $14.6 million in the first quarter of 1995 compared with an operating loss of $12.9 million in the first quarter of 1994. Higher volumes added $5.9 million to operating income which was more than offset by a $7.6 million increase in selling and general and administrative expenses. The increased expenses included an increase in compensation costs of $2.8 million due to additional personnel resulting from expansion activities and normal wage increases. In addition, equipment leasing, facilities costs, and operating and maintenance expenses increased $2.5 million. The Distribution segment's operations are seasonal, coincident with crop plantings, which generally results in an operating loss for the first calendar quarter. Nitrogen Products. Nitrogen Products revenues increased 172% to $147.2 million in the first quarter of 1995 from $54.2 million in the first quarter of 1994. The acquisition of the Blytheville Facility and the Verdigris Facility as part of the AMCI acquisition increased the Company's annual production capacity from 1.3 million tons to 2.7 million tons of ammonia (including the Port Neal Facility). The AMCI acquisition contributed $89.8 million to first quarter revenue growth. Excluding the impact of the AMCI acquisition, revenues increased $3.2 million or 5.9%. Due to the conversion of approximately 30% of the capacity of the Company's Woodward, Oklahoma plant (the "Woodward Facility") from ammonia production to methanol production, Nitrogen Products revenues for the first quarter of 1995 were reduced by $1.7 million. In addition, revenues for the first quarter of 1995 were reduced approximately $10 million due to the loss of production at the Port Neal Facility as a result of the December 1994 explosion. See "--Factors Affecting Operating Results." Operating income for the Nitrogen Products business was $57.4 million in the first quarter of 1995 compared with $7 million in the 1994 first quarter. The acquisition of AMCI contributed $37.3 million to the increase in operating income. Excluding the AMCI acquisition, operating income increased $13.1 million due to price increases of $12.4 million and lower natural gas costs of $4.2 million, offset by higher manufacturing costs for salaries and wages and maintenance expenses. Methanol. As described above, in April 1994, approximately 30% of the production capacity of the Woodward Facility was converted from the production of ammonia to the production of methanol. Additionally, through the acquisition of AMCI in October 1994, the Company acquired the Beaumont Facility. Currently, the annual methanol production capacity of the Woodward Facility is 40 million gallons and of the Beaumont Facility is 280 million gallons. The Company had no methanol operations in the first quarter of 1994. Methanol revenues were $65.9 million and operating income for the Methanol business was $39.6 million in the first quarter of 1995. Methanol revenues in the first quarter of 1995 attributable to the conversion of the Woodward Facility were $11.6 million. The market price for methanol increased significantly in the second half of 1994 as a result of sharply higher production of MTBE. During the first quarter of 1995, methanol prices have decreased substantially from the unprecedented high levels reached in late 1994. Average realized prices (including the effect of the Methanol Hedging Agreement) were $0.98 in the first quarter of 1995 as compared to $1.14 in the fourth quarter of 1994. As of March 31, 1995, $31.3 million was reserved as payable under the Methanol Hedging Agreement based on average prices of methanol and natural gas for the period from October 20, 1994 through March 31, 1995. The actual amount payable for the period ending December 31, 1995 (payable in 1996) will depend on average prices for the full period of October 20, 1994 through December 31, 1995. See "Business--Methanol--Methanol Contracts" and Note 12 to the Company's consolidated financial statements included elsewhere and incorporated by reference herein. The Company sold 67.2 million gallons of methanol during the 1995 first quarter, of which 57.8 million gallons were produced at the Beaumont Facility. During the second quarter of 1995, a scheduled maintenance turnaround was performed at the Beaumont Facility. The costs incurred to perform the turnaround are estimated to be $5.0 million and will be deferred and amortized based on the Company's accounting policies. 36 Other Operating Expense--Net. Other operating expense was $0.5 million in the 1995 first quarter compared with $1.9 million in the comparable 1994 period. Other operating expense includes expenses not directly related to individual business segments, including certain insurance coverages, corporate finance fees and other costs. The decrease in 1995 is primarily the result of lower costs for general administrative functions, including reduced incentive compensation expense. Interest Expense--Net. Interest expense, net of interest income, totaled $11.3 million in the first quarter of 1995, compared with $2.1 million in the first quarter of 1994. The increase is principally the result of the assumption of the 10 3/4% Notes and the incurrence of $270 million of additional debt in connection with the acquisition of AMCI. Income Taxes. First quarter 1995 income tax expense was recorded at an effective rate of 38.8% as compared with 36.3% in the first quarter of 1994. The increased rate is the result of goodwill amortization which is not deductible for income tax purposes. 1994 Compared With 1993 Consolidated Results. The Company reported income from continuing operations of $56.2 million on revenues of $1.67 billion in 1994 compared with income from continuing operations of $22.8 million on revenues of $1.24 billion in 1993. 1994 results include a full year of the operations of Asgrow acquired by Terra on December 31, 1993, and operations of AMCI subsequent to its acquisition on October 20, 1994. These operations added approximately $190 million to revenue and $21 million to income from continuing operations in 1994. Excluding the impact of these acquisitions, revenues increased 19% over 1993 and income from continuing operations increased 46%. Total revenues and operating income by business segment and income from continuing operations before income taxes for the years ended December 31, 1993 and 1994 are set forth below. Results of operations for AMCI are included only from the date of the Company's acquisition of AMCI (October 20, 1994). Pro forma results of operations including AMCI for a full year in 1994 are included in "Selected Financial Data."
1993 1994 ---------- ---------- (IN THOUSANDS) Revenues: Distribution..................................... $1,019,438 $1,318,416 Nitrogen Products................................ 228,910 296,557 Methanol......................................... -- 70,274 Other--net....................................... (10,347) (19,300) ---------- ---------- $1,238,001 $1,665,947 ========== ========== Operating income: Distribution..................................... $ 16,903 $ 33,784 Nitrogen Products................................ 28,654 48,369 Methanol......................................... -- 42,679 Other expense--net............................... (3,729) (9,537) ---------- ---------- 41,828 115,295 Interest expense--net............................ (9,683) (16,541) Minority interest................................ -- (8,809) ---------- ---------- Income from continuing operations before income taxes................ $ 32,145 $ 89,945 ========== ==========
Distribution. Distribution revenues were $1.32 billion in 1994, an increase of $298 million, or 29%, over 1993 results of $1.02 billion. Approximately $198 million of the growth relates to a 30% increase in chemical sales resulting principally from the operations of Asgrow acquired by Terra on December 31, 1993, which 37 added approximately $80 million, expansion into new locations and higher planted acreage. Growth in the Company's own brand of Riverside(R) products accounted for $22 million of the increase. Distributed fertilizer sales increased $55 million and seed and other sales and services increased $45 million as a result of higher planted acreage in 1994 and favorable weather conditions. 1993 revenues were generally reduced by the flooding and wet weather conditions in the central United States which reduced planted acres and input application rates. Operating income for the Distribution business was $33.8 million in 1994 compared with $16.9 million in 1993. Gross margin percentages within the Distribution business remained relatively constant. Overall gross profit increased approximately $46.5 million. Selling and general and administrative expenses increased $24.4 million. This includes an increase in compensation costs of $17.4 million due to additional personnel resulting from expansion activities and normal wage increases. In addition, equipment leasing and facilities costs increased $4.2 million. Nitrogen Products. Nitrogen Products revenues increased 29.6% to $296.6 million in 1994 from $228.9 million in 1993. The AMCI acquisition in October 1994 accounted for $60.4 million of revenue growth. Excluding the impact of the AMCI acquisition, revenues increased $7.3 million or 3.2%. 1994 revenues were reduced by approximately $10 million due to the conversion of 30% of the capacity of the Woodward Facility from ammonia production to methanol production. Operating income for the Nitrogen Products business was $48.4 million in 1994 compared with $28.7 million in 1993. The acquisition of AMCI contributed $18.9 million to the increase in operating income. Excluding the AMCI acquisition and before the $7.0 million non-recurring charge related to the Port Neal Facility explosion, operating income increased $7.8 million due to price increases of $15.3 million, partially offset by higher natural gas costs and the conversion of ammonia production capacity to methanol production. Operating results were also affected by the explosion at the Port Neal Facility which occurred on December 13, 1994. Methanol. In 1994, Methanol revenues were $70.3 million and operating income for the Methanol business was $42.7 million in 1994. Methanol revenues in 1994 attributable to the conversion of the Woodward Facility were $20.7 million. Gross profit on methanol was $44.8 million and selling and general and administrative expenses were $2.1 million. The Company had no methanol operations in 1993. The market price for methanol increased significantly in the second half of 1994 as a result of sharply higher production of MTBE. As of December 31, 1994, $15.9 million was recorded as payable under the Methanol Hedging Agreement. (See "Business--Methanol--Methanol Contracts" and Note 12 to the Company's consolidated financial statements included elsewhere and incorporated by reference herein). Other Operating Expense--Net. Other operating expense was $9.5 million in 1994 compared with $3.7 million in 1993. The increase over 1993 is primarily the result of a non-recurring 1993 gain of $4.2 million on the settlement of a dispute with a vendor. Interest Expense--Net. Interest expense, net of interest income, totaled $16.5 million in 1994 compared with $9.7 million in 1993. The increase is principally the result of higher interest expense due to the assumption of the 10 3/4% Notes and the incurrence of $270 million of additional debt, both in connection with the acquisition of AMCI. Income Taxes. The income tax provision increased in 1994 due to higher pretax book income and the utilization during 1993 of previously unrecognized capital loss carryforwards. Extraordinary Loss. 1994 net income included an extraordinary loss of $3.1 million for the early retirement of debt. Accounting Changes. 1994 net income includes a net gain of $3.4 million to recognize the cumulative effect of a change in the method of accounting for plant turnaround costs and adoption of Statement of Financial Accounting Standards ("SFAS") 112, "Employers Accounting for Post-Employment Benefits." 38 1993 Compared With 1992 Consolidated Results. The Company reported income from continuing operations of $22.8 million on revenues of $1.24 billion in 1993, compared with income from continuing operations of $10.4 million on revenues of $1.08 billion in 1992. The 1993 results include nine months of operation of the Canadian Facility and farm service centers acquired in Canada effective as of March 1993, which added $98.3 million to revenues and $8.9 million to income from continuing operations. Total revenues and operating income by segment and income from continuing operations before income taxes for the years ended December 31, 1992 and 1993 by segment were as set forth in the table below. The Company had no methanol operations in 1992 or 1993.
1992 1993 ---------- ---------- (IN THOUSANDS) Revenues: Distribution.................................... $ 958,725 $1,019,438 Nitrogen Products............................... 125,659 228,910 Other--net...................................... (2,193) (10,347) ---------- ---------- $1,082,191 $1,238,001 ========== ========== Operating income: Distribution.................................... $ 16,568 $ 16,903 Nitrogen Products............................... 14,841 28,654 Other expense--net.............................. (5,690) (3,729) ---------- ---------- 25,719 41,828 Interest expense--net........................... (7,533) (9,683) ---------- ---------- Income from continuing operations before income taxes................................. $ 18,186 $ 32,145 ========== ==========
Distribution. Distribution revenues were $1.02 billion in 1993, an increase of $60.7 million or 6.3% from 1992 Distribution revenues of $959 million. Approximately $17.7 million of the sales increase reflected a 3% increase in chemical sales, while the acquisition of the Canadian Facility added $20.1 million of the sales increase, or 2.1%. Distributed fertilizer sales increased $18.3 million and seed revenues approximated 1992 levels. Revenue increases in 1993 were less than expected due to weather conditions, especially the flooding and wet conditions in the central United States, which reduced planted acres and input application rates. Operating income for the Distribution business was $16.9 million in 1993, compared with $16.6 million in 1992. The acquisition of the Canadian Facility added $4.0 million to Distribution operating income. U.S. operating income also included a $12.1 million increase in gross profits which was more than offset by $15.8 million of higher direct selling expenses. The increase in gross profits includes $5.4 million from higher sales volumes of chemicals as well as margin improvements resulting primarily from the Company's increased distribution of its Riverside(R) proprietary brand products. Gross profits increased $4.3 million due to higher sales volumes for distributed fertilizer; gross profits related to sales of other products and services increased $2.4 million. Increases in 1993 direct selling expenses from 1992 were primarily due to an $8.1 million increase in compensation costs, which related principally to normal wage increases and additional personnel, and increased equipment leasing, operating and maintenance expenses of $3.7 million related to the increased number of locations and excessively wet field conditions. Advertising and promotional expenditures increased $1.3 million from 1992. Nitrogen Products. Nitrogen Products revenues increased 82% to $228.9 million in 1993 from $125.7 million in 1992. The acquisition of the Canadian Facility added $78.2 million of manufactured nitrogen sales. Excluding such acquisition, Nitrogen Products revenues increased 20% to $150.7 million, with sales volumes 39 adding 15% to revenues and higher selling prices for nitrogen fertilizer and feed products increasing revenues by 5%. The additional sales volume and higher selling prices were principally the result of increased demand for nitrogen solution fertilizers which were heavily used in the shortened planting season. Operating income for the Nitrogen Products business in 1993 was $28.7 million, compared with $14.8 million in 1992. The Canadian Facility contributed $9.5 million to the increase in 1993 operating income. Additional higher U.S. sales volumes contributed $4.0 million to earnings for 1993. Expanded ammonia production and 1992 maintenance turnarounds on both domestic plants improved 1993 gas conversion efficiency which added $2.0 million to operating income while excess 1992 turnaround costs of $3.0 million were not repeated. Higher selling prices for domestic production increased earnings by $6.6 million but were more than offset in 1993 by $11.3 million of cost increases caused mainly by natural gas price increases. Other Operating Expense--Net. Other operating expense was $3.7 million in 1993, compared with $5.7 million in 1992. The $2.0 million reduction was primarily the result of reversing $4.2 million of product liability reserves expensed in 1989, reflecting the settlement of litigation with E.I. du Pont de Nemours and Company ("DuPont") over the fungicide, Benlate, and a $2.4 million increase in corporate and unallocated expenses, including $1.4 million related to losses on dispositions of short-term investments prior to maturity and $0.8 million in compensation expense tied to increases in the market price of the Company's stock. Interest Expense--Net. Interest expense, net of interest income, totaled $9.7 million in 1993, compared with $7.5 million in 1992. Interest expense increased due to the November 1992 issuance of $30.0 million of unsecured notes. Income Taxes. For 1993, the income tax provision rate was lower than statutory rates due to the utilization of previously unrecognized capital loss carryforwards. For federal income tax reporting purposes, the Company has remaining net operating loss carryforwards of $55 million and tax credits of $1.7 million to offset taxable income and regular tax liabilities, respectively. Accounting Changes. 1992 net income included a credit of $22.3 million to recognize the combined effect of changes in accounting for income taxes and retiree medical benefits. The credit resulted principally from the recognition of income tax benefits from net operating loss ("NOL") and tax credit carryforward positions. LIQUIDITY AND CAPITAL RESOURCES The Company's primary uses for cash are to fund its working capital needs, make payments on its indebtedness and other obligations, pay quarterly dividends to the Company's stockholders and make quarterly distributions on TNCLP's Senior Preference Units, and make capital expenditures. The Company's principal sources of funds are cash flow from operations and borrowings under the Credit Agreement. The Company believes that cash from operations and available financing sources will be sufficient to meet anticipated cash requirements for seasonal operating needs, capital expenditures and expansion strategies. Cash generated from operations during 1995 is expected to be adequate to meet normal business requirements and pay down debt. Cash balances as of March 31, 1995 and December 31, 1994 were $133.1 million and $158.4 million, respectively, of which $9.6 million was used to collateralize letters of credit supporting recorded liabilities. Quarterly dividends on the Company's common shares of $0.02 per share were paid during 1994 and the first quarter of 1995, representing cash outlays of $5.8 million and $1.6 million, respectively. The holders of TNCLP's Senior Preference Units are entitled to receive a minimum quarterly distribution of $0.605 per unit, or $4.6 million, plus arrearages before any distribution to the Company with respect to its Junior Preference Units or Common Units. In the first quarter of 1995, distributions to holders of the SPUs were $0.66 per SPU or $5.0 million in the aggregate. In addition, a distribution has been declared payable May 30, 1995 of $1.14 per SPU or approximately $8.7 million in the aggregate. As of March 31, 1995, there were no distributions on SPUs in arrears. 40 During 1994, the Company utilized cash from operations, proceeds from a stock issuance and cash available under the Credit Agreement to purchase AMCI, retire existing debt, fund capital expenditures, invest in additional farm service centers and provide for seasonal working capital requirements. AMCI was acquired for $400 million plus working capital adjustments of approximately $100 million. As part of the AMCI acquisition, the Company assumed $175 million aggregate principal amount of the 10 3/4% Notes. The Company received net proceeds of $113.0 million from the issuance of 9.7 million of the Company's common shares, which was used to fund in part the AMCI acquisition. The Credit Agreement was used to finance the remainder of the AMCI acquisition, retire $75 million of debt, replace certain revolving credit agreements and redeem $16.2 million of the 10 3/4% Notes. Cash used for acquisitions in the first quarter of 1995 included a $6.1 million payment made as the final working capital adjustment in connection with the AMCI acquisition. As of March 31, 1995 and December 31, 1994, borrowings under the Credit Agreement totaled $369.0 million and $359.0 million, respectively. Interest charged under the Credit Agreement is based on LIBOR. The Company has acquired an interest rate collar that has the effect of capping interest costs at 8.5% to 9% on a cumulative basis through December 31, 1997 for $190.0 million of outstanding indebtedness. The amount of principal subject to the interest rate collar declines over such period. Principally as a result of financing the AMCI acquisition, the Company's debt, including current maturities, as a percentage of total capital, including minority interest, was 48% and 50% as of March 31, 1995 and December 31, 1994, respectively, as compared with 35% as of December 31, 1993. See "Capitalization" and "Description of Other Indebtedness." In addition to amounts related to the AMCI acquisition, the Company funded from available cash $4.2 million to acquire new locations for its distribution network in the first quarter of 1995 and $16.3 million of farm service center acquisitions (including the interest in Royster-Clark) in 1994. In 1993, the Company acquired interests in 32 farm service centers and the rights to the Canadian Facility through an operating lease and payment of $19.9 million cash. Additionally, the Company purchased the assets and business of Asgrow on December 31, 1993 with $39 million paid from available cash. Purchases of property, plant and equipment totaled $31.2 million in 1994 compared with $21.6 million in 1993. The capital expenditures in 1994 included $16.4 million for expansions and routine equipment replacements within the Distribution business and $14.8 million for improvements at manufacturing facilities. The capital expenditures in 1993 included $14.7 million for expansions and routine replacements within the Distribution business and $6.9 million for improvements at manufacturing facilities. The improvements at manufacturing facilities included $8.6 million in 1994 and $6.9 million in 1993 for the conversion of a portion of the capacity of the Woodward Facility from ammonia production to methanol production. The Company expects 1995 capital expenditures to be approximately $40 million, consisting of the acquisition of service centers, routine replacement of equipment and efficiency improvements at manufacturing facilities. In addition, the Company expects capital expenditures in 1995 of approximately $20 million for expansion and design improvements at the Port Neal Facility. Furthermore, as a result of an ongoing plant upgrade project, the Canadian Facility's liquid urea and granulation capacities are expected to increase. The project is expected to be completed in the 1995 fourth quarter and will enable the replacement of 65,000 tons of annual ammonia sales with higher margin urea and UAN sales. The project cost is estimated to be approximately $20 million and is expected to be funded principally through lease financing. Asset sales in 1993 generated $24.4 million, including $18.5 million from the sale of the Company's construction materials business and $5.9 million from the sale of the remaining leasing business, both of which were discontinued businesses. Accounts receivable increased from year end 1993 to year end 1994 by $34.3 million due, in part, to $53.8 million in receivables added through acquisitions. Excluding the impact of acquisitions, accounts 41 receivable declined due to the sale of $50.0 million of a designated pool of outstanding receivables which more than offset the effect of increased fourth quarter sales. Accounts receivables were $213.9 million as of March 31, 1995 as compared to $157.0 million as of December 31, 1994. The increase was due to seasonal first quarter sales of the Company's nitrogen fertilizer and chemical products as well as higher nitrogen fertilizer prices. Inventories increased $88.0 million in 1994 as compared to 1993, including $28.6 million related to acquisitions. The remaining increase is the result of off-season purchasing to obtain discounts and to meet anticipated product demand. Accounts payable also increased as a result of such purchases. Inventories were $538.1 million at March 31, 1995 as compared to $333.0 million at December 31, 1994. The inventory increase was attributable to the seasonal inventory build-up in anticipation of the spring planting season and the higher cost of nitrogen products purchased from manufacturers other than the Company. The ratio of current assets to current liabilities declined from 2.0 to 1 at December 31, 1993 to 1.6 to 1 at December 31, 1994, primarily as the result of 1994 acquisition activity. The ratio of current assets to current liabilities was 1.5 to 1 at March 31, 1995. The Company's 8.5% Convertible Subordinated Debentures (the "Debentures") were convertible into common shares of the Company any time prior to maturity at a conversion price of $8.083 per share. The Debentures were subject to redemption, upon not less than 20 days notice by mail, at any time, as a whole or in part, at the election of the Company. During March 1994, the Company redeemed $72.1 million of the Debentures at the redemption price of 103.4% of par value. During the 20-day notice period, holders of $5.9 million chose to convert their debentures into common stock of the Company. The Company issued 730,768 of its common shares and paid cash for fractional shares. No Debentures remain outstanding. In July 1993, the Company's Board of Directors authorized a share repurchase program for up to two million of the Company's common shares. No shares were repurchased in 1994 or in the first quarter of 1995. During 1993, 106,900 shares were repurchased for $0.5 million. OPEN MARKET PURCHASE PROGRAM FOR TNCLP SPUS On March 27, 1995, the Company proposed to the Board of Directors of TNC a transaction in which the Company would acquire by merger all of the outstanding Senior Preference Units of TNCLP for $30.00 per Senior Preference Unit (less the amount of any distributions declared per SPU in excess of $0.66 per SPU for the quarter ended March 31, 1995). The Company and an independent committee of the Board of Directors of TNC designated to represent the holders of the SPUs were unable to reach an agreement on price and, on May 11, 1995, the Company withdrew its offer. For a description of certain projections provided to the TNC independent committee and its representatives in connection with such proposal, see the Company's Current Report on Form 8-K dated May 11, 1995 incorporated by reference herein. On May 11, 1995, the Board of Directors of the Company approved an open market purchase program pursuant to which the Company may purchase up to five million SPUs from time to time at prices and in quantities as determined by the Company's management. As of March 31, 1995, there were 7,636,364 SPUs outstanding. Prior to the commencement of the open market purchase program, the Company and its subsidiaries did not own any SPUs. As of 1995, the Company has purchased SPUs for an aggregate purchase price of $ . The net proceeds of the Offering are available to finance purchases of SPUs through December 31, 1995. In addition, the Company may use up to $40 million under the revolving credit facility pursuant to the Credit Agreement to finance SPU purchases through December 31, 1995. See "Use of Proceeds" and "Description of Other Indebtedness." 42 BUSINESS GENERAL The Company is a leader in each of its three business segments: (i) the distribution of crop production inputs and services, (ii) the manufacture of nitrogen products and (iii) the manufacture of methanol. The Company owns and operates the largest independent farm service center network in North America and is the second largest supplier of crop production inputs in the United States. The Company is also the third largest producer of anhydrous ammonia and one of the two largest producers of nitrogen solutions in the United States and Canada. In addition, the Company is one of the largest U.S. manufacturers and marketers of methanol. The Company's distribution network serves the United States and eastern region of Canada and has grown over the last several years to include, as of March 31, 1995, approximately: . 370 farm service centers; . 100 fertilizer storage facilities, most of which are leased and approximately half of which are operated by TNLP; and . 780 affiliated dealer locations. The Company's production facilities are comprised of: . five nitrogen fertilizer plants, which are located in Oklahoma (the Woodward Facility and the Verdigris Facility), Iowa (the Port Neal Facility), Ontario, Canada (the Canadian Facility) and Arkansas (the Blytheville Facility) (the Verdigris Facility and the Blytheville Facility are owned by TNLP); . a methanol production plant, which is located in Texas (the Beaumont Facility) (the Woodward Facility also includes some methanol production capacity); . a crop protection chemical formulation plant, which is located in Arkansas (the "Blytheville Formulation Facility"); and . seven additional liquid chemical formulation facilities. The Port Neal Facility was the site of a major explosion on December 13, 1994 and is expected to be fully operational again in mid-1996. At the time of the explosion, the Port Neal Facility accounted for approximately 15% of the Company's annual ammonia fertilizer production capacity. The Company will recover insurance proceeds for substantially all of its property damage, third- party liability claims and business interruption losses. The Company has reserved $7 million to cover insurance deductibles and uninsured costs related to the explosion. DISTRIBUTION The Company's farm service center network is a distribution and marketing system for a comprehensive line of fertilizers, crop protection products, seeds and services. The Company's customers are primarily farmers and dealers located in the midwestern and southern regions of the United States, and the eastern region of Canada. Products The Company markets a comprehensive line of crop protection products (herbicides, insecticides, fungicides, adjuvants, plant growth regulators, defoliants, desiccants and other agricultural chemicals), fertilizer (nitrogen, phosphates, potash and micronutrients) and seed. Although most crop protection products marketed by the Company are manufactured by unaffiliated suppliers, the Company also markets its own Riverside(R) brand products. Riverside(R) products represented 43 approximately 15% of the Company's total crop protection product sales in 1994. As of March 31, 1995, the Riverside(R) line includes approximately 150 products, of which 30 were added in the past twelve months, and consists of herbicides, insecticides, fungicides, adjuvants, seed treatments, plant growth regulators, defoliants and desiccants. The majority of Riverside(R) products are formulated or packaged in facilities owned by the Company. The Riverside(R) line includes several formulations produced exclusively by the Company, but does not include proprietary agricultural chemicals. Riverside(R) products generally provide higher margins for the Company than products manufactured by unaffiliated suppliers. The sale of such products, however, involves additional indirect costs, including the cost of maintaining and disposing of excess inventory and potentially greater liability for product defects. The Company possesses and processes the registrations required by the EPA for Riverside(R) pesticide products. The Company markets several major seed brands and, in its United States marketing area, is the largest independent seed distributor. The Company focuses particular marketing efforts on its proprietary brand of corn hybrids, soybean and cotton seed varieties, which provide higher margins. These products represented approximately 15% of total seed sales in 1994. The Company also has an exclusive retail storefront marketing and distribution agreement for DEKALB brand seed in the Midwest, which accounted for approximately 10% of total 1994 seed sales. Services In addition to selling products required to grow crops, the Company's farm service centers offer a wide variety of services to grower customers. These services include soil and plant tissue analysis, crop production program recommendations, custom blending of fertilizers, field application services, field inspections for pest control and crop program performance follow-up. The farm service centers utilize the Company's Ag Analytical Services laboratory in Elida, Ohio to analyze nutrient levels in soil and plant tissue samples. The results of these tests are used by the Company's proprietary CropMaster(R) program to provide specific, localized soil fertility recommendations for specific crops on a field-by-field basis. Crop input recommendations are provided through computer terminals at most farm service center locations, which are linked to a mainframe computer located at the Company's headquarters in Sioux City, Iowa. Recommendations can be made for substantially all crops grown in the Company's markets. The program also provides "least cost" nutrient blending formula recommendations, makes seed variety recommendations based on hybrid characteristics and other factors important to the individual grower, and maintains crop input records for grower customers. In connection with product sales to dealers, the Company provides warehousing and delivery services. For selected dealer customers, the Company offers a service package called MarketMaster(TM). The package includes environmental and safety audits, business management and agronomic training courses, access to the Company's Ag Analytical Services laboratory, use of the CropMaster(R) program and other services. There were 517 MarketMaster(TM) dealer sites at March 31, 1995. Marketing and Distribution The Company markets its products primarily to agricultural customers, including both dealers and growers. For 1994, approximately 65% of the Company's distribution revenues were attributable to retail sales through farm service center locations and approximately 35% were attributable to wholesale sales to dealers. The Company also markets its products through its Professional Products(R) group to non-farm customers, including turf growers, nurseries, golf courses, parks, athletic facilities and utility companies. The Company offers these customers herbicides, insecticides, fungicides, fertilizer, adjuvants, plant growth regulators, seed and agronomic services. The Professional Products(R) personnel generally work through the Company's farm service centers, using established delivery systems and product lines. 44 The Company's distribution operations are organized into Northern and Southern Divisions, which include 13 separate geographical regions. Field personnel receive regular training through Terra University(R), a series of courses designed to develop skills in agronomy, management, sales, environmental and personal safety, and field application. The field salespeople are supported by the Ag Analytical Services laboratory, a staff of Technical Service Representatives and a research station where the efficacy of various crop protection products and the performance of numerous seed varieties are tested. Properties The Company's farm service centers are located on a combination of owned and leased properties and a majority of the buildings and other improvements thereon are owned in fee. The leases have varying expiration dates through the year 2007. Product Formulations The Company's Blytheville Formulation Facility formulates dry flowable ("DF") crop protection products and liquid crop protection chemicals in separate production lines at the same location. DF formulations are dry, water- dispersible granules that are mixed with water before application. Because of their dry form, granules have several benefits compared with liquid formulations including: easier package disposal, easier cleanup of accidental spills, absence of toxic solvents, no fumes, less weight, less space required for storage, and no product loss from freezing temperatures or settling. Because of these benefits, the Company expects more agricultural chemicals will be offered to growers in DF form in the future. The Blytheville Formulation Facility is one of the 13 known DF plants in the U.S. and formulates eight DF products and six liquid products. Approximately 50% of the plant's volume in 1994 was attributable to the Company's own Riverside(R) brand product line. The Company has developed several DF formulations which are not available from any other producer or formulator. The Company has also developed DF formulations for a number of companies that contract all or portions of their production at the Blytheville Formulation Facility. NITROGEN PRODUCTS Nitrogen is one of three primary nutrients essential for plant growth. Nitrogen fertilizer products must be reapplied each year in areas of extensive agricultural usage because of absorption by crops and its tendency to escape from the soil. There are currently no substitutes for nitrogen fertilizer in the cultivation of high-yield crops. The Company is a major producer and distributor of nitrogen products, principally fertilizers. The Company's principal nitrogen products are ammonia, urea and UAN. A significant portion of the Company's ammonia production is upgraded into other nitrogen fertilizer products such as urea and UAN. Products Although, to some extent, the various nitrogen fertilizer products are interchangeable, each has its own distinct characteristics which produce agronomic preferences among end users. Farmers decide which type of nitrogen fertilizer to apply based on the crop planted, soil and weather conditions, regional farming practices, relative nitrogen fertilizer prices and the cost and availability of appropriate storage, handling and application equipment. Ammonia. Anhydrous ammonia is the simplest form of nitrogen fertilizer and is the feedstock for the production of most other nitrogen fertilizer, including urea and UAN. It is produced by reacting natural gas with steam and air at high temperatures and pressures in the presence of catalysts. It has a nitrogen content of 82% by weight and is generally the least expensive form of fertilizer per unit of nitrogen. 45 Urea. Solid urea is produced for both the feed and fertilizer market by converting ammonia into liquid urea, which can be turned into a solid which is either prilled or granulated. Urea has a nitrogen content of 46% by weight, the highest level for any solid nitrogen product. Granular urea is generally sold as fertilizer and prilled urea is generally sold as a feed supplement. The Company produces both granular and prilled urea. UAN Solution. The Company produces UAN at all five of its fertilizer manufacturing facilities. The Verdigris Facility in Oklahoma is the largest UAN production facility in the United States. UAN is produced by combining liquid urea and ammonium nitrate in water. The nitrogen content of UAN is typically 28% to 32% by weight. UAN is a liquid fertilizer and, unlike ammonia, is generally odorless and does not need to be refrigerated or pressurized for transportation or storage. UAN may be applied separately or may be mixed with various crop protection products, permitting the application of several materials simultaneously, and thus reducing energy and labor costs. In addition, UAN may be applied from ordinary tanks and trucks and can be sprayed or injected into the soil, or applied through irrigation systems, throughout the growing season. UAN is relatively expensive to transport and store because of its high water content. Due to its stable nature, UAN may be used for no-till row crops where fertilizer is spread upon the surface but may be subject to volatilization losses. The use of conservation tilling, which reduces erosion, is increasing in the United States, and the Company believes this trend, if continued, should have a positive impact on UAN demand. The Company's sales mix of nitrogen products (including TNLP on a pro forma basis) for the years ended December 31, 1992, 1993 and 1994 were approximately as follows (based on tons sold):
1992 1993 1994 ---- ---- ---- Ammonia.................................................... 21% 23% 25% Urea....................................................... 15% 16% 16% UAN........................................................ 64% 61% 59%
Plants All of the Company's Facilities, are integrated facilities for the production of ammonia, liquid urea and UAN and other nitrogen fertilizer solutions. In addition, the Canadian Facility produces solid urea. The total annual gross ammonia production capacity of the Company's nitrogen fertilizer facilities is currently 2.7 million tons, including the Port Neal Facility which was damaged by an explosion in December 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Each of the Company's five fertilizer manufacturing facilities is designed to operate continuously, except for planned biennial shutdowns for maintenance and installation of efficiency improvements. Capacity utilization (gross tons produced divided by capacity tons at expected operating rates and on stream factors) of Terra International's manufacturing facilities for the years ended December 31, 1994, 1993 and 1992, in the aggregate, was approximately 93%, 102% and 99%, respectively. Capacity utilization of TNLP's manufacturing facilities for the years ended December 31, 1994, 1993 and 1992, in the aggregate, was approximately 96%, 101% and 107%, respectively. The Canadian Facility's liquid urea and granulation capacities are expected to increase as a result of an ongoing plant upgrade project. The project is expected to be completed in the 1995 fourth quarter and will enable the replacement of 65,000 tons of annual ammonia sales with urea and UAN sales. The project cost is estimated to be approximately $20 million and is expected to be funded through lease financing. Marketing and Distribution The Company's principal customers for its manufactured nitrogen products are large independent dealers, national retail chains, cooperatives and industrial customers. Industrial customers accounted for approximately 13% of the Company's total 1994 sales of its manufactured nitrogen products. In 1994, 46 approximately 10% of the Company's fertilizer production was sold through its farm service center locations to retail customers, while the rest was sold to outside customers. In 1994, no customer accounted for greater than 10% of total manufactured nitrogen fertilizer sales. The Company has production facilities and significant storage capacity in major fertilizer consuming regions which allow it to be a major supplier of nitrogen fertilizers. METHANOL The Company substantially increased its participation in the methanol production industry in October 1994 with the acquisition of the Beaumont Facility as part of the acquisition of AMCI. The Company has approximately 320 million gallons of annual methanol production capacity, representing approximately 15% of the total United States rated capacity in production at the end of 1994. Product Methanol is a liquid petrochemical made primarily from natural gas. It is used primarily as a feedstock in the production of other chemical products such as formaldehyde, acetic acid and chemicals used in the building products industry. Methanol is also used as a feedstock in the production of MTBE, an oxygenate and octane enhancer used as an additive in reformulated gasoline. Reformulated gasoline has lower volatility and is less aromatic than gasoline. The methanol manufacturing process involves heating the natural gas feedstock, mixing it with steam and passing it over a nickel-based catalyst, which breaks it down into carbon monoxide, carbon dioxide and hydrogen. This reformed gas is then cooled, compressed and passed over a copper-zinc based catalyst to produce crude methanol. Crude methanol consists of approximately 80% methanol and 20% water. In order to convert it to high-purity chemical grade methanol suitable for sale, the crude methanol is distilled to remove the water and other impurities. Plants During the first half of 1994, the Company completed the capital improvements necessary to produce methanol instead of ammonia for a portion of the Woodward Facility's capacity. The unique design of the Woodward Facility enabled this conversion to be accomplished for $16.0 million of capital spending, which the Company believes is approximately half the capital cost required to convert other ammonia plants to methanol production. The Company currently has approximately 40 million gallons of annual methanol capacity at the Woodward Facility. The Beaumont Facility is the largest methanol production plant in the United States, with approximately 280 million gallons of annual methanol capacity. The plant and processing equipment at the Beaumont facility are owned by BMLP, and the land is leased from E.I. du Pont de Nemours and Company ("DuPont") for a nominal annual rental under a lease agreement which expires in 2090. Because the Beaumont Facility is entirely contained in a complex owned and operated by DuPont (the "Beaumont Complex"), BMLP depends on DuPont for access to the Beaumont Facility. BMLP also relies on DuPont for access and certain essential services relating to the wharf located at the Beaumont Complex through which most of the finished methanol product is shipped to customers and the pipelines used to transport it and to obtain natural gas, as well as for certain utilities and waste water treatment facilities and other essential services. Marketing and Distribution Effective February 2, 1995, BMLP terminated a marketing services agreement pursuant to which the marketing of methanol from the Beaumont Facility had been conducted for over a year on an exclusive basis by Trammochem, a division of Transammonia, Inc. The services provided by Trammochem included analysis of market conditions for methanol, marketing and sales on a contract basis and sales on a spot basis, 47 arrangement of transportation of methanol to customers and customer relations activities. BMLP retained responsibility for the invoicing and collection of payments from customers and for loading transportation equipment in accordance with customer requirements. BMLP paid Trammochem a fee based on the Beaumont Facility's earnings and sales. Employees of the Company have assumed all functions previously provided by Trammochem. The Company does not believe that its aggregate marketing costs for methanol will be materially different from those under the Trammochem agreement. Methanol customers are primarily large chemical or MTBE producers located in the United States; however, some sales have been made to customers in Central and South America. Methanol Contracts BMLP has a number of long-term methanol sales contracts, the most significant of which is with DuPont (the "DuPont Contract"). In 1994, BMLP sold approximately 60% of its production under such contracts. For 1995, BMLP has contracted to sell approximately 75% of its production at prices indexed to published sources. Most of the these sales contracts (other than the DuPont Contract) cover fixed volumes and have terms of up to three years. Under the DuPont Contract, DuPont has agreed to purchase 108 million gallons of methanol each year until 2001 (representing 39% of the Beaumont Facility capacity). The DuPont Contract will continue in effect after the initial term unless terminated by either party on two year's notice. Commencing in 1998, BMLP and DuPont will each have the unilateral right (exercisable one time only for the remaining term of the contract on not less than two years prior written notice) to reduce permanently the contract quantity to be delivered by BMLP to DuPont in any year by up to 54 million gallons. The price for the methanol delivered under the DuPont Contract is generally indexed to a published source. Under the Methanol Hedging Agreement, BMLP received a $4 million lump sum payment in exchange for agreeing to make payments based on the market prices of methanol and natural gas for the periods October 20, 1994 to December 31, 1995, calendar year 1996 and calendar year 1997. Payments are generally due five business days after the end of the applicable period. BMLP will be required to make payments under the Methanol Hedging Agreement if methanol prices remain high relative to natural gas prices as compared with historical price levels. Through the Beaumont Facility and the Company's other methanol production capabilities, the Company will benefit from such market price differences at any time at which it is required to make payments under the Methanol Hedging Agreement. As a result of making such payments, however, BMLP will not benefit fully from increases in the price of methanol during the term of the Methanol Hedging Agreement. As of March 31, 1995, $31.3 million was reserved as payable under the Methanol Hedging Agreement based on average prices of methanol and natural gas for the period from October 20, 1994 through March 31, 1995. The actual amount payable for the period October 20, 1994 through December 31, 1995 (payable in 1996) will depend on average prices for the full period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors Affecting Operating Results." See also Note 12 to the Company's consolidated financial statements included elsewhere and incorporated by reference herein. CREDIT A substantial portion of the Company's sales to its grower and dealer customers is made on credit terms customary in the industry. During the third quarter of 1992, the Company established a grower financing program to provide secured, interest bearing financing to qualified grower customers for their operating and crop input requirements on extended payment terms. The Company provided approximately $25 million in 1993 and $65 million in 1994 in credit lines to grower customers under this program. Although the Company does not believe it has sufficient experience with the program to provide a meaningful evaluation of the associated credit risk, to date it has not experienced any significant bad debts in its grower finance program. 48 RAW MATERIALS The principal raw material used to produce nitrogen fertilizer and methanol is natural gas. The Company estimates that natural gas costs comprised nearly 50% of the total costs and expenses associated with the Company's manufactured fertilizer operations in 1994. The Company estimates that natural gas represents over 50% of the costs and expenses associated with its methanol operations. A significant increase in the price of natural gas that could not be recovered through an increase in nitrogen fertilizer or methanol prices could have a material adverse effect on the Company's profitability and cash flow. The Company's natural gas procurement policy is to fix or cap the price of approximately 40% to 80% of its natural gas requirements for a 12-month period through various supply contracts, financial derivatives and other forward pricing techniques. Depending on market conditions, the Company may also fix or cap the price for natural gas for longer periods of time. In the first quarter of 1995, due to the decline in natural gas prices, the Company extended its forward pricing positions for natural gas. The settlement dates are scheduled to coincide with gas purchases during such future periods. The Company believes that there is sufficient supply to allow stable costs for the foreseeable future and has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies during the heating season. As of March 31, 1995, the Company had fixed prices for approximately 65% of its natural gas requirements for the remainder of 1995, 42% for 1996 and 22% for 1997. Liquidation of these financial derivatives based on March 31, 1995 market prices would have resulted in a loss of $10.0 million. Reliable sources for supply of crop inputs at competitive prices are critical to the distribution portion of the Company's business. The Company's sources for fertilizer, agricultural chemicals and seed are typically manufacturers of the products without an internal capability to distribute products to the North American grower. TRANSPORTATION The Company uses several modes of transportation to receive and distribute products to customers and its own locations, including railroad cars, common carrier trucks, barges, common carrier pipelines and Company-owned or leased vehicles. The Company utilizes approximately 100 liquid, dry and anhydrous ammonia fertilizer terminal storage facilities (some of which are in the same locations and some of which are operated by TNLP) in numerous states and in Ontario, Canada. The Company also has varying amounts of warehouse space at each of its farm service centers and has one methanol storage facility in Beaumont, Texas. Through Terra Express, Inc. and Terra Express of Oklahoma, Inc., wholly owned truck transportation subsidiaries of Terra International (together, "Terra Express"), the Company provides transportation services to its own facilities and customers as a contract carrier. Terra Express uses approximately 90 owner- operators and 15 Company drivers to deliver fertilizer, crop protection products, seed, feed ingredients and other products to its own facilities and customers. At its manufacturing facilities, Blytheville Formulation Facility and liquid fertilizer storage locations, the Company utilizes railcars as the major method of transportation. All of the Company's approximately 2,000 railcars are leased. Purchased natural gas is transported to the Port Neal Facility via an interstate pipeline operating as an open access natural gas transporter. Under a Federal Energy Regulatory Commission order, the Company maintains facilities for direct access to its interstate pipeline shipper; however, the Company has retained its alternative connection to a local utility service to preserve some flexibility. The Company transports purchased natural gas for the Woodward Facility and the Verdigris Facility through an intrastate pipeline that is not an open access carrier; however, the Company is able to transport gas supplies from any in-state source connected to the widespread pipeline system, and has limited access to supplies outside the state. The Canadian Facility utilizes local gas storage service provided by a local utility, and purchased gas is transported from western Canada through the TransCanada Pipeline under various delivery contracts. The Company transports purchased natural gas for the Blytheville Facility through a natural gas pipeline company under an agreement that extends through September 1998. 49 For the Beaumont Facility, the Company transports products primarily by marine transport via the Neches River to the Intercoastal Canal and the Gulf of Mexico and via pipeline to selected customers. Access to the wharf and the pipeline used at the Beaumont Facility is provided through agreements with DuPont. RESEARCH AND DEVELOPMENT The Company operates a 70-acre Agronomy Research Station near its Port Neal Facility for program development and product testing, and routinely conducts product evaluation and testing with growers and universities. The Company also develops DF and other chemical formulations for its Riverside(R) product line and for basic chemical products at its Blytheville Formulation Facility. COMPETITION The market for the fertilizer, crop protection products and seed distributed by the Company is highly competitive. In 1994, sales attributable to the Company's farm service centers accounted for less than 10% of total crop production products sold in the U.S. Within the specific market areas served by its farm service centers, however, the Company's share of the market was substantially higher in most instances. The Company's competitors include cooperatives, divisions of diversified agribusiness companies, regional distributors and independent dealers, some of which have substantially greater financial and other resources than the Company. The Company competes in its Distribution business primarily on the basis of providing a comprehensive line of products and by providing what the Company believes to be superior services to growers and dealers as well as on the basis of price. Nitrogen fertilizer is a global commodity and customers, including end-users, dealers and other fertilizer producers, base their purchasing decisions principally on the delivered price and availability of the product. The Company competes with a number of U.S. producers, and producers in other countries, including state-owned and government-subsidized entities. Some of the Company's principal competitors may have greater total resources and may be less dependent on earnings from nitrogen fertilizer sales than the Company. Some foreign competitors may have access to lower cost or governmental-subsidized natural gas supplies. The Company believes that it competes with other manufacturers of nitrogen fertilizer on the basis of delivery terms and availability of products as well as on price. The methanol industry, like the fertilizer industry, is highly competitive and such competition is based largely on price, reliability and deliverability. The relative cost and availability of natural gas and the efficiency of production facilities are important competitive factors. Significant determinants of a plant's competitive position are the natural gas acquisition and transportation contracts that a plant negotiates with its major suppliers. Domestic competitors for methanol include a number of large integrated petrochemical producers, many of which are better capitalized than the Company. In addition, the production and trade of methanol has become increasingly global, and a number of foreign competitors produce methanol primarily for the export market. ENVIRONMENTAL AND OTHER REGULATORY MATTERS The Company's operations are subject to various federal, state and local environmental, safety and health laws and regulations, including laws relating to air quality, hazardous and solid wastes and water quality. The operations of Terra Canada are subject to various federal and provincial regulations regarding such matters, including the Canadian Environmental Protection Act administered by Environment Canada, and the Ontario Environmental Protection Act administered by the Ontario Ministry of the Environment. The Company is also involved in the manufacture, handling, transportation, storage and disposal of materials that are or may be classified as hazardous or toxic by federal, state, provincial or other regulatory agencies. Precautions are taken to reduce the likelihood of accidents involving these materials. If such materials have been or are disposed of at sites that are targeted for investigation and remediation by federal or state regulatory authorities, the Company may be responsible under CERCLA or analogous state laws for all or part of the costs of such investigation and remediation. 50 Terra International has been designated as a PRP under CERCLA and its state analogues with respect to various sites. Under such laws, all PRP's may be held jointly and severally liable for the costs of investigation and remediation of an environmentally damaged site regardless of fault or legality of original disposal. After consideration of such factors as the number and levels of financial responsibility of other PRP's, the existence of contractual indemnities, the availability of defenses and the speculative nature of the costs involved, the Company's management believes that its liability with respect to these matters will not be material. Certain state regulatory agencies have enacted requirements to provide secondary containment for bulk agricultural chemical storage facilities present at the Company's farm service centers and terminals. It is expected that other states will adopt similar requirements pursuant to federal mandate. The Company has commenced construction of these facilities at its farm service centers and terminals, and estimates that the future cost of complying with these regulations in 1995 and beyond will be approximately $6.5 million. With respect to the Verdigris Facility and Blytheville Facility, Freeport- McMoRan Resource Partners, Limited Partnership ("FMRP") (a former owner and operator of such facilities) retains liability for certain environmental matters. With respect to the Beaumont Facility, DuPont retains responsibility for certain environmental costs and liabilities stemming from conditions or operations to the extent such conditions or operations existed or occurred prior to the 1991 disposition by DuPont. The Company does not believe that such environmental costs and liabilities whether or not retained by FMRP or DuPont, will have a material effect on the Company's financial condition or results of operations. Insulation and other construction or building materials at certain Company plants contain asbestos. Over 400 suits have been filed by contractors' employees against DuPont based on exposure to asbestos-containing material at the complex in which the Beaumont Facility is located. At least nine of these are directly related to the Beaumont Facility. An estimate of potential liability associated with these suits is not available. DuPont retains responsibility for all claims based on exposure to hazardous materials, including asbestos, occurring prior to the 1991 disposition by DuPont. Although no suit relating to asbestos exposure has been filed against the Company to date, the possibility exists that liability could be incurred in the future for claims based on exposure to asbestos-containing material after such acquisition. The Company may be required to install additional air and water quality control equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors and continuous emission monitors, at certain of its facilities in order to maintain compliance with Clean Air Act and Clean Water Act requirements. These equipment requirements are also typically applicable to competitors as well. The Company estimates that the cost of complying with these requirements will total approximately $11 million to $13 million through 1997. The Company endeavors to comply (and has incurred substantial costs in connection with such compliance) in all material respects with applicable environmental, safety and health regulations. The Company does not expect its continued compliance with such regulations to have a material adverse effect on its earnings or competitive position. EMPLOYEES The Company had approximately 3,200 full-time employees at December 31, 1994, none of whom were covered by a collective bargaining agreement. In addition, the Company, which annually hires temporary employees on a seasonal basis, hired approximately 1,500 temporary employees during its spring selling season in 1994. LITIGATION Various legal proceedings are pending against the Company and its subsidiaries. Management of the Company considers that the aggregate liability resulting from these proceedings will not be material to the Company. 51 MANAGEMENT Set forth below is certain information with respect to the directors and executive officers of the Company as of March 31, 1995.
NAME AGE POSITION ---- --- -------- Reuben F. 65 Chairman and Director Richards Burton M. 53 President, Chief Executive Officer and Director Joyce Michael L. 41 Senior Vice President, Distribution Bennett John S. 54 Vice President, Human Resources Burchfield Francis G. 43 Vice President and Chief Financial Officer Meyer Paula C. 49 Vice President, Corporate and Investor Relations Norton W. Mark Ro- 47 Executive Vice President (and President of TNC) senbury Robert E. 43 Vice President, Controller Thompson George H. 46 Vice President, General Counsel and Corporate Secretary Valentine Edward G. 62 Director Beimfohr Carol L. 51 Director Brookins Edward M. 65 Director Carson David E. 52 Director Fisher Basil T. A. 68 Director Hone Anthony W. 46 Director Lea John R. Nor- 65 Director ton III Henry R. 45 Director Slack
Reuben F. Richards has been a director of the Company since 1982. Mr. Richards has served as Chairman since December 1982 and was Chief Executive Officer from December 1982 to May 1991 and President from July 1983 to May 1991. He has been a director of Engelhard Corporation since prior to 1990 and served as Chairman of the Board thereof from May 1985 to December 1994. He has served as Chairman of the Board of Minorco (U.S.A.) Inc. since May 1990 and Chief Executive Officer and President thereof since February 1994. Burton M. Joyce has been a director of the Company since 1986. Mr. Joyce has served as President and Chief Executive Officer since May 1991 and served as Executive Vice President and Chief Operating Officer from February 1988 to May 1991. Michael L. Bennett has served as Senior Vice President, Distribution of the Company since February 1995. Mr. Bennett has served as Senior Vice President, Distribution of Terra International since October 1994 and served as Vice President, Northern Division from January 1992 to October 1994 and Vice President, Wholesale Fertilizer Division from January 1990 to January 1992. John S. Burchfield has served as Vice President, Human Resources of the Company since March 1992. Mr. Burchfield served as Vice President, Human Resources of AON Corporation from January 1989 to November 1991 and Vice President, Human Resources for Denny's International, National Education Corp. and American Hospital Supply Corp. prior thereto. Francis G. Meyer has served as Vice President and Chief Financial Officer of the Company since November 1993. Mr. Meyer served as Controller from August 1991 to November 1993. He served as Vice President, Controller of Terra International from June 1986 to August 1991. 52 Paula C. Norton has served as Vice President, Corporate and Investor Relations of the Company since February 1995. Ms. Norton served as Director, Corporate Relations from January 1993 to February 1995. She served as Director, Corporate Communication of Universal Foods Corp. prior thereto. W. Mark Rosenbury has served as President of TNC since November 1994 and Executive Vice President of the Company since November 1993. Mr. Rosenbury served as Chief Operating Officer of the Company from November 1993 to November 1994. He served as Vice President and Chief Financial Officer from August 1991 to November 1993 and Vice President and Corporate Controller from January 1987 to August 1991. Robert E. Thompson has served as Vice President, Controller of the Company since February 1995. Mr. Thompson joined the Company in November 1994. He served as Vice President, Finance and Controller of Ameritech Custom Business Services from April 1993 to June 1994, Controller of Ameritech Services, Inc. from October 1990 to April 1993 and Controller of Ameritech Applied Technologies prior thereto. George H. Valentine has served as Vice President, General Counsel and Corporate Secretary of the Company since November 1993. Mr. Valentine served as Assistant General Counsel of Household International, Inc. from February 1986 to November 1993. Edward G. Beimfohr has been a director of the Company since 1994. Mr. Beimfohr has been partner in the law firm of Lane & Mittendorf since prior to 1990. Carol L. Brookins has been a director of the Company since 1993. Ms. Brookins founded World Perspectives, Incorporated and has served as Chairman and Chief Executive Officer thereof since 1980. Edward M. Carson has been a director of the Company since 1983. Mr. Carson has served as Chairman of the Board and Chief Executive Officer of First Interstate Bancorp since June 1990 and served as President thereof from January 1985 to May 1990. David E. Fisher has been a director of the Company since 1993. Mr. Fisher has served as Finance Director of Minorco since January 1990. Basil T. A. Hone has been a director of the Company since 1986. Mr. Hone was serving as Vice President, Metal Division of Union Carbide Corporation at his retirement in 1984. Anthony W. Lea has been a director of the Company since 1994. Mr. Lea has served as Executive Director and a member of the Executive Committee of Minorco since prior to 1990 and served as Joint Managing Director thereof from January 1990 to December 1992. John R. Norton III has been a director of the Company since 1993. Mr. Norton has served as Chairman and Chief Executive Officer of J.R. Norton Company since 1972. Between May 1985 and February 1986, Mr. Norton served as a U.S. Deputy Secretary of Agriculture and was not an officer of J. R. Norton Company during that period. Henry R. Slack has been a director of the Company since 1983. Mr. Slack has served as Chief Executive of Minorco since December 1992 and President thereof since September 1985. 53 DESCRIPTION OF EXCHANGE NOTES GENERAL The Exchange Notes will be issued under an Indenture, dated as of June 22, 1995 (the "Indenture"), between Terra Industries Inc. (the "Company") and First Trust National Association, as trustee (the "Trustee"), which also governs the Notes. The following summaries of certain provisions of the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein. On the effective date of this Exchange Offer Registration Statement, the Indenture will be subject to and governed by the provisions of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Wherever particular Sections or defined terms of the Indenture not otherwise defined herein are referred to, such Sections or defined terms shall be incorporated herein by reference, and those terms made a part of the Indenture by the Trust Indenture Act are also incorporated herein by reference. For purposes of the following description, the Exchange Notes and Notes are at times collectively referred to as the "Notes." A copy of the form of Indenture will be made available to holders of Notes upon request, and is filed as an exhibit to this Exchange Offer Registration Statement. See "Available Information." The Exchange Notes will be unsecured senior obligations of the Company and will mature on June 15, 2005. The Exchange Notes will be limited to $200 million in aggregate principal amount. Interest on the Exchange Notes is payable semiannually (to Holders of record at the close of business on June 1 or December 1 immediately preceding the Interest Payment Date) on June 15 and December 15 of each year, commencing December 15, 1995. (Sections 2.01, 2.04 and 2.06). Each Exchange Note will bear interest at the rate per annum shown on the front cover of this Prospectus from the last date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issuance of the Notes. No interest will be paid on the Notes accepted for exchange, and holders of Notes whose Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Notes accrued up to the date of the issuance of the Exchange Notes. The Exchange Notes and any Notes that remain outstanding after consummation of the Exchange Offer will be treated as a single class of securities under the Indenture. RANKING The Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with all senior indebtedness of the Company and senior in right of payment to all subordinated indebtedness of the Company. In addition, the business operations of the Company are conducted substantially through its subsidiaries and, accordingly, the Notes will be effectively subordinated to all existing and future obligations of such subsidiaries. As of March 31, 1995, on a pro forma basis, after giving effect to the Offering and the application of the estimated net proceeds therefrom to repay bank indebtedness of the Company's subsidiaries, the Company would have had $158.8 million in aggregate principal amount of indebtedness outstanding which ranked pari passu in right of payment with the Notes and no indebtedness outstanding which ranked subordinate in right of payment to the Notes and the aggregate principal amount of indebtedness of the Company's subsidiaries would have been approximately $236.1 million (excluding intercompany indebtedness), approximately $192.9 million of which was secured. As of March 31, 1995, the Company's subsidiaries also had trade payables of $301.0 million. The Company's businesses are seasonal and historically the borrowings and other liabilities of the Company and its subsidiaries are greatest in late spring and fall. Amounts payable to holders of SPUs are also effectively senior to the Notes. See "Risk Factors--Holding Company Structure." OPTIONAL REDEMPTION General. The Notes will be redeemable, at the Company's option, in whole or in part, at any time on or after June 15, 2000, and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed 54 by first class mail to each Holder's last address as it appears in the Security Register, at the following Redemption Prices (expressed as percentages of the principal amount) if redeemed during the 12-month period beginning June 15 of the years indicated:
REDEMPTION YEAR PRICE ---- ---------- 2000.......................... 105.250% 2001.......................... 102.625% 2002 and thereafter........... 100.000%
plus accrued and unpaid interest, if any, to the Redemption Date. Selection. In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem fair and appropriate; provided, however, that no Note of $1,000 in original principal amount or less shall be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. (Sections 3.03, 3.04 and 3.08) CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the Indenture. Reference is made to the Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. (Section 1.01) "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person became a Subsidiary and not Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary. "Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of any Person and its consolidated Subsidiaries for such period determined in conformity with GAAP; provided, however, that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (a) the net income (or loss) of such Person (other than net income (or loss) attributable to a Subsidiary of such Person) in which any other Person (other than such Person or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to such Person or any of its Subsidiaries by such other Person during such period; (b) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (iii) of the first paragraph of the "Limitation on Restricted Payments" covenant described below (and in such case, except to the extent includable pursuant to the foregoing clause (a)), the net income (or loss) of such Person accrued prior to the date it becomes a Subsidiary of any other Person or is merged into or consolidated with such other Person or any of its Subsidiaries or all or substantially all the property and assets of such Person are acquired by such other Person or any of its Subsidiaries; (c) the net income (or loss) of any Subsidiary of any Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary; (d) any gains or losses (on an after- tax basis) attributable to Asset Sales; (e) except for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (iii) of the first paragraph of the "Limitation on Restricted Payments" covenant described below, any amounts paid or accrued as dividends on Preferred Stock of such Person or Preferred Stock of any Subsidiary (other than the Partnerships) of such Person owned by Persons other than such Person or any of its Subsidiaries; (f) all extraordinary gains and extraordinary losses; and (g) all noncash charges reducing net income of such Person that relate to stock options or stock 55 appreciation rights and all cash payments reducing net income of such Person that relate to stock options or stock appreciation rights; provided, however, that, solely for the purpose of calculating the Interest Coverage Ratio (and in such case, except to the extent includable pursuant to the foregoing clause (a)), "Adjusted Consolidated Net Income" of such Person shall include the amount of all cash dividends or other cash distributions received by such Person or any Subsidiary of such Person from an Unrestricted Subsidiary. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Acquisition" means (a) an investment by the Company or any of its Subsidiaries in any other Person pursuant to which such Person shall become a Subsidiary of the Company or any of its Subsidiaries or shall be merged or consolidated with the Company or any of its Subsidiaries; or (b) an acquisition by the Company or any of its Subsidiaries of the assets of any Person other than the Company or any of its Subsidiaries that constitutes substantially all of a division or line of business of such Person. "Asset Disposition" means the sale or other disposition by the Company or any of its Subsidiaries (other than to the Company or another Subsidiary of the Company) of (a) all or substantially all the Capital Stock of any Subsidiary of the Company or (b) all or substantially all the assets that constitute a division or line of business of the Company or any of its Subsidiaries. "Asset Sale" means, with respect to any Person, any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transaction) in one transaction or a series of related transactions by such Person or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries of (a) all or any of the Capital Stock of any Subsidiary of such Person; (b) all or substantially all the assets of an operating unit or business of such Person or any of its Subsidiaries; or (c) any other assets of such Person or any of its Subsidiaries outside the ordinary course of business of such Person or such Subsidiary and, in each case, that is not governed by the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all the assets of the Company; provided, however, that, for purposes of determining the restrictions under the "Limitation on Asset Sales" covenant described below, sales, transfers or other dispositions of inventory, receivables and other current assets shall not be included within the meaning of "Asset Sale." "Attributable Indebtedness" means, when used in connection with a sale- leaseback transaction referred to in the "Limitation on Sale-Leaseback Transactions" covenant described below, at any date of determination, the product of (a) the net proceeds from such sale-leaseback transaction, and (b) a fraction, the numerator of which is the number of full years of the term of the lease relating to the property involved in such sale-leaseback transaction (without regard to any options to renew or extend such term) remaining at the date of the making of such computation, and the denominator of which is the number of full years of the term of such lease (without regard to any options to renew or extend such term) measured from the first day of such term. "Average Life" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (a) the sum of the product of (i) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security multiplied by (ii) the amount of such principal payment, by (b) the sum of all such principal payments. "Board of Directors" means the Board of Directors of the Company or any committee of such Board of Directors duly authorized to act under the Indenture. 56 "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in The City of New York, or in the city of the Corporate Trust Office of the Trustee, are authorized or obligated by law to be closed. "Canadian Credit Agreement" means the Revolving Term Credit Facility dated as of April 2, 1993, as amended, between Terra Canada and The Bank of Nova Scotia (or any successors thereto), together with all the other documents related thereto (including, without limitation, any Guarantees and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, extended, renewed, replaced or otherwise modified from time to time, including, without limitation, any agreement increasing the amount thereof in accordance with the limitations in the Indenture and any agreement extending the maturity of, refinancing or otherwise restructuring (including, but not limited to, the inclusion of additional borrowers or Guarantors thereunder that are Subsidiaries of the Company) all or any portion of the Indebtedness under such agreements or any successor agreements. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of such Person's capital stock or equity interests in a partnership, joint venture, limited liability company or other equity that is outstanding or issued on or after the date of the Indenture, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) the discounted present value of the rental obligations of such Person as lessee of which, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; and "Capitalized Lease Obligation" is defined to mean the rental obligations, as aforesaid, under such lease. "Change of Control" means such time as (a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than Minorco or any of its Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the then outstanding Voting Stock of the Company; or (b) individuals who at the beginning of any period of two consecutive calendar years constituted the board of directors of the Company (together with any new directors whose election by the board of directors of the Company or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the members of the board of directors of the Company then still in office who either were members of the board of directors of the Company at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the board of directors of the Company then in office. "Closing Date" means the date on which the Notes are originally issued under the Indenture. "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of such Person's common stock, whether now outstanding or issued after the date of the Indenture, or common equity interests in a partnership, including, without limitation, all series and classes of such common stock, all the Common Units and the general partnership interests in the Partnerships. "Common Unit" means a Common Unit as defined in the TNCLP Limited Partnership Agreement. "Consolidated EBITDA" means, with respect to any Person for any period, the sum of the amounts for such period of (a) Adjusted Consolidated Net Income, (b) Consolidated Interest Expense, (c) income taxes (other than income taxes (either positive or negative) attributable to extraordinary and nonrecurring gains or losses or sales of assets), (d) depreciation expense, (e) amortization expense, (f) minority interest and (g) all other noncash items reducing Adjusted Consolidated Net Income, less all noncash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP; provided, however, that, if a Person has any Subsidiary (other than the Partnerships) 57 that is not a Wholly Owned Subsidiary of such Person, Consolidated EBITDA of such Person shall be reduced (to the extent not otherwise excluded by the definition of Adjusted Consolidated Net Income) by an amount equal to (i) the Adjusted Consolidated Net Income of such Subsidiary multiplied by (ii) the quotient of (A) the number of shares of outstanding Common Stock of such Subsidiary not owned on the last day of such period by such Person or any Subsidiary of such Person divided by (B) the total number of shares of outstanding Common Stock of such Subsidiary on the last day of such period; and provided further, however, that Consolidated EBITDA of such Person shall be reduced by amounts paid as distributions on limited partnership interests of either Partnership owned by Persons other than the Company or any of its Subsidiaries. "Consolidated Interest Expense" means, with respect to any Person for any period, the aggregate amount of interest in respect of Indebtedness (including amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation (excluding, without limitation, amounts deferred by trade creditors until the occurrence of certain events) calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; and Indebtedness that is Guaranteed by such Person) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by such Person and its consolidated Subsidiaries during such period; excluding, however, (a) any amount of such interest of any Subsidiary of such Person if the net income (or loss) of such Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income for such Person pursuant to clause (c) of the proviso in the definition thereof (but only in the same proportion as the net income (or loss) of such Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income for such Person pursuant to clause (c) of the proviso in the definition thereof) and (b) any premiums, fees and expenses (and any amortization thereof) payable in connection with the recapitalization of the Company consummated in 1994, the Company's proposal to acquire all of the outstanding Senior Preference Units which was terminated in May 1995 and the Company's open market purchase program for up to five million Senior Preference Units approved in May 1995, all as determined on a consolidated basis in conformity with GAAP. "Consolidated Net Tangible Assets" means the total amount of assets of the Company and its Subsidiaries (less applicable depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets (excluding write-ups in connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (a) all current liabilities of the Company and its consolidated Subsidiaries (excluding intercompany items) and (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recently available quarterly or year-end consolidated balance sheet of the Company and its consolidated Subsidiaries, prepared in conformity with GAAP. "Consolidated Net Worth" means, at any date of determination, shareholders' equity as set forth on the most recently available quarterly or year-end consolidated balance sheet of the Company and its consolidated Subsidiaries, less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of the Company or any Subsidiary of the Company, each item to be determined in accordance with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "Credit Agreements" means the Terra Credit Agreement and the Canadian Credit Agreement. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. 58 "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the Indenture, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP, except that calculations made for purposes of determining compliance with the terms of the covenants described below and with other provisions of the Indenture shall be made without giving effect to (a) the amortization of any expenses incurred in connection with the recapitalization of the Company consummated in 1994, the Company's proposal to acquire all of the outstanding Senior Preference Units which was terminated in May 1995 and the Company's open market purchase program for up to five million Senior Preference Units approved in May 1995; and (b) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder" or "Securityholder" means the registered holder of any Note. "Incur" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness; provided, however, that neither the accrual of interest (whether such interest is payable in cash or in kind) nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations of such Person in respect of letters of credit, banker's acceptances, or other similar instruments (including reimbursement obligations with respect thereto); (d) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables; (e) all obligations of such Person as lessee under Capitalized Leases; (f) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, provided, however, that the amount of such Indebtedness shall be the lesser of (i) the fair market value of such asset at such date of determination and (ii) the amount of such Indebtedness; (g) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person; (h) all obligations in respect of borrowed money under the Credit Agreements and any Guarantees thereof; (i) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements; and (j) any Redeemable Stock. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability determined by such Person's board of directors, in good faith, as reasonably likely to occur, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided, however, that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such 59 Indebtedness at such time as determined in conformity with GAAP; and provided further, however, that Indebtedness shall not include (x) any liability for Federal, state, local or other taxes, (y) obligations of the Company or any of its Restricted Subsidiaries pursuant to Receivables Programs, or (z) obligations of the Company or any of its Restricted Subsidiaries pursuant to contracts for, or options, puts or similar arrangements relating to, the purchase of raw materials or the sale of inventory at a time in the future. "Interest Coverage Ratio" means, with respect to any Person on any Transaction Date, the ratio of (x) the aggregate amount of Consolidated EBITDA of such Person for the four fiscal quarters for which financial statements in respect thereof are available immediately prior to such Transaction Date to (y) the aggregate Consolidated Interest Expense of such Person during such four fiscal quarters. In making the foregoing calculation (which shall be made without duplication), (a) pro forma effect shall be given to (i) any Indebtedness Incurred subsequent to the end of the four-fiscal-quarter period referred to in clause (x) and prior to the Transaction Date (other than Indebtedness Incurred under a revolving credit or similar arrangement to the extent of the commitment thereunder (or under any predecessor revolving credit or similar arrangement) on the last day of such period), (ii) any Indebtedness Incurred during such period to the extent such Indebtedness is outstanding at the Transaction Date (with Indebtedness Incurred under a revolving credit or similar arrangement calculated as described in clause (c) below), and (iii) any Indebtedness to be Incurred on the Transaction Date (excluding Indebtedness to be Incurred under a revolving credit or similar arrangement in connection with an acquisition to the extent that Indebtedness under a revolving credit or similar arrangement was theretofore repaid with the proceeds of an offering of Capital Stock (other than Redeemable Stock) in which it was contemplated that the amount of such repayment would later be Incurred in connection with such acquisition), in each case as if such Indebtedness had been Incurred on the first day of such four-fiscal-quarter period and after giving pro forma effect to the application of the proceeds thereof as if such application had occurred on such first day; (b) Consolidated Interest Expense attributable to interest on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the average borrowing rate in effect during such four-fiscal-quarter period (taking into account any Interest Rate Agreement applicable to such Indebtedness) had been the applicable rate for the entire period; (c) Consolidated Interest Expense attributable to interest on any Indebtedness under a revolving credit or similar facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period, as adjusted to eliminate the effects of any temporary repayment of such Indebtedness from proceeds of an offering of Capital Stock (other than Redeemable Stock) later applied to an acquisition as described in clause (a)(iii) above; (d) there shall be excluded on a pro forma basis from Consolidated Interest Expense any Consolidated Interest Expense related to any amount of Indebtedness that was outstanding during such four-fiscal-quarter period or thereafter but that is not outstanding or is to be repaid on the Transaction Date, except for Consolidated Interest Expense accrued (as adjusted pursuant to clause (b)) during such four-fiscal-quarter period under a revolving credit or similar arrangement to the extent of the commitment thereunder (or under any successor revolving credit or similar arrangement) on the Transaction Date; (e) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur during such four-fiscal-quarter period or thereafter and prior to the Transaction Date as if they had occurred and such proceeds had been applied on the first day of such four-fiscal-quarter period; (f) with respect to any such four-fiscal-quarter period commencing prior to the Closing Date, the Closing Date shall be deemed to have taken place on the first day of such period; and (g) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Subsidiary of the Company or has been merged with or into the Company or any Subsidiary of the Company during the four-fiscal- quarter period referred to above or subsequent to such period and prior to the Transaction Date and that would have been Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Subsidiary of the Company as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such period; provided, however, that, to the extent that clause (e) or (g) of this sentence requires that pro forma effect be given to an Asset Acquisition or an Asset Disposition, such pro forma calculation shall be based upon the four full fiscal 60 quarters immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired for which financial statements are available. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Investment" means, with respect to any Person, any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person or its Subsidiaries) or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, any other Person. For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant described below, (a) the designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be deemed an "Investment" by the Company in such newly designated Unrestricted Subsidiary in an amount (the "Investment Amount") equal to the fair market value of the assets of such Subsidiary that are required to be reflected on such Subsidiary's balance sheet in accordance with GAAP, less the total liabilities of such Subsidiary that are required to be reflected on such Subsidiary's balance sheet in accordance with GAAP, in each case on a consolidated basis, at the time that such Subsidiary is designated an Unrestricted Subsidiary, (b) the designation of an Unrestricted Subsidiary as a Restricted Subsidiary shall be deemed a reduction of Investments by the Company in Unrestricted Subsidiaries in an amount equal to the Investment Amount with respect to such Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (c) any property, other than cash or services, transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, with such value to be determined by the Board of Directors in good faith (whose determination shall be conclusive and evidenced by a Board Resolution) in any case in which the value of the properties transferred individually or in a series of related transactions exceeds $10 million. "Junior Preference Unit" means a Junior Preference Units as defined in the TNCLP Limited Partnership Agreement. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Limited Partnership Agreement" means either the TNCLP Limited Partnership Agreement or the TNLP Limited Partnership Agreement. "Minorco" means Minorco, a company incorporated under the laws of Luxembourg as a societe anonyme. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (a) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale; (b) provisions for all taxes (whether 61 or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Subsidiaries, taken as a whole; (c) payments made to repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary outstanding at the time of such Asset Sale that either (i) is secured by a Lien on the property or assets sold or (ii) is required to be paid as a result of such sale; and (d) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP. "Operating Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) that is not a Capitalized Lease. "Partnership" means either TNCLP or TNLP. "Permitted Distribution" means (a) the declaration and payment of any dividend or distribution by either Partnership on any of the Capital Stock of either thereof pursuant to the terms of either Limited Partnership Agreement; or (b) the purchase, redemption, retirement or other acquisition for value of outstanding Senior Preference Units, Junior Preference Units or Common Units (or any successor equity interest of either Partnership or any successor limited partnership, including any such equity interest received upon conversion or exchange of any Senior Preference Unit, Junior Preference Unit or Common Unit). "Permitted Investment" means (a) the making of an Investment by the Company or any Restricted Subsidiary (other than the general partner of the Partnerships) in a Restricted Subsidiary that is not a Wholly Owned Subsidiary of the Company, so long as such Investment is for a valid business purpose and not for the primary purpose of making distributions on the Senior Preference Units from the proceeds of such Investment to any Person other than the Company or any of its Restricted Subsidiaries (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); (b) the making of an Investment by the general partner of either Partnership in either thereof; or (c) the making of an Investment by one Partnership in the other Partnership. "Permitted Liens" means (a) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (b) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (c) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (d) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, governmental contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (e) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or any of its Subsidiaries; (f) Liens (including extensions and renewals thereof) upon real or tangible personal property acquired after the Closing Date; provided, however, that (i) such Lien is created solely for the purpose of securing Indebtedness Incurred (A) to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within 12 months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (B) to refinance any Indebtedness previously so secured, (ii) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (iii) any such Lien shall not extend to or cover any 62 property or assets other than such item of property or assets and any improvements on such item; (g) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company or any of its Subsidiaries; (h) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or any of its Subsidiaries relating to such property or assets; (i) any interest or title of a lessor in the property subject to any Capitalized Lease or Operating Lease; provided, however, that any sale-leaseback transaction related thereto complies with the "Limitation on Sale-Leaseback Transactions" covenant described below; (j) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (k) Liens on property of, or on Capital Stock or Indebtedness of, any entity existing at the time such entity becomes, or becomes a part of, any Restricted Subsidiary; (l) Liens in favor of the Company or any Restricted Subsidiary; (m) Liens securing any real property or other assets of the Company or any Subsidiary of the Company in favor of the United States of America or any State, or any department, agency, instrumentality or political subdivision thereof, in connection with the financing of industrial revenue bond facilities or of any equipment or other property designed primarily for the purpose of air or water pollution control; provided, however, that any such Lien on such facilities, equipment or other property shall not apply to any other assets of the Company or such Subsidiary of the Company; (n) Liens arising from the rendering of a final judgment or order against the Company or any Subsidiary of the Company that does not give rise to an Event of Default; (o) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (p) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (q) Liens encumbering customary initial deposits and margin deposits, and other Liens that are either within the general parameters customary in the industry and incurred in the ordinary course of business or otherwise permitted under the terms of the Credit Agreements, in each case securing Indebtedness under Interest Rate Agreements and Currency Agreements and forward contracts, options, futures contracts, futures options or similar agreements or arrangements designed to protect the Company or any of its Subsidiaries from fluctuations in the price of commodities; (r) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Subsidiaries in the ordinary course of business in accordance with the past practices of the Company and its Subsidiaries prior to the Closing Date; and (s) Liens on or sales of receivables and other Liens reasonably related to a Receivables Program. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means any employee benefit plan, pension plan, management equity plan, stock option plan or similar plan or arrangement of the Company or any Subsidiary of the Company, or any successor plan thereof. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of such Person's preferred or preference stock, or preference equity interests in a partnership, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such preferred or preference stock, all the Senior Preference Units and all the Junior Preference Units. "Principal Property" means any real property (including related fixtures), plant or equipment owned or leased by the Company or any Restricted Subsidiary, other than real property, plant or equipment that, in the good faith determination of the Board of Directors (whose determination shall be conclusive and evidenced by a Board Resolution), is not of material importance to the respective businesses conducted by the Company or any Restricted Subsidiary as of the date of such determination; provided, however, that, unless otherwise specified by the Board of Directors, any real property (including related fixtures), plant or equipment with a fair market value of less than $5 million shall not be a "Principal Property." 63 "Receivables Program" means, with respect to any Person, obligations of such Person or its Subsidiaries pursuant to accounts or notes receivable securitization programs and any extension, renewal, modification or replacement of such programs, including, without limitation, any agreement increasing the amount of, extending the maturity of, refinancing or otherwise restructuring all or any portion of the obligations under such programs or any successor agreement or agreements. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (a) required to be redeemed prior to the Stated Maturity of the Notes, (b) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (c) convertible into or exchangeable for Capital Stock referred to in clause (a) or (b) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Notes. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Senior Preference Units" means a Senior Preference Unit as defined in the TNCLP Limited Partnership Agreement. "Significant Subsidiary" means, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (a) for the most recent fiscal year of the Company, accounted for more than 10% of the consolidated revenues of the Company; or (b) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of the Company, in each case as reflected on the most recently available quarterly or year end consolidated financial statements of the Company for such fiscal year. "Stated Maturity" means, (a) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (b) with respect to any scheduled installment of principal or interest on any debt security, the date specified in such security as the fixed date on which such installment of principal or interest is due and payable. "Subsidiary" means, with respect to any Person, any corporation of which more than 50% of the outstanding Voting Stock is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company, or by such Person and one or more other Subsidiaries of such Person, and any partnership, association, joint venture, limited liability company or other entity in which the Company or one or more other Subsidiaries of the Company, or such Person and one or more other Subsidiaries of such Person, owns a general partnership interest or more than 50% of the equity interests; provided, however, that, except as the term "Subsidiary" is used in the definitions of "Significant Subsidiary" and "Unrestricted Subsidiary," an Unrestricted Subsidiary shall not be deemed to be a direct or indirect Subsidiary of the Company for purposes of the Indenture. "Terra Canada" means Terra International (Canada) Inc., an Ontario corporation, and its successors. "Terra Capital" means Terra Capital, Inc., a Delaware corporation, and its successors. "Terra Credit Agreement" means the Amended and Restated Credit Agreement dated as of May 12, 1995, among Terra Capital, TNLP, certain guarantors, the issuing banks and the lenders and the agent named therein (or any successors thereto), together with all the other documents related thereto (including, without limitation, any Guarantees and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, extended, renewed, replaced or otherwise modified from time to time, including, without limitation, any agreement increasing the amount thereof in accordance with the limitations of the Indenture and any agreement extending the maturity of, refinancing or otherwise restructuring (including, but not limited to, the inclusion of additional borrowers or Guarantors thereunder that are Subsidiaries of the Company and whose obligations are Guaranteed by the Company thereunder) all or any portion of the Indebtedness under such agreements or any successor agreements. "TNC" means Terra Nitrogen Corporation, a Delaware corporation, and its successors. 64 "TNCLP" means Terra Nitrogen Company, L.P., a Delaware limited partnership, and its successors. "TNCLP Limited Partnership Agreement" means the Agreement of Limited Partnership of Terra Nitrogen Company, L.P. (formerly Agricultural Minerals Company, L.P.), dated as of December 4, 1991, among TNC (formerly Agricultural Minerals Corporation), the Company and any other persons who become partners in TNCLP as provided therein, as such agreement may be amended, supplemented, or otherwise modified from time to time as permitted by the Indenture. "TNLP" means Terra Nitrogen, Limited Partnership, a Delaware limited partnership, and its successors. "TNLP Limited Partnership Agreement" means the Agreement of Limited Partnership of Terra Nitrogen, Limited Partnership, dated as of December 4, 1991, among TNC (formerly Agricultural Minerals Corporation), the Company and TNCLP (formerly Agricultural Minerals Company, L.P.) as such agreement may be amended, supplemented or otherwise modified from time to time as permitted by the Indenture. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services and shall specifically include amounts owed to but deferred by trade creditors until the occurrence of certain events. "Transaction Date" means, with respect to the Incurrence of any Indebtedness by the Company or any of its Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Unrestricted Subsidiary" means (a) any Subsidiary of the Company that, at the time of determination, shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (b) any Subsidiary of an Unrestricted Subsidiary; provided that, in case of clauses (a) and (b), neither the Company nor any of its other Subsidiaries (other than another Unrestricted Subsidiary) (i) provides credit support for, or Guarantees of, any Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary, except to the extent that the Company and its Restricted Subsidiaries would otherwise, in each case, be permitted to make a Restricted Payment pursuant to, or an Investment in such Subsidiary permitted by, the "Limitation on Restricted Payments" covenant. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary, unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (i) the Subsidiary to be so designated has total assets of $1,000 or less at the time of designation or (ii) if such Subsidiary has assets greater than $1,000 at the time of designation, that such designation would be permitted under the "Limitation on Restricted Payments" covenant described below. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant described below and (y) no Event of Default, or event that after notice or passage of time or both would become an Event of Default, shall have occurred and be continuing. All such designations by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors or other governing body of such Person, or any general partnership interest in any partnership. 65 "Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary of such Person if all the Common Stock or other similar equity ownership interests (but not including Preferred Stock) in such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) is owned directly or indirectly by such Person. COVENANTS Limitation on Indebtedness Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that the Company and its Restricted Subsidiaries may Incur Indebtedness if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds therefrom, the Interest Coverage Ratio of the Company would be greater than 2:1x. Notwithstanding the foregoing, the Company and any Restricted Subsidiary may Incur each and all of the following: (a)(i) Indebtedness outstanding at any time under any term loan portion of the Credit Agreements; provided, however, that the aggregate principal amount of such Indebtedness outstanding at any time under this clause (a)(i) shall not exceed $300 million, (ii) Indebtedness outstanding at any time under any revolving credit facility under the Credit Agreements or under any other revolving credit or similar arrangements; provided, however, that the aggregate principal amount of such Indebtedness outstanding at any time under this clause (a)(ii) shall not exceed the greater of (x) $250 million and (y) the sum of 75% of the Company's and its Restricted Subsidiaries' accounts and notes receivables and 40% of the Company's and its Restricted Subsidiaries' inventory (based on the average accounts and notes receivables (excluding, without duplication, accounts and notes receivables subject to a Receivables Program) and inventory over the last twelve months preceding the date of incurrence), and (iii) additional Indebtedness outstanding at any time in an aggregate principal amount not to exceed $50 million; (b) Indebtedness of the Company to any of its Restricted Subsidiaries, or of a Restricted Subsidiary to the Company or to any other Restricted Subsidiary; (c) Indebtedness the net proceeds of which are used to refinance outstanding Indebtedness of the Company or any of its Restricted Subsidiaries, other than Indebtedness Incurred under clause (a), (d) or (e) and any refinancings thereof, in an amount (or, if such new Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, with an original issue price) not to exceed the amount so refinanced (plus premiums, accrued interest, fees and expenses); provided, however, that Indebtedness the proceeds of which are used to refinance the Notes or other Indebtedness of the Company that is subordinated in right of payment to the Notes shall only be permitted under this clause (c) if (i) in case the Notes are refinanced in part, such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is expressly made pari passu with, or subordinate in right of payment to, the Notes, (ii) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is expressly made subordinate in right of payment to the Notes, at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes, and (iii) in case the Notes are refinanced in part or the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to six months after the Stated Maturity of the Notes and the Average Life of such Indebtedness is six months greater than the remaining time before the Stated Maturity of the Notes; and provided further, however, that in no event may Indebtedness of the Company that is pari passu with, or subordinated in right of payment to, the Notes be refinanced by means of Indebtedness of any Restricted Subsidiary of the Company pursuant to this clause (c); (d) Indebtedness directly or indirectly Incurred to finance capital expenditures of the Company or any of its Restricted Subsidiaries in an aggregate principal amount not to exceed $10 million in any fiscal year of the Company, and any refinancing of any such Indebtedness; provided, however, that the amount of the Indebtedness that may be Incurred in any fiscal year of the Company pursuant to this clause (d) shall be increased by the amount of Indebtedness that could have been Incurred in the prior fiscal year (including by reason of this proviso) of the Company pursuant to 66 this clause (d) but was not so Incurred; (e) Indebtedness of the Company outstanding at any time in an aggregate amount not to exceed $20 million; provided, however, that such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, (i) is expressly made subordinate in right of payment to the Notes, and (ii) provides that no payments of principal of such Indebtedness by way of sinking fund, mandatory redemption or otherwise (including defeasance) may be made by the Company (including, without limitation, at the option of the holder thereof, other than an option given to such holder pursuant to an "asset sale" or "change of control" provision that is no more favorable (except with respect to any premium payable) to the holders of such Indebtedness than the provisions contained in the "Limitation on Asset Sales" and "Repurchase of Notes upon Change of Control" covenants described below and such Indebtedness specifically provides that the Company will not repurchase or redeem such Indebtedness pursuant to such provisions prior to the Company's repurchase of the Notes required to be repurchased by the Company under the "Limitation on Asset Sales" and "Repurchase of Notes upon Change of Control" covenants) at any time prior to the Stated Maturity of the Notes; (f) Indebtedness Incurred by the Company in connection with the purchase, redemption, acquisition, cancelation or other retirement for value of shares of Capital Stock of the Company, options on any such shares or related stock appreciation rights or similar securities, or the satisfaction of put, call, liquidity or other similar rights with respect to any such securities, held by officers, directors or employees or former officers, directors or employees (or their estates or beneficiaries under their estates or their permitted transferees) or by any Plan, upon death, disability, retirement, termination of employment or pursuant to the terms of such Plan or any other agreement under which such shares of stock or related rights were issued or otherwise exist; provided, however, that (i) such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is expressly made subordinate in right of payment to the Notes, (ii) such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, provides that no payments of principal of such Indebtedness by way of sinking fund, mandatory redemption or otherwise (including defeasance) may be made by the Company at any time prior to the Stated Maturity of the Notes, and (iii) the scheduled maturity of all principal of such Indebtedness is after the Stated Maturity of the Notes; and provided further, however, that any such Indebtedness may provide for payment or prepayment of principal and interest which when aggregated with all principal and interest payable or prepayable on all other such Indebtedness (plus all cash payments permitted to be made under clause (c) of the second paragraph of the "Limitation on Restricted Payments" covenant) does not exceed $10 million in any fiscal year; (g) Indebtedness (i) in respect of performance bonds, bankers' acceptances, letters of credit and surety or appeal bonds provided in the ordinary course of business, (ii) under Currency Agreements and Interest Rate Agreements; provided, however, that, in the case of Currency Agreements that relate to other Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder, and (iii) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any Subsidiary of the Company pursuant to such agreements, in any case Incurred in connection with the acquisition or disposition of any business, assets or Subsidiary of the Company, other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary of the Company for the purpose of financing such acquisition; (h) Indebtedness under Guarantees Incurred by the Company or any of its Restricted Subsidiaries in respect of obligations of Unrestricted Subsidiaries outstanding at any time in an aggregate amount not to exceed $5 million; (i) Indebtedness of the Company or any of its Restricted Subsidiaries the net proceeds of which are used to pay Federal, state or local taxes arising as a result of any recharacterization of either Partnership as an association taxable as a corporation; (j) Acquired Indebtedness; provided, however, that, at the time of the Incurrence thereof, after giving pro forma effect to such Incurrence, the Company could Incur at least $1.00 of Indebtedness under the first paragraph of this "Limitation on Indebtedness" covenant and refinancings of any thereof; provided, however, that such refinancing Indebtedness may not be Incurred by any Person other than the Company or the Restricted Subsidiary that is the obligor on such Acquired Indebtedness; and (k) Indebtedness outstanding or as to which commitments are in place on the date of the Indenture other than Indebtedness described in clause (a)(i) or (ii) above. 67 Notwithstanding any other provision of this "Limitation on Indebtedness" covenant, (a) the maximum amount of Indebtedness that the Company or any Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness" covenant shall not be deemed to be exceeded due solely to the result of fluctuations in the exchange rates of currencies; (b) the Company shall not Incur any Indebtedness that is expressly subordinated to any other Indebtedness of the Company, unless such Indebtedness, by its terms or the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is also expressly made subordinate to the Notes at least to the extent it is subordinated to such other Indebtedness; and (c) upon any refinancing of any Indebtedness permitted to be Incurred under clause (c) or clause (j) of the second paragraph of this "Limitation on Indebtedness" covenant, the amount of Indebtedness permitted to be Incurred pursuant to such clause shall be increased by the amount of premiums, fees and expenses incurred in connection with such refinancing and by the amount of accrued interest on such Indebtedness at the time of such refinancing. For purposes of determining any particular amount of Indebtedness under this "Limitation on Indebtedness" covenant, the following amounts shall not be included: (a) Guarantees of, contingent obligations (including obligations of a general partner for liabilities of a partnership) with respect to, or obligations with respect to letters of credit supporting, Indebtedness otherwise included in the determination of such particular amount; and (b) any Liens granted pursuant to the equal and ratable provisions referred to in the first paragraph of the "Limitation on Liens" covenant. For purposes of determining compliance with this "Limitation of Indebtedness" covenant, (a) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses; (b) Indebtedness permitted under this "Limitation on Indebtedness" covenant need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by reference to one such provision and in part by reference to one or more other provisions of this "Limitation on Indebtedness" covenant permitting such Indebtedness; and (c) the amount of Indebtedness issued at a price that is less than the principal amount thereof shall be equal to the amount of the liability in respect thereof determined in conformity with GAAP. (Section 4.03) Limitation on Restricted Payments Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (a) declare or pay any dividend or make any distribution on its Capital Stock (other than (i) on the Capital Stock of Restricted Subsidiaries that are Wholly Owned Subsidiaries of the Company, and (ii) dividends or distributions payable solely in shares of its, or any Restricted Subsidiary's, Capital Stock (other than Redeemable Stock) of the same class held by such holders or in options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or another Restricted Subsidiary, (b) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company, any Restricted Subsidiary or any Unrestricted Subsidiary (including options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or another Restricted Subsidiary, (c) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes, (d) make any Investment in any Restricted Subsidiary that is not a Wholly Owned Subsidiary of the Company, other than a Permitted Investment, or (e) make any Investment in any Unrestricted Subsidiary (such payments or any other actions described in clauses (a) through (e) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (i) an Event of Default or event that, after notice or passage of time or both, would become an Event of Default, shall have occurred and be continuing, (ii) the Company could not Incur at least $1.00 of Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant, or (iii) the aggregate amount expended for all Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) after the Closing Date shall exceed the sum of (A) 50% of the aggregate 68 amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of such amount) of the Company (determined by excluding income resulting from the transfers of assets received by the Company or a Restricted Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken as one accounting period) beginning on January 1, 1995 and ending on the last day of the last fiscal quarter preceding the Transaction Date, plus (B) the aggregate net proceeds (including the fair market value of noncash proceeds as determined in good faith by the Board of Directors) received by the Company or any of its Restricted Subsidiaries from any issuance and sale permitted by the Indenture of its Capital Stock (not including Redeemable Stock) to a Person that is not a Subsidiary of the Company, including an issuance or sale permitted by the Indenture for cash or other property upon the conversion of any Indebtedness of the Company or any of its Restricted Subsidiaries subsequent to the Closing Date, or from the issuance of any options, warrants or other rights to acquire Capital Stock of the Company or any of its Restricted Subsidiaries (in each case, exclusive of any Redeemable Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Notes), plus (C) an amount equal to the net reduction in Investments in Unrestricted Subsidiaries (other than Unrestricted Subsidiaries so designated pursuant to clause (g) of the second paragraph of this "Limitation on Restricted Payments" covenant and other than Investments made in Unrestricted Subsidiaries pursuant to such clause (g)) resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed in the case of any Unrestricted Subsidiary the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, plus (D) $25 million. The foregoing provision shall not take into account, and shall not be violated by reason of: (a) the payment of any dividend within 120 days after the date of declaration thereof if, at such date of declaration, such payment would comply with the foregoing provision; (b) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes, including premium, if any, and accrued and unpaid interest, with the proceeds of Indebtedness Incurred under the first paragraph of the "Limitation on Indebtedness" covenant or clause (c) or (e) of the second paragraph of the "Limitation on Indebtedness" covenant; (c) the repurchase, redemption, acquisition, cancelation or other retirement for value of shares of Capital Stock of the Company, any Restricted Subsidiary or any Unrestricted Subsidiary, options on any such shares or related stock appreciation rights or similar securities, or the satisfaction of put, call, liquidity or other similar rights with respect to any such securities, held by officers, directors or employees or former officers, directors or employees (or their estates or beneficiaries under their estates or their permitted transferees) or by any Plan, upon death, disability, retirement, termination of employment or pursuant to the terms of such Plan or any other agreement under which such shares of stock or related rights were issued or otherwise exist; provided, however, that the aggregate cash payment made for all such repurchases, redemptions, acquisitions, cancellations, retirements or other satisfactions of or with respect to such shares, options or other rights after the Closing Date (plus payments or prepayments of principal and interest permitted on Indebtedness Incurred under clause (f) of the second paragraph of the "Limitation on Indebtedness" covenant) does not exceed $10 million in any fiscal year and that any consideration in excess of such $10 million is in the form of Indebtedness that would be permitted to be Incurred under clause (f) of the second paragraph of the "Limitation on Indebtedness" covenant; (d) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the proceeds of a substantially concurrent offering of, shares of Capital Stock of the Company (other than Redeemable Stock); (e) the repurchase, redemption, retirement or other acquisition of Indebtedness of the Company that is subordinated in right of payment to the Notes in exchange for, or out of the net proceeds of a substantially concurrent offering of, shares of Capital Stock of the Company (other than Redeemable Stock); (f) payments or distributions pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all the property and assets of the Company; (g) the making of (i) up to $10 million of Investments in Unrestricted Subsidiaries plus the amount of any reduction in such 69 Investments in such Unrestricted Subsidiaries made pursuant to this clause (g) resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary pursuant to this clause (g), (ii) Investments in the Company, Unrestricted Subsidiaries or Restricted Subsidiaries with the proceeds of any sale of Capital Stock of the Company or (in the case of Investments in the Company or any Restricted Subsidiaries) of any Restricted Subsidiary permitted by the Indenture, and (iii) Investments in Unrestricted Subsidiaries in the form of loans or advances from the Company or any Restricted Subsidiary representing capitalized labor costs for services performed by the Company or any Restricted Subsidiary to such Unrestricted Subsidiaries in the ordinary course of business; (h) the purchase, redemption, acquisition, cancellation or other retirement for a nominal value per right of any rights granted to all the holders of Common Stock of the Company pursuant to any shareholders' rights plan adopted for the purpose of protecting shareholders from unfair takeover tactics; provided, however, that any such purchase, redemption, acquisition, cancellation or other retirement of such rights shall not be for the purpose of evading the limitations of this "Limitation on Restricted Payments" covenant (all as determined in good faith by the Board of Directors); (i) any Permitted Distribution; (j) payments by the Company or any Restricted Subsidiary in respect of Indebtedness of the Company or any Restricted Subsidiary owed to the Company or another Restricted Subsidiary; (k) the application of proceeds as provided in the "Limitation on Asset Sales" covenant; or (l) the application of proceeds as provided in clause (c) of the "Limitation on the Issuance of Capital Stock of Restricted Subsidiaries" covenant; and provided, however, that, in the case of clauses (b), (c) (except with respect to the Incurrence of Indebtedness complying with the first proviso of clause (f) of the second paragraph of the "Limitation on Indebtedness" covenant), (d), (e), (f) (other than with respect to either Partnership), or (g) (other than Investments in Unrestricted Subsidiaries any of the Capital Stock of which is held by either Partnership, the general partner of either thereof or any Unrestricted Subsidiary of either Partnership), no Event of Default, or event that after notice or passage of time or both would become an Event of Default, shall have occurred and be continuing or shall occur as a consequence thereof. (Section 4.04) Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary; (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (c) make loans or advances to the Company or any other Restricted Subsidiary; or (d) transfer any of its property or assets to the Company or any other Restricted Subsidiary. The foregoing provision shall not restrict or prohibit any encumbrances or restrictions existing: (a) in the Credit Agreements or in any other agreements in effect on the Closing Date, including extensions, refinancings, renewals or replacements thereof; provided; however, that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (b) under any Receivables Program or any other agreement providing for the Incurrence of Indebtedness; provided, however, that the encumbrances and restrictions in any such agreement are no less favorable in any material respect to the Holders than those encumbrances and restrictions contained in the agreement referred to in clause (a) above that is least favorable to the Holders as of the Closing Date; (c) under or by reason of applicable law; (d) with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary that existed at the time of such acquisition and were not created in connection with or in contemplation of such acquisition, so long as 70 such encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (e) in the case of clause (d) of the first paragraph of the "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant, (i) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or asset, (ii) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture, or (iii) arising or agreed to in the ordinary course of business and that do not, individually or in the aggregate, materially detract from the value of property or assets of the Company or any Restricted Subsidiary; (f) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all the Capital Stock of, or property and assets of, such Restricted Subsidiary; or (g) in either Limited Partnership Agreement. Nothing contained in this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary from (x) entering into any agreement permitting the Incurrence of Liens otherwise permitted in the "Limitation on Liens" covenant or (y) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. (Section 4.05) Limitation on the Issuance of Capital Stock of Restricted Subsidiaries Under the terms of the Indenture, the Company will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of its Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) except (a) to the Company or another Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company; (b) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary; (c) if the Net Cash Proceeds from such issuance or sale are applied, to the extent required to be applied, pursuant to the "Limitation on Asset Sales" covenant; (d) in the case of TNLP, to TNCLP; or (e) in the case of either Partnership, as otherwise permitted by either Limited Partnership Agreement, so long as any such issuance or sale is for a valid business purpose and not for the primary purpose of making distributions on the Senior Preference Units from the Net Cash Proceeds of such issuance or sale to any Person other than the Company or any of its Restricted Subsidiaries (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution). (Section 4.06) Limitation on Transactions with Shareholders and Affiliates Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate of the Company or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate of such a holder. The foregoing limitation does not limit, and shall not apply to, (a) any transaction or series of related transactions (i) approved by a majority of the disinterested members of the Board of Directors or (ii) for which the Company or Restricted Subsidiary delivers to the Trustee a written opinion of a nationally recognized investment banking firm stating that the transaction is fair to the Company or such Restricted Subsidiary from a financial point of view; (b) any transaction between the Company and any Restricted Subsidiary or between Restricted Subsidiaries; (c) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (d) any Restricted Payments not prohibited by the "Limitation on Restricted Payments" covenant; (e) any payments or other transactions pursuant to any tax sharing agreement between the Company or any Restricted Subsidiary and any other 71 Person with which the Company or such Restricted Subsidiary is required or permitted to file a consolidated tax return or with which the Company or such Restricted Subsidiary is or could be part of a consolidated group for tax purposes; (f) any transaction between the Company or any Restricted Subsidiary and any holder of any Senior Preference Units (or any Affiliate thereof) that would be restricted by this "Limitation on Transactions with Shareholders and Affiliates" covenant as a result of such holder's ownership of Senior Preference Units, Junior Preference Units or Common Units; or (g) the provision of management, financial and operational services by the Company and its Subsidiaries to Affiliates of the Company in which the Company or its Subsidiaries have Investments and the payment of compensation for such services; provided, however, that the Board of Directors has determined that the provision of such services is in the best interests of the Company and its Subsidiaries. Notwithstanding the foregoing, any transaction or series of related transactions covered by the first paragraph of this "Limitation on Transactions with Shareholders and Affiliates" covenant the aggregate amount of which does not exceed $3 million in value need not be approved in the manner provided for in clause (a) of this paragraph. (Section 4.07) Limitation on Liens Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on any Principal Property, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all the Notes and all other amounts due under the Indenture to be directly secured equally and ratably with (or prior to) the obligation or liability secured by such Lien unless, after giving effect thereto, the aggregate amount of any Indebtedness so secured, plus the Attributable Indebtedness for all sale-leaseback transactions restricted as described in the "Limitation on Sale-Leaseback Transactions" covenant, does not exceed 10% of Consolidated Net Tangible Assets. The foregoing limitation does not apply to, and any computation of Indebtedness secured under such limitation shall exclude, (a) Liens securing obligations under the Credit Agreements up to the amount of Indebtedness permitted to be Incurred under clause (a) of the second paragraph of the "Limitation on Indebtedness" covenant; (b) other Liens existing on the Closing Date; (c) Liens securing Indebtedness of Restricted Subsidiaries (other than Acquired Indebtedness and refinancings thereof); (d) Receivables Programs; (e) Liens securing Indebtedness (other than subordinated Indebtedness) Incurred under clause (g) of the second paragraph of the "Limitation on Indebtedness" covenant; (f) Liens granted in connection with the extension, renewal or refinancing, in whole or in part, of any Indebtedness described in clauses (a) through (e) above; provided, however, that the amount of Indebtedness secured by such Lien is not increased thereby (except to the extent that Indebtedness under clause (a) above is increased to the maximum amount permitted to be outstanding under clause (a) of the second paragraph of the "Limitation on Indebtedness" covenant); and provided further, however, that the extension, renewal or refinancing of Indebtedness of the Company may not be secured by Liens on assets of any Restricted Subsidiary other than to the extent the Indebtedness being extended, renewed or refinanced was at any time previously secured by Liens on assets of such Restricted Subsidiary; (g) Liens with respect to Acquired Indebtedness and refinancings thereof permitted under clause (j) of the second paragraph of the "Limitation on Indebtedness" covenant; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets of the Subsidiary acquired; or (h) Permitted Liens. (Section 4.08) Limitation on Sale-Leaseback Transactions Under the terms of the Indenture, the Company will not, and will not permit any Restricted Subsidiary to, enter into any sale-leaseback transaction involving any Principal Property, unless the aggregate amount of all Attributable Indebtedness with respect to such transactions, plus all Indebtedness secured by Liens on Principal Properties (excluding secured Indebtedness that is excluded as described in the "Limitation on Liens" covenant) does not exceed 10% of Consolidated Net Tangible Assets. 72 The foregoing restriction does not apply to, and any computation of Attributable Indebtedness under such limitation shall exclude, any sale- leaseback transaction if: (a) the lease is for a period, including renewal rights, of not in excess of three years; (b) the sale or transfer of the Principal Property is entered into prior to, at the time of, or within 12 months after the later of the acquisition of the Principal Property or the completion of construction thereof; (c) the lease secures or relates to industrial revenue or pollution control bonds; (d) the transaction is between the Company and any Restricted Subsidiary or between Restricted Subsidiaries; or (e) the Company or such Restricted Subsidiary, within 12 months (24 months in the case of sales of plants or facilities) after the sale of any Principal Property is completed, applies an amount not less than the net proceeds received from such sale to the retirement of unsubordinated Indebtedness, to Indebtedness of a Restricted Subsidiary, or to the purchase of other property that will constitute a Principal Property or improvements thereto, or, in the case of either Partnership, to such investment, reinvestment or other use as shall be permitted or required by either Limited Partnership Agreement. (Section 4.09) Limitation on Asset Sales Under the terms of the Indenture, in the event and to the extent that the Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries from one or more Asset Sales occurring on or after the Closing Date in any period of 12 consecutive months (other than Asset Sales by the Company or any Restricted Subsidiary to the Company or another Restricted Subsidiary) exceed 10% of Consolidated Net Tangible Assets in any one fiscal year (determined as of the date closest to the commencement of such 12-month period for which a balance sheet of the Company and its Subsidiaries has been prepared), then the Company will, or will cause such Restricted Subsidiary to, (a) within 12 months (or, in the case of Asset Sales of plants or facilities, 24 months) after the date Net Cash Proceeds so received exceed 10% of Consolidated Net Tangible Assets in any one fiscal year (determined as of the date closest to the commencement of such 12-month period for which a balance sheet of the Company and its Subsidiaries has been prepared) (i) apply an amount equal to such excess Net Cash Proceeds, or the amount not applied pursuant to clause (ii) or (iii), to repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Subsidiaries; (ii) invest an equal amount, or the amount not applied pursuant to clause (i) or (iii) (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in property or assets that are of a nature or type or are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Subsidiaries existing on the date thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); or (iii) in the case of either Partnership, apply an equal amount, or the amount not applied pursuant to clause (i) or (ii), to such investment, reinvestment or other use as shall be permitted or required by either Limited Partnership Agreement, and (b) apply such excess Net Cash Proceeds (to the extent not applied pursuant to clause (a)) as provided in the following paragraphs of this "Limitation on Asset Sales" covenant. The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12-month period or 24-month period, as the case may be, as set forth in clause (i), (ii) or (iii) of the next preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds." If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10 million, the Company must, not later than the fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate principal amount of Notes equal to the Excess Proceeds on such date, at a purchase price equal to 101% of the principal amount thereof, plus accrued interest (if any) to the date of purchase (the "Excess Proceeds Payment"). The Company will commence an Excess Proceeds Offer by mailing a notice to the Trustee and each Holder stating: (a) that the Excess Proceeds offer is being made pursuant to this "Limitation on Asset Sales" covenant and that all Notes validly tendered will be accepted for payment on a pro rata basis; (b) the purchase 73 price and that date of purchase (which shall be a Business Day no earlier than 30 days nor later than 40 days from the date such notice is mailed) (the "Excess Proceeds Payment Date"); (c) that any Note not tendered will continue to accrue interest pursuant to its terms; (d) that, unless there shall be a default in the payment of the Excess Proceeds Payment, any Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on the Excess Proceeds Payment Date; (e) that Holders electing to have a Note purchased pursuant to the Excess Proceeds Offer will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note or comparable form completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Excess Proceeds Payment Date; (f) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Excess Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (g) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof. On the Excess Proceeds Payment Date, the Company will (a) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant of the Excess Proceeds Offer; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (c) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent will promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee will promptly (i) authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the certificated Note surrendered and (ii) make arrangements with DTC to reflect on DTC's records Notes in book-entry form equal in principal amount to any unpurchased portion of the Global Note; provided that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof. The Company will publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date. For purposes of this "Limitation on Asset Sales" covenant, the Trustee shall act as the Paying Agent. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that such Excess Proceeds are received by the Company under this "Limitation on Asset Sales" covenant and the Company is required to repurchase Notes as described above. The Company may modify any of the foregoing provisions of this "Limitation on Asset Sales" covenant to the extent it is advised by independent counsel that such modification is necessary or appropriate in order to ensure such compliance. (Section 4.10) Repurchase of Notes upon Change of Control Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of its Notes by the Company in cash pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof, plus accrued interest (if any) to the date of purchase (the "Change of Control Payment"). Within 45 days following any Change of Control, the Company shall mail a notice to the Trustee and each Holder stating: (a) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this "Repurchase of Notes upon Change of Control" covenant and that all Notes validly tendered will be accepted for payment; (b) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (c) that any Note not tendered will continue to accrue interest pursuant to its terms; (d) that, unless there shall be a default in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change 74 of Control Payment Date; (e) that Holders electing to have any Note or portion thereof purchased pursuant to the Change of Control Offer will be required to surrender such Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of such Note or comparable form completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Change of Control Payment Date; (f) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (g) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof. On the Change of Control Payment Date, the Company will: (a) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (c) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent will promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee will (i) promptly authenticate and mail to such Holders a new certificated Note equal in principal amount to any unpurchased portion of the Note surrendered and (ii) make arrangements with DTC to reflect on DTC's records Notes in book-entry form equal in principal amount to any unpurchased portion of the Global Note; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this "Repurchase of Notes upon Change of Control" covenant, the Trustee shall act as Paying Agent. The failure of the Company to make or consummate a Change of Control Offer or pay the Change of Control Payment when due will give the Trustee and the Holders of the Notes the rights described under "--Events of Default." None of the provisions relating to a purchase upon a Change of Control are waivable by the Board of Directors of the Company. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the redemption price for all Notes that the Company is required to redeem or sufficient funds to fulfill other obligations arising from such Change of Control, including any required redemption of the 10 3/4% Notes. In the event that the Company were required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. There can be no assurance, however, that the Company would be able to obtain such financing. Under the present terms of the Terra Credit Agreement, the Company would be required to obtain a consent from the lenders thereunder to incur any Indebtedness to repurchase Notes pursuant to a Change of Control Offer. In addition, the Company's ability to repurchase Notes may be limited by other then-existing borrowing agreements. There can be no assurance that the Company will be able to obtain a consent or a waiver of any such limitation. A Change of Control may result in an event of default under the Terra Credit Agreement and permit the lenders thereunder to declare all amounts outstanding thereunder to be immediately due and payable. The rights of the Holders to receive the Change of Control Payment for the Notes or any other amount due on the Notes is effectively subordinated to the holders of Indebtedness of the Company's subsidiaries. See "Ranking." The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that a Change of Control occurs under this "Repurchase of Notes upon Change of Control" covenant and the Company is required to repurchase Notes as described above. The Company may modify any of the foregoing provisions 75 of this "Repurchase of Notes upon Change of Control" covenant to the extent it is advised by independent counsel that such modification is necessary or appropriate in order to ensure such compliance. (Section 4.11) Amendments to Limited Partnership Agreements Under the terms of the Indenture, the Company will not permit the general partner of either Partnership to make or propose any amendment, supplement or other modification to either Limited Partnership Agreement that would have a material adverse effect on the interests of the Holders, except as shall be required by either Limited Partnership Agreement. (Section 4.16) EVENTS OF DEFAULT The following events will be defined as "Events of Default" in the Indenture: (a) the Company defaults in the payment of the principal of, or premium, if any, on, any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) the Company defaults in the payment of interest on any Note when the same is due and payable, and such default continues for a period of 30 days; (c) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in the Indenture or under the Notes and such default or breach continues for a period of 30 consecutive days after written notice to the Company by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (d) there occurs with respect to any issue or issues of Indebtedness of the Company and/or one or more Significant Subsidiaries having an outstanding principal amount of $10 million or more in the aggregate, whether such Indebtedness now exists or shall hereafter be created, an event of default that has caused the holder or holders thereof, or representatives of such holder or holders, to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration; (e) any final judgment or order (not covered by insurance) for the payment of money in excess of $10 million in the aggregate for all such final judgments or orders (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Significant Subsidiary and shall not be discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding against all such Persons to exceed $10 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (f) a court having jurisdiction in the premises enters a decree or order for (i) relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all the property and assets of the Company or any Significant Subsidiary or (iii) the winding up or liquidation of the affairs of the Company or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (g) the Company or any Significant Subsidiary (i) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all the property and assets of the Company or any Significant Subsidiary or (iii) effects any general assignment for the benefit of creditors; (h) the Company and/or one or more Significant Subsidiaries fails to make (i) at the final (but not any interim) fixed maturity of any issue of Indebtedness a principal payment of $10 million or more or (ii) at the final (but not any interim) fixed maturity of more than one issue of such Indebtedness principal payments aggregating $10 million or more and, in the case of clause (i), such defaulted payment shall not have been made, waived or extended within 30 days of the payment default and, in the case of clause (ii), all such defaulted payments shall not have been made, waived or extended within 30 days of the payment default that causes the amount described in clause (ii) to exceed $10 million; or (i) the nonpayment of any two or more items of Indebtedness that would constitute at the time of such nonpayments, but for the individual amounts of such Indebtedness, an Event of 76 Default under clause (d) or clause (h) above, or both, and which items of Indebtedness aggregate $10 million or more. (Section 6.01) If an Event of Default (other than an Event of Default specified in clause (f) or (g) above that occurs with respect to the Company) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders (the "Acceleration Notice")), may, and the Trustee at the request of the Holders will, declare the entire unpaid principal of, premium, if any, and accrued interest on, the Notes to be immediately due and payable. Upon a declaration of acceleration, such principal, premium, if any, and accrued interest shall become and be immediately due and payable without presentment, demand, protest or further notice or act (all of which are expressly waived by the Company). In the event of a declaration of acceleration because an Event of Default set forth in Clause (d) or (h) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (d) or (h) shall be remedied, cured by the Company and/or such Significant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (f) or (g) above occurs with respect to the Company, all unpaid principal of, premium, if any, and accrued interest on, the Notes then outstanding shall become and be immediately due and payable automatically, without any declaration, presentment, demand, protest, notice or other act on the part of the Trustee or any Holder (all of which are expressly waived by the Company). The Holders of at least a majority in principal amount of the outstanding Notes, by written notice to the Company and to the Trustee, may waive all past defaults or events that, after the passage of time or the giving of notice or both, would be an Event of Default and rescind and annul a declaration of acceleration and its consequences if (a) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and accrued interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived and (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. (Section 6.02) For information as to the waiver of defaults, see "Modification and Waiver." The Holders of at least a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders not joining in the giving of such direction. (Section 6.05) A Holder may not pursue any remedy with respect to the Indenture or the Notes unless: (a) the Holder gives the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (e) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a direction that is inconsistent with the request. (Section 6.06) However, such limitations do not apply to the right of any Holder of a Note to receive payment of the principal of, premium, if any, or interest on, such Holder's Note or to bring suit for the enforcement of any such payment, on or after the respective due dates expressed in the Notes, which rights shall not be impaired or affected without the consent of the Holder. (Section 6.07) The Holders and the Trustee may exercise their rights and remedies under the Indenture and under the Notes against the capital stock of TNC or the assets of TNC and its subsidiaries only in a manner consistent with the fiduciary obligations of TNC and the Company associated with the general partnership interests in the Partnerships (including, without limitation, the interests of the Partnerships and the partners thereof); provided that the foregoing shall not require the Holders or the Trustee to take any action with respect to any other assets of the Company. (Section 6.03) The Indenture will require certain officers of the Company to certify, on or before a date not more than 90 days after the end of each fiscal year, that a review has been conducted of the activities of the Company 77 and its subsidiaries and the Company's performance under the Indenture and that the Company has fulfilled all obligations thereunder, or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. The Company will also be obligated to notify the Trustee of any default or defaults in the performance of any covenants or agreements under the Indenture. (Section 4.17) For additional information concerning the terms and conditions of, and events of default relating to, the Credit Agreements, see "Description of Other Indebtedness." Except as described in "Repurchase of Notes upon Change of Control," the Indenture does not contain any provision that would provide protection of the holders of the Notes against a sudden and dramatic decline in credit quality resulting from a takeover, recapitalization or similar restructuring of the Company. CONSOLIDATION, MERGER AND SALE OF ASSETS Under the terms of the Indenture, the Company will not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person (other than a Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company with a positive net worth; provided, however, that, in connection with any merger of the Company with a Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, no consideration (other than Common Stock in the Surviving Person or the Company) shall be issued or distributed to the shareholders of the Company), or permit any Person to merge with or into the Company, unless: (a) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company on all the Notes and under the Indenture; (b) immediately after giving effect to such transaction, no Event of Default and no event that, after notice or passage of time or both, will become an Event of Default shall have occurred and be continuing; (c) immediately after giving effect to such transaction on a pro forma basis, the Interest Coverage Ratio of the Company (or any Person becoming the successor obligor of the Notes) is at least 1.10:1, or, if less, at least equal to the Interest Coverage Ratio of the Company immediately prior to such transaction; provided, however, that, if the Interest Coverage Ratio of the Company before giving effect to such transaction is within the range set forth in column (A) below, then the pro forma Interest Coverage Ratio of the Company (or any Person becoming the successor obligor of the Notes) shall be at least equal to the lesser of (i) the ratio determined by multiplying the percentage set forth in column (B) below by the Interest Coverage Ratio of the Company prior to such transaction and (ii) the ratio set forth in column (C) below:
(A) (B) (C) --- -- -- 1.11:1 to 1.99:1........................................ 90% 1.6:1 2.00:1 to 2.99:1........................................ 80% 2.1:1 3.00:1 to 3.99:1........................................ 70% 2.4:1 4.00:1 or more.......................................... 60% 2.5:1;
and provided further, however, that, if the pro forma Interest Coverage Ratio of the Company (or any Person becoming the successor obligor of the Notes) is 3:1 or more, the calculation in the next preceding proviso shall be inapplicable and such transaction shall be deemed to have complied with the requirements of this clause (c); (d) immediately after giving effect to such transaction on a pro forma basis, the Company (or any Person that becomes the successor obligor of the Notes) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; and (e) the Company delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (c) and (d)) and an Opinion of Counsel, in each case stating that such 78 consolidation, merger or transfer and such supplemental indenture comply with this provision and that all conditions precedent provided for therein relating to such transaction have been complied with; provided, however, that clauses (c) and (d) above do not apply if, in the good faith determination of the Board of Directors, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further, however, that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. (Section 5.01) DEFEASANCE Defeasance and Discharge The Indenture will provide that the Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Notes and the provisions of the Indenture will no longer be in effect with respect to the Notes on the one hundred twenty-third day after the deposit described below (except for, among other matters, certain obligations to register the transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain paying agencies and to hold monies for payment in trust) if, among other things, (a) the Company has irrevocably deposited with the Trustee, in trust, money and/or U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the Notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the Notes; (b) the Company has delivered to the Trustee (i) either an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for Federal income tax purposes as a result of the Company's exercise of its option under this "Defeasance" provision and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be accompanied by a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable Federal income tax law after the date of the Indenture such that a ruling is no longer required, or a ruling directed to the Company or the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel, and (ii) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; (c) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after notice or passage of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the one hundred twenty-third day after the date of such deposit, (d) such deposit shall not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which the Company is bound; and (e) if at such time the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge. (Section 8.02) Defeasance of Certain Covenants and Certain Events of Default The Indenture further will provide that the provisions of the Indenture will no longer be in effect with respect to clauses (c) and (d) under "Consolidation, Merger and Sale of Assets" and all the covenants described herein under "Covenants" and clause (c) under "Events of Default" (with respect to such covenants and clauses (c) and (d) under "Consolidation, Merger and Sale of Assets") and clauses (d), (e), (h) and (i) under "Events of Defaults" shall be deemed not to be Events of Default upon, among other things, the irrevocable deposit with the Trustee, in trust, of money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on, the Notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the Notes, the satisfaction of the provisions described in clauses (b)(ii), (c) and (d) of the next preceding paragraph and the delivery by the 79 Company to the Trustee of an Opinion of Counsel to the effect that, among other things, the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. (Section 8.03) Defeasance and Certain Other Events of Default In the event the Company exercises its option to omit compliance with certain covenants and provisions of the Indenture, as described in the next preceding paragraph, and the Notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on the Notes at the time of their Stated Maturity but may not be sufficient to pay amounts due on the Notes at the time of the acceleration resulting from such Event of Default. However, the Company shall remain liable for such payment. MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the written consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes; provided, however, that no such modification or amendment may, without the consent of each Holder affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (b) reduce the principal amount of, or premium, if any, or interest on, any Note, (c) change the place or currency of payment of principal of, premium, if any, or interest on, any Note, (d) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or in the case of a redemption, on or after the Redemption Date) of any Note, (e) reduce the percentage of outstanding Notes the consent of whose Holders is necessary to modify or amend the Indenture, (f) waive a default in the payment of principal of, premium, if any, or interest on, the Notes or (g) reduce the percentage of aggregate principal amount of outstanding Notes the consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. (Article Nine) COMMISSION REPORTS AND REPORTS TO HOLDERS The Indenture provides that the Company will furnish copies of the periodic reports required to be filed with the Commission under the Exchange Act to the Trustee. If the Company is not subject to the periodic reporting and informational requirements of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Commission, and the Company will provide to the Trustee, annual reports containing the information required to be contained in a Form 10-K under the Exchange Act, quarterly reports containing the information required to be contained in a Form 10-Q under the Exchange Act, and from time to time such other information as is required to be contained in a Form 8-K under the Exchange Act. The Company shall also furnish all such reports to Holders of the Notes or to the Trustee for forwarding to each Holder of Notes. If filing such reports by the Company with the Commission is not permitted under the Exchange Act, the Company will promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such reports to any person the Company reasonably believes is a prospective holder of Notes. (Section 4.18) NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR EMPLOYEES The Indenture provides that no recourse for the payment of the principal of, premium, if any, or interest on, any of the Notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or in any of the Notes or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, 80 shareholder, officer, director, employee or controlling person of the Company or of any successor Person thereof. Each Holder, by accepting such Notes, waives and releases all such liability. (Section 10.09) CONCERNING THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. (Section 7.01) The Indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest, it must eliminate such conflict or resign. 81 DESCRIPTION OF OTHER INDEBTEDNESS The following is a brief description of the basic terms of and instruments governing certain indebtedness and other obligations of the Company and its subsidiaries. Capitalized terms used in such instruments but not defined herein have the meaning ascribed to them in such instruments. These summaries do not purport to be complete and are subject to, and qualified in their entirety by reference to, the instruments governing such indebtedness and other obligations. 10 3/4% NOTES The Company presently has outstanding $158.8 million in aggregate principal amount of the 10 3/4% Notes. The 10 3/4% Notes are issued under an Indenture dated as of October 15, 1993 (the "1993 Indenture") between the Company (as successor by merger to AMCI) and Society National Bank, as trustee, and will mature on September 30, 2003. The Company assumed the obligations under the 10 3/4% Notes and the 1993 Indenture as a result of the acquisition of AMCI by the Company. The 10 3/4% Notes are senior, unsecured obligations of the Company, ranking pari passu in right of payment with all other senior indebtedness of the Company, including the Exchange Notes and the Notes, if any. Because the Company is a holding company, all existing and future liabilities of the Company's subsidiaries, including those under the Credit Agreement, are effectively senior to the 10 3/4% Notes. The 10 3/4% Notes are redeemable at the option of the Company, in whole or in part, at any time on or after September 30, 1998, initially at 105.375% of their principal amount, plus accrued interest, declining to 100% of their principal amount on September 30, 2000. In addition, at any time prior to September 30, 1996, the Company may, at its option, redeem up to $61.25 million aggregate principal amount of 10 3/4% Notes out of the proceeds of one or more underwritten public offerings of equity securities at a redemption price of 110% of their principal amount, plus accrued interest. The 1993 Indenture provides that upon a Change of Control (as defined in the 1993 Indenture) each holder may require the repurchase of its 10 3/4% Notes in cash at a purchase price of 101% of the principal amount thereof, plus accrued interest, pursuant to an offer to repurchase which must be mailed within 45 days after the Change of Control. The Company's acquisition of AMCI constituted a Change of Control under the 1993 Indenture. The Company purchased $16.2 million aggregate principal amount of 10 3/4% Notes in the related repurchase offer made pursuant to the 1993 Indenture. The 1993 Indenture contains certain covenants, which are substantially similar to those in the Indenture, that limit various actions by the Company and certain of its subsidiaries, including the incurrence of indebtedness, the payment of dividends and other distributions on capital stock, the purchase, redemption or retirement of capital stock or subordinated indebtedness, the making of certain investments, the extent to which the Company and its subsidiaries may agree to consensual restrictions on the ability of subsidiaries to pay dividends and indebtedness owed to the Company and other subsidiaries, the sale of subsidiary stock to third parties, transactions with affiliates and shareholders, the incurrence of liens, the participation in sale-leaseback transactions, sales of assets, mergers and amendments to the limited partnership agreements of TNCLP and TNLP. CREDIT AGREEMENT Following is a description of the Amended and Restated Credit Agreement dated as of May 12, 1995 (as amended from time to time, the "Credit Agreement") among Terra Capital, TNLP, certain guarantors, the issuing banks and the lenders named therein and Citibank, as agent. The Credit Agreement was initially entered into in connection with the Company's acquisition of AMCI. The Credit Agreement is filed as an exhibit to this Exchange Offer Registration Statement. See "Available Information." 82 The Facilities The Credit Agreement provides for the following credit facilities: a $209.3 million term loan facility maturing in October 1999 ("Terra Facility A"), a $79.5 million term loan facility maturing in October 2001 ("Terra Facility B"), a $175.0 million revolving credit facility maturing in October 1999 ("Terra Working Capital Facility") and a $25.0 million revolving credit facility maturing in October 1999 ("TNLP Working Capital Facility"). Terra Facilities A and B were used to finance the acquisition of AMCI and to refinance certain outstanding indebtedness of the Company and AMCI and their respective subsidiaries at the time of the AMCI acquisition. The Terra Working Capital Facility is available to provide for the on-going working capital needs of Terra Capital, Terra International and BMLP and, until December 31, 1995, up to $40 million may be used to finance the purchase of SPUs. The TNLP Working Capital Facility is available to provide for the on-going working capital needs of TNLP. The primary obligor with respect to the Credit Agreement is Terra Capital (with the exception of the TNLP Working Capital Facility). See "Summary--Company Structure." Interest and Commitment Fees Loans under the Credit Agreement bear interest at one, three or six-month LIBOR, plus the Applicable Margin (as defined in the Credit Agreement). The Applicable Margin is 1.5% for all of the Facilities except Terra Facility B until April 1996; thereafter the Applicable Margin will be subject to adjustment up to 2% and down to 1% depending on the Company's consolidated ratio of debt to cash flow. The Applicable Margin for Terra Facility B is 2.5%. Interest rates based on Citibank's Base Rate are also available under the Credit Agreement. Commitment fees of 0.5% per annum (subject to reduction if the ratio of debt to cash flow falls to a certain level) are charged for unused facilities. Amortization Subject to prepayment as summarized below, the loans under the Facilities are due as follows: Terra Facility A--semiannual payments of approximately $23,254,000 through October 20, 1999; Terra Facility B--semiannual payments of $500,000 through April 1999, and $15,100,000 thereafter through October 20, 2001; Terra Working Capital Facility--October 20, 1999 and TNLP Working Capital Facility--October 20, 1999. Prepayments on Terra Facility A and Terra Facility B will be required in an amount equal to 75% of Terra Capital's consolidated annual Excess Cash Flow (earnings before interest, taxes, depreciation and amortization less the sum of cash interest expense, minority interest payments, capital expenditures, "Specified Payments" (meaning all interest due on the Notes, the Exchange Notes and the 10 3/4% Notes, dividends on the common shares of the Company not exceeding $10 million in 1995, $13 million in 1996, $17 million in 1997, $20 million in 1998 and $23 million thereafter, dividends on equity securities issued to retire loans under the Credit Agreement and ordinary expenses of the Company plus up to $5 million per year for other pre- existing obligations), scheduled payments of principal on indebtedness, cash payments of taxes and certain optional prepayments of term loans under the Credit Agreement, with additional adjustments for changes in non-cash working capital), reducing to 50% after $20 million has been so paid (and, for 1995, subject to reduction based on any amount (excluding borrowed amounts) paid to purchase SPUs); 100% of the net proceeds over $10 million per year of non- ordinary course asset sales, reducing to 75% after the date on which the aggregate principal amount of term loans outstanding under the Credit Agreement has been reduced to $238,750,000 (the "Specified Paydown Date"); 100% of the net proceeds of any equity security or public debt issuances (excluding the Notes and the Exchange Notes) until the Specified Paydown Date; and 100% of the net insurance and condemnation proceeds from casualty events (net of expenses, liens and repair and replacement costs), reducing to 75% after the Specified Paydown Date. The Company does not expect to apply any of the insurance proceeds received as a result of the December 1994 explosion at the Port Neal Facility to the prepayment of the Facilities. On December 31, 1995, the Company is obligated to make a prepayment on Terra Facility A and Terra Facility B in an amount equal to 100% of 83 the net proceeds of the Offering to the extent such proceeds have not been applied to the purchase of SPUs. Optional prepayments of loans under the Credit Agreement may also be made without premium or penalty. Collateral Loans under the Credit Agreement are currently guaranteed by the Company, Terra Holdings, Terra Capital, TNC, BMLP, BMCH and TMC, and are secured by pledges of the stock of Terra Capital, Terra International, TNC, TMC and BMCH and the limited partner interests in BMLP and security interests in substantially all of the personal property of BMCH, TMC and TNLP; provided that the security interests in TNLP's assets currently secure only the TNLP Working Capital Facility. Covenants The Credit Agreement contains covenants customary for financings of this type including, without limitation: (a) a limitation on annual capital expenditures of $40 million, subject to a one year carryover of any unused amounts and as adjusted for unused acquisition amounts (provided that the Company may apply an amount equal to the insurance proceeds with respect to the explosion of the Port Neal Facility plus $30 million to the rebuilding of the Port Neal Facility), (b) a prohibition on optional redemptions and repurchases of subordinated indebtedness, (c) limitations on additional debt, liens, asset sales, investments, changes in lines of business and transactions with affiliates and (d) an annual limitation on acquisitions of $15.0 million (increasing to $50.0 million when Terra Facilities A and B have been paid down to $150.0 million or less and the debt to cash flow ratio has reached 2.5 to 1 or better), subject to a 50% carryover for one year of any unused amount. The Credit Agreement also includes financial covenants requiring the Company to meet and maintain certain financial tests. These include requirements that the Company maintain, on a consolidated basis: (a) a ratio of earnings before interest, taxes, amortization and depreciation to interest charges of greater than 4.0 to 1, increasing to 4.50 to 1 in 1998 and 5.0 to 1 in 2001, (b) until the Specified Paydown Date, a ratio of debt to cash flow of not more than 3.75 to 1 in 1995 and 3.0 to 1 thereafter, (c) after the Specified Paydown Date, a ratio of debt to capital of not more than 0.65 to 1 until September 30, 1995, decreasing periodically thereafter to 0.50 to 1.00 for periods on and after October 1, 1997, (d) a current ratio of at least 1.25 to 1 through 1997 and 1.50 to 1 thereafter and (e) a minimum net worth of $375.0 million plus increases in capital stock and 50% of net income in fiscal year 1994 and thereafter. Events of Default and Other Matters The Credit Agreement also contains customary events of default, including, without limitation, those relating to failure to pay amounts due, breach of a representation or warranty, failure to perform covenants, bankruptcy or insolvency, litigation and unsatisfied judgments, certain defaults under other debt agreements, and violations of the Employee Retirement Income Security Act of 1974 (as amended, "ERISA") and environmental laws. There will also be an event of default under the Credit Agreement if, prior to the Specified Paydown Date, Minorco ceases to own a majority of the outstanding voting stock of the Company and, after the Specified Paydown Date, if Minorco ceases to own at least 20% of the outstanding voting stock of the Company or Minorco ceases to be the single largest holder of capital stock of the Company. Under an agreement between the Company and Citibank, as agent for the lenders under the Credit Agreement, if dividends and other payments with respect to the capital stock of Terra Capital exceed the sum of Specified Payments plus 50% of the portion of Excess Cash Flow from the previous year that is not required to be used to prepay the facilities, the lenders under the Credit Agreement may choose to terminate their commitments to lend or cause the Company to repurchase their loans. 84 TERRA CANADA REVOLVING CREDIT FACILITY Terra Canada has a $35 million (Canadian) revolving credit facility (as amended, the "Canadian Revolving Facility") with the Bank of Nova Scotia to provide for working capital needs and general corporate purposes. The Canadian Revolving Facility expires November 23, 1995 and is renewable at the discretion of the bank. Indebtedness under the Canadian Revolving Facility is guaranteed by Terra International. Under this guarantee, Terra International is subject to, among other things, certain financial covenants and restrictions on indebtedness. U.S. dollar denominated loans under the Canadian Revolving Facility bear interest at one, two, three or six-month LIBOR plus 0.625%. Alternative interest rates based on the Canadian prime rate and the greater of the annual base rate of the Bank of Canada or a federal funds rate are also available. A facility fee of 0.125% per annum computed on the committed limit of the Canadian Revolving Facility, whether used or unused, is also payable. The Canadian Revolving Facility contains covenants customary for financings of this type including, but not limited to, (a) covenants by Terra Canada to maintain a consolidated tangible net worth (shareholders' equity less the value of all intangible assets on a consolidated basis) of $5.5 million (Canadian) and a ratio of consolidated aggregate current assets to current liabilities of not less than 1:1 and (b) limitations on additional liens and indebtedness. The Canadian Revolving Facility contains customary events of default, including, but not limited to, those related to failure to pay amounts due, certain defaults under other debt agreements and bankruptcy or insolvency. An event of default also occurs if Terra International ceases (or if such has been announced or is pending) to own all of the outstanding shares of capital stock of Terra Canada or if the Company ceases (or if such has been announced or is pending) to own, directly or indirectly, all of the issued and outstanding shares of capital stock of Terra International. OTHER OBLIGATIONS OF THE COMPANY'S SUBSIDIARIES The following briefly describes certain other indebtedness and obligations of Terra International and Terra Canada. See also the Company's financial statements and the notes thereto included and incorporated by reference herein. Terra International is a party to a receivables purchase agreement dated as of March 31, 1994, which expires March 31, 1996, allowing for the sale of an undivided interest in a designated revolving pool of accounts receivable up to $50 million in proceeds. As of March 31, 1995, $50 million of proceeds had been received. Terra International also has outstanding $9.2 million Industrial Development Revenue Bonds dated April 1, 1992 which bear interest at an average of 6.8% and are subject to sinking fund requirements of $165,000 in 1995 and increasing to $1,240,000 for the final payment in 2011. The bonds are secured by a first mortgage on the Company's headquarters building in Sioux City, Iowa. Terra International has $35.5 million unsecured notes outstanding as of March 31, 1995 with various institutional investors. Such notes bear interest at rates between 8.48% and 9.625% and mature between 1996 and 2005. Terra International is also a party to various non-cancelable operating leases for agricultural equipment, rail cars and office, production and storage facilities expiring on various dates through 2001. In addition, it is a party to various letters of credit and swap agreements and financial derivatives to manage exposure to interest rates and natural gas prices. Terra Canada has a $37 million lease arrangement covering certain assets of the Canadian Facility, which will be increased by approximately $20 million to provide for an expanded urea plant. Current annual lease payments are approximately $4 million (Canadian). The lease expires April 8, 1997, but can be extended for up to an additional five years with the consent of the lessor and is guaranteed by Terra International. Terra Canada has various foreign exchange forward and option contracts to manage exposure to currency fluctuations. These agreements are entered as designated hedges of fixed obligations and hedges of net foreign currency transaction exposures. It also has various swap agreements to manage exposure to interest rates. 85 TNCLP SENIOR PREFERENCE UNITS TNC holds a 2% interest as general partner in TNCLP and TNLP on a combined basis. TNCLP's limited partnership interests are divided into (i) Senior Preference Units with a 39.8% limited partner interest and (ii) Junior Preference Units and Common Units with a combined 58.2% limited partner interest. TNC owns all the outstanding Junior Preference Units and Common Units. The Senior Preference Units are entitled to receive a minimum quarterly distribution of $0.605 per unit, plus arrearages, before any amounts are paid to TNC on its Junior Preference Units and Common Units. In addition, as required under the limited partnership agreement, an $18.5 million reserve has been funded from excess available cash to support the payment of future distributions on the Senior Preference Units. This reserve remained fully funded at March 31, 1995. After payment of the minimum quarterly distribution on the Senior Preference Units, assuming the reserve is fully funded, the Junior Preference Units are entitled to receive the minimum quarterly distribution, plus arrearages, and after the Junior Preference Units are paid, the Common Units are entitled to receive the minimum quarterly distribution, plus arrearages other than arrearages outstanding on June 30 of any year on or prior to the Junior Conversion Date (as defined in TNCLP's limited partnership agreement), which shall be eliminated. Available cash remaining after the Common Units have received the minimum quarterly distribution is distributed to all unit holders pro rata, except that the right of the Senior Preference Units to participate in any such additional distribution terminates on the Senior Conversion Date, which is generally defined as the date (but no sooner than December 31, 1996) on which cash distributions of at least $2.64 per Senior Preference Unit have been paid for three consecutive 12-month periods. TNC, as general partner, also receives 2% of all distributions of Available Cash and is entitled, as an incentive, to larger percentage interests to the extent that distributions significantly exceed the minimum quarterly distributions. TNCLP's limited partnership agreement provides that if the Company or its affiliates were to acquire 75% or more of the Senior Preference Units, TNCLP would have the right to call, or to assign to the Company the right to acquire, all Senior Preference Units not held by the Company and its affiliates at a price based on recent market prices. TNCLP's limited partnership agreement also provides that, on or after the Senior Conversion Date but no earlier than March 31, 1997, TNCLP will have the right to redeem all outstanding Senior Preference Units at a price based on recent market prices. In such event, holders of Senior Preference Units would have the right to convert their Senior Preference Units into Common Units (subject to certain listing requirements). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Open Market Purchase Program for TNCLP SPUs." 86 PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale and Participating Broker-Dealers shall be authorized to deliver this Prospectus for a period not exceeding 180 days after the Expiration date. In addition, until , all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sales of the Exchange Notes by Participating Broker-Dealers. Exchange Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such Exchange Notes. Any Participating Broker-Dealer that resells the Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any omissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. See "Exchange Offer--Purpose and Effect of the Exchange Offer." 87 AVAILABLE INFORMATION The Company has filed with the Commission the Exchange Offer Registration Statement pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company and TNCLP are subject to the information requirements of the Exchange Act and in accordance therewith are required to file periodic reports and other information with the Commission. Reports, proxy statements and other information filed by the Company and TNCLP as well as the Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at 75 Park Place, New York, New York 10007 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, reports, proxy statements and other information may be inspected, with respect to the Company and TNCLP, at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005 and, with respect to the Company, at the offices of the Toronto Stock Exchange, Exchange Tower, 2 First Canadian Place, Toronto, Ontario M5X1J2 Canada, upon which the common stock of the Company is listed. The Indenture provides that the Company will furnish copies of the periodic reports required to be filed with the Commission under the Exchange Act to the Trustee. If the Company is not subject to the periodic reporting and information requirements of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Commission, and the Company will provide to the Trustee, annual reports containing the information required to be contained in a Form 10-K under the Exchange Act, quarterly reports containing the information required to be contained in a Form 10-Q under the Exchange Act and from time to time such other information as is required to be contained in a Form 8-K under the Exchange Act. The Company shall also furnish all such reports to Holders of the Exchange Notes or to the Trustee for forwarding to each Holder of Exchange Notes. If filing such reports by the Company with the Commission is not permitted under the Exchange Act, the Company will promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such reports to any person the Company reasonably believes is a prospective holder of Exchange Notes. 88 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission (File No. 1-8520) are incorporated herein by reference: (i) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, (ii) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995; and (iii) the Company's Current Reports on Form 8-K dated March 27, 1995 and May 11, 1995, as amended by the Company's Current Report on Form 8-K/A dated May 12, 1995. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the date on which the Exchange Offer is consummated shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document which also is or is deemed to be incorporated by reference herein modified or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE FROM GEORGE H. VALENTINE, VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY, TERRA INDUSTRIES INC., TERRA CENTRE, 600 FOURTH STREET, P.O. BOX 6000, SIOUX CITY, IOWA 51102-6000, TELEPHONE (712) 277-1340. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE. TAX CONSIDERATIONS The following discussion is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. The Company recommends that each holder consult such holder's own tax advisor as to the particular tax consequences of exchanging such holder's Notes for Exchange Notes, including the applicability and effect of any state, local or foreign tax laws. The exchange of the Notes for Exchange Notes pursuant to the Exchange Offer should not be treated as an "exchange" for federal income tax purposes because the Exchange Notes should not be considered to differ materially in kind or extent from the Notes. Rather, the Exchange Notes received by a holder should be treated as a continuation of the Notes in the hands of such holder. As a result, there should be no federal income tax consequences to holders exchanging Notes for Exchange Notes pursuant to the Exchange Offer. LEGAL MATTERS Certain legal matters regarding the issuance of the Notes pursuant to the Offering will be passed upon for the Company by Kirkland & Ellis, Chicago, Illinois. EXPERTS The consolidated financial statements and related financial statement schedules of the Company as of December 31, 1994 and 1993, for each of the three years in the period ended December 31, 1994, included and incorporated by reference in this Prospectus and in the Exchange Offer Registration Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are included and incorporated by reference herein (which reports express an unqualified opinion and include an explanatory paragraph referring to the Company's change in its method of accounting for major maintenance turnarounds and post-employment benefits effective January 1, 1994), and have been so included and incorporated by reference in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 89 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Terra Industries Inc. Consolidated Financial Statements: Independent Auditors' Report............................................ F-2 Consolidated Statements of Financial Position--March 31, 1995 (unaudited) and December 31, 1994 and 1993............................................. F-3 Consolidated Statements of Income--Three Months Ended March 31, 1995 and 1994 (unaudited), Year Ended December 31, 1994, 1993 and 1992.......... F-4 Consolidated Statements of Changes in Stockholders' Equity--Three Months Ended March 31, 1995 and 1994 (unaudited), Year Ended December 31, 1994, 1993 and 1992.................................................... F-5 Consolidated Statements of Cash Flows--Three Months Ended March 31, 1995 and 1994 (unaudited), Year Ended December 31, 1994, 1993 and 1992...... F-6 Notes to Consolidated Financial Statements.............................. F-7
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Terra Industries Inc. We have audited the accompanying consolidated statements of financial position of Terra Industries Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Terra Industries Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, the Corporation changed its method of accounting for major maintenance turnarounds and post-employment benefits effective January 1, 1994. DELOITTE & TOUCHE LLP Omaha, Nebraska February 1, 1995 F-2 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (IN THOUSANDS, EXCEPT SHARE AND PER-SHARE AMOUNTS)
DECEMBER 31, MARCH 31, --------------------- 1995 1994 1993 ----------- ---------- --------- (UNAUDITED) ASSETS ------ Cash and short-term investments............. $ 133,145 $ 158,384 $ 65,102 Accounts receivable, less allowance for doubtful accounts of $9,739, $8,224 and $5,788..................................... 213,881 157,026 122,774 Inventories................................. 538,094 332,952 244,995 Deferred tax asset--current................. 49,641 43,992 26,011 Other current assets........................ 53,566 31,069 10,586 ---------- ---------- --------- Total current assets.................... 988,327 723,423 469,468 ---------- ---------- --------- Equity and other investments................ 12,764 14,181 2,218 Property, plant and equipment, net.......... 569,348 552,843 110,670 Deferred tax asset--non-current............. -- -- 24,742 Excess of cost over net assets of acquired businesses................................. 320,908 320,559 12,353 Partnership distribution reserve fund....... 18,480 18,480 -- Net assets of discontinued operations....... -- -- 3,488 Other assets................................ 54,600 58,484 11,543 ---------- ---------- --------- Total assets............................ $1,964,427 $1,687,970 $ 634,482 ========== ========== ========= LIABILITIES ----------- Debt due within one year.................... $ 76,009 $ 67,658 $ 9,636 Accounts payable............................ 301,039 181,050 99,886 Accrued and other liabilities............... 295,316 200,774 128,659 ---------- ---------- --------- Total current liabilities............... 672,364 449,482 238,181 ---------- ---------- --------- Long-term debt.............................. 512,820 511,706 119,061 Deferred income taxes....................... 93,656 84,246 451 Other liabilities........................... 53,316 53,477 33,809 Minority interest........................... 182,183 170,630 -- Commitments and contingencies (Note 11)..... -- -- -- ---------- ---------- --------- Total liabilities....................... 1,514,339 1,269,541 391,502 ---------- ---------- --------- STOCKHOLDERS' EQUITY -------------------- Capital stock Common Shares, authorized 133,500 shares; outstanding 81,018, 80,965 and 69,455 shares................................... 133,800 133,770 122,257 Paid-in capital............................. 630,241 630,111 516,128 Cumulative translation adjustment........... (1,093) (1,259) (488) Accumulated deficit......................... (312,860) (344,193) (394,917) ---------- ---------- --------- Total stockholders' equity.............. 450,088 418,429 242,980 ---------- ---------- --------- Total liabilities and stockholders' equity................................. $1,964,427 $1,687,970 $ 634,482 ========== ========== =========
See accompanying Notes to the Consolidated Financial Statements. F-3 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------ ---------------------------------- 1995 1994 1994 1993 1992 -------- -------- ---------- ---------- ---------- (UNAUDITED) Revenues Net sales............. $434,121 $255,264 $1,633,499 $1,212,510 $1,062,045 Other income, net..... 9,219 4,240 32,448 25,491 20,146 -------- -------- ---------- ---------- ---------- 443,340 259,504 1,665,947 1,238,001 1,082,191 -------- -------- ---------- ---------- ---------- Cost and Expenses Cost of sales......... 291,772 221,974 1,330,202 1,021,187 904,246 Depreciation and amortization......... 15,559 4,456 27,218 15,470 14,994 Selling, general and administrative expense.............. 52,995 40,306 193,975 161,791 137,232 Equity in loss (earnings) of unconsolidated affiliates........... 1,197 554 (743) (2,275) -- -------- -------- ---------- ---------- ---------- 361,523 267,290 1,550,652 1,196,173 1,056,472 -------- -------- ---------- ---------- ---------- Income (loss) from operations........... 81,817 (7,786) 115,295 41,828 25,719 Interest income....... 2,666 856 5,541 3,261 3,084 Interest expense...... (14,007) (2,935) (22,082) (12,944) (10,617) Minority interest..... (16,593) -- (8,809) -- -- -------- -------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes.. 53,883 (9,865) 89,945 32,145 18,186 Income tax provision (benefit)............ 20,930 (3,580) 33,700 9,300 7,757 -------- -------- ---------- ---------- ---------- Income (loss) from continuing operations........... 32,953 (6,285) 56,245 22,845 10,429 Loss from discontinued operations: (Loss) income from operations, net of taxes.............. -- -- -- -- (4,025) Gain (loss) on disposition, net of taxes.............. -- -- -- -- 2,360 -------- -------- ---------- ---------- ---------- Income (loss) before extraordinary items and cumulative effect of accounting changes.............. 32,953 (6,285) 56,245 22,845 8,764 Extraordinary gain (loss) on early retirement of debt... -- (2,614) (3,060) -- -- Cumulative effect of accounting changes... -- 3,376 3,376 -- 22,265 -------- -------- ---------- ---------- ---------- Net Income (Loss)....... $ 32,953 $ (5,523) $ 56,561 $ 22,845 $ 31,029 ======== ======== ========== ========== ========== Weighted average number of shares outstanding.. 81,215 69,961 72,870 69,064 69,103 ======== ======== ========== ========== ========== Income (Loss) Per Share: Continuing operations. $ 0.41 $ (0.09) $ 0.77 $ 0.33 $ 0.15 Discontinued operations........... -- -- -- -- (0.02) -------- -------- ---------- ---------- ---------- Income (loss) before extraordinary items.. 0.41 (0.09) 0.77 0.33 0.13 Extraordinary gain (loss) on early retirement of debt... -- (0.04) (0.04) -- -- Cumulative effect of accounting changes... -- 0.05 0.05 -- 0.32 -------- -------- ---------- ---------- ---------- Net Income (Loss)....... $ 0.41 $ (0.08) $ 0.78 $ 0.33 $ 0.45 ======== ======== ========== ========== ==========
See accompanying Notes to the Consolidated Financial Statements. F-4 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
CUMULATIVE COMMON TRUST PAID-IN TRANSLATION ACCUMULATED SHARES SHARES CAPITAL ADJUSTMENT DEFICIT TOTAL -------- ------- -------- ----------- ----------- -------- December 31, 1991....... $ 74,097 $28,025 $535,579 $ -- $(447,405) $190,296 Exchange of HBMS Special Shares....... 9,791 (5,713) (4,078) -- -- -- Exercise of stock options.............. 36 -- 95 -- -- 131 Stock Incentive Plan.. 7 -- 13 -- -- 20 Net Income............ -- -- -- -- 31,029 31,029 -------- ------- -------- ------- --------- -------- December 31, 1992....... 83,931 22,312 531,609 -- (416,376) 221,476 Exchange of HBMS Special Shares....... 38,213 (22,312) (15,901) -- -- -- Exercise of stock options.............. 213 -- 767 -- -- 980 Stock repurchase...... (107) -- (360) -- -- (467) Translation adjustment........... -- -- -- (488) -- (488) Stock Incentive Plan.. 7 -- 13 -- -- 20 Dividends............. -- -- -- -- (1,386) (1,386) Net Income............ -- -- -- -- 22,845 22,845 -------- ------- -------- ------- --------- -------- December 31, 1993....... 122,257 -- 516,128 (488) (394,917) 242,980 Conversion of debentures........... 731 -- 5,176 -- -- 5,907 Exercise of stock options.............. 847 -- 3,819 -- -- 4,666 Issuance of Common Shares............... 9,700 -- 103,300 -- -- 113,000 Translation adjustment........... -- -- -- (771) -- (771) Stock Incentive Plan.. 235 -- 1,688 -- -- 1,923 Dividends............. -- -- -- -- (5,837) (5,837) Net Income............ -- -- -- -- 56,561 56,561 -------- ------- -------- ------- --------- -------- December 31, 1994....... 133,770 -- 630,111 (1,259) (344,193) 418,429 Unaudited: Stock Incentive Plan.. 30 -- 130 -- -- 160 Translation adjustment........... -- -- -- 166 -- 166 Dividends............. -- -- -- -- (1,620) (1,620) Net Income............ -- -- -- -- 32,953 32,953 -------- ------- -------- ------- --------- -------- March 31, 1995........ $133,800 $ -- $630,241 $(1,093) $(312,860) $450,088 ======== ======= ======== ======= ========= ========
See accompanying Notes to the Consolidated Financial Statements. F-5 TERRA INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------ --------------------------- 1995 1994 1994 1993 1992 -------- -------- -------- ------- -------- (UNAUDITED) Operating Activities Net income (loss)........... $ 32,953 $ (5,523) $ 56,561 $22,845 $ 31,029 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization............. 16,174 4,456 27,218 15,470 14,994 Income taxes.............. 3,761 (2,759) 20,956 5,500 6,313 Cumulative effect of accounting changes....... -- (3,376) (3,376) -- (22,265) Minority interest in earnings................. 16,593 -- 8,809 -- -- Other non-cash items...... (4,060) 3,765 10,923 (839) 2,826 Change in current assets and liabilities, excluding working capital purchased/sold: Accounts receivable....... (59,703) (53,478) 19,615 (24,540) (1,764) Inventories............... (201,662) (143,609) (59,303) (6,718) (32,136) Other current assets...... (4,489) (955) (13,056) (2,893) (875) Accounts payable.......... 119,989 151,361 60,478 (9,945) (2,071) Accrued and other liabilities.............. 83,071 42,870 39,405 2,452 38 Other....................... (2,744) (489) 212 (2,354) 684 -------- -------- -------- ------- -------- Net Cash (Used In) Provided by Operating Activities......... (117) (7,737) 168,442 (1,022) (3,227) -------- -------- -------- ------- -------- Investing Activities Acquisitions, net of cash acquired................... (10,340) (11,306) (373,722) (58,260) -- Purchase of property, plant and equipment.............. (14,007) (10,463) (31,213) (21,620) (17,620) Proceeds from asset sales... -- -- -- 24,391 23,065 Discontinued operations..... (478) (988) (2,138) 5,630 (5,504) Proceeds from investments... 246 573 690 537 -- -------- -------- -------- ------- -------- Net Cash (Used In) Provided By Investing Activities......... (24,579) (22,184) (406,383) (49,322) (59) -------- -------- -------- ------- -------- Financing Activities Net short-term borrowings... 7,199 69,758 13,795 7,313 -- Proceeds from issuance of long-term debt............. -- -- 326,407 250 30,000 Principal payments on long- term debt.................. (1,403) (67,171) (101,416) (12,545) (5,842) Debt issuance costs......... -- (2,533) (13,581) -- -- Stock issuance/repurchase-- net........................ 155 1,131 117,666 513 -- Distribution to minority interests.................. (5,040) -- (5,040) -- -- Dividends................... (1,620) (1,392) (5,837) (1,386) -- -------- -------- -------- ------- -------- Net Cash (Used In) Provided by Financing Activities......... (709) (207) 331,994 (5,855) 24,158 -------- -------- -------- ------- -------- Foreign exchange effect on cash and short-term investments.................. 166 (454) (771) (488) -- -------- -------- -------- ------- -------- (Decrease) Increase in Cash and Short-Term Investments... (25,239) (30,582) 93,282 (56,687) 20,872 Cash and Short-Term Investments at Beginning of Period....................... 158,384 65,102 65,102 121,789 100,917 -------- -------- -------- ------- -------- Cash and Short-Term Investments at End of Period. $133,145 $ 34,520 $158,384 $65,102 $121,789 ======== ======== ======== ======= ======== Interest Paid................. $ 16,500 $11,800 $ 10,400 ======== ======= ======== Taxes Paid.................... $ 22,600 $ 3,800 $ 6,000 ======== ======= ========
See accompanying Notes to the Consolidated Financial Statements. F-6 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation: The Consolidated Financial Statements include the accounts of Terra Industries Inc. and all majority-owned subsidiaries (the Corporation). Operating results and, where appropriate, other data presented for prior years have been reclassified to reflect discontinued operations described in Note 4-- Discontinued Operations. Foreign exchange: Results of operations for the Canadian subsidiary are translated using average currency exchange rates during the period while assets and liabilities are translated using current rates. Resulting translation adjustments are recorded as currency translation adjustments in stockholders' equity. Cash and short-term investments: The Corporation considers short-term investments with an original maturity of three months or less to be cash equivalents which are reflected at their approximate fair value. Inventories: Inventories are stated at the lower of cost or estimated net realizable value. The cost of inventories is determined using the first-in, first-out method. Property, plant and equipment: Expenditures for plant and equipment additions, replacements and major improvements are capitalized. Related depreciation is charged to expense on a straight-line basis over estimated useful lives. Maintenance and repair costs are expensed as incurred. Plant turnaround costs: Costs related to the periodic scheduled major maintenance of continuous process production facilities (plant turnarounds) are deferred and charged to product costs on a straight-line basis during the period to the next scheduled turnaround, generally two years. Hedging transactions: Realized gains and losses from hedging activities are deferred and recognized in the month to which the hedge transactions relate. Reclassifications: Certain reclassifications have been made to prior years' financial statements to conform with current year presentation. Per-share results: Earnings-per-share data are based on the weighted average number of Common Shares outstanding. The dilutive effect of the Corporation's outstanding restricted shares, stock options and convertible debentures was not significant. Interim Financial Information: The unaudited consolidated financial statements as of March 31, 1995 contain all adjustments necessary to summarize fairly the financial position of the Corporation and all majority-owned subsidiaries and the results of the Corporation's operations for the three months ended March 31, 1995 and 1994. All such adjustments are of a normal recurring nature. Because of the seasonal nature of the Corporation's operations and effects of weather-related conditions in several of its marketing areas, earnings of any single reporting period should not be considered as indicative of results for a full year. F-7 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. ACQUISITIONS On October 20, 1994, the Corporation acquired Agricultural Minerals and Chemicals Inc. (AMCI) for $400 million plus an estimated working capital adjustment approximating $100 million. AMCI, through its subsidiaries manufactures nitrogen-based fertilizers and industrial use products, and methanol. The subsidiaries controlled by the Corporation as a result of the AMCI acquisition include Terra Nitrogen Corporation (TNC) and Terra Methanol Corporation (TMC). TNC has a 60.2 percent ownership interest in Terra Nitrogen Company, L.P. (TNCLP), formerly Agricultural Minerals Company, L.P., which operates nitrogen products manufacturing facilities in Verdigris, Oklahoma and Blytheville, Arkansas through an investment in an operating partnership, Terra Nitrogen, Limited Partnership (TNLP), formerly Agricultural Minerals, Limited Partnership. TMC is the general partner of Beaumont Methanol Limited Partnership (BMLP) which operates a methanol production facility in Beaumont, Texas. The acquisition has been accounted for using the purchase method of accounting. The excess of purchase price over the fair value of net assets acquired will be amortized on a straight-line basis over 18 years which is estimated to be the average remaining useful life of the manufacturing plants acquired. To finance the acquisition of AMCI, the Corporation issued 9.7 million Common Shares for aggregate net proceeds of approximately $113 million, entered into credit arrangements to issue $310 million of long-term debt, and refinanced certain bank debt and credit lines of the Corporation, AMCI and AMCI's subsidiaries aggregating $260 million of which $152 million in borrowings were outstanding. The Corporation used $40 million of the new debt issue to refinance short-term debt. The credit agreement provides for a $175 million revolving line of credit for use by Terra International, Inc. and BMLP and a $50 million revolving line of credit for TNLP. As a result of the acquisition of AMCI, the Corporation also assumed AMCI's obligations including its $175 million in aggregate principal of 10.75% Senior Notes due 2003 (see Note 10-- Long Term Debt). On September 15, 1994, the Corporation acquired an approximate one-third interest in Royster-Clark, Inc. for $12.2 million in cash. Royster-Clark is a 100 location distributor of crop input and protection products in the mid- Atlantic region. On December 31, 1993, Terra International, Inc. purchased net assets of certain operations of Asgrow Florida Company, Inc. (Terra Asgrow Florida), a distributor of fertilizer, chemicals and seed, for $39.8 million. Terra Asgrow Florida operates 16 distribution centers and is a supplier to the vegetable and ornamental plant markets, mostly in Florida. On April 8, 1993, a wholly owned subsidiary of the Corporation, Terra International (Canada) Inc. (Terra Canada) acquired rights to an anhydrous ammonia manufacturing plant and related upgrading facilities (the nitrogen plant) located at Courtright, Ontario effective as of March 31, 1993. In addition, Terra Canada purchased working capital associated with the nitrogen plant and interest in 32 farm service centers operating under the trademark, Agromart(TM). All but two of the Agromarts(TM) are owned by corporations in which Terra Canada has a 50% interest, and the remaining 50% interests are owned by local management and other investors. The remaining two Agromarts(TM) are wholly owned by Terra Canada. The amount paid in connection with the transaction was approximately $73 million (Cdn) of which approximately $47 million (Cdn) was provided through lease financing and the remainder was funded by a working capital line of credit and cash. Operating results of the acquired businesses subsequent to the respective dates of each acquisition are included in the Consolidated Statements of Income. The following represents unaudited pro forma summary F-8 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) results of operations as if the acquisitions of AMCI, Terra Asgrow Florida and Terra Canada had occurred at the beginning of 1993:
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED --------------------- MARCH 31, 1994 1994 1993 ------------------ ---------- ---------- (IN THOUSANDS, EXCEPT PER-SHARE DATA) Revenues........................ $356,088 $2,084,800 $1,716,300 Income (loss) before extraordi- nary items and cumulative ef- fect of accounting changes..... $ (2,469) $ 110,370 $ 14,060 Net income (loss)............... $ (1,707) $ 110,680 $ 11,510 Income (loss) per share before extraordinary items............ $ (0.03) $ 1.37 $ 0.18 Net income (loss) per share..... $ (0.02) $ 1.37 $ 0.15
The pro forma operating results were adjusted to include lease expense rather than depreciation for the Terra Canada nitrogen plant, increased costs of seed sales, depreciation of the fair value of capital assets acquired based on estimated useful lives at respective acquisition dates, amortization of intangibles, reduction of incentive compensation expense for plans terminated at acquisition, interest expense on the acquisition borrowings, the issuance of common stock and the effect of income taxes. The pro forma information listed above does not purport to be indicative of the results that would have been obtained if the operations were combined during the above periods, and is not intended to be a projection of future operating results or trends. 3. ACCOUNTING CHANGES Coincident with the 1994 acquisition of AMCI (see Note 2--Acquisitions), the Corporation changed its method of accounting for major maintenance turnarounds at manufacturing facilities and recorded a $4.2 million credit, net of income taxes of $2.7 million, as the cumulative effect at January 1, 1994 of the change in accounting principle. Excluding the cumulative effect, this change increased net income for 1994 by approximately $1.0 million or $0.01 per share. Under the new accounting principle the Corporation defers the cost of turnarounds when incurred and charges the costs to production ratably over the period until the next scheduled turnaround. Previously, estimated costs of turnarounds were charged to product costs over the period preceding each scheduled major maintenance, generally two years. The change was made to charge turnaround costs to production over the period most clearly benefited by the turnaround. In 1994, the Corporation adopted Statement of Financial Accounting Standard (SFAS) 112, "Employers Accounting for Post-Employment Benefits." This change required the Corporation to recognize future liabilities of $0.8 million, net of income taxes of $0.5 million, for benefits to disabled employees. In 1992, the Corporation adopted SFAS 106, "Employers Accounting for Post-Retirement Benefits Other than Pensions." In connection with the adoption of SFAS 106, the Corporation elected to recognize immediately the prior service cost of providing post-retirement medical benefits during the active service of the employee. This resulted in a one-time charge of $5.7 million, net of income taxes of $3.5 million. Net income from continuing operations for 1992 was reduced $0.7 million from that which would have been reported under the Corporation's previous accounting method. The pro forma effect of the change on prior years is not determinable. Prior to the changes in accounting for SFAS 106 and 112, the Corporation recognized expense in the period the benefits were paid. These benefit costs were not significant in prior years. In 1992, the Corporation also adopted SFAS 109, "Accounting for Income Taxes." Accounting for income taxes under SFAS 109 requires recognition of deferred tax assets and liabilities for the effect of future F-9 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) tax consequences of events recognized in the Corporation's financial statements or tax returns. SFAS 109 requires the Corporation to recognize the income tax benefit of operating loss and tax credit carryforwards expected to be realized. A $28.0 million credit was recorded as the cumulative effect at January 1, 1992 of a change in accounting principle. Income tax expense from continuing operations was increased $6.5 million for 1992 pursuant to SFAS 109. 4. DISCONTINUED OPERATIONS As of December 31, 1992, the Corporation's Board of Directors approved plans to sell the leasing and construction materials businesses as well as equity interests in a copper alloy producer, an undeveloped beryllium mine property and its gold mining affiliate. As a result of this decision and a gain on the sale of remaining coal properties, discontinued in 1990, the Corporation realized a $2.4 million gain on disposition of discontinued operations in 1992. During 1993, the Corporation sold the leasing and construction materials businesses. Financial results of the coal, leasing and other discontinued businesses for 1994 and 1993 have been applied against their respective reserves and 1992 amounts have been included in discontinued operations and are as follows:
1992 ------------- (IN MILLIONS) Revenues: Leasing................................................... $ 5.9 Construction materials.................................... 27.8 ----- $33.7 ===== Income (loss) from operations, net of income taxes: Leasing................................................... $(2.8) Construction materials.................................... (0.8) Other..................................................... (0.4) ----- $(4.0) =====
5. RELATIONSHIP WITH MAJORITY STOCKHOLDER Minorco, through its beneficial ownership of Common Shares, owns approximately 53 percent of the equity of the Corporation. In 1994, Minorco purchased 56% of the Corporation's common share offering at the offering price less underwriter's discount. In 1992, the Corporation discontinued its remaining operations in the gold mining business conducted through its 50 percent interest in Western Gold Exploration and Mining Company, Limited Partnership (WestGold). The remaining 50 percent interest is owned by Minorco. The Corporation subleases office space to Minorco, procures certain insurance coverages for Minorco and related companies and shares the cost of an executive of both organizations. Payments in settlement of these services totaled $4.6 million in 1994, $4.7 million in 1993 and $4.5 million in 1992. 6. INVENTORIES Inventories consisted of the following:
DECEMBER 31, MARCH 31, ----------------- 1995 1994 1993 ---------- -------- -------- (UNAUDITED) (IN THOUSANDS) Raw materials............................... $ 44,855 $ 38,988 $ 22,983 Finished goods.............................. 493,239 293,964 222,012 -------- -------- -------- Total................................... $538,094 $332,952 $244,995 ======== ======== ========
F-10 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consisted of the following:
DECEMBER 31, MARCH 31, -------------------- 1995 1994 1993 ---------- --------- --------- (UNAUDITED) (IN THOUSANDS) Land and buildings..................... $ 89,964 $ 89,154 $ 66,343 Plant and equipment.................... 631,330 605,900 179,095 Finance leases......................... 7,471 7,471 -- --------- --------- --------- 728,765 702,525 245,438 Less accumulated depreciation and amortization.......................... (159,417) (149,682) (134,768) --------- --------- --------- Total.............................. $ 569,348 $ 552,843 $ 110,670 ========= ========= =========
8. DEBT DUE WITHIN ONE YEAR Debt due within one year consisted of the following:
DECEMBER 31, MARCH 31, ---------------- 1995 1994 1993 ----------- ------- ------- (UNAUDITED) (IN THOUSANDS) Short-term borrowings....................... $28,307 $21,108 $ 7,313 Current maturities of long-term debt........ 47,702 46,550 2,323 ------- ------- ------- Total................................... $76,009 $67,658 $ 9,636 ======= ======= ======= Weighted average short-term borrowings...... $49,242 $23,163 ======= ======= Weighted average interest rate.............. 6.5% 4.5% ======= =======
The Corporation has entered into a credit agreement to provide Bank Term Loans (see Note 10--Long-Term Debt) and $225 million in short-term domestic revolving credit facilities, which are used primarily to provide for domestic seasonal working capital needs. The Corporation also has a $24.9 million ($35 million Cdn) revolving credit facility used to provide for working capital needs for its Canadian operations. There was $14 million outstanding at December 31, 1994 under the domestic facilities and $7.1 million outstanding under the Canadian facility. Interest on borrowings under these lines is charged at current market rates. Under the credit agreement, the Corporation has agreed, among other things, to maintain certain financial covenants including minimum net worth and maximum debt leverage as well as minimum current and interest coverage ratios, and to adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayment of subordinated indebtedness, changes in lines of business and transactions with affiliates. The Corporation's domestic revolving credit facilities expire October 20, 1999. A commitment fee is charged on the unused portion of the facilities under the credit agreement, initially 1/2 percent reducing to 3/8 percent when a certain debt to cash flow ratio is achieved. The credit agreement is secured by the stock of certain of the Corporation's principal subsidiaries as well as the personal property of the acquired subsidiaries. Under the Canadian facility, the Corporation has agreed, among other things, to maintain certain levels of working capital and net worth, adhere to maximum debt leverage limitations and restrict payments to the Corporation from operating subsidiaries. The Canadian facility expires November 23, 1995 and is renewable every 120 days for a 360-day term. A commitment fee of 1/8 percent is paid on the facility. F-11 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. ACCRUED AND OTHER LIABILITIES Accrued and other liabilities consisted of the following:
DECEMBER 31, MARCH 31, ----------------- 1995 1994 1993 ---------- -------- -------- (UNAUDITED) (IN THOUSANDS) Customer deposits........................... $134,579 $ 66,470 $ 50,714 Payroll and benefit costs................... 26,574 45,630 17,072 Income taxes................................ 27,654 8,727 17,025 Other....................................... 106,509 79,947 43,848 -------- -------- -------- Total................................... $295,316 $200,774 $128,659 ======== ======== ========
10. LONG-TERM DEBT Long-term debt consisted of the following:
DECEMBER 31, MARCH 31, ------------------ 1995 1994 1993 ---------- -------- -------- (UNAUDITED) (IN THOUSANDS) Unsecured Senior Notes, 10.75%, due 2003. $158,755 $158,755 $ -- Bank term loans, floating rate, due in installments through 2001............... 310,000 310,000 -- Bank term loan, floating rate, due 1999.. 35,000 35,000 -- 8.5% Convertible Subordinated Debentures. -- -- 72,057 Unsecured Senior Notes, 8.48%, due 2005.. 30,000 30,000 30,000 Industrial Development Revenue Bonds bearing interest at an average 6.8% with increasing payments from 1995 to 2011... 9,210 9,210 9,355 Unsecured Notes, 8.75% to 9.63%, due 1996 to 1998................................. 5,500 6,500 8,500 Other.................................... 12,057 8,791 1,472 -------- -------- -------- 560,522 558,256 121,384 Less current maturities.................. (47,702) (46,550) (2,323) -------- -------- -------- Total................................ $512,820 $511,706 $119,061 ======== ======== ========
Scheduled principal payments for each of the five years 1995 through 1999 are $46.5 million, $46.8 million, $44.9 million, $44.9 million and $93.4 million, respectively. In conjunction with the October 1994 acquisition of AMCI, the Corporation assumed the obligations under the $175 million unsecured 10.75% Senior Notes due in full September 30, 2003. Under the 10.75% Senior Notes Indenture, the holders have a 30-day option to require the Corporation to purchase their notes at a price of 101% of the principal amount upon a change of control. Following the Corporation's acquisition of AMCI, $16.2 million of notes were redeemed. The 10.75% Senior Notes are redeemable at the option of the Corporation, in whole or part, at any time on or after September 30, 1998, initially at 105.375% of their principal amount, plus accrued interest, declining to 102.688% on or after September 30, 1999, and declining to 100% on or after September 30, 2000. In addition, at any time prior to September 30, 1996, the Corporation may, at its option, redeem up to $61.25 million aggregate principal amount out of the proceeds of one or more public offerings of equity securities at a redemption price of 110% of their principal amount, F-12 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) plus accrued interest. The 10.75% Senior Notes Indenture contains certain restrictions, including the issuance of additional debt, payment of dividends, issuance of capital stock, certain transactions with affiliates, incurrence of liens, sale of assets, and sale-leaseback transactions. The Corporation entered into a credit agreement with financial institutions to provide several Bank Term Loans (Loans) to finance a portion of its acquisition of AMCI and to refinance existing debt of $40 million at the Corporation and $35 million at TNLP. Interest on the Loans is at current market rates, a portion of which has been fixed (see Note 12--Derivative Financial Instruments). Loans are secured by the stock of certain of the Corporation's principal subsidiaries as well as the personal property of subsidiaries acquired from AMCI. The Loans are generally to be repaid over their five- to seven-year terms in semi-annual payments and can be repaid without penalty or premium at any time at the option of the Corporation. The Loans are required to be reduced by mandatory prepayments based on certain cash flow levels as defined in the credit agreement. The credit agreement also contains covenants similar to the domestic revolving credit agreement described in Note 8--Debt Due Within One Year. The Corporation's 8.5% Convertible Subordinated Debentures (Debentures) were convertible into Common Shares any time prior to maturity at a conversion price of $8.083 per share. The Debentures were subject to redemption, upon not less than 20 days notice by mail, at any time, as a whole or in part, at the election of the Corporation. During March 1994, the Corporation redeemed $72.1 million of the Debentures at the redemption price of 103.4% of par value. During the 20-day notice period, holders of $5.9 million chose to convert their debentures into Common Stock of the Corporation. The Corporation issued 730,768 Common Shares and paid cash for fractional shares. During 1992, the Corporation entered into a long-term note purchase agreement of $30 million in 8.48% Senior Notes requiring semi-annual payments through May 1, 2005. The Corporation has executed interest rate swap agreements to convert one-half of these notes to LIBOR-based floating rate instruments. The interest rate agreements became effective on April 15, 1993 and terminate on April 15, 2003. The debt agreement includes covenants similar to the revolving credit agreement described in Note 8--Debt Due Within One Year and a requirement for rental and interest obligations coverage. The Industrial Development Revenue Bonds due in 2011 are secured by a letter of credit guaranteed by the Corporation and, along with other long-term debt due in 2003, by the Corporation's headquarters building located in Sioux City, Iowa. 11. COMMITMENTS AND CONTINGENCIES The Corporation and its subsidiaries are committed to various non-cancelable operating leases for agricultural equipment, and office, production, and storage facilities expiring on various dates through 2001. Total minimum rental payments are as follows:
(IN THOUSANDS) -------------- 1995....................................................... $ 39,840 1996....................................................... 32,606 1997....................................................... 26,909 1998....................................................... 11,723 1999 and thereafter........................................ 16,531 -------- Total...................................................... $127,609 ========
F-13 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Corporation entered a lease financing agreement in connection with the purchase of an ammonia manufacturing plant and related upgrading facilities located near Sarnia, Ontario. The agreement is for a four-year term requiring annual lease payments of approximately $4.0 million (Cdn). Terra Canada has an option to purchase the nitrogen plant during the term of the lease and at expiration for approximately $47 million (Cdn). If, at the end of the lease term, Terra Canada elects not to exercise its purchase option, the Corporation must pay to the lessor approximately $40 million (Cdn), subject to reimbursement based on the proceeds realized upon the sale of the nitrogen plant by the lessor. Additionally, Terra Canada has entered into an agency agreement to act as construction agent to make certain plant improvements not to exceed $31 million (Cdn). Terra Canada has entered into certain agreements in order to convert its obligations with respect to the nitrogen plant set forth above from Canadian dollar and fixed rental obligations to U.S. dollar and variable rental obligations based on interest rate changes tied to LIBOR. Total rental expense under all leases, including short-term cancelable operating leases, was approximately $37.3 million, $24.7 million and $19.4 million for the years ended December 31, 1994, 1993 and 1992, respectively. On December 13, 1994, the Corporation's Port Neal facility in Iowa was extensively damaged as a result of an explosion. The Corporation and regulatory officials are investigating the cause of the explosion. It is possible that the regulatory agencies may assess fines and penalties against the Corporation as a result of their investigations. As of the date of loss, insurance was in force to cover damage to the Corporation's property, business interruption, and third party liability claims. The Corporation has recognized a $7 million pretax charge against 1994 earnings to cover its aggregate expected unrecoverable costs associated with the incident, including deductibles and other uninsured costs. The Corporation is contingently liable for retiree medical benefits of employees of coal mining operations sold on January 12, 1993. Under the purchase agreement, the purchaser agreed to indemnify the Corporation against its obligations under certain employee benefit plans. Due to the Coal Industry Retiree Health Benefit Act of 1992, certain retiree medical benefits of union coal miners have become statutorily mandated, and all companies owning 50 percent or more of any company liable for such benefits as of certain specified dates becomes liable for such benefits if the company directly liable is unable to pay them. As a result, if the purchaser becomes unable to pay its retiree medical obligations assumed pursuant to the sale, the Corporation may have to pay such amount. The Corporation has estimated that the present value of liabilities for which it retains contingent responsibility approximates $12 million at December 31, 1994. In the event the Corporation would be required to assume this liability, mineral reserves associated with the sold coal subsidiary would revert to the Corporation. During March 1994, the Corporation entered into an agreement to sell its receivables. Under this agreement, which expires March 31, 1996, the Corporation may sell with limited recourse an undivided interest in a designated pool of its accounts receivable and receive up to $50 million in proceeds. Undivided interests in new receivables may be sold as collections reduce previously sold interests. The Corporation retains collection and administrative responsibility on the participating interests sold. The undivided interests are sold at a discount that is included in selling general and administrative expense in the Consolidated Statements of Income. At December 31, 1994 and March 31, 1995, the proceeds of the uncollected balance of receivables sold totaled $50 million. The Corporation is involved in various legal actions and claims, including environmental matters, arising from the normal course of business. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on either the results of operations, financial position or net cash flows of the Corporation. F-14 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 12. DERIVATIVE FINANCIAL INSTRUMENTS The Corporation manages four categories of risk using derivative financial instruments: (a) foreign currency fluctuations (b) changes in natural gas supply prices (c) interest rate fluctuations and (d) the effect of fluctuations in methanol prices relative to natural gas prices. Foreign Currency Fluctuations--The Corporation enters into foreign exchange forward and option contracts to manage risk associated with foreign currency exchange rate fluctuations. The contracts are designated as hedges of fixed obligations and hedges of net foreign currency positions. Contract maturities are consistent with the settlement dates of items being hedged. Gains and losses on these contracts are deferred and included as a component of the related transaction. The contracts have no recorded value and would cost $0.8 million to liquidate at December 31, 1994. The contracts had a recorded value of $0.1 million and a fair value of $0.9 million at December 31, 1993. Fair value of foreign exchange contracts is based on quotations received from a quotation service and computations prepared by the Corporation. The following describes the specific areas of risk being managed: (a) Canadian dollar lease commitments under the Corporation's Canadian nitrogen plant lease, aggregating $81.1 million (Cdn), which extend through April 1997, have been hedged (converted into U.S. dollar obligations) with forward exchange and basis swap contracts. (b) A significant portion of the Corporation's Canadian production is sold in the U.S., or is based on U.S. prices, but many of the production costs are in Canadian dollars. As a result, the Corporation's earnings will decline when the Canadian dollar increases in value compared with the U.S. dollar. Consequently, the Corporation buys Canadian dollars forward, or uses derivatives to fix future exchange rates, for about 50% of its estimated net Canadian dollar requirements over a twelve-month period. Estimated 1995 and 1994 net Canadian dollar cash disbursements were approximately $30 million (Cdn) and $38 million (Cdn), respectively, as of December 31, 1994 and 1993. Natural Gas Prices--Natural gas supplies to fill production requirements at the Corporation's production facilities are purchased at market prices. Natural gas market prices, as with other commodities, are volatile and the Corporation fixes prices for a portion of its natural gas requirements through the use of swap agreements, futures contracts and options. These contracts are traded up to eighteen months forward and settlement dates are scheduled to coincide with gas purchases during that future period. A swap agreement is an agreement between the Corporation and a third party to exchange cash based on a designated price, which price is referenced to market natural gas prices or appropriate NYMEX futures contract prices. Option contracts are agreements giving the holder of the contract the right to either own or sell a futures or swap contract at a designated price. The futures contracts require maintenance of cash balances generally 10% to 20% of the contract value while option contracts also require initial premiums payments ranging from 2% to 5% of contract value. The following summarizes open natural gas contracts at December 31, 1994 and 1993:
1994 1993 -------------------- ------------------- CONTRACT UNREALIZED CONTRACT UNREALIZED MMBTU GAIN (LOSS) MMBTU GAIN (LOSS) -------- ---------- -------- ---------- (IN THOUSANDS) Futures........................ 5,080 $ (1,838) 12,020 $(545) Swaps.......................... 59,855 (18,793) -- -- Options........................ 11,926 (709) -- -- ------- -------- ------ ----- 76,861 $(21,340) 12,020 $(545) ======= ======== ====== ===== Projected required MMBtu....... 126,000 30,000 ======= ====== Percent hedged................. 61% 40% ======= ======
F-15 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Gains and losses on settlement of these contracts and agreements are credited or charged to manufacturing cost in the month in which the hedged transaction relates. The risk associated with outstanding natural gas positions is directly related to increases or decreases in natural gas prices in relation to the underlying NYMEX natural gas contract prices. Realized losses on closed contracts of $4.5 million relating to future periods have been deferred. During 1994, natural gas related hedging activities resulted in average cost increases compared with spot prices of approximately $15.5 million, or 11%, for total natural gas purchases. During 1993, natural gas related hedging activities resulted in average cost reductions compared with spot prices of approximately $5.8 million, or 6%, for total natural gas purchases, including an estimated $7.0 million effect of favorable purchase contracts for the Courtright plant. In the first quarter of 1995, due to the decline in natural gas prices, the Corporation extended its forward pricing positions for natural gas. At March 31, 1995, the Corporation had entered into forward pricing positions covering approximately 65% of its natural gas requirements for the remainder of 1995, 42% of its requirements for 1996 and 22% of its requirements for 1997. At March 31, 1995, liquidation of the Corporation's open positions would have resulted in a loss of $10 million. As of March 31, 1995, realized losses of $3.1 million relating to future periods had been deferred. Interest Rate Fluctuations--The Corporation has limited the effect of interest rate fluctuations for a portion of its debt through the use of interest rate collar agreements. The agreements require payments to the Corporation for the amount, if any, that interest costs, on a cumulative basis, exceed 8.5% to 9.0% (LIBOR) and requires payments by the Corporation for the amount that interest costs fall below 5.65% (LIBOR). At December 31, 1994, the Corporation had $366.0 million of debt subject to variable interest at the LIBOR rate. The interest rate collar agreements, with an initial notional amount of $190 million (which declines over a 3-year period), cover 52% of the variable interest rate debt at December 31, 1994. The unamortized cost of the collar agreements is $1.1 million at December 31, 1994 and is carried in other assets in the consolidated statement of financial position. No payments are receivable or due under the agreements at December 31, 1994. The unamortized cost approximates market value. The Corporation has also entered into interest rate swap agreements to convert $15 million of its fixed-rate, long-term borrowings to variable rates through April 15, 2003. For 1993, the net interest rate effect of the swap arrangements totaled 2.9% effectively reducing the interest rate on its $30 million of 8.48% Senior Notes to 7.0%. For 1994, the net interest rate effect of the swap arrangements totaled 2.2% effectively reducing the interest rate to 7.39%. Additionally, the Corporation has entered into an interest rate swap agreement to convert fixed U.S. dollar lease payments to variable rates based on LIBOR through April 8, 1997. At December 31, 1994, the notional amount of the swap agreement was approximately $36.6 million and would cost $2.2 million to liquidate. As a result of debt retirement in previous years, BMLP has an interest rate swap agreement which is no longer associated with outstanding debt. Under the interest rate swap agreement, BMLP makes 6.1% fixed rate payments and receives variable-rate interest rate payments (6.5% at December 31, 1994). At December 31, 1994, the notional amount of the swap agreement was $29 million and the agreement expired March 31, 1995. Methanol Prices--BMLP entered into a methanol hedging agreement (the Methanol Hedging Agreement) effective October 1994. Pursuant to the agreement, BMLP received $4 million in cash and agreed to make payments to the extent that average methanol prices exceed the sum of $0.65 per gallon plus 0.113 times the average spot price index, in cents per MMBtu for natural gas during the periods October 20, 1994 to December 31, 1995, calendar year 1996, and calendar year 1997. The quantities subject to the agreement F-16 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) for each of these periods are 155.5 million, 140 million and 130 million gallons, respectively. BMLP's methanol production facility has a production capacity of 280 million gallons of methanol per year. Payments are due five days after the end of each period. The $4 million received pursuant to the Methanol Hedging Agreement is being recognized as income over the term of the agreement. Accruals for payments are recorded as a reduction of revenue. As of December 31, 1994, $15.9 million has been recorded as payable under the Methanol Hedging Agreement based on average prices, for the period October 20, 1994 through December 31, 1994. The actual amount that will be paid is dependent upon average methanol and natural gas prices during each of the periods. The estimated fair value of the agreement representing the amount that BMLP would expect to pay at December 31, 1994 to liquidate the agreement for its remaining term, is approximately $41 million, based on an appraisal. As of March 31, 1995, an additional $15.4 million has been recorded as payable under the Methanol Hedging Agreement for the period January 1, 1995 through March 31, 1995. The estimated fair value of the agreement, representing the amount that BMLP would expect to pay at March 31, 1995 to liquidate the agreement for its remaining term, is approximately $5 million based on a management estimate. 13. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK The following table presents the carrying amounts and estimated fair values of the Corporation's financial instruments at December 31, 1994 and 1993. SFAS 107, "Disclosures about Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
1994 1993 ----------------- ----------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- ------- (IN MILLIONS) Financial Assets Cash and short-term investments..... $ 158.4 $ 158.4 $ 65.1 $ 65.1 Receivables......................... 157.0 157.0 122.8 122.8 Equity and other investments........ 14.2 16.6 2.2 4.0 Other assets........................ 16.0 16.2 11.6 12.0 Financial Liabilities Long-term debt...................... (558.3) (555.4) (121.4) (121.5)
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and receivables: The carrying amounts approximate fair value because of the short maturity of those instruments. Equity and other investments: Investments in untraded companies are valued on the basis of management's estimates and comparisons with similar companies whose shares are publicly traded when available. Other assets: The amounts reported relate to notes receivable obtained from sale of previous operating assets. The fair value is estimated based on current interest rates and repayment terms of the individual notes. Long-term debt: The fair value of the Corporation's long-term debt is estimated based on the quoted market prices for similar issues or by discounting expected cash flows at the rates currently offered to the Corporation for debt of the same remaining maturities. F-17 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Concentration of Credit Risk--The Corporation is subject to credit risk through trade receivables and short-term investments. Although a substantial portion of its debtors' ability to pay is dependent upon the agribusiness economic sector, credit risk with respect to trade receivables is minimized due to a large customer base and its geographic dispersion. Short-term cash investments are placed with well capitalized, high quality financial institutions and in short duration corporate and government debt securities funds. By policy, the Corporation limits the amount of credit exposure in any one type of investment instrument. Financial Instruments--At December 31, 1994, the Corporation had letters of credit outstanding totaling $27.6 million, guaranteeing various insurance and financing activities. Short-term investments of $9.6 million and $13.0 million at December 31, 1994 and 1993, respectively, are restricted to collateralize certain of the letters of credit. 14. STOCKHOLDERS' EQUITY The Corporation allocates $1.00 per share upon the issuance of Common Shares to the Common Share capital account. In 1994, the Corporation issued 372,000 restricted Common Shares under its 1992 Stock Incentive Plan to certain key employees of the Corporation. During 1994, 229,218 shares issued in 1992 vested with plan participants and 139,282 shares were canceled. At December 31, 1994, all of the 1994 issued unvested shares remain outstanding. Under terms of the issuance, vesting of stock granted is contingent upon the attainment, prior to February 2001, of pre- established market price objectives for the Corporation's shares. In 1991, the Corporation issued 33,300 restricted Common Shares under its 1987 Stock Incentive Plan. The agreement restricts the shares to vesting in equal annual installments over five years. The shares issued are entitled to normal voting rights and earn dividends as declared during the performance periods. Compensation expenses are accrued on ratable bases through the performance periods. On July 6, 1993, the outstanding HBMS Special Exchangeable Non-Voting Shares (HBMS Special Shares) were each automatically exchanged for one Common Share of the Corporation. Through the Corporation's Trust Shares, each HBMS Special Share had a vote equivalent to one Common Share of the Corporation. For Common Shares issued upon the exchange of HBMS Special Shares subsequent to August 31, 1986, the Corporation allocated $9.53 per share to the Common Share capital account, representing the average historical capitalization of the HBMS Special Shares. The Corporation has authorized 16,500,000 Trust Shares for issuance. All Trust Shares previously outstanding were canceled in July 1993. F-18 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of changes in the Corporation's outstanding capital stock follows:
COMMON TRUST TOTAL SHARES SHARES SHARES ------ ------ ------ (IN THOUSANDS) December 31, 1991................................. 63,908 5,037 68,945 Exchange of HBMS Special Shares................. 1,027 (1,027) -- Exercise of stock options....................... 36 -- 36 Stock Incentive Plan............................ 375 -- 375 ------ ------ ------ December 31, 1992................................. 65,346 4,010 69,356 Exchange of HBMS Special Shares................. 4,010 (4,010) -- Exercise of stock options....................... 213 -- 213 Repurchase of shares............................ (107) -- (107) Stock Incentive Plan............................ (7) -- (7) ------ ------ ------ December 31, 1993................................. 69,455 -- 69,455 Issuance of common shares....................... 9,700 -- 9,700 Exercise of stock options....................... 847 -- 847 Convertible debt redemption..................... 731 -- 731 Stock Incentive Plan............................ 232 -- 232 ------ ------ ------ December 31, 1994................................. 80,965 -- 80,965 ====== ====== ======
At December 31, 1994, 2.1 million Common Shares were reserved for issuance upon award of restricted shares and exercise of employee stock options. 15. STOCK OPTIONS The Corporation's 1992 Stock Incentive Plan authorized granting key employees options to purchase Common Shares at not less than fair market value on the date of grant and also authorizes the award of performance units and restricted shares. The Corporation's 1983 Stock Option Plan and 1987 Stock Incentive Plan authorized granting key employees similar options to purchase Common Shares. No further options may be granted under the 1983 and 1987 Plan. Awards to a maximum of 2.5 million Common Shares may be granted under the 1992 Plan. Options generally may not be exercised prior to one year or more than ten years from the date of grant. At December 31, 1994, 1,251,982 Common Shares were available for grant under the 1992 Plan. A summary of activity under the 1992, 1987 and 1983 Plans follows:
SHARES PRICE RANGE UNDER OPTION PER SHARE ------------ --------------- (IN THOUSANDS) Balance at December 31, 1991................. 2,454 $3.38 to $13.11 Granted.................................... 328 5.00 Expired/terminated......................... 163 3.38 to 11.15 Exercised.................................. 36 3.38 to 4.13 ----- --------------- Balance at December 31, 1992................. 2,583 $3.38 to $13.11 Granted.................................... 41 5.00 Expired/terminated......................... 266 4.13 to 13.11 Exercised.................................. 213 3.38 to 6.75 ----- --------------- Balance at December 31, 1993................. 2,145 $3.38 to $11.38 Granted.................................... 289 10.50 Expired/terminated......................... 54 3.38 to 11.38 Exercised.................................. 847 3.38 to 9.63 ----- --------------- Balance at December 31, 1994................. 1,533 $3.38 to $10.50 ===== ===============
F-19 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The number of options exercisable at December 31 for each of the past three years follows:
PRICE RANGE OPTIONS PER SHARE ------- --------------- (IN THOUSANDS) 1992.............................................. 2,255 $3.38 to $13.11 1993.............................................. 1,777 3.38 to 11.38 1994.............................................. 1,244 3.38 to 9.63
16. RETIREMENT PLANS The Corporation and its subsidiaries maintain non-contributory pension plans that cover substantially all salaried and hourly employees. Benefits are based on a final pay formula for the salaried plans and a flat benefit formula for the hourly plans. The plans' assets consist principally of equity securities and corporate and government debt securities. The Corporation and its subsidiaries also have certain non-qualified pension plans covering executives, which are unfunded. The Corporation accrues pension costs based upon annual independent actuarial valuations for each plan and funds these costs in accordance with statutory requirements. The components of net periodic pension expense (credit) were as follows:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Current service cost........................... $ 3,248 $ 2,627 $ 2,019 Interest on projected benefit obligation....... 3,971 3,539 2,322 Actual loss (return) on assets................. 361 (4,629) (2,290) Net amortization and other..................... (4,764) 853 28 ------- ------- ------- Pension expense................................ $ 2,816 $ 2,390 $ 2,079 ======= ======= =======
Net periodic pension expense for 1994 includes components of expense for the former AMCI plan for the period from acquisition through December 31, 1994. The following table reconciles the plans' funded status to amounts included in the Consolidated Statements of Financial Position at December 31:
1994 1993 ---------------------------- ---------------------------- PLANS WITH PLANS WITH PLANS WITH ACCUMULATED PLANS WITH ACCUMULATED ASSETS IN EXCESS BENEFITS IN ASSETS IN EXCESS BENEFITS IN OF ACCUMULATED EXCESS OF OF ACCUMULATED EXCESS OF BENEFITS PLAN ASSETS BENEFITS PLAN ASSETS ---------------- ----------- ---------------- ----------- (IN THOUSANDS) Actuarial present value of: Vested benefit obligations.......... $(35,301) $(1,780) $(32,550) $(1,532) Accumulated benefit obligations.......... $(39,084) $(1,933) $(36,213) $(1,680) Projected benefit obligations.......... $(53,344) $(2,257) $(51,173) $(1,993) Plan assets at fair value.................. 48,312 -- 45,626 -- -------- ------- -------- ------- Funded status........... (5,032) (2,257) (5,547) (1,993) Unrecognized net experience loss (gain). (219) (333) 4,061 295 Unrecognized prior service cost........... 254 347 636 107 Unrecognized net transition (asset) obligation............. (3,103) 586 (3,469) 645 Additional minimum liability.............. -- (276) -- (734) -------- ------- -------- ------- Pension liability included in the Consolidated Statements of Financial Position.. $ (8,100) $(1,933) $ (4,319) $(1,680) ======== ======= ======== =======
F-20 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Under the terms of the Canadian purchase agreement, the Corporation established a pension plan for transferring employees, whereby the seller transferred assets, which approximated the projected benefit obligation of $9.8 million. The assumptions used to determine the actuarial present value of benefit obligations and pension expense during each of the years in the three-year period ended December 31, 1994 were as follows:
1994 1993 1992 ---- ---- ---- Weighted average discount rate............................. 8.5% 7.5% 8.5% Long-term per annum compensation increase.................. 5.0% 5.0% 6.0% Long-term return on plan assets............................ 9.5% 9.5% 9.5%
The Corporation also sponsors a qualifying savings plan covering most full- time employees. Contributions made by participating employees are matched based on a specified percentage of employee contributions to 6% of the employees' pay base. The cost of the Corporation's matching contribution to the savings plan totaled $1.9 million in 1994, $1.4 million in 1993 and $1.1 million in 1992. 17. POST-RETIREMENT BENEFITS The Corporation also provides health care benefits for eligible retired employees of one of its wholly owned subsidiaries. Participants generally become eligible after reaching retirement age with ten years of service. The plan pays a stated percentage of most medical expenses reduced for any deductible and payments made by government programs. The plan is unfunded. Employees hired prior to January 1, 1990 are eligible for participation in the plan. Participant contributions and co-payments are subject to escalation. The following table indicates the components of the post-retirement medical benefits obligation included in the Corporation's Consolidated Statements of Financial Position at December 31, 1994:
1994 1993 -------- -------- (IN THOUSANDS) Accumulated post-retirement medical benefit obligation: Retirees......................................... $ (2,133) $ (2,054) Fully eligible active plan participants.......... (1,615) (1,946) Other active participants........................ (4,430) (5,305) -------- -------- Funded status.................................... (8,178) (9,305) Unrecognized net gain (loss)..................... (2,071) 149 Unrecognized prior service benefit............... (1,912) (2,040) -------- -------- Accrued post-retirement benefit cost............... $(12,161) $(11,196) ======== ========
Net periodic post-retirement medical benefit cost consisted of the following components:
1994 1993 1992 ------ ------ ------ (IN THOUSANDS) Service cost of benefits earned................... $ 534 $ 526 $ 723 Interest cost on accumulated post-retirement medical benefit obligation....................... 624 614 730 Net amortization and other........................ (127) (127) -- ------ ------ ------ Net periodic post-retirement medical benefit cost. $1,031 $1,013 $1,453 ====== ====== ======
F-21 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Corporation limits its future obligation for post-retirement medical benefits by capping at 5% the annual rate of increase in the cost of claims it assumes under the plan. The weighted average discount rate used in determining the accumulated post-retirement medical benefit obligation is 8.5% in 1994, 7.5% in 1993 and 8.0% in 1992. The determination of the Corporation's accumulated post-retirement benefit obligation as of December 31, 1993 utilizes the annual limit of 5% for increases in claims costs. 18. OTHER INCOME, NET Other income consisted of the following:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Fertilizer service revenue....................... $17,294 $13,531 $10,354 Service charge income............................ 6,008 3,930 3,963 Other, net....................................... 9,146 8,030 5,829 ------- ------- ------- Total........................................ $32,448 $25,491 $20,146 ======= ======= =======
19. INCOME TAXES Components of the income tax provision (benefit) applicable to continuing operations are as follows:
1994 1993 1992 ------- ------- ------ (IN THOUSANDS) Current: Federal....................................... $ 9,925 $ 4,884 $ 640 Foreign....................................... 2,416 3,750 -- State......................................... 4,291 4,709 804 ------- ------- ------ 16,632 13,343 1,444 ------- ------- ------ Deferred: Federal....................................... 15,197 (4,126) 6,288 Foreign....................................... 2,533 451 -- State......................................... (662) (368) 25 ------- ------- ------ 17,068 (4,043) 6,313 ------- ------- ------ Total income tax provision...................... $33,700 $ 9,300 $7,757 ======= ======= ======
F-22 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The income tax provision differs from the federal statutory provision for the following reasons:
1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Income from continuing operations before taxes: U.S........................................ $75,842 $19,046 $18,186 Canada..................................... 14,103 13,099 -- ------- ------- ------- $89,945 $32,145 $18,186 ======= ======= ======= Statutory income tax: U.S........................................ $26,545 $ 6,666 $ 6,183 Canada..................................... 5,359 4,978 -- ------- ------- ------- 31,904 11,644 6,183 Non-deductible expenses...................... 650 698 710 State and local income taxes................. 2,545 3,061 547 Benefit of loss carryforwards................ (613) (4,494) -- Change in federal tax rates.................. -- (1,233) -- Undistributed equity earnings................ (430) (865) -- Other........................................ (356) 489 317 ------- ------- ------- Income tax provision......................... $33,700 $ 9,300 $ 7,757 ======= ======= =======
Deferred tax assets totaled $44.0 million and $50.8 million at December 31, 1994 and 1993, respectively, while deferred tax liabilities totaled $84.2 million and $0.5 million at December 31, 1994 and 1993, respectively. Undistributed earnings of the Canadian subsidiary, considered permanently invested, for which deferred income taxes have not been provided, were $18.0 million at December 31, 1994. The tax effect of net operating loss (NOL) and tax credit carryforwards and significant temporary differences between reported and taxable earnings that gave rise to net deferred tax (liabilities) assets were as follows:
1994 1993 --------- ------- (IN THOUSANDS) NOL, capital loss and tax credit carryforwards........ $ 41,402 $28,937 Discontinued business costs........................... 5,792 7,295 Unfunded employee benefits............................ 10,130 8,146 Accrued liabilities................................... 10,497 8,658 Inventory valuation................................... 4,899 4,059 Account receivable allowances......................... 3,091 2,176 Investments in subsidiaries........................... 6,008 -- Depreciation.......................................... (120,770) (6,297) Valuation allowance................................... (2,170) (2,765) Other................................................. 867 93 --------- ------- $(40,254) $50,302 ========= =======
Remaining unutilized NOL carryforwards were approximately $4.8 million and $55 million at December 31, 1994 and 1993, respectively. NOL carryforwards that have not been utilized expire in 2005. Investment tax credits of approximately $1.7 million expire in varying amounts from 1998 through 2000. Alternative minimum taxes (AMT) paid of $36.7 million are available to offset future tax liabilities and have an indefinite life. The Corporation acquired $26.9 million of its AMT credits with the AMCI acquisition. The F-23 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Corporation's capital loss carryforwards totaled $6.2 million and $7.9 million at December 31, 1994 and 1993, respectively. Capital loss carryforwards that are not utilized will expire in 1997. The change in the valuation allowance reflects current utilization of capital losses against capital gains. A valuation allowance is provided since the realization of tax benefits of capital loss carryforwards is not assured. Components of income tax provision (benefit) included in net income other than from continuing operations are as follows:
1994 1993 1992 ------- ------- -------- (IN THOUSANDS) Current: Federal...................................... $(1,647) $ -- $ 120 State........................................ (44) -- 5,479 ------- ------- -------- (1,691) -- 5,599 ------- ------- -------- Deferred: Federal...................................... 1,816 -- (18,887) State........................................ 331 -- (2,001) ------- ------- -------- 2,147 -- (20,888) ------- ------- -------- $ 456 $ -- $(15,289) ======= ======= ========
Current tax benefits in 1994 result from losses on early retirement or refinancing of long-term debt. Deferred income taxes in 1994 are provided for the net cumulative effect of changes in accounting principles. F-24 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 20. INDUSTRY SEGMENT DATA The Corporation operates in three principal industry segments--Distribution, Nitrogen Products and Methanol. The Distribution segment sells crop inputs-- fertilizer, crop protection products, seed and services--through its farm service center network. These inputs include both Terra's own brands and vendor products from virtually all other agricultural chemical and seed suppliers. Terra has the largest company-operated farm service center network in North America. The Nitrogen Products business produces and distributes ammonia, urea, urea ammonium nitrate solution, and urea feed which are used by farmers to provide crops with nitrogen, an essential nutrient for plant growth and as a feed additive for livestock. The Methanol business manufactures and distributes methanol, which is principally used as a raw material in the production of a variety of chemical derivatives and in the production of methyl tertiary butyl ether (MTBE), an oxygenate and an octane enhancer for gasoline. Segment revenues and costs for Distribution, Nitrogen Products and Methanol include inter-segment transactions. Included in Other are eliminations of inter-segment sales and unallocated portions of the business. The following summarizes additional information about the Corporation's industry segments:
NITROGEN DISTRIBUTION PRODUCTS METHANOL OTHER TOTAL ------------ -------- -------- -------- ---------- (IN THOUSANDS) 1994 Sales................. $1,318,416 $296,557 $ 70,274 $(19,300) $1,665,947 Operating earnings.... 33,784 48,369 42,679 (9,537) 115,295 Identifiable assets... 502,921 713,209 347,147 124,693 1,687,970 Depreciation and amortization......... 9,497 9,575 4,263 3,883 27,218 Capital expenditures.. 16,374 6,086 8,732 21 31,213 1993 Sales................. $1,019,438 $228,910 $ -- $(10,347) $1,238,001 Operating earnings.... 16,903 28,654 -- (3,729) 41,828 Identifiable assets... 379,268 91,887 -- 163,327 634,482 Depreciation and amortization......... 6,427 5,139 -- 3,904 15,470 Capital expenditures.. 9,818 2,349 6,903 2,550 21,620 1992 Sales................. $ 958,725 $125,659 $ -- $ (2,193) $1,082,191 Operating earnings.... 16,568 14,841 -- (5,690) 25,719 Identifiable assets... 266,190 95,880 -- 218,122 580,192 Depreciation and amortization......... 6,495 4,609 -- 3,890 14,994 Capital expenditures.. 7,974 9,042 -- 604 17,620
21. AGREEMENTS OF LIMITED PARTNERSHIP In accordance with the Agreement of Limited Partnership of TNCLP, quarterly distributions to Unitholders and the General Partner are made in an amount equal to 100% of its Available Cash, as defined, unless Available Cash is required to fund a reserve amount. TNCLP must fund and maintain a reserve of $18.5 million to support Minimum Quarterly Distributions on the Senior Preference Units (the Reserve Amount). Such Reserve Amount was fully funded at December 31, 1994 and is invested in Eurodollar deposits at a major financial institution. During the period which commenced December 4, 1991, and not ending prior to December 31, 1996 (the Preference Period), Senior Preference, Junior Preference and Common Units participate equally in distributions after each class of units has received its Minimum Quarterly Distribution, subject to the General Partner's right to receive cash distributions. F-25 TERRA INDUSTRIES INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) The General Partner receives a combined minimum 2% of total cash distributions, and as an incentive, the General Partner's participation increases if cash distributions exceed specified target levels. During the Preference Period, distributions are subject to the rights of Senior Preference Units to receive the Minimum Quarterly Distribution of $0.605 per unit plus any arrearages, before any other distributions. After such amounts have been paid, the Reserve Amount must be funded before distributions to Junior or Common Unitholders. Distributions to Common Unitholders are subject to the preferential rights of the Junior Preference Units to receive Minimum Quarterly Distributions plus arrearages. Subject to certain conditions, the Junior Preference Units will become Senior Preference Units on December 31, 1995. As a result of this conversion, distributions on the converted Junior Preference Units will be made with, and not after, distributions on the Senior Preference Units and payment of the Minimum Quarterly Distributions on the converted Junior Preference Units will also be supported by the Reserve Amount. In addition, the converted Junior Preference Units will be entitled to receive Minimum Quarterly Distributions before funds are set aside, if necessary, to restore the Reserve Amount to its required level. After the Preference Period the Senior Units will still be entitled to the Minimum Quarterly Distribution, but will not participate with the Common Units in any distributions above the Minimum Quarterly Distribution. For a 90-day period after the end of the Preference Period, the holders of Senior Preference Units will have the right, subject to fulfillment of certain stock exchange listing requirements, to convert their Senior Preference Units into fully participating Common Units. To maintain classification as a partnership for federal income tax purposes, TNC, as General Partner, must maintain a minimum level of net worth without regard to its interest in TNCLP. To meet the requirement, TNC maintains certain cash and short-term investment balances. F-26 [Inside back Cover Page.] [GRAPHIC OF AGRICULTURAL BUSINESS CYCLE BY QUARTER] First Quarter ------------- . Wholesale sales of fertilizer and chemicals occur to fill storage and build inventory. . Crop input planning with growers continues. . Dealer program sign-ups continue. . Planting in the Southwest begins. . Winter vegetable harvesting continues in Florida. Second Quarter -------------- . Planting in the Corn Belt and mid-South begins. . Custom application of fertilizer and chemicals occurs in the Corn Belt and mid-South. . Over half of the year's agricultural sales occur. Third Quarter ------------- . Side dressing and winter wheat fertilizer applied. . Fields inspected; insecticides and late, post-emergent herbicides applied. . Harvesting begins. . Majority of turf and nursery sales occur. . Seed ordering begins in Midwest. . Fall/winter vegetable planting begins in Florida. Fourth Quarter -------------- . Harvesting continues. . Soil tested; crop input plans developed with growers. . Wholesale chemical sales begin. . Supplier programs negotiated; sales strategies developed. . Dealer program sign-ups begin. . Seed sales begin nationwide. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN- CORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PRO- SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. --------------- TABLE OF CONTENTS
PAGE ---- Summary................................................................... 3 Risk Factors.............................................................. 14 The Company............................................................... 19 Use of Proceeds........................................................... 20 Capitalization............................................................ 21 Exchange Offer............................................................ 22 Selected Financial Data................................................... 30 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 32 Business.................................................................. 43 Management................................................................ 52 Description of Exchange Notes............................................. 54 Description of Other Indebtedness......................................... 82 Plan of Distribution...................................................... 87 Tax Considerations........................................................ 89 Legal Matters............................................................. 89 Experts................................................................... 89 Index to Financial Statements............................................. F-1
UNTIL , 1995 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PRO- SPECTUS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LOGO TERRA INDUSTRIES INC. --------------------- PROSPECTUS --------------------- OFFER TO EXCHANGE ITS 10 1/2% SENIOR NOTES DUE 2005, SERIES B FOR ANY AND ALL OF ITS OUTSTANDING 10 1/2% SENIOR NOTES DUE 2005, SERIES A , 1995 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Maryland General Corporate Law provides the following with respect to the indemnification of directors and officers: (a) Any director made a party to any proceeding in his or her capacity as a director, may be indemnified against judgments, penalties, fines, settlements and reasonable expenses actually incurred in connection with the proceeding unless it is established that: (i) the act or omission of the director was material to such proceeding and was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the director actually received an improper personal benefit in money, property or services or (iii) in the case of criminal proceedings, the director had reasonable cause to believe that the act or omission was unlawful. A director may not be indemnified in respect of any proceeding charging improper personal benefit and in which the director was so adjudged. (b) Directors who have been successful, on the merits or otherwise, in the defense of any proceeding by reason of service in that capacity shall be (unless limited by charter) indemnified against reasonable expenses incurred by the director in such proceeding. Officers of the Company shall (unless limited by charter) be indemnified as and to the same extent. (c) Articles of Incorporation may expand subject to certain restrictions or limit the liability of directors and officers. The indemnification provided by Maryland General Corporate Law is not exclusive of any other rights to which a director or officer may be entitled. The Company's Articles of Incorporation provide with respect to indemnification of directors and officers that the Company shall indemnify (i) its directors to the fullest extent provided by the general laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures provided by such laws; (ii) its officers to the same extent as it shall indemnify its directors; and (iii) its officers who are not directors to such further extent as shall be authorized by the Board of Directors and be consistent with law. The Company also carries directors' and officers' liability insurance. The foregoing shall not limit the authority of the Company to indemnify other employees and agents consistent with law. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS 4.1 Indenture, dated as of June 22, 1995, between the Company and First Trust National Association, as trustee. 4.2 Form of Exchange Note (included in Exhibit 4.1). 4.3 Registration Rights Agreement, dated as of June 22, 1995, among the Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp Securities, Inc. 4.4 Indenture, dated as of October 15, 1993 between Terra Industries (as successor by merger to AMCI) and Society National Bank, as trustee, filed as Exhibit 99.2 to the Company's S-3 dated October 13, 1994 (File No. 33- 52493), is incorporated herein by reference. 4.5 Amended and Restated Credit Agreement, dated as of May 12, 1995, among Terra Capital, TNLP, certain guarantors, the issuing banks and the lenders named therein and Citibank, as agent, without exhibits or schedules. 5* Opinion of Kirkland & Ellis. 12 Statement of Computation of Ratios. 23.1* Consent of Kirkland & Ellis (included in Exhibit 5). 23.2 Consent of Deloitte & Touche LLP. 24 Power of Attorney. 25 Statement of Eligibility of Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Instructions to Registered Holder.
- -------- *To be filed by amendment. (b) FINANCIAL STATEMENT SCHEDULES Not Applicable. II-2 ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions described under Item 20, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post- effective amendment all information concerning a transaction, and the Company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN SIOUX CITY, STATE OF IOWA, ON JULY 3, 1995. Terra Industries Inc. /s/ George H. Valentine By: _________________________________ George H. Valentine Its: Vice President, General Counsel and Corporate Secretary PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board July 3, 1995 ____________________________________ Reuben F. Richards * Chief Executive Officer, July 3, 1995 ____________________________________ President and Director Burton M. Joyce (Principal Executive Officer) * Vice President and Chief July 3, 1995 ____________________________________ Financial Officer Francis G. Meyer (Principal Financial Officer) /s/ Robert E. Thompson Vice President, Controller July 3, 1995 ____________________________________ (Principal Accounting Robert E. Thompson Officer) * Director July 3, 1995 ____________________________________ Edward G. Beimfohr * Director July 3, 1995 ____________________________________ Carol L. Brookins * Director July 3, 1995 ____________________________________ Edward M. Carson * Director July 3, 1995 ____________________________________ David E. Fisher * Director July 3, 1995 ____________________________________ Basil T.A. Hone * Director July 3, 1995 ____________________________________ Anthony W. Lea * Director July 3, 1995 ____________________________________ John R. Norton III * Director July 3, 1995 ____________________________________ Henry R. Slack
/s/ George H. Valentine *By: __________________________ George H. Valentine Attorney-in-Fact II-4 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE ------- ----------- ------------ 4.1 Indenture, dated as of June 22, 1995, between the Company and First Trust National Association, as trustee. 4.2 Form of Exchange Note (included in Exhibit 4.1). 4.3 Registration Rights Agreement, dated as of June 22, 1995, among the Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp Securities, Inc. 4.4 Indenture, dated as of October 15, 1993 between Terra ** Industries (as successor by merger to AMCI) and Soci- ety National Bank, as trustee, filed as Exhibit 99.2 to the Company's S-3 dated October 13, 1994 (File No. 33-52493), is incorporated herein by reference. 4.5 Amended and Restated Credit Agreement, dated as of May 12, 1995, among Terra Capital, TNLP, certain guarantors, the issuing banks and the lenders named therein and Citibank, as agent, without exhibits or schedules. 5* Opinion of Kirkland & Ellis. 12 Statement of Computation of Ratios. 23.1* Consent of Kirkland & Ellis (included in Exhibit 5). 23.2 Consent of Deloitte & Touche LLP. 24 Power of Attorney. 25 Statement of Eligibility of Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Instructions to Registered Holder.
- -------- *To be filed by amendment. **Incorporated by reference. EX-4.1 2 INDENTURE Exhibit 4.1 - ------------------------------------------------------------------------------- TERRA INDUSTRIES INC. and FIRST TRUST NATIONAL ASSOCIATION, Trustee INDENTURE Dated as of June 22, 1995 10 1/2% Senior Notes due 2005 - ------------------------------------------------------------------------------- CROSS-REFERENCE TABLE --------------------- TIA SECTIONS INDENTURE SECTIONS - ------------ ------------------ (S) 310 (a)(1)..................................... 7.09 (a)(2)..................................... 7.09 (b)........................................ 7.07; 10.02 (S) 311 ........................................... 7.04 (S) 313 (a)........................................ 7.05 (S) 314 (a)........................................ 4.18; 10.02 (a)(4)..................................... 4.17 (c)(1)..................................... 10.03 (c)(2)..................................... 10.03 (e)........................................ 10.04 (S) 315 (a)........................................ 7.01 (S) 316 (a) (last sentence)........................ 2.07 (a)(1)(A).................................. 6.05 (a)(1)(B).................................. 6.04 (b)........................................ 6.07 (S) 317 (a)(1)..................................... 6.08 (a)(2)..................................... 6.09 (S) 318 (a)........................................ 10.01 (c)........................................ 10.01 Note: The Cross-Reference Table shall not for any purpose be deemed to be a part of the Indenture. TABLE OF CONTENTS Page ---- PARTIES..................................................................... 1 RECITALS.................................................................... 1 ARTICLE 1 Definitions and Incorporation by Reference....................... 1 SECTION 1.01 Definitions................................... 1 SECTION 1.02 Incorporation by Reference of Trust Indenture Act........................................... 22 SECTION 1.03 Rules of Construction......................... 23 ARTICLE 2 The Securities................................................... 23 SECTION 2.01 Form and Dating............................... 23 SECTION 2.02 Execution, Authentication and Denominations... 24 SECTION 2.03 Registrar and Paying Agent.................... 25 SECTION 2.04 Paying Agent to Hold Money in Trust........... 25 SECTION 2.05 Transfer and Exchange......................... 26 SECTION 2.06 Replacement Securities........................ 29 SECTION 2.07 Outstanding Securities........................ 29 SECTION 2.08 Temporary Securities.......................... 29 SECTION 2.09 Cancellation.................................. 30 SECTION 2.10 CUSIP Numbers................................. 30 SECTION 2.11 Defaulted Interest............................ 30 SECTION 2.12 Form of Legend on Restricted Securities....... 30 Page ---- SECTION 2.13 Form of Legend for Book-Entry Securities...... 31 ARTICLE 3 Redemption..................................................... . 32 SECTION 3.01 Right of Redemption........................... 32 SECTION 3.02 Notices to Trustee............................ 32 SECTION 3.03 Selection of Securities to Be Redeemed........ 32 SECTION 3.04 Notice of Redemption.......................... 33 SECTION 3.05 Effect of Notice of Redemption................ 34 SECTION 3.06 Deposit of Redemption Price................... 34 SECTION 3.07 Payment of Securities Called for Redemption... 34 SECTION 3.08 Securities Redeemed in Part................... 34 ARTICLE 4 Covenants........................................................ 35 SECTION 4.01 Payment of Securities......................... 35 SECTION 4.02 Maintenance of Office or Agency............... 36 SECTION 4.03 Limitation on Indebtedness.................... 36 SECTION 4.04 Limitation on Restricted Payments............. 40 SECTION 4.05 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries....................... 44 SECTION 4.06 Limitation on the Issuance of Capital Stock of Restricted Subsidiaries.............. 45 SECTION 4.07 Limitation on Transactions with Shareholders and Affiliates................... 46 SECTION 4.08 Limitation on Liens........................... 47 SECTION 4.09 Limitation on Sale-Leaseback Transactions.................................. 48 ii Page ---- SECTION 4.10 Limitation on Asset Sales..................... 49 SECTION 4.11 Repurchase of Securities upon Change of Control....................................... 52 SECTION 4.12 Corporate Existence........................... 53 SECTION 4.13 Payment of Taxes and Other Claims............. 53 SECTION 4.14 Notice of Defaults and Other Events........... 54 SECTION 4.15 Maintenance of Properties and Insurance....... 54 SECTION 4.16 Amendments to Limited Partnership Agreements.................................... 54 SECTION 4.17 Compliance Certificates....................... 55 SECTION 4.18 Commission Reports and Reports to Holders....................................... 55 SECTION 4.19 Waiver of Stay, Extension or Usury Laws.......................................... 56 ARTICLE 5 Successor Corporation............................................ 56 SECTION 5.01 When Company May Merge, Etc................... 56 SECTION 5.02 Successor Corporation Substituted............. 57 ARTICLE 6 Default and Remedies............................................. 58 SECTION 6.01 Events of Default............................. 58 SECTION 6.02 Acceleration.................................. 60 SECTION 6.03 Other Remedies................................ 60 SECTION 6.04 Waiver of Past Defaults....................... 61 SECTION 6.05 Control by Majority........................... 61 SECTION 6.06 Limitation on Suits........................... 61 SECTION 6.07 Rights of Holders to Receive Payment.......... 62 iii Page ---- SECTION 6.08 Collection Suit by Trustee.................... 62 SECTION 6.09 Trustee May File Proofs of Claim.............. 62 SECTION 6.10 Priorities.................................... 63 SECTION 6.11 Undertaking for Costs......................... 63 SECTION 6.12 Restoration of Rights and Remedies............ 64 SECTION 6.13 Rights and Remedies Cumulative................ 64 SECTION 6.14 Delay or Omission Not Waiver.................. 64 ARTICLE 7 Trustee.......................................................... 64 SECTION 7.01 Rights and Duties of Trustee.................. 64 SECTION 7.02 Individual Rights of Trustee.................. 66 SECTION 7.03 Trustee's Disclaimer.......................... 66 SECTION 7.04 Notice of Default............................. 66 SECTION 7.05 Reports by Trustee to Holders................. 66 SECTION 7.06 Compensation and Indemnity.................... 66 SECTION 7.07 Replacement of Trustee........................ 67 SECTION 7.08 Successor Trustee by Merger, Etc.............. 68 SECTION 7.09 Eligibility................................... 68 ARTICLE 8 Discharge of Indenture........................................... 69 SECTION 8.01 Termination of Company's Obligations.......... 69 SECTION 8.02 Defeasance and Discharge of Indenture......... 70 SECTION 8.03 Defeasance of Certain Obligations............. 72 SECTION 8.04 Application of Trust Money.................... 74 SECTION 8.05 Repayment to Company.......................... 74 SECTION 8.06 Reinstatement................................. 75 iv Page ---- ARTICLE 9 Amendments, Supplements and Waivers.............................. 75 SECTION 9.01 Without Consent of Holders.................... 75 SECTION 9.02 With Consent of Holders....................... 76 SECTION 9.03 Revocation and Effect of Consent.............. 77 SECTION 9.04 Notation on or Exchange of Securities......... 77 SECTION 9.05 Trustee to Sign Amendments, Etc............... 77 SECTION 9.06 Conformity with Trust Indenture Act........... 78 ARTICLE 10 Miscellaneous.................................................... 78 SECTION 10.01 Trust Indenture Act of 1939................... 78 SECTION 10.02 Notices....................................... 78 SECTION 10.03. Certificate and Opinion as to Conditions Precedent..................................... 79 SECTION 10.04 Statements Required in Certificate or Opinion....................................... 79 SECTION 10.05 Rules by Trustee, Paying Agent or Registrar..................................... 80 SECTION 10.06 Payment Date Other Than a Business Day........................................... 80 SECTION 10.07 GOVERNING LAW................................. 80 SECTION 10.08 No Adverse Interpretation of Other Agreements.................................... 80 SECTION 10.09 No Recourse Against Others.................... 80 v Page ---- SECTION 10.10 Successors....................................... 80 SECTION 10.11 Duplicate Originals.............................. 81 SECTION 10.12 Separability..................................... 81 SECTION 10.13 Table of Contents, Headings, Etc................. 81 EXHIBIT A APPENDIX I vi INDENTURE dated as of June 22, 1995, between TERRA INDUSTRIES INC., a Maryland corporation (the "Company"), and FIRST TRUST NATIONAL ASSOCIATION, a national banking association, Trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 10 1/2% Senior Notes due 2005, Series A (the "Series A Securities"), and an issue of 10 1/2% Senior Notes due 2005, Series B (the "Series B Securities," and together with the Series A Securities, the "Securities"), in the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture (each of the Series A Securities and the Series B Securities shall sometimes be referred to hereinafter as a "series"). The outstanding principal amount of the Series A Securities and Series B Securities, in the aggregate, shall not exceed $200 million taken as a whole. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done and the Company has done all things necessary to make the Securities, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company as hereinafter provided. This Indenture is subject, and shall be governed by, the provisions of the Trust Indenture Act of 1939, as amended, that are required to be a part of and to govern indentures qualified under the Trust Indenture Act of 1939, as amended. AND THIS INDENTURE FURTHER WITNESSETH For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows. ARTICLE 1 Definitions and Incorporation by Reference SECTION 1.01 Definitions. "Acceleration Notice" has the meaning provided in Section 6.02 of this Indenture. 1 "Acquired Indebtedness" is defined to mean Indebtedness of a Person existing at the time such Person became a Subsidiary and not Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary. "Additional Interest" has the meaning provided in Section 4.01 of this Indenture. "Adjusted Consolidated Net Income" is defined to mean, for any period, the aggregate net income (or loss) of any Person and its consolidated Subsidiaries for such period determined in conformity with GAAP; provided, however, that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (a) the net income (or loss) of such Person (other than net income (or loss) attributable to a Subsidiary of such Person) in which any other Person (other than such Person or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to such Person or any of its Subsidiaries by such other Person during such period; (b) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (iii) of the first paragraph of Section 4.04 of this Indenture (and in such case, except to the extent includable pursuant to the foregoing clause (a)), the net income (or loss) of such Person accrued prior to the date it becomes a Subsidiary of any other Person or is merged into or consolidated with such other Person or any of its Subsidiaries or all or substantially all the property and assets of such Person are acquired by such other Person or any of its Subsidiaries; (c) the net income (or loss) of any Subsidiary of any Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary; (d) any gains or losses (on an after- tax basis) attributable to Asset Sales; (e) except for the purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (iii) of the first paragraph of Section 4.04 of this Indenture, any amounts paid or accrued as dividends on Preferred Stock of such Person or Preferred Stock of any Subsidiary (other than the Partnerships) of such Person owned by Persons other than such Person or any of its Subsidiaries; (f) all extraordinary gains and extraordinary losses; and (g) all noncash charges reducing net income of such Person that relate to stock options or stock appreciation rights and all cash payments reducing net income of such Person that relate to stock options or stock appreciation rights; provided, however, that, solely for the purpose of calculating the Interest Coverage Ratio (and in such case, except to the extent includable pursuant to clause (a) above), "Adjusted Consolidated Net Income" of such Person shall include the amount of all cash dividends or other cash distributions received by such Person or any Subsidiary of such Person from an Unrestricted Subsidiary. 2 "Affiliate" is defined to mean, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" is defined to mean any Registrar, Paying Agent, authenticating agent or co-registrar. "Asset Acquisition" is defined to mean (a) an investment by the Company or any of its Subsidiaries in any other Person pursuant to which such Person shall become a Subsidiary of the Company or any of its Subsidiaries or shall be merged or consolidated with the Company or any of its Subsidiaries; or (b) an acquisition by the Company or any of its Subsidiaries of the assets of any Person other than the Company or any of its Subsidiaries that constitutes substantially all of a division or line of business of such Person. "Asset Disposition" is defined to mean the sale or other disposition by the Company or any of its Subsidiaries (other than to the Company or another Subsidiary of the Company) of (a) all or substantially all the Capital Stock of any Subsidiary of the Company or (b) all or substantially all the assets that constitute a division or line of business of the Company or any of its Subsidiaries. "Asset Sale" is defined to mean, with respect to any Person, any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transaction) in one transaction or a series of related transactions by such Person or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries of (a) all or any of the Capital Stock of any Subsidiary of such Person; (b) all or substantially all the assets of an operating unit or business of such Person or any of its Subsidiaries; or (c) any other assets of such Person or any of its Subsidiaries outside the ordinary course of business of such Person or such Subsidiary and, in each case, that is not governed by the provisions of Article 5 of this Indenture; provided, however, that, for purposes of determining the restrictions under Section 4.10 of this Indenture, sales, transfers or other dispositions of inventory, receivables and other current assets shall not be included within the meaning of "Asset Sale." "Attributable Indebtedness" is defined to mean, when used in connection with a sale-leaseback transaction referred to in Section 4.09 of this Indenture, at any date of determination, the product of (a) the net proceeds from such sale-leaseback transaction, and (b) a fraction, the numerator of which is the number of full years of the term of the 3 lease relating to the property involved in such sale-leaseback transaction (without regard to any options to renew or extend such term) remaining at the date of the making of such computation, and the denominator of which is the number of full years of the term of such lease (without regard to any options to renew or extend such term) measured from the first day of such term. "Average Life" is defined to mean, at any date of determination with respect to any debt security, the quotient obtained by dividing (a) the sum of the product of (i) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security multiplied by (ii) the amount of such principal payment, by (b) the sum of all such principal payments. "Board of Directors" is defined to mean the Board of Directors of the Company or any committee of such Board of Directors duly authorized to act under this Indenture. "Board Resolution" is defined to mean a copy of a resolution, certified by the Secretary or an Assistant Secretary of the Company, to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Book-Entry Security" is defined to mean a Security represented by a Global Security. "Business Day" is defined to mean any day except a Saturday, Sunday or other day on which commercial banks in The City of New York, or in the city of the Corporate Trust Office of the Trustee, are authorized or obligated by law to be closed. "Canadian Credit Agreement" is defined to mean the Revolving Term Credit Facility dated as of April 2, 1993, as amended, between Terra Canada and The Bank of Nova Scotia (or any successors thereto), together with all the other documents related thereto (including, without limitation, any Guarantees and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, extended, renewed, replaced or otherwise modified from time to time, including, without limitation, any agreement increasing the amount thereof in accordance with the limitations in this Indenture and any agreement extending the maturity of, refinancing or otherwise restructuring (including, but not limited to, the inclusion of additional borrowers or Guarantors thereunder that are Subsidiaries of the Company) all or any portion of the Indebtedness under such agreements or any successor agreements. "Capital Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting 4 or nonvoting) of such Person's capital stock or equity interests in a partnership, joint venture, limited liability company or other equity that is outstanding or issued on or after the date of this Indenture, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease" is defined to mean, as applied to any Person, any lease of any property (whether real, personal or mixed) the discounted present value of the rental obligations of such Person as lessee of which, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; and "Capitalized Lease Obligation" is defined to mean the rental obligations, as aforesaid, under such lease. "Change of Control" is defined to mean such time as (a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than Minorco or any of its Affiliates, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than fifty percent (50%) of the total voting power of the then outstanding Voting Stock of the Company; or (b) individuals who at the beginning of any period of two consecutive calendar years constituted the board of directors of the Company (together with any new directors whose election by the board of directors of the Company or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the members of the board of directors of the Company then still in office who either were members of the board of directors of the Company at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the board of directors of the Company then in office. "Change of Control Offer" has the meaning provided in Section 4.11 of this Indenture. "Change of Control Payment" has the meaning provided in Section 4.11 of this Indenture. "Change of Control Payment Date" has the meaning provided in Section 4.11 of this Indenture. "Closing Date" is defined to mean the date on which the Series A Securities are originally issued under this Indenture. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. 5 "Common Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, or common equity interests in a partnership, including, without limitation, all series and classes of such common stock, all the Common Units and the general partnership interests in the Partnerships. "Common Unit" is defined to mean a Common Unit as defined in the TNCLP Limited Partnership Agreement. "Company" is defined to mean Terra Industries Inc., a Maryland corporation, and its successors. "Consolidated EBITDA" is defined to mean, with respect to any Person for any period, the sum of the amounts for such period of (a) Adjusted Consolidated Net Income, (b) Consolidated Interest Expense, (c) income taxes (other than income taxes (either positive or negative) attributable to extraordinary and nonrecurring gains or losses or sales of assets), (d) depreciation expense, (e) amortization expense, (f) minority interest and (g) all other noncash items reducing Adjusted Consolidated Net Income, less all noncash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for such Person and its Subsidiaries in conformity with GAAP; provided, however, that, if a Person has any Subsidiary (other than the Partnerships) that is not a Wholly Owned Subsidiary of such Person, Consolidated EBITDA of such Person shall be reduced (to the extent not otherwise excluded by the definition of Adjusted Consolidated Net Income) by an amount equal to (i) the Adjusted Consolidated Net Income of such Subsidiary multiplied by (ii) the quotient of (A) the number of shares of outstanding Common Stock of such Subsidiary not owned on the last day of such period by such Person or any Subsidiary of such Person divided by (B) the total number of shares of outstanding Common Stock of such Subsidiary on the last day of such period; and provided further, however, that Consolidated EBITDA of such Person shall be reduced by amounts paid as distributions on limited partnership interests of either Partnership owned by Persons other than the Company or any of its Subsidiaries. "Consolidated Interest Expense" is defined to mean, with respect to any Person for any period, the aggregate amount of interest in respect of Indebtedness (including amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation (excluding, without limitation, amounts deferred by trade creditors until the occurrence of certain events) calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; and Indebtedness that is Guaranteed by such Person) and all but the principal component of rentals in respect of 6 Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by such Person and its consolidated Subsidiaries during such period; excluding, however, (a) any amount of such interest of any Subsidiary of such Person if the net income (or loss) of such Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income for such Person pursuant to clause (c) of the proviso in the definition thereof (but only in the same proportion as the net income (or loss) of such Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income for such Person pursuant to clause (c) of the proviso in the definition thereof) and (b) any premiums, fees and expenses (and any amortization thereof) payable in connection with the recapitalization of the Company consummated in 1994, the Company's proposal to acquire all of the outstanding Senior Preference Units which was terminated in May 1995 and the Company's open market purchase program for up to five million Senior Preference Units approved in May 1995, all as determined on a consolidated basis in conformity with GAAP. "Consolidated Net Tangible Assets" is defined to mean the total amount of assets of the Company and its Subsidiaries (less applicable depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups of capital assets (excluding write-ups in connection with accounting for acquisitions in conformity with GAAP), after deducting therefrom (a) all current liabilities of the Company and its consolidated Subsidiaries (excluding intercompany items) and (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the most recently available quarterly or year-end consolidated balance sheet of the Company and its consolidated Subsidiaries, prepared in conformity with GAAP. "Consolidated Net Worth" is defined to mean, at any date of determination, shareholders' equity as set forth on the most recently available quarterly or year-end consolidated balance sheet of the Company and its consolidated Subsidiaries, less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of Capital Stock of the Company or any Subsidiary of the Company, each item to be determined in accordance with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "Corporate Trust Office" is defined to mean the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 180 East Fifth Street, St. Paul, Minnesota, 55101, Attention: Corporate Finance. 7 "Credit Agreements" is defined to mean the Terra Credit Agreement and the Canadian Credit Agreement. "Currency Agreement" is defined to mean any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of this Indenture or becomes a party or a beneficiary thereafter. "Default" is defined to mean any event that, after the giving of notice or the passage of time or both, would constitute an Event of Default. "Depository" is defined to mean, with respect to the Securities issued in the form of one or more Book-Entry Securities, The Depository Trust Company ("DTC") or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act. "Event of Default" has the meaning provided in Section 6.01 of this Indenture. "Excess Proceeds" has the meaning provided in Section 4.10 of this Indenture. "Excess Proceeds Offer" has the meaning provided in Section 4.10 of this Indenture. "Excess Proceeds Payment" has the meaning provided in Section 4.10 of this Indenture. "Excess Proceeds Payment Date" has the meaning provided in Section 4.10 of this Indenture. "Exchange Act" is defined to mean the Securities Exchange Act of 1934, as amended. "Exchange Offer Registration Statement" is defined to mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, filed pursuant to the Securities Act pursuant to which the Series A Securities are exchanged for Series B Securities as provided in the Registration Rights Agreement. "GAAP" is defined to mean generally accepted accounting principles in the United States of America as in effect as of the date of this Indenture, including, without limitation, those set forth in the opinions and pronouncements of the Accounting 8 Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP, except that calculations made for purposes of determining compliance with the terms of the covenants set forth in Articles 4 and 5 and with other provisions of this Indenture shall be made without giving effect to (a) the amortization of any expenses incurred in connection with the recapitalization of the Company consummated in 1994, the Company's proposal to acquire all of the outstanding Senior Preference Units which was terminated in May 1995 and the Company's open market purchase program for up to five million Senior Preference Units approved in May 1995; and (b) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. "Global Securities" is defined to mean a Security evidencing all or a part of the Securities to be issued as Book-Entry Securities issued to the Depository in accordance with Section 2.05. "Guarantee" is defined to mean any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder" or "Securityholder" is defined to mean the registered holder of any Security. "Incur" is defined to mean, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness; provided, however, that neither the accrual of interest (whether such interest is payable in cash or in kind) nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. 9 "Indebtedness" is defined to mean, with respect to any Person at any date of determination (without duplication), (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations of such Person in respect of letters of credit, banker's acceptances, or other similar instruments (including reimbursement obligations with respect thereto); (d) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables; (e) all obligations of such Person as lessee under Capitalized Leases; (f) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness shall be the lesser of (i) the fair market value of such asset at such date of determination and (ii) the amount of such Indebtedness; (g) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person; (h) all obligations in respect of borrowed money under the Credit Agreements and any Guarantees thereof; (i) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements; and (j) any Redeemable Stock. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability determined by such Person's board of directors, in good faith, as reasonably likely to occur, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided, however, that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP; and provided further, however, that Indebtedness shall not include (x) any liability for Federal, state, local or other taxes, (y) obligations of the Company or any of its Restricted Subsidiaries pursuant to Receivables Programs, or (z) obligations of the Company or any of its Restricted Subsidiaries pursuant to contracts for, or options, puts or similar arrangements relating to, the purchase of raw materials or the sale of inventory at a time in the future. "Indenture" is defined to mean this Indenture as originally executed or as it may be amended, supplemented or otherwise modified from time to time pursuant to the applicable provisions of this Indenture. "Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp Securities, Inc. "Interest Coverage Ratio" is defined to mean, with respect to any Person on any Transaction Date, the ratio of (x) the aggregate amount of Consolidated EBITDA of such Person for the four fiscal quarters for which financial statements in respect thereof 10 are available immediately prior to such Transaction Date to (y) the aggregate Consolidated Interest Expense of such Person during such four fiscal quarters. In making the foregoing calculation (which shall be made without duplication), (a) pro forma effect shall be given to (i) any Indebtedness Incurred subsequent to the end of the four-fiscal-quarter period referred to in clause (x) and prior to the Transaction Date (other than Indebtedness Incurred under a revolving credit or similar arrangement to the extent of the commitment thereunder (or under any predecessor revolving credit or similar arrangement) on the last day of such period), (ii) any Indebtedness Incurred during such period to the extent such Indebtedness is outstanding at the Transaction Date (with Indebtedness Incurred under a revolving credit or similar arrangement calculated as described in clause (c) below), and (iii) any Indebtedness to be Incurred on the Transaction Date (excluding Indebtedness to be Incurred under a revolving credit or similar arrangement in connection with an acquisition to the extent that Indebtedness under a revolving credit or similar arrangement was theretofore repaid with the proceeds of an offering of Capital Stock (other than Redeemable Stock) in which it was contemplated that the amount of such repayment would later be Incurred in connection with such acquisition), in each case as if such Indebtedness had been Incurred on the first day of such four-fiscal-quarter period and after giving pro forma effect to the application of the proceeds thereof as if such application had occurred on such first day; (b) Consolidated Interest Expense attributable to interest on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the average borrowing rate in effect during such four-fiscal-quarter period (taking into account any Interest Rate Agreement applicable to such Indebtedness) had been the applicable rate for the entire period; (c) Consolidated Interest Expense attributable to interest on any Indebtedness under a revolving credit or similar facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period, as adjusted to eliminate the effects of any temporary repayment of such Indebtedness from proceeds of an offering of Capital Stock (other than Redeemable Stock) later applied to an acquisition as described in clause (a)(iii) above; (d) there shall be excluded on a pro forma basis from Consolidated Interest Expense any Consolidated Interest Expense related to any amount of Indebtedness that was outstanding during such four- fiscal-quarter period or thereafter but that is not outstanding or is to be repaid on the Transaction Date, except for Consolidated Interest Expense accrued (as adjusted pursuant to clause (b)) during such four-fiscal-quarter period under a revolving credit or similar arrangement to the extent of the commitment thereunder (or under any successor revolving credit or similar arrangement) on the Transaction Date; (e) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur during such four-fiscal-quarter period or thereafter and prior to the Transaction Date as if they had occurred and such proceeds had been applied on the first day of such four-fiscal-quarter period; (f) with respect to any 11 such four-fiscal-quarter period commencing prior to the Closing Date, the Closing Date shall be deemed to have taken place on the first day of such period; and (g) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Subsidiary of the Company or has been merged with or into the Company or any Subsidiary of the Company during the four-fiscal-quarter period referred to above or subsequent to such period and prior to the Transaction Date and that would have been Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Subsidiary of the Company as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such period; provided, however, that, to the extent that clause (e) or (g) of this sentence requires that pro forma effect be given to an Asset Acquisition or an Asset Disposition, such pro forma calculation shall be based upon the four full fiscal quarters immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired for which financial statements are available. "Interest Payment Date" is defined to mean each semiannual interest payment date on June 15 and December 15 of each year, commencing December 15, 1995. "Interest Rate Agreement" is defined to mean any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of this Indenture or becomes a party or a beneficiary hereafter. "Interest Rate Increase" has the meaning provided in Exhibit A to this Indenture. "Investment" is defined to mean, with respect to any Person, any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person or its Subsidiaries) or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, any other Person. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.04 of this Indenture, (a) the designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be deemed an "Investment" by the Company in such newly designated Unrestricted Subsidiary in an amount (the "Investment Amount") equal to the fair market value of the 12 assets of such Subsidiary that are required to be reflected on such Subsidiary's balance sheet in accordance with GAAP, less the total liabilities of such Subsidiary that are required to be reflected on such Subsidiary's balance sheet in accordance with GAAP, in each case on a consolidated basis, at the time that such Subsidiary is designated an Unrestricted Subsidiary, (b) the designation of an Unrestricted Subsidiary as a Restricted Subsidiary shall be deemed a reduction of Investments by the Company in Unrestricted Subsidiaries in an amount equal to the Investment Amount with respect to such Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (c) any property, other than cash or services, transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, with such value to be determined by the Board of Directors in good faith (whose determination shall be conclusive and evidenced by a Board Resolution) in any case in which the value of the properties transferred individually or in a series of related transactions exceeds $10 million. "Junior Preference Unit" is defined to mean a Junior Preference Unit as defined in the TNCLP Limited Partnership Agreement. "Lien" is defined to mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Limited Partnership Agreement" is defined to mean either the TNCLP Limited Partnership Agreement or the TNLP Limited Partnership Agreement. "Minorco" is defined to mean Minorco, a company incorporated under the laws of Luxembourg as a societe anonyme. "Net Cash Proceeds" is defined to mean, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (a) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale; (b) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Subsidiaries, taken as a whole; (c) payments made to repay unsubordinated Indebtedness of the Company or 13 Indebtedness of any Restricted Subsidiary outstanding at the time of such Asset Sale that either (i) is secured by a Lien on the property or assets sold or (ii) is required to be paid as a result of such sale; and (d) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP. "Officer" is defined to mean, with respect to the Company, the Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary. "Officers' Certificate" is defined to mean a certificate signed by two Officers. Each Officers' Certificate (other than certificates provided pursuant to Section 4.17 of this Indenture) shall include the statements provided for in Section 10.04 of this Indenture. "Operating Lease" is defined to mean, as applied to any Person, any lease of any property (whether real, personal or mixed) that is not a Capitalized Lease. "Opinion of Counsel" is defined to mean a written opinion signed by legal counsel who is acceptable to the Trustee. Such counsel may be an employee of or counsel to the Company or the Trustee. Each such Opinion of Counsel shall include the statements provided for in Section 10.04 of this Indenture. "Partnership" is defined to mean either TNCLP or TNLP. "Paying Agent" has the meaning provided in Section 2.03, except that, for the purposes of Article 8, the Paying Agent shall not be the Company or a Subsidiary of the Company or an Affiliate of any of them. The term "Paying Agent" includes any additional Paying Agent. "Permitted Distribution" is defined to mean (a) the declaration and payment of any dividend or distribution by either Partnership on any of the Capital Stock of either thereof pursuant to the terms of either Limited Partnership Agreement; or (b) the purchase, redemption, retirement or other acquisition for value of outstanding Senior Preference Units, Junior Preference Units or Common Units (or any successor equity interest of either Partnership or any successor limited partnership, including any such equity interest received upon conversion or exchange of any Senior Preference Unit, Junior Preference Unit or Common Unit). "Permitted Investment" is defined to mean (a) the making of an Investment by the Company or any Restricted Subsidiary (other than the general partner of the 14 Partnerships) in a Restricted Subsidiary that is not a Wholly Owned Subsidiary of the Company, so long as such Investment is for a valid business purpose and not for the primary purpose of making distributions on the Senior Preference Units from the proceeds of such Investment to any Person other than the Company or any of its Restricted Subsidiaries (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution); (b) the making of an Investment by the general partner of either Partnership in either thereof; or (c) the making of an Investment by one Partnership in the other Partnership. "Permitted Liens" is defined to mean (a) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (b) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (c) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (d) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (e) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or any of its Subsidiaries; (f) Liens (including extensions and renewals thereof) upon real or tangible personal property acquired after the Closing Date; provided, however, that (i) such Lien is created solely for the purpose of securing Indebtedness Incurred (A) to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within 12 months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (B) to refinance any Indebtedness previously so secured, (ii) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (iii) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (g) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company or any of its Subsidiaries; (h) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company of any of its 15 Subsidiaries relating to such property or assets; (i) any interest or title of a lessor in the property subject to any Capitalized Lease or Operating Lease; provided, however, that any sale-leaseback transaction related thereto complies with Section 4.09 of this Indenture; (j) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (k) Liens on property of, or on Capital Stock or Indebtedness of, any entity existing at the time such entity becomes, or becomes a part of, any Restricted Subsidiary; (l) Liens in favor of the Company or any Restricted Subsidiary; (m) Liens securing any real property or other assets of the Company or any Subsidiary of the Company in favor of the United States of America or any State, or any department, agency, instrumentality or political subdivision thereof, in connection with the financing of industrial revenue bond facilities or of any equipment or other property designed primarily for the purpose of air or water pollution control; provided, however, that any such Lien on such facilities, equipment or other property shall not apply to any other assets of the Company or such Subsidiary of the Company; (n) Liens arising from the rendering of a final judgment or order against the Company or any Subsidiary of the Company that does not give rise to an Event of Default; (o) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (p) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (q) Liens encumbering customary initial deposits and margin deposits, and other Liens that are either within the general parameters customary in the industry and incurred in the ordinary course of business or otherwise permitted under the terms of the Credit Agreements, in each case securing Indebtedness under Interest Rate Agreements and Currency Agreements and forward contracts, options, futures contracts, futures options or similar agreements or arrangements designed to protect the Company or any of its Subsidiaries from fluctuations in the price of commodities; (r) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Subsidiaries in the ordinary course of business in accordance with the past practices of the Company and its Subsidiaries prior to the Closing Date; and (s) Liens on or sales of receivables and other Liens reasonably related to a Receivables Program. "Person" is defined to mean an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" is defined to mean any employee benefit plan, pension plan, management equity plan, stock option plan or similar plan or arrangement of the Company or any Subsidiary of the Company, or any successor plan thereof. 16 "Preferred Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or nonvoting) of such Person's preferred or preference stock, or preference equity interests in a partnership, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such preferred or preference stock, all the Senior Preference Units and all the Junior Preference Units. "Principal" of a debt security, including the Securities, is defined to mean the principal amount due on the Stated Maturity as shown on such debt security. "Principal Property" is defined to mean any real property (including related fixtures), plant or equipment owned or leased by the Company or any Restricted Subsidiary, other than real property, plant or equipment that, in the good faith determination of the Board of Directors (whose determination shall be conclusive and evidenced by a Board Resolution), is not of material importance to the respective businesses conducted by the Company or any Restricted Subsidiary as of the date of such determination; provided, however, that, unless otherwise specified by the Board of Directors, any real property (including related fixtures), plant or equipment with a fair market value of less than $5 million shall not be a "Principal Property." "Qualified Institutional Buyer" or "QIB" have the meanings provided in Rule 144A under the Securities Act. "Receivables Program" is defined to mean, with respect to any Person, obligations of such Person or its Subsidiaries pursuant to accounts or notes receivable securitization programs and any extension, renewal, modification or replacement of such programs, including, without limitation, any agreement increasing the amount of, extending the maturity of, refinancing or otherwise restructuring all or any portion of the obligations under such programs or any successor agreement or agreements. "Redeemable Stock" is defined to mean any class or series of Capital Stock of any Person that by its terms or otherwise is (a) required to be redeemed prior to the Stated Maturity of the Securities, (b) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Securities or (c) convertible into or exchangeable for Capital Stock referred to in clause (a) or (b) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Securities. "Redemption Date," when used with respect to any Security to be redeemed, is defined to mean the date fixed for such redemption by or pursuant to this Indenture. 17 "Redemption Price," when used with respect to any Security to be redeemed, is defined to mean the price at which such Security is to be redeemed pursuant to this Indenture. "Registered Exchange Offer" is defined to mean the exchange offer which may be effected pursuant to the Registration Rights Agreement. "Registrar" has the meaning provided in Section 2.03 of this Indenture. "Registration Rights Agreement" is defined to mean the agreement between the Company and the Initial Purchasers, dated as of June 22, 1995. "Regular Record Date" for the interest payable on any Interest Payment Date is defined to mean the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Responsible Officer," when used with respect to the Trustee, is defined to mean the chairman or any vice-chairman of the board of directors of the Trustee, the chairman or any vice-chairman of the executive committee of the board of directors of the Trustee, the chairman of the trust committee, the president, any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers and also is defined to mean, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning specified in Section 4.04 of this Indenture. "Restricted Security" has the meaning provided in Section 2.12 of this Indenture. "Restricted Subsidiary" is defined to mean any Subsidiary of the Company other than an Unrestricted Subsidiary. "Securities" is defined to mean, collectively, the Series A Securities and the Series B Securities. "Securities Act" is defined to mean the Securities Act of 1933, as amended. "Security Register" has the meaning provided in Section 2.03 of this Indenture. 18 "Senior Preference Units" is defined to mean a Senior Preference Unit as defined in the TNCLP Limited Partnership Agreement. "Series A Securities" is defined to mean the 10 1/2% Senior Notes due 2005, Series A of the Company, that are authenticated and delivered under this Indenture. "Series B Securities" is defined to mean the 10 1/2% Senior Notes due 2005, Series B of the Company, that are authenticated and delivered under this Indenture. "Shelf Registration Statement" is defined to mean a registration statement filed pursuant to the Securities Act and Rule 415 thereunder (or any successor rule) pursuant to which the Series A Securities are registered for resale as provided in the Registration Rights Agreement. "Significant Subsidiary" is defined to mean, at any date of determination, any Subsidiary of the Company that, together with its Subsidiaries, (a) for the most recent fiscal year of the Company, accounted for more than 10% of the consolidated revenues of the Company; or (b) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of the Company, in each case as reflected on the most recently available quarterly or year-end consolidated financial statements of the Company for such fiscal year. "Stated Maturity" is defined to mean, (a) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (b) with respect to any scheduled installment of principal or interest on any debt security, the date specified in such security as the fixed date on which such installment of principal or interest is due and payable. "Subsidiary" is defined to mean, with respect to any Person, any corporation of which more than 50% of the outstanding Voting Stock is owned, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company, or by such Person and one or more other Subsidiaries of such Person, and any partnership, association, joint venture, limited liability company or other entity in which the Company or one or more other Subsidiaries of the Company, or such Person and one or more other Subsidiaries of such Person, owns a general partnership interest or more than 50% of the equity interests; provided, however, that, except as the term "Subsidiary" is used in the definitions of "Significant Subsidiary" and "Unrestricted Subsidiary", an Unrestricted Subsidiary shall not be deemed to be a direct or indirect Subsidiary of the Company for purposes of this Indenture. "Terra Canada" is defined to mean Terra International (Canada) Inc., an Ontario corporation, and its successors. 19 "Terra Capital" is defined to mean Terra Capital, Inc., a Delaware corporation, and its successors. "Terra Credit Agreement" is defined to mean the Amended and Restated Credit Agreement dated as of May 12, 1995, among Terra Capital, TNLP, certain guarantors, the issuing banks and the lenders and the agent named therein (or any successors thereto), together with all the other documents related thereto (including, without limitation, any Guarantees and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, extended, renewed, replaced or otherwise modified from time to time, including, without limitation, any agreement increasing the amount thereof in accordance with the limitations of the Indenture and any agreement extending the maturity of, refinancing or otherwise restructuring (including, but not limited to, the inclusion of additional borrowers or Guarantors thereunder that are Subsidiaries of the Company and whose obligations are Guaranteed by the Company thereunder) all or any portion of the Indebtedness under such agreements or any successor agreements. "TIA" or "Trust Indenture Act" is defined to mean the Trust Indenture Act of 1939, as amended (15 U.S. Code 77aaa-77bbb). "TNC" is defined to mean Terra Nitrogen Corporation, a Delaware corporation, and its successors. "TNCLP" is defined to mean Terra Nitrogen Company, L.P., a Delaware limited partnership, and its successors. "TNCLP Limited Partnership Agreement" is defined to mean the Agreement of Limited Partnership of Terra Nitrogen Company, L.P. (formerly Agricultural Minerals Company, L.P.), dated as of December 4, 1991, among TNC, the Company and any other persons who become partners in TNCLP as provided therein, as such agreement may be amended, supplemented, or otherwise modified from time to time as permitted by this Indenture. "TNLP" is defined to mean Terra Nitrogen, Limited Partnership, a Delaware limited partnership, and its successors. "TNLP Limited Partnership Agreement" is defined to mean the Agreement of Limited Partnership of Terra Nitrogen, Limited Partnership, dated as of December 4, 1991, among TNC, the Company and TNCLP (formerly Agricultural Minerals Company, L.P.), as such agreement may be amended, supplemented or otherwise modified from time to time as permitted by the Indenture. 20 "Trade Payables" is defined to mean, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services and shall specifically include amounts owed to but deferred by trade creditors until the occurrence of certain events. "Transaction Date" is defined to mean, with respect to the Incurrence of any Indebtedness by the Company or any of its Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Trustee" is defined to mean the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of Article 7 of this Indenture and thereafter is defined to mean such successor. "United States Bankruptcy Code" is defined to mean Title 11 of the United States Code, as amended from time to time hereafter, or any successor federal bankruptcy law. "Unrestricted Subsidiary" is defined to mean (a) any Subsidiary of the Company that, at the time of determination, shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (b) any Subsidiary of an Unrestricted Subsidiary; provided that, in case of clauses (a) and (b), neither the Company nor any of its other Subsidiaries (other than another Unrestricted Subsidiary) (i) provides credit support for, or Guarantees of, any Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary, except to the extent that the Company and its Restricted Subsidiaries would otherwise, in each case, be permitted to make a Restricted Payment pursuant to, or an Investment in such Subsidiary permitted by, Section 4.04 of this Indenture. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary, unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (i) the Subsidiary to be so designated has total assets of $1,000 or less at the time of designation or (ii) if such Subsidiary has assets greater than $1,000 at the time of designation, that such designation would be permitted under Section 4.04 of this Indenture. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of 21 additional Indebtedness under the first paragraph of Section 4.03(a) of this Indenture and (y) no Default or Event of Default shall have occurred and be continuing. All such designations by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" is defined to mean securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Securities, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" is defined to mean, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors or other governing body of such Person, or any general partnership interest in any partnership. "Wholly Owned Subsidiary" is defined to mean, with respect to any Person, any Subsidiary of such Person if all the Common Stock or other similar equity ownership interests (but not including Preferred Stock) in such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) is owned directly or indirectly by such Person. SECTION 1.02 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities; "indenture security holder" means a Holder or a Securityholder; 22 "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03 Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and words in the plural include the singular; (e) provisions apply to successive events and transactions; (f) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (g) all ratios and computations based on GAAP contained in this Indenture shall be computed in accordance with the definition of GAAP set forth above; and (h) all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated. ARTICLE 2 The Securities SECTION 2.01 Form and Dating. The Securities and the Trustee's certificate of authentication shall be substantially in the applicable form annexed hereto as Exhibit A. The Securities may have notations, legends or endorsements required by law, 23 stock exchange agreements to which the Company is subject or usage, including as set forth in Sections 2.12 and 2.13 of this Indenture. The Company shall approve the form of the Securities and any notation, legend or endorsement on the Securities. Each Security shall be dated the date of its authentication. The terms and provisions contained in the form of the Securities annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. The definitive Securities shall be printed, lithographed, engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the Officers executing such Securities, as evidenced by their execution of such Securities. SECTION 2.02 Execution, Authentication and Denominations. Two Officers shall execute the Securities for the Company by facsimile or manual signature in the name and on behalf of the Company. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee or authenticating agent authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee or an authenticating agent shall authenticate for original issue Series A Securities or Series B Securities, as the case may be, in the aggregate principal amount of up to $200 million, upon a written order of the Company signed by at least one Officer; provided, however, that the Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company, as contemplated by Section 10.04, that it may reasonably request in connection with such authentication of Securities. Such order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed $200 million except as provided in Sections 2.06 and 2.07 of this Indenture. The Trustee may appoint an authenticating agent to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication 24 by such authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 in original principal amount and any integral multiple thereof. SECTION 2.03 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency where Securities may be presented for payment (the "Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the securities and this Indenture may be served. The Company shall cause the Registrar to keep a register of the Securities and of their transfer and exchange (the "Security Register"). The Company may have one or more co-registrars and one or more additional Paying Agents. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or agent for service of notices and demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for service of notices and demands. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided, however, that no such removal shall become effective until (a) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (b) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (a) of this proviso. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or coregistrar, and/or agent for service of notice and demands. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notice and demands. If, at any time, the Trustee is not the Registrar, the Registrar shall make available to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may reasonably request the names and addresses of the Holders as they appear in the Security Register. SECTION 2.04 Paying Agent to Hold Money in Trust. No later than each due date of the principal of, premium, if any, and interest on any Securities, the Company shall deposit with the Paying Agent money sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent other 25 than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities), and such Paying Agent shall promptly notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, it will, on or before each due date of any principal of, premium, if any, or interest on the Securities, segregate and hold in a separate trust fund for the benefit of the Holders a sum sufficient to pay such principal of, premium, if any, or interest so becoming due until such sums shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee of such action or failure to so act. SECTION 2.05 Transfer and Exchange. When Securities are presented to the Registrar or a co-registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange of the Securities, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Section 2.08, 3.08 or 9.04 of this Indenture). The Registrar need not register the transfer or exchange of Securities for a period of fifteen (15) days before a selection of Securities to be redeemed. If a Series A Security is a Restricted Security in certificated form, then as provided in this Indenture and subject to the limitations herein set forth, the Holder, provided it is a Qualified Institutional Buyer, may exchange such Security for a Book-Entry Security by instructing the Trustee (by completing the Transferee Certificate attached to the Security, the form of which is attached to this Indenture as Appendix I) to arrange for such Series A Security to be represented by a beneficial interest in a Global Security in accordance with the customary procedures of the Depository, unless the Company has elected not to issue a Global Security. 26 The Company may at any time determine not to have Securities (other than Restricted Securities) represented in certificated form, in which event the Holder of a Security (other than Restricted Securities) in certificated form may be required to exchange such Security for a Book-Entry Security. Upon any exchange provided for in the preceding paragraph, the Company shall execute and the Trustee shall authenticate and deliver to the Person specified by the Depository a new Security or Securities registered in such names and in such authorized denominations as the Depository, pursuant to the instructions of the beneficial owner of the Securities requesting the exchange, shall instruct the Trustee. Thereupon, the beneficial ownership of such Global Security shown on the records maintained by the Depository or its nominee shall be reduced by the amounts so exchanged and an appropriate endorsement shall be made by or on behalf of the Trustee on the Global Security. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same Indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer, or for exchange or redemption, shall (if so required by the Company or the Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. Every Restricted Security shall be subject to the restrictions on transfer provided in the legend required to be set forth on the face of each Restricted Security pursuant to Exhibit A, Section 2.12 and the restrictions set forth in this Section 2.05, and the Holder of each Restricted Security, by such Holder's acceptance thereof (or interest therein), agrees to be bound by such restrictions on transfer. The restrictions imposed by this Section 2.05 and Section 2.12 upon the transferability of any particular Restricted Security shall cease and terminate on (a) the later of June 22, 1998 or three years after the last date on which the Company or any Affiliate of the Company was the owner of such Restricted Security (or any predecessor of such Restricted Security) or (b) (if earlier) if and when such Restricted Security has been sold pursuant to an effective registration statement under the Securities Act or transferred pursuant to Rule 144 or Rule 904 under the Securities Act (or any successor provision), unless the Holder thereof is an affiliate of the Company within the meaning of Rule 144 (or such successor provisions). Any Restricted Security as to which such restrictions on transfer shall have expired in accordance with their terms or shall have 27 terminated may, upon surrender of such Restricted Security for exchange to the Registrar in accordance with the provision of this Section 2.05 (accompanied, in the event that such restrictions on transfer have terminated pursuant to Rule 144 or Rule 904 (or any successor provision), by an Opinion of Counsel satisfactory to the Company and the Trustee, to the effect that the transfer of such Restricted Security has been made in compliance with Rule 144 or Rule 904 (or any such successor provision)), be exchanged for a new Series A Security, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by Section 2.12. The Company shall inform the Trustee of the effective date of any Registration Statement registering the Series A Securities under the Securities Act no later than two Business Days after such effective date. Notwithstanding any other provision of this Section 2.05, unless and until it is exchanged in whole or in part for Series A Securities in certificated registered form, a Global Security representing Book-Entry Securities may not be transferred, except as a whole by the Depository to a nominee of the Depository or by another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. Notwithstanding the foregoing, no Global Security shall be registered for transfer or exchange, or authenticated and delivered, whether pursuant to this Section, Section 2.06, 2.08, 3.08, 4.10, 4.11 or 9.04 or otherwise, in the name of a Person other than the Depository for such Global Security or its nominee until (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time the Depository ceases to be a clearing agency registered under the Exchange Act, and a successor Depository is not appointed by the Company within 30 days, (ii) the Company executes and delivers to the Trustee a Company order that all such Global Securities shall be exchangeable or (iii) there shall have occurred and be continuing an Event of Default. Upon the occurrence in respect of any Global Security representing the Securities of any one or more of the conditions specified in clauses (i), (ii), and (iii) of the preceding sentence, such Global Security may be registered for transfer or exchange for Series A Securities in certificated form registered in the names of, authenticated and delivered to, such Persons as the Trustee or the Depository, as the case may be, shall direct. In addition, in accordance with the provisions of this Indenture and subject to certain limitations herein set forth, an owner of a beneficial interest in a Global Security which is a Series A Security may request a Security in certificated form in exchange in whole or in part, as the case may be, for such beneficial owner's interest in the Global Security. Except as provided above, any Security authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, any Global Security, whether 28 pursuant to this Section, Sections 2.06, 2.08, 3.08, 4.10, 4.11 or 9.04 or otherwise, shall also be a Global Security and bear the legend specified in Section 2.13 SECTION 2.06 Replacement Securities. If a mutilated Security is surrendered to the Trustee or if the Holder claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security of like tenor and principal amount. If required by the Trustee or the Company, an indemnity bond must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Security is replaced. The Company may charge such Holder for its expenses in replacing a Security. In case any such mutilated, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may pay such Security instead of issuing a new Security in replacement thereof. Every replacement Security is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. SECTION 2.07 Outstanding Securities. Securities outstanding at any time are all Securities that have been authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section 2.07 as not outstanding. A Security does not cease to be outstanding because the Company or one of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.06, it ceases to be outstanding unless and until the Trustee receives proof satisfactory to it that such replaced Security is held by a bona fide purchaser. If the Paying Agent (other than the Company or an Affiliate of the Company) holds on a maturity date money sufficient to pay Securities payable on that date, then on and after that date such Securities cease to be outstanding and interest on them shall cease to accrue. SECTION 2.08 Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Securities, as evidenced by their execution of such temporary Securities. Without unreasonable delay, but in no event later than the date that the Registered Exchange Offer is consummated or a Shelf Registration Statement is declared effective, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. 29 Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.09 Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any securities surrendered to them for transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment or cancellation and shall destroy them in accordance with its normal procedure. The Company may not issue new Securities to replace Securities it has paid in full or delivered to the Trustee for cancellation. The Series A Securities surrendered to the Trustee for exchange pursuant to the Registered Exchange Offer shall be cancelled and not reissued thereafter. SECTION 2.10 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and the Company, or the Trustee on behalf of the Company, shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice or redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Securities; and provided further, however, that failure to use CUSIP numbers in any notice of redemption or exchange shall not affect the validity or sufficiency of such notice. SECTION 2.11 Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest in any lawful manner. The Company may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. A special record date, as used in this Section 2.11 with respect to the payment of any defaulted interest, shall mean the fifteenth (15th) day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least fifteen (15) days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.12 Form of Legend on Restricted Securities. A Series A Security shall be deemed a "Restricted Security" until the later of three years after (a) the Closing Date and (b) the last date on which the Company or any Affiliate of the Company was the owner of a Series A Security (or any predecessor Security) and any Restricted Security, as the case may be, and any Series A Security issued upon registration of transfer of, or in exchange for, or in lieu of, such Restricted Security shall be subject to 30 the restrictions on transfer provided in the legend set forth on the face of the form of Series A Security in Exhibit A; provided, however, that the term "Restricted Security" shall not include (a) any Series A Security which is issued upon transfer of, or in exchange for, any Series A Security which is not a Restricted Security or (b) any Series A Security as to which such restrictions on transfer have been terminated in accordance with Section 2.05. Any Restricted Security shall bear the legend set forth on the face of the Form of Series A Security in Exhibit A hereto. SECTION 2.13 Form of Legend for Book-Entry Securities. Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 31 ARTICLE 3 Redemption SECTION 3.01 Right of Redemption. The Company may redeem all the Securities at any time or any portion of the Securities from time to time, on or after June 15, 2000, at the following Redemption Prices (expressed as percentages of the principal amount) if redeemed during the 12-month period beginning June 15 of the years indicated:
Year Redemption Price ---- ---------------- 2000.................. 105.250% 2001.................. 102.625% 2002 and thereafter... 100.000%
of the principal amount, plus accrued and unpaid interest (if any) to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). SECTION 3.02 Notices to Trustee. The Company shall notify the Trustee of the listing of the Securities on a national securities exchange within one Business Day after such listing. If the Company elects to redeem Securities pursuant to Section 3.01 of this Indenture and paragraph 6 of the Securities, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Securities to be redeemed. The Company shall give each notice provided for in this Section 3.02 in an Officers' Certificate at least forty-five (45) days before the Redemption Date (unless a shorter period shall be satisfactory to the Trustee). SECTION 3.03 Selection of Securities to Be Redeemed. If less than all the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed or, if the Securities are not listed on a national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem fair and appropriate; provided, however, that no Securities of $1,000 in original principal amount or less shall be redeemed in part. The Trustee shall make the selection from the Securities outstanding and not previously called for redemption. Securities in denominations of $1,000 in original principal amount may only be redeemed in whole. The Trustee may select for redemption portions (equal to $1,000 in original principal amount or any integral multiple 32 thereof) of the principal of Securities that have denominations larger than $1,000 in original principal amount. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company and the Registrar promptly in writing of the Securities or portions of Securities to be called for redemption. SECTION 3.04 Notice of Redemption. At least thirty (30) days but not more than sixty (60) days before a Redemption Date, the Company shall mail a notice of redemption by first class mail to each Holder whose Securities are to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) The name and address of the Paying Agent; (d) that Securities called for redemption must be surrendered to the Paying Agent in order to collect the Redemption Price; (e) that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price plus accrued interest to the Redemption Date upon surrender of the Securities to the Paying Agent; (f) that, if any Security is being redeemed in part, the portion of the principal amount (equal to $1,000 in original principal amount or any integral multiple thereof) of such Security to be redeemed and that, on and after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion thereof will be reissued; and (g) that, if any Security contains a CUSIP number as provided in Section 2.10 of this Indenture, no representation is being made as to the correctness of the CUSIP number either as printed on the Securities or as contained in the notice of redemption and that reliance may be placed only on the other identification numbers printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the name and at the expense of the Company. Concurrently with the giving of such notice by the Company to the Holders, the Company shall deliver to the Trustee an Officers' Certificate stating that such notice has been given. 33 SECTION 3.05 Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender of any Securities to the Paying Agent, such Securities shall be paid at the Redemption Price, plus accrued interest through the Redemption Date. Notice of redemption shall be deemed to be given when mailed, whether or not the Holder receives the notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of the Securities. SECTION 3.06 Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Paying Agent (or, if the Company is acting as its own Paying Agent, shall segregate and hold in trust as provided in Section 2.04 of this Indenture) money sufficient to pay the Redemption Price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation. SECTION 3.07 Payment of Securities Called for Redemption. If notice of redemption has been given in the manner provided above, the Securities or portion of Securities specified in such notice to be redeemed shall become due and payable on the Redemption Date at the Redemption Price stated therein, together with accrued interest to such Redemption Date, and from such date (unless the Company shall default in the payment of such Securities at the Redemption Price and accrued interest to the Redemption Date, in which case the principal, until paid, shall bear interest from the Redemption Date at the rate prescribed in the Securities), such Securities shall cease to accrue interest. Upon surrender of any Security for redemption in accordance with a notice of redemption, such Security shall be paid and redeemed by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders registered as such at the close of business on the relevant Record Date. SECTION 3.08 Securities Redeemed in Part. Upon surrender of any Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unredeemed portion of such surrendered Security. 34 ARTICLE 4 Covenants SECTION 4.01 Payment of Securities. The Company shall pay the principal of, premium, if any, and interest on the Securities on the dates and in the manner provided in the Securities and this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the Company, or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment. If the Company, any Subsidiary of the Company, or any Affiliate of any of them acts as Paying Agent, an installment of principal, premium, if any, or interest shall be considered paid on the due date if the entity acting as Paying Agent complies with the last sentence of Section 2.04 of this Indenture. The principal of, premium, if any, and interest on Book-Entry Securities represented by any Global Security shall be payable to the Depository or its nominee, as the case may be, as the sole registered owner and the sole holder of the Book-Entry Securities represented thereby. The principal of, premium, if any, and interest on the Securities, if they are not Book-Entry Securities represented by a Global Security, shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose; provided, however, that at the option of the Company interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Security Register. The Company shall notify the Trustee within one Business Day after the occurrence of any event resulting in an Interest Rate Increase. The Company shall pay the additional interest arising from an Interest Rate Increase (such interest being called the "Additional Interest") by depositing with the Trustee, in trust, for the benefit of the Holders thereof, on or before the applicable Interest Payment Date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due on any Series A Security shall be payable on each applicable Interest Payment Date to the Person in whose name that Series A Security or the Series B Security for which such Series A Security has been exchanged (or one or more predecessor Securities) is registered at the close of business on the Regular Record Date for the payment of interest due on such Interest Payment Date as set forth in this Indenture. The Company shall notify the Trustee within one Business Day of the occurrence of an event which would result in the termination of the Interest Rate Increase. 35 The Company shall pay interest on overdue principal, premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate per annum borne by the Securities. SECTION 4.02 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, the City of New York a Registrar and a Paying Agent and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. SECTION 4.03 Limitation on Indebtedness. (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that the Company and its Restricted Subsidiaries may Incur Indebtedness if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds therefrom, the Interest Coverage Ratio of the Company would be greater than 2:1x. Notwithstanding the foregoing, the Company and any Restricted Subsidiary may Incur each and all of the following: (i) (A) Indebtedness outstanding at any time under any term loan portion of the Credit Agreements; provided, however, that the aggregate principal amount of such Indebtedness outstanding at any time under this clause (i)(A) shall not exceed $300 million, (B) Indebtedness outstanding at any time under any revolving credit facility under the Credit Agreements or under any other revolving credit or similar arrangements; provided, however, that the aggregate principal amount of such Indebtedness outstanding at any time under this clause (i)(B) shall not exceed the greater of (x) $250 million and (y) the sum of 75% of the Company's and its Restricted Subsidiaries' accounts and notes receivables and 40% of the Company's and its Restricted Subsidiaries' inventory (based on the average accounts and notes receivables (excluding, without duplication, accounts and notes receivables subject to a Receivables Program) and inventory over the last twelve months preceding the date of incurrence), and (C) additional Indebtedness outstanding at any time in an aggregate principal amount not to exceed $50 million; 36 (ii) Indebtedness of the Company to any of its Restricted Subsidiaries, or of a Restricted Subsidiary to the Company or to any other Restricted Subsidiary; (iii) Indebtedness the net proceeds of which are used to refinance outstanding Indebtedness of the Company or any of its Restricted Subsidiaries, other than Indebtedness Incurred under clause (i), (iv) or (v) of this Section 4.03(a) and any refinancings thereof, in an amount (or, if such new Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration thereof, with an original issue price) not to exceed the amount so refinanced (plus premiums, accrued interest, fees and expenses); provided, however, that Indebtedness the proceeds of which are used to refinance the Securities or other Indebtedness of the Company that is subordinated in right of payment to the Securities shall only be permitted under this clause (iii) if (A) in case the Securities are refinanced in part, such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is expressly made pari passu with, or subordinate in right of payment to, the Securities, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Securities, such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is expressly made subordinate in right of payment to the Securities, at least to the extent that the Indebtedness to be refinanced is subordinated to the Securities, and (C) in case the Securities are refinanced in part or the Indebtedness to be refinanced is subordinated in right of payment to the Securities, such Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to six months after the Stated Maturity of the Securities and the Average Life of such Indebtedness is six months greater than the remaining time before the Stated Maturity of the Securities; and provided further, however, that in no event may Indebtedness of the Company that is pari passu with, or subordinated in right of payment to, the Securities be refinanced by means of Indebtedness of any Restricted Subsidiary of the Company pursuant to this clause (iii); (iv) Indebtedness directly or indirectly Incurred to finance capital expenditures of the Company or any of its Restricted Subsidiaries in an aggregate principal amount not to exceed $10 million in any fiscal year of the Company, and any refinancing of any such Indebtedness; provided, however, that the amount of Indebtedness that may be Incurred in any fiscal year of the Company pursuant to this clause (iv) shall be increased by the amount of Indebtedness that could have been Incurred in the prior fiscal year (including 37 by reason of this proviso) of the Company pursuant to this clause (iv) but was not so Incurred; (v) Indebtedness of the Company outstanding at any time in an aggregate amount not to exceed $20 million; provided, however, that such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, (A) is expressly made subordinate in right of payment to the Securities and (B) provides that no payments of principal of such Indebtedness by way of sinking fund, mandatory redemption or otherwise (including defeasance) may be made by the Company (including, without limitation, at the option of the holder thereof, other than an option given to such holder pursuant to an "asset sale" or "change of control" provision that is no more favorable (except with respect to any premium payable) to the holders of such Indebtedness than the provisions contained in Sections 4.10 and 4.11 of this Indenture and such Indebtedness specifically provides that the Company will not repurchase or redeem such Indebtedness pursuant to such provisions prior to the Company's repurchase of the Securities required to be repurchased by the Company under Sections 4.10 and 4.11 of this Indenture) at any time prior to the Stated Maturity of the Securities; (vi) Indebtedness Incurred by the Company in connection with the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company, options on any such shares or related stock appreciation rights or similar securities, or the satisfaction of put, call, liquidity or other similar rights with respect to any such securities, held by officers, directors or employees or former officers, directors or employees (or their estates or beneficiaries under their estates or their permitted transferees) or by any Plan, upon death, disability, retirement, termination of employment or pursuant to the terms of such Plan or any other agreement under which such shares of stock or related rights were issued or otherwise exist; provided, however, that (A) such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is expressly made subordinate in right of payment to the Securities, (B) such Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such Indebtedness is issued, provides that no payments of principal of such Indebtedness by way of sinking fund, mandatory redemption or otherwise (including defeasance) may be made by the Company at any time prior to the Stated Maturity of the Securities, and (C) the scheduled maturity of all principal of such Indebtedness is after the Stated Maturity of the Securities; and provided further, however, that any such Indebtedness may provide for payment or prepayment of principal and interest which when aggregated with all principal and interest payable or prepayable on all other such Indebtedness 38 (plus all cash payments permitted to be made under clause (c) of the second paragraph of Section 4.04 of this Indenture) does not exceed $10 million in any fiscal year; (vii) Indebtedness (A) in respect of performance bonds, bankers' acceptances, letters of credit and surety or appeal bonds provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements; provided, however, that, in the case of Currency Agreements that relate to other Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any Subsidiary of the Company pursuant to such agreements, in any case Incurred in connection with the acquisition or disposition of any business, assets or Subsidiary of the Company, other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary of the Company for the purpose of financing such acquisition; (viii) Indebtedness under Guarantees Incurred by the Company or any of its Restricted Subsidiaries in respect of obligations of Unrestricted Subsidiaries outstanding at any time in an aggregate amount not to exceed $5 million; (ix) Indebtedness of the Company or any of its Restricted Subsidiaries the net proceeds of which are used to pay Federal, state or local taxes arising as a result of any recharacterization of either Partnership as an association taxable as a corporation; (x) Acquired Indebtedness; provided, however, that, at the time of the Incurrence thereof, after giving pro forma effect to such Incurrence, the Company could Incur at least $1.00 of Indebtedness under the first paragraph of this Section 4.03(a), and refinancings of any thereof; provided, however, that such refinancing Indebtedness may not be Incurred by any Person other than the Company or the Restricted Subsidiary that is the obligor on such Acquired Indebtedness; and (xi) Indebtedness outstanding or as to which commitments are in place on the date of this Indenture other than Indebtedness described in clause (i)(A) or (B) above. 39 (b) Notwithstanding any other provision of this Section 4.03, (i) the maximum amount of Indebtedness that the Company or any Restricted Subsidiary may Incur pursuant to this Section 4.03 shall not be deemed to be exceeded due solely to the result of fluctuations in the exchange rates of currencies; (ii) the Company shall not Incur any Indebtedness that is expressly subordinated to any other Indebtedness of the Company, unless such Indebtedness, by its terms or the terms of any agreement or instrument pursuant to which such Indebtedness is issued, is also expressly made subordinate to the Securities at least to the extent it is subordinated to such other Indebtedness; and (iii) upon any refinancing of any Indebtedness permitted to be Incurred under clause (iii) or (x) of the second paragraph of Section 4.03(a) of this Indenture, the amount of Indebtedness permitted to be Incurred pursuant to such clause shall be increased by the amount of premiums, fees and expenses incurred in connection with such refinancing and by the amount of accrued interest on such Indebtedness at the time of such refinancing. (c) For purposes of determining any particular amount of Indebtedness under this Section 4.03, the following amounts shall not be included: (1) Guarantees of, contingent obligations (including obligations of a general partner for liabilities of a partnership) with respect to, or obligations with respect to letters of credit supporting, Indebtedness otherwise included in the determination of such particular amount; and (2) any Liens granted pursuant to the equal and ratable provisions referred to in the first paragraph of Section 4.08 of this Indenture. For purposes of determining compliance with this Section 4.03, (x) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses; (y) Indebtedness permitted under this Section 4.03 need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by reference to one such provision and in part by reference to one or more other provisions of this Section 4.03 permitting such Indebtedness; and (z) the amount of Indebtedness issued at a price that is less than the principal amount thereof shall be equal to the amount of the liability in respect thereof determined in conformity with GAAP. SECTION 4.04 Limitation on Restricted Payments. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (a) declare or pay any dividend or make any distribution on its Capital Stock (other than (i) on the Capital Stock of Restricted Subsidiaries that are Wholly Owned Subsidiaries of the Company and (ii) dividends or distributions payable solely in shares of its, or any Restricted Subsidiary's, Capital Stock (other than Redeemable Stock) of the same class held by such holders or in options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or another Restricted Subsidiary, (b) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of 40 the Company, any Restricted Subsidiary or any Unrestricted Subsidiary (including options, warrants or other rights to acquire such shares of Capital Stock) held by Persons other than the Company or another Restricted Subsidiary, (c) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Securities, (d) make any Investment in any Restricted Subsidiary that is not a Wholly Owned Subsidiary of the Company, other than a Permitted Investment, or (e) make any Investment in any Unrestricted Subsidiary (such payments or other actions described in clauses (a) through (e) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (i) a Default or Event of Default shall have occurred and be continuing, (ii) the Company could not Incur at least $1.00 of Indebtedness under the first paragraph of Section 4.03(a) of this Indenture, or (iii) the aggregate amount expended for all Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) after the Closing Date shall exceed the sum of (A) 50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of such amount) of the Company (determined by excluding income resulting from the transfers of assets received by the Company or a Restricted Subsidiary from an Unrestricted Subsidiary) accrued on a cumulative basis during the period (taken as one accounting period) beginning on January 1, 1995 and ending on the last day of the last fiscal quarter preceding the Transaction Date, plus (B) the aggregate net proceeds (including the fair market value of noncash proceeds as determined in good faith by the Board of Directors) received by the Company or any of its Restricted Subsidiaries from any issuance and sale permitted by this Indenture of its Capital Stock (not including Redeemable Stock) to a Person that is not a Subsidiary of the Company, including an issuance or sale permitted by this Indenture for cash or other property upon the conversion of any Indebtedness of the Company or any of its Restricted Subsidiaries subsequent to the Closing Date, or from the issuance of any options, warrants or other rights to acquire Capital Stock of the Company or any of its Restricted Subsidiaries (in each case, exclusive of any Redeemable Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the Securities), plus (C) an amount equal to the net reduction in Investments in Unrestricted Subsidiaries (other than Unrestricted Subsidiaries so designated pursuant to clause (g) of the second paragraph of this Section 4.04 and other than Investments made in Unrestricted Subsidiaries pursuant to such clause (g)) resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed in the case of any Unrestricted Subsidiary 41 the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, plus (D) $25 million. The foregoing provision shall not take into account, and shall not be violated by reason of: (a) the payment of any dividend within 120 days after the date of declaration thereof if, at such date of declaration, such payment would comply with the foregoing provision; (b) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Securities, including premium, if any, and accrued and unpaid interest, with the proceeds of Indebtedness Incurred under the first paragraph of Section 4.03(a) of this Indenture or clause (iii) or (v) of the second paragraph of such Section 4.03(a); (c) the repurchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company, any Restricted Subsidiary or any Unrestricted Subsidiary, options on any such shares or related stock appreciation rights or similar securities, or the satisfaction of put, call, liquidity or other similar rights with respect to any such securities, held by officers, directors or employees or former officers, directors or employees (or their estates or beneficiaries under their estates or their permitted transferees) or by any Plan, upon death, disability, retirement, termination of employment or pursuant to the terms of such Plan or any other agreement under which such shares of stock or related rights were issued or otherwise exist; provided, however, that the aggregate cash payment made for all such repurchases, redemptions, acquisitions, cancellations, retirements or other satisfactions of or with respect to such shares, options or other rights after the Closing Date (plus payments or prepayments of principal and interest permitted on Indebtedness Incurred under clause (vi) of the second paragraph of Section 4.03(a) of this Indenture) does not exceed $10 million in any fiscal year and that any consideration in excess of such $10 million is in the form of Indebtedness that would be permitted to be Incurred under clause (vi) of the second paragraph of Section 4.03(a) of this Indenture; (d) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the proceeds of a substantially concurrent offering of, shares of Capital Stock of the Company (other than Redeemable Stock); (e) the repurchase, redemption, retirement or other acquisition of Indebtedness of the Company that is subordinated in right of payment to the 42 Securities in exchange for, or out of the net proceeds of a substantially concurrent offering of, shares of Capital Stock of the Company (other than Redeemable Stock); (f) payments or distributions pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of Article 5 of this Indenture; (g) the making of (i) up to $10 million of Investments in Unrestricted Subsidiaries plus the amount of any reduction in such Investments in such Unrestricted Subsidiaries made pursuant to this clause (g) resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary pursuant to this clause (g), (ii) Investments in the Company, Unrestricted Subsidiaries or Restricted Subsidiaries with the proceeds of any sale of Capital Stock of the Company or (in the case of Investments in the Company or any Restricted Subsidiaries) of any Restricted Subsidiary permitted by this Indenture, and (iii) Investments in Unrestricted Subsidiaries in the form of loans or advances from the Company or any Restricted Subsidiary representing capitalized labor costs for services performed by the Company or any Restricted Subsidiary to such Unrestricted Subsidiaries in the ordinary course of business; (h) the purchase, redemption, acquisition, cancellation or other retirement for a nominal value per right of any rights granted to all the holders of Common Stock of the Company pursuant to any shareholders' rights plan adopted for the purpose of protecting shareholders from unfair takeover tactics; provided, however, that any such purchase, redemption, acquisition, cancellation or other retirement of such rights shall not be for the purpose of evading the limitations of this Section 4.04 (all as determined in good faith by the Board of Directors); (i) any Permitted Distribution; (j) payments by the Company or any Restricted Subsidiary in respect of Indebtedness of the Company or any Restricted Subsidiary owed to the Company or another Restricted Subsidiary; 43 (k) the application of proceeds as provided in Section 4.10 of this Indenture; or (l) the application of proceeds as provided in clause (c) of Section 4.06 of this Indenture; provided, however, that, in the case of clauses (b), (c) (except with respect to the Incurrence of Indebtedness complying with the first proviso of clause (vi) of the second paragraph of Section 4.03(a) of this Indenture), (d), (e), (f) (other that with respect to either Partnership), or (g) (other than Investments in Unrestricted Subsidiaries any of the Capital Stock of which is held by either Partnership, the general partner of either thereof or any Unrestricted Subsidiary of either Partnership), no Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof. SECTION 4.05 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary; (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (c) make loans or advances to the Company or any other Restricted Subsidiary; or (d) transfer any of its property or assets to the Company or any other Restricted Subsidiary. The foregoing provision shall not restrict or prohibit any encumbrances or restrictions existing: (a) in the Credit Agreements or in any other agreements in effect on the Closing Date, including extensions, refinancings, renewals or replacements thereof; provided, however, that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (b) under any Receivables Program or any other agreement providing for the Incurrence of Indebtedness; provided, however, that the encumbrances and restrictions in any such agreement are no less favorable in any material respect to the Holders than those encumbrances and restrictions contained in the agreement referred to in clause (a) above that is least favorable to the Holders as of the Closing Date; (c) under or by reason of applicable law; 44 (d) with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary that existed at the time of such acquisition and were not created in connection with or in contemplation of such acquisition, so long as such encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (e) in the case of clause (d) of the first paragraph of this Section 4.05, (i) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (ii) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture, or (iii) arising or agreed to in the ordinary course of business and that do not, individually or in the aggregate, materially detract from the value of property or assets of the Company or any Restricted Subsidiary; (f) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all the Capital Stock of, or property and assets of, such Restricted Subsidiary; or (g) in either Limited Partnership Agreement. Nothing contained in this Section 4.05 shall prevent the Company or any Restricted Subsidiary from (x) entering into any agreement permitting the incurrence of Liens otherwise permitted in Section 4.08 of this Indenture or (y) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 4.06 Limitation on the Issuance of Capital Stock of Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of its Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) except: (a) to the Company or another Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company; (b) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary; 45 (c) if the Net Cash Proceeds from such issuance or sale are applied, to the extent required to be applied, pursuant to Section 4.10 of this Indenture; (d) in the case of TNLP, to TNCLP; or (e) in the case of either Partnership, as otherwise permitted by either Limited Partnership Agreement, so long as any such issuance or sale is for a valid business purpose and not for the primary purpose of making distributions on the Senior Preference Units from the Net Cash Proceeds of such issuance or sale to any Person other than the Company or any of its Restricted Subsidiaries (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution). SECTION 4.07 Limitation on Transactions with Shareholders and Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate of the Company or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate of such a holder. The foregoing limitation does not limit, and shall not apply to: (a) any transaction or series of related transactions (i) approved by a majority of the disinterested members of the Board of Directors or (ii) for which the Company or Restricted Subsidiary delivers to the Trustee a written opinion of a nationally recognized investment banking firm stating that the transaction is fair to the Company or such Restricted Subsidiary from a financial point of view; (b) any transaction between the Company and any Restricted Subsidiary or between Restricted Subsidiaries; (c) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (d) any Restricted Payments not prohibited by Section 4.04 of this Indenture; (e) any payments or other transactions pursuant to any tax sharing agreement between the Company or any Restricted Subsidiary and any other 46 Person with which the Company or such Restricted Subsidiary is required or permitted to file a consolidated tax return or with which the Company or such Restricted Subsidiary is or could be part of a consolidated group for tax purposes; (f) any transaction between the Company or any Restricted Subsidiary and any holder of any Senior Preference Units (or any Affiliate thereof) that would be restricted by this Section 4.07 as a result of such holder's ownership of Senior Preference Units, Junior Preference Units or Common Units; or, (g) the provision of management, financial and operational services by the Company and its Subsidiaries to Affiliates of the Company in which the Company or its Subsidiaries have Investments and the payment of compensation for such services; provided, however, that the Board of Directors has determined that the provision of such services is in the best interests of the Company and its Subsidiaries. Notwithstanding the foregoing, any transaction or series of related transactions covered by the first paragraph of this Section 4.07, the aggregate amount of which does not exceed $3 million in value, need not be approved in the manner provided for in clause (a) above. SECTION 4.08 Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on any Principal Property, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all the Securities and all other amounts due under this Indenture to be directly secured equally and ratably with (or prior to) the obligation or liability secured by such Lien unless, after giving effect thereto, the aggregate amount of any Indebtedness so secured, plus the Attributable Indebtedness for all sale-leaseback transactions restricted as described in Section 4.09 of this Indenture, does not exceed 10% of Consolidated Net Tangible Assets. The foregoing limitation does not apply to, and any computation of Indebtedness secured under such limitation shall exclude: (a) Liens securing obligations under the Credit Agreements up to the amount of Indebtedness permitted to be Incurred under clause (i) of the second paragraph of Section 4.03(a) of this Indenture; (b) other Liens existing on the Closing Date; (c) Liens securing Indebtedness of Restricted Subsidiaries (other than Acquired Indebtedness and refinancings thereof); 47 (d) Receivables Programs; (e) Liens securing Indebtedness (other than subordinated Indebtedness) Incurred under clause (vii) of the second paragraph of Section 4.03(a) of this Indenture; (f) Liens granted in connection with the extension, renewal or refinancing, in whole or in part, of any Indebtedness described in clauses (a) through (e) above; provided, however, that the amount of Indebtedness secured by such Lien is not increased thereby (except to the extent that Indebtedness under clause (a) above is increased to the maximum amount permitted to be outstanding under clause (i) of the second paragraph of Section 4.03(a) of this Indenture); and provided further, however, that the extension, renewal or refinancing of Indebtedness of the Company may not be secured by Liens on assets of any Restricted Subsidiary other than to the extent the Indebtedness being extended, renewed or refinanced was at any time previously secured by Liens on assets of such Restricted Subsidiary; (g) Liens with respect to Acquired Indebtedness and refinancings thereof permitted under clause (x) of the second paragraph of Section 4.03(a) of this Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets of the Subsidiary acquired; or (h) Permitted Liens. SECTION 4.09 Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any sale- leaseback transaction involving any Principal Property, unless the aggregate amount of all Attributable Indebtedness with respect to such transactions, plus all Indebtedness secured by Liens on Principal Properties (excluding secured Indebtedness that is excluded as described in Section 4.08 of this Indenture), does not exceed 10% of Consolidated Net Tangible Assets. The foregoing restriction does not apply to, and any computation of Attributable Indebtedness under such limitation shall exclude, any sale- leaseback transaction if: (a) the lease is for a period, including renewal rights, of not in excess of three years; 48 (b) the sale or transfer of the Principal Property is entered into prior to, at the time of, or within 12 months after the later of the acquisition of the Principal Property or the completion of construction thereof; (c) the lease secures or relates to industrial revenue or pollution control bonds; (d) the transaction is between the Company and any Restricted Subsidiary or between Restricted Subsidiaries; or (e) the Company or such Restricted Subsidiary, within 12 months (24 months in the case of sales of plants or facilities) after the sale of any Principal Property is completed, applies an amount not less than the net proceeds received from such sale to the retirement of unsubordinated Indebtedness, to Indebtedness of a Restricted Subsidiary, or to the purchase of other property that will constitute a Principal Property or improvements thereto, or, in the case of either Partnership, to such investment, reinvestment or other use as shall be permitted or required by either Limited Partnership Agreement. SECTION 4.10 Limitation on Asset Sales. In the event and to the extent that the Net Cash Proceeds received by the Company or any of its Restricted Subsidiaries from one or more Asset Sales occurring on or after the Closing Date in any period of 12 consecutive months (other than Asset Sales by the Company or any Restricted Subsidiary to the Company or another Restricted Subsidiary) exceed 10% of Consolidated Net Tangible Assets in any one fiscal year (determined as of the date closest to the commencement of such 12-month period for which a balance sheet of the Company and its Subsidiaries has been prepared), then the Company will, or will cause such Restricted Subsidiary to, (a) within 12 months (or, in the case of Asset Sales of plants or facilities, 24 months) after the date Net Cash Proceeds so received exceed 10% of Consolidated Net Tangible Assets in any one fiscal year (determined as of the date closest to the commencement of such 12-month period for which a balance sheet of the Company and its Subsidiaries has been prepared) (i) apply an amount equal to such excess Net Cash Proceeds, or the amount not applied pursuant to clause (ii) or (iii) , to repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Subsidiaries; (ii) invest an equal amount, or the amount not so applied pursuant to clause (i) or (iii) (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in property or assets that are of a nature or type or are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Subsidiaries existing on the date thereof (as determined in good faith by the Board of Directors, whose determination shall be 49 conclusive and evidenced by a Board Resolution); or (iii) in the case of either Partnership, apply an equal amount, or the amount not applied pursuant to clause (i) or (ii), to such investment, reinvestment or other use as shall be permitted or required by either Limited Partnership Agreement, and (b) apply such excess Net Cash Proceeds (to the extent not applied pursuant to clause (a)) as provided in the following paragraphs of this Section 4.10. The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12-month period or 24-month period, as the case may be, as set forth in clause (i), (ii) or (iii) of the next preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds." If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10 million, the Company must, not later than the fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate principal amount of Securities equal to the Excess Proceeds on such date, at a purchase price equal to 101% of the principal amount thereof, plus accrued interest (if any) to the date of purchase (the "Excess Proceeds Payment"). The Company will commence an Excess Proceeds Offer by mailing a notice to the Trustee and each Holder stating: (a) that the Excess Proceeds Offer is being made pursuant to this Section 4.10 and that all Securities validly tendered will be accepted for payment on a pro rata basis; (b) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 40 days from the date such notice is mailed) (the "Excess Proceeds Payment Date"); (c) that any Security not tendered will continue to accrue interest pursuant to its terms; (d) that, unless there shall be a default in the payment of the Excess Proceeds Payment, any Security accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on the Excess Proceeds Payment Date; (e) that Holders electing to have a Security purchased pursuant to the Excess Proceeds Offer will be required to surrender the Security, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Security or comparable form completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Excess Proceeds Payment Date; 50 (f) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Excess Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; and (g) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided, however, that each security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof. On the Excess Proceeds Payment Date, the Company will: (a) accept for payment on a pro rata basis Securities or portions thereof tendered pursuant to the Excess Proceeds Offer; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so accepted; and (c) deliver, or cause to be delivered, to the Trustee all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for payment by the Company. The Paying Agent will promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee will promptly (i) authenticate and mail to such Holders a new certificated Security equal in principal amount to any unpurchased portion of any certificated Security surrendered and (ii) make arrangements with the Depository, to reflect on such Depository's records Book-Entry Securities equal in principal amount to any unpurchased portion of any Global Security; provided that each Security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof. The Company will publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date. For purposes of this Section 4.10, the Trustee shall act as the Paying Agent. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that such Excess Proceeds are received by the Company under this Section 4.10 and the Company is required to repurchase Securities as described above. The Company may modify any of the foregoing provisions of this 51 Section 4.10 to the extent it is advised by independent counsel that such modification is necessary or appropriate in order to ensure such compliance. SECTION 4.11 Repurchase of Securities upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the repurchase of its Securities by the Company in cash pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof, plus accrued interest (if any) to the date of purchase (the "Change of Control Payment"). (b) Within 45 days following any Change of Control, the Company shall mail a notice to the Trustee and each Holder stating: (i) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this Section 4.11 and that all Securities validly tendered will be accepted for payment; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (iii) that any Security not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless there shall be a default in the payment of the Change of Control Payment, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Payment Date; (v) that Holders electing to have any Security or portion thereof purchased pursuant to the Change of Control Offer will be required to surrender such Security, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of such Security or comparable form completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; and (vii) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided, however, that each Security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof. (c) On the Change of Control Payment Date, the Company will: (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for payment by 52 the Company. The Paying Agent will promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee will promptly (i) authenticate and mail to such Holders a new certificated Security equal in principal amount to any unpurchased portion of any certificated Security surrendered and (ii) make arrangements with the Depository, to reflect on such Depository's records Book-Entry Securities equal in principal amount to any unpurchased portion of any Global Security; provided, however, that each Security purchased and each new Security issued shall be in an original principal amount of $1,000 or integral multiples thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.11, the Trustee shall act as Paying Agent. (d) The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that a Change of Control occurs under this Section 4.11 and the Company is required to repurchase Securities as described above. The Company may modify any of the foregoing provisions of this Section 4.11 to the extent it is advised by independent counsel that such modification is necessary or appropriate in order to ensure such compliance. SECTION 4.12 Corporate Existence. Subject to Articles 4 and 5 of this Indenture, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Subsidiary in accordance with the respective organizational documents of the Company and of each Subsidiary of the Company and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any Subsidiary of the Company, if the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole; and provided further, however, that any Subsidiary of the Company may consolidate with, merge into, or sell, convey, transfer, lease or otherwise dispose of all or part of its property and assets to the Company or any Wholly Owned Subsidiary of the Company. SECTION 4.13 Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged before any penalty accrues thereon, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary of the Company or upon the income, profits or property of the Company or any Subsidiary of the Company and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of the Company or any Subsidiary of the Company; provided, however, that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any 53 such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been made. SECTION 4.14 Notice of Defaults and Other Events. In the event that any Indebtedness of the Company or any Subsidiary of the Company having an outstanding principal amount of $10,000,000 or more has been or could be declared due and payable before its maturity because of the occurrence of any event of default (i.e., following any required notice or passage of time or both) under such Indebtedness (including, without limitation, any Default or Event of Default under this Indenture), the Company, promptly after it becomes aware thereof, will give written notice thereof to the Trustee. SECTION 4.15 Maintenance of Properties and Insurance. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company and material to the Company and its Subsidiaries taken as a whole to be maintained and kept in normal condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 4.15 shall prevent the Company or any Subsidiary of the Company from discontinuing the use, operation or maintenance of any of such properties or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Board of Directors or the board of directors of such Subsidiary of the Company having managerial responsibility for any such property, desirable in the conduct of the business of the Company or such Subsidiary of the Company. The Company will provide or cause to be provided, for itself and its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including but not limited to, products liability insurance and public liability insurance with reputable insurers or with the government of the United States of America, or an agency or instrumentality thereof, in such amounts, with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry. SECTION 4.16 Amendments to Limited Partnership Agreements. The Company will not permit the general partner of either Partnership to make or propose any amendment, supplement or other modification to either Limited Partnership Agreement that would have a material adverse effect on the interests of the Holders, except as shall be required by either Limited Partnership Agreement. 54 SECTION 4.17 Compliance Certificates. (a) The Company shall deliver to the Trustee not more than 90 days after the end of each fiscal year an Officers' Certificate stating that a review has been conducted of the activities of the Company and its subsidiaries and the Company's performance under this Indenture and that the Company has fulfilled all obligations under this Indenture. For purposes of this Section 4.17, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If there has been a default in the fulfillment of any such obligation, the certificate shall describe any such default and the nature and status thereof. (b) The Company shall deliver to the Trustee, within 90 days after the end of the Company's fiscal year, a certificate signed by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, (ii) that they have read the most recent Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this Section 4.17, and (iii) whether, in connection with their audit examination, anything came to their attention that caused them to believe that the company was not in compliance with any of the terms, covenants, provisions or conditions of Article 4 and Section 5.01 of this Indenture as they pertain to accounting matters and, if any Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided, however, that such independent certified public accountants shall not be liable in respect of such statement by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards in effect at the date of such examination. SECTION 4.18 Commission Reports and Reports to Holders. Regardless of whether the Company is subject to the periodic reporting and informational requirements of Sections 13 and 15(d) of the Exchange Act, the Company will, to the extent permitted under the Exchange Act, file with the Commission the annual, quarterly and other reports required by Section 13 or 15(d) of the Exchange Act, and shall provide such reports to the Trustee within 15 days of the date it would have been required to file such reports with the Commission had it been subject to such Sections. The Company shall also furnish all such reports to Holders of the Securities or to the Trustee for forewarding to each Holder of Securities at the expense of the Company. The Company also shall comply with the other provisions of TIA Section 314(a). The Trustee has no duty to review these financials or other reports for purposes of determining compliance with this or any other provision of the Indenture. If filing such reports by the Company with the Commission is not permitted under the Exchange Act, the Company will promptly, upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such reports to any person the Company reasonably believes is a prospective holder of Securities. 55 SECTION 4.19 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 5 Successor Corporation SECTION 5.01 When Company May Merge, Etc. The Company will not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person (other than a Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company with a positive net worth; provided, however, that, in connection with any merger of the Company with a Restricted Subsidiary that is a Wholly Owned Subsidiary of the Company, no consideration (other than Common Stock in the surviving Person or the Company) shall be issued or distributed to the shareholders of the Company), or permit any Person to merge with or into the Company, unless: (a) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company on all of the Securities and under this Indenture; (b) immediately after giving effect to such transaction, no Event of Default and no Default shall have occurred and be continuing; (c) immediately after giving effect to such transaction on a pro forma basis, the Interest Coverage Ratio of the Company (or any Person becoming the successor obligor of the Securities) is at least 1.10:1, or, if less, at least equal to the 56 Interest Coverage Ratio of the Company immediately prior to such transaction; provided, however, that, if the Interest Coverage Ratio of the Company before giving effect to such transaction is within the range set forth in column (A) below, then the pro forma Interest Coverage Ratio of the Company (or any Person becoming the successor obligor of the Securities) shall be at least equal to the lesser of (i) the ratio determined by multiplying the percentage set forth in column (B) below by the Interest Coverage Ratio of the Company prior to such transaction and (ii) the ratio set forth in column (C) below: (A) (B) (C) --- --- --- 1.11:1 to 1.99:1 90% 1.6:1 2.00:1 to 2.99:1 80% 2.1:1 3.00:1 to 3.99:1 70% 2.4:1 4.00:1 or more 60% 2.5:1 and provided further, however, that, if the pro forma Interest Coverage Ratio of the Company (or any Person becoming the successor obligor of the Securities) is 3:1 or more, the calculation in the next preceding proviso shall be inapplicable and such transaction shall be deemed to have complied with the requirements of this clause (c); (d) immediately after giving effect to such transaction on a pro forma basis, the Company (or any Person that becomes the successor obligor of the Securities) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; and (e) the Company delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (c) and (d)) and an Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture comply with this Section 5.01 and that all conditions precedent provided for herein relating to such transaction have been complied with; provided, however, that clauses (c) and (d) above do not apply if, in the good faith determination of the Board of Directors, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further, however, that any such transaction shall not have as one of its purposes the evasion of the limitations of this Section 5.01. SECTION 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer, lease or other disposition of all 57 or substantially all of the property and assets of the Company in accordance with Section 5.01 of this Indenture, the successor corporation formed by such consolidation or into which the Company is merged or to which such sale, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. ARTICLE 6 Default and Remedies SECTION 6.01 Events of Default. An "Event of Default" occurs with respect to the Securities if: (a) the Company defaults in the payment of the principal of, or premium, if any, on, any Security when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) the Company defaults in the payment of interest on any Security when the same is due and payable, and such default continues for a period of 30 days; (c) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in this Indenture or under the Securities and such default or breach continues for a period of 30 consecutive days after written notice to the Company by the Trustee or the Holders of 25% or more in aggregate principal amount of the Securities; (d) there occurs with respect to any issue or issues of Indebtedness of the Company and/or one or more Significant Subsidiaries having an outstanding principal amount of $10 million or more in the aggregate, whether such Indebtedness now exists or shall hereafter be created, an event of default that has caused the holder or holders thereof, or representatives of such holder or holders, to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration; (e) any final judgment or order (not covered by insurance) for the payment of money in excess of $10 million in the aggregate for all such final judgments or orders (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Significant Subsidiary and shall not be discharged, and there shall be any period of 30 consecutive days 58 following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding against all such Persons to exceed $10 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (f) a court having jurisdiction in the premises enters a decree or order for (i) relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all the property and assets of the Company or any Significant Subsidiary or (iii) the winding up or liquidation of the affairs of the Company or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (g) the Company or any Significant Subsidiary (i) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all the property and assets of the Company or any Significant Subsidiary or (iii) effects any general assignment for the benefit of creditors; (h) the Company and/or one or more Significant Subsidiaries fails to make (i) at the final (but not any interim) fixed maturity of any issue of Indebtedness a principal payment of $10 million or more or (ii) at the final (but not any interim) fixed maturity of more than one issue of such Indebtedness principal payments aggregating $10 million or more and, in the case of clause (i), such defaulted payment shall not have been made, waived or extended within 30 days of the payment default and, in the case of clause (ii), all such defaulted payments shall not have been made, waived or extended within 30 days of the payment default that causes the amount described in clause (ii) to exceed $10 million; or (i) the nonpayment of any two or more items of Indebtedness that would constitute at the time of such nonpayments, but for the individual amounts of such Indebtedness, an Event of Default under clause (d) or clause (h) above, or both, and which items of Indebtedness aggregate $10 million or more. The notice required under clause (c) must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be 59 given by the Trustee if so requested in writing by the Holders of 25% of the aggregate principal amount of the Securities then outstanding. SECTION 6.02 Acceleration. If an Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.01 of this Indenture that occurs with respect to the Company) occurs and is continuing under this Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders (the "Acceleration Notice")), may, and the Trustee at the request of the Holders will, declare the entire unpaid principal of, premium, if any, and accrued interest on, the Securities to be immediately due and payable, as specified below. Upon a declaration of acceleration, such principal, premium, if any, and accrued interest shall become and be immediately due and payable without presentment, demand, protest or further notice or act (all of which are expressly waived by the Company). In the event of a declaration of acceleration because an Event of Default set forth in clause (d) or (h) of Section 6.01 of this Indenture has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (d) or (h) shall be remedied, cured by the Company and/or such Significant Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (f) or (g) of Section 6.01 of this Indenture occurs with respect to the Company, all unpaid principal of, premium, if any, and accrued interest on, the Securities then outstanding shall become and be immediately due and payable automatically, without any declaration, presentment, demand, protest, notice or other act on the part of the Trustee or any Holder (all of which are expressly waived by the Company). The Holders of at least a majority in principal amount of the outstanding Securities, by written notice to the Company and to the Trustee, may waive all past defaults or Defaults and rescind and annul a declaration of acceleration and its consequences if (a) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and accrued interest on the Securities that have become due solely by such declaration of acceleration, have been cured or waived and (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. 60 The Holders and the Trustee may exercise their rights and remedies under this Indenture and under the Securities against the capital stock of TNC or the assets of TNC and its subsidiaries only in a manner consistent with the fiduciary obligations of TNC and the Company associated without the general partnership interests in the Partnerships (including, without limitation, the interests of the Partnerships and the partners thereof); provided that the foregoing shall not require the Holders or the Trustee to take any action with respect to any other assets of the Company. SECTION 6.04 Waiver of Past Defaults. Subject to Sections 6.02, 6.07 and 9.02 of this Indenture, the Holders of at least a majority in aggregate principal amount of the outstanding Securities, by notice to the Trustee, may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of, premium, if any, or interest on any Security as specified in clause (a) or (b) of Section 6.01 of this Indenture. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 6.05 Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders not joining in the giving of such direction. SECTION 6.06 Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (a) the Holder gives the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in aggregate principal amount of outstanding Securities make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and 61 (e) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Securities do not give the Trustee a direction that is inconsistent with the request. For purposes of Section 6.05 of this Indenture and this Section 6.06, in determining whether the Holders of the requisite principal amount of outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the reasonable satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not any obligor upon the Securities or any Affiliate of the Company or such other obligor. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over any such other Holder. SECTION 6.07 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of the principal of, premium, if any, or interest on, such Holder's Security or to bring suit for the enforcement of any such payment, on or after the respective due dates expressed in the Securities, shall not be impaired or affected without the consent of the Holder. SECTION 6.08 Collection Suit by Trustee. If an Event of Default in payment of principal, premium, if any, or interest specified in clause (a) or (b) of Section 6.01 of this Indenture occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor of the Securities for the whole amount of principal, premium, if any, and accrued interest, if any, remaining unpaid, together with interest on overdue principal, premium, if any, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate borne by the Securities, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the trustee, its agents and counsel. SECTION 6.09 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable 62 compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.06 of this Indenture) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor of the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any custodian in any judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.06 of this Indenture. To the extent that such payment of reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel out of the estate in any such judicial proceeding shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all dividends, distributions, monies, securities and other property that the Holders may be entitled to receive in such judicial proceedings, whether in liquidation or under any plan of reorganization, arrangement or otherwise. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.06 of this Indenture; Second: to Holders for amounts then due and unpaid for principal of, premium, if any, and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest, respectively; and Third: to the Company or any other obligors of the Securities, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any 63 party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 of this Indenture, or a suit by Holders of more than 10% in principal amount of the outstanding Securities. SECTION 6.12 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.13 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Securities in Section 2.06 of this Indenture, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.14 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient by the Trustee or by the Holders, as the case may be. ARTICLE 7 Trustee SECTION 7.01 Rights and Duties of Trustee . Subject to TIA Sections 315(a) through (d): (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this 64 Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of its own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture which are adverse to the Trustee; and (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture; (c) the Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document; (d) before the Trustee acts or refrains from acting, it may require an Officers' Certificate or any Opinion of Counsel, which shall conform to Section 10.04 of this Indenture. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on any such certificate or opinion; (e) the Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care; (f) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee security or indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction; (g) the Trustee or Paying Agent shall not be liable for interest on any money recovered by it except as the Trustee or Paying Agent may agree in writing with the Company. Money held in trust by the Trustee or Paying Agent need not be segregated from other funds except to the extent required by law and except under Article 8 of this Indenture; and (h) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers; 65 provided, however, that the Trustee's conduct does not constitute negligence or bad faith. SECTION 7.02 Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to TIA Sections 310(b) and 311. SECTION 7.03 Trustee's Disclaimer. The Trustee (a) makes no representation as to the validity or adequacy of this Indenture or the Securities, (b) shall not be accountable for the Company's use of the proceeds from the Securities and (c) shall not be responsible for any statement in the Securities other than its certificate of authentication. SECTION 7.04 Notice of Default. If any Default or any Event of Default occurs and is continuing and if such Default of Event of Default is known to the Trustee, the Trustee shall mail to each Holder in the manner and to the extent provided in TIA Section 313(c) notice of the Default or Event of Default within 30 days after it occurs, unless such Default or Event of Default has been cured; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. The Trustee shall not be deemed to have knowledge of any Default or Event of Default except (a) any Event of Default occurring pursuant to clause (a) or (b) of Section 6.01 of this Indenture if the Trustee is then acting as Paying Agent or (b) any Default or Event of Default of which the Trustee shall have received written notification or obtained actual knowledge, and such notification shall not be deemed to include receipt of information obtained in any report or other documents furnished under Section 4.18 of this Indenture, which reports and documents the Trustee shall have no duty to examine. SECTION 7.05 Reports by Trustee to Holders. Within 60 days after each May 15, beginning with the first May 15 after the Closing Date, the Trustee shall mail to each Holder as provided in TIA Section 313(c) a brief report dated as of such May 15, in accordance with and to the extent required by TIA Section 313(a). SECTION 7.06 Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon in writing for it services. The compensation of the Trustee shall not be limited by any law on compensation of a trustee 66 of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability or expense incurred by it without negligence or bad faith on its part in connection with the administration of this Indenture and its duties under this Indenture and the Securities, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Securities. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay reasonable fees and expenses of such counsel. The Company need not pay for any settlements made without its consent; provided, however, that such consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through negligence or bad faith. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (f) or (g) of Section 6.01 of this Indenture, the expenses and the compensation for the services will be intended to constitute expenses of the administration under the United States Bankruptcy Code or any applicable federal or state law for the relief of debtors. SECTION 7.07 Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.07. The Trustee may resign by so notifying the Company in writing at least 30 Business Days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the consent of the Company. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.09 of this Indenture; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; or 67 (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed, or if a vacancy exists in the office of the Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If the successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in principal amount of the outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided in Section 7.06 of this Indenture, (a) the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, (b) the resignation or removal of the retiring Trustee shall become effective and (c) the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If the Trustee fails to comply with Section 7.09 of this Indenture, any Holder who satisfies the requirements of TIA Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.07, the Company's obligations under Section 7.06 of this Indenture shall continue for the benefit of the retiring Trustee. SECTION 7.08 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein. SECTION 7.09 Eligibility. This Indenture shall always have a Trustee who satisfies the requirement of TIA Section 310(a)(1). The Trustee shall have a combined capital and surplus (which shall include without duplication the combined capital and surplus of the holding company of the Trustee) of at least $50,000,000 as set forth in its most recent published annual report of condition. 68 ARTICLE 8 Discharge of Indenture SECTION 8.01 Termination of Company's Obligations. Except as otherwise provided in this Section 8.01, the Company may terminate its obligations under the Securities and this Indenture if: (a) all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities that have been replaced or Securities that are paid pursuant to Section 4.01 of this Indenture or Securities for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.05 of this Indenture) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (b) (i) the Securities mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (ii) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money or U.S. Government Obligations sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment of any interest thereon, to pay principal and interest on the Securities to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, (iii) no Default or Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit, (iv) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. With respect to the foregoing clause (a), the Company's obligations under Section 7.06 shall survive. With respect to the foregoing clause (b), the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.11, 4.01, 4.02, 7.06, 7.07, 8.04, 8.05 and 8.06 of this Indenture shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations in Section 7.06 and 8.06 of this Indenture shall survive. After any such irrevocable deposit, the Trustee upon request shall 69 acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations specified above. SECTION 8.02 Defeasance and Discharge of Indenture. The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Securities and the provisions of this Indenture will no longer be in effect with respect to the Securities on the one hundred twenty-third day after the deposit referred to in clause (i) of this Section 8.02, and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same, except as to (a) rights of registration of transfer and exchange, (b) substitution of apparently mutilated, defaced, destroyed, lost or stolen Securities, (c) rights of Holders to receive payments of principal thereof and interest thereon, (d) the Company's obligations under Section 4.02, (e) the rights, obligations and immunities of the Trustee hereunder and (f) the rights of the Holders as beneficiaries of this Indenture with respect to the property so deposited with the Trustee payable to all or any of them; provided, however, that the following conditions shall have been satisfied: (i) with reference to this Section 8.02, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.09) and conveyed all right, title and interest for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee for the benefit of the Holders as security for payment of the principal of, premium, if any, and interest, if any, on the Securities, and dedicated solely to, the benefit of the Holders, in and to (A) money in an amount, (B) U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (i), an amount or (C) a combination thereof in an amount, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and accrued interest on the outstanding Securities on the Stated Maturity of such principal or interest; provided, however, that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of principal, premium, if any, and interest with respect to the Securities; (ii) the Company shall have delivered to the Trustee (A) either (1) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for Federal income tax purposes as a result of the Company's exercise of its 70 option under this Section 8.02 and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be accompanied by a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable Federal income tax law after the date of this Indenture such that a ruling from the Internal Revenue Service is no longer required or (2) a ruling directed to the Company or the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (B) an Opinion of Counsel to the effect that (1) the creation of the defeasance trust does not violate the Investment Company Act of 1940 and (2) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (x) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (y) if a court were to the rule under any such law in any case or proceeding that the trust funds remained property of the Company, (I) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (II) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case of proceeding; (iii) immediately after giving effect to such deposit on a pro forma basis, no Event of Default or Default shall have occurred and be continuing on the date of such deposit or during the period ending on the one hundred twenty-third day after such date of deposit; (iv) such deposit shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which the Company is bound; (v) if at such time the Securities are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the 71 effect that the Securities will not be delisted as a result of such deposit, defeasance and discharge; and (vi) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02 have been complied with. Notwithstanding the foregoing clause (i), prior to the end of the 123- day period referred to in clause (ii)(B)(2) above, none of the Company's obligations under this Indenture shall be discharged. Subsequent to the end of such 123-day period with respect to this Section 8.02, the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.11, 4.01, 4.02, 7.06, 7.07, 8.05 and 8.06 of this Indenture shall survive until the Securities are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.06, 8.05 and 8.06 of this Indenture shall survive. If and when a ruling from the Internal Revenue Service or an Opinion of Counsel referred to in clause (ii)(A) above is able to be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 4.01 of this Indenture, then the Company's obligations under such Section 4.01 of this Indenture shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02. After any such irrevocable deposit, the Trustee upon request, shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations in the immediately preceding paragraph. SECTION 8.03 Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in clauses (c) and (d) of Section 5.01 and Sections 4.03 through 4.17 of this Indenture and clause (c) of Section 6.01 of this Indenture (with respect to Sections 4.03 through 4.17 of this Indenture and clauses (c) and (d) of Section 5.01 of this Indenture) and clauses (d), (e), (h) and (i) of Section 6.01 of this Indenture shall be deemed not to be Events of Default, in each case with respect to the outstanding Securities if: (a) with reference to this Section 8.03, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.09 of this Indenture) and conveyed in and to all right, title and interest to the Trustee for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee as security for 72 payment of the principal of, premium, if any, and interest, if any, on the Securities for, and dedicated solely to, the benefit of the Holders, in and to (i) money in an amount, (ii) U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (a), money in an amount or (iii) a combination thereof in an amount, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and accrued interest on, the outstanding Securities on the Stated Maturity of such principal or interest; provided, however, that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Securities; (b) the Company has delivered to the Trustee an Opinion of Counsel to the effect that (i) the creation of the defeasance trust does not violate the Investment Company Act of 1940, (ii) the Holders have a valid first- priority security interest in the trust funds, (iii) the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred and (iv) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, and either (A) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors rights generally) or (B) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (1) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such 73 statute and (2) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; (c) immediately after giving effect to such deposit on a pro forma basis, no Event of Default or Default shall have occurred and be continuing on the date of such deposit or during the period ending on the one hundred twenty-third day after the date of such deposit; (d) such deposit shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which the Company is bound; (e) if at such time the Securities are listed in a national securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securities will not be delisted as a result of such deposit, defeasance and discharge; and (f) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.03 have been complied with. SECTION 8.04 Application of Trust Money. Subject to Sections 8.05 and 8.06 of this Indenture, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03 of this Indenture, as the case may be, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with the Securities and this Indenture to the payment of principal of, premium if any, and interest on the Securities; but such money need not be segregated from other funds except to the extent required by law. SECTION 8.05 Repayment to Company . Subject to Sections 7.06, 8.01, 8.02 and 8.03 of this Indenture, the Trustee and the Paying Agent shall promptly pay to the Company upon request set forth in an Officers' Certificate any excess money held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years; provided, however, that the Trustee or such Paying Agent before being required to make any payment may, in its discretion, cause to be published at the expense of the Company once in a newspaper of general circulation in the City of New York or mail to each holder entitled to such money at such Holder's address (as set forth in the Security Register) notice that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of 74 such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company; and provided further, however, that the Trustee may comply with any applicable escheat or abandoned property law. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. SECTION 8.06 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03 of this Indenture, as the case may be, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03 of this Indenture, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03 of this Indenture, as the case may be; provided, however, that, if the Company has made any payment of principal of, premium, if any, or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 Amendments, Supplements and Waivers SECTION 9.01 Without Consent of Holders. The Company, when authorized by a resolution of the Board of Directors, and the Trustee may amend or supplement this Indenture or the Securities without notice to or the consent of any Holder: (a) to cure any ambiguity, defect or inconsistency; (b) to comply with Article 5 of this Indenture; (c) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; (d) to provide for uncertified Securities in addition to or in place of certificated Securities; or (e) to make any change that does not adversely affect the rights of any Holder. 75 SECTION 9.02 With Consent of Holders. Subject to Sections 6.04 and 6.07 of this Indenture and without prior notice to the Holders, the Company, when authorized by the Board of Directors (as evidenced by a Board Resolution), and the Trustee may amend this Indenture and the Securities with the written consent of the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding, and the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may waive future compliance by the Company with any provision of this Indenture or the Securities. Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected, an amendment or waiver, including a waiver pursuant to Section 6.04, may not: (a) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount of, or premium, if any, or interest on, any Security, or adversely affect any right of repayment at the option of any Holder of any Security, or change the place or currency of payment of principal of, premium, if any, or interest on, any Security, or impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or in the case of a redemption, on or after the Redemption Date) of any Security; (b) reduce the percentage in principal amount of the outstanding Securities required for any such supplemental indenture, for any waiver of compliance with certain provisions of this Indenture or certain defaults and their consequences provided for in this Indenture; (c) waive a default in the payment of principal of, premium, if any, or interest on, any Security; or (d) modify any of the provisions of this Section 9.02, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will mail supplemental indentures to Holders upon request. Any failure of the Company to mail 76 such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplemental indenture or waiver. SECTION 9.03 Revocation and Effect of Consent. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the security of the consenting Holder; even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of its Security. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date such amendment, supplement or waiver becomes effective. An amendment, supplement or waiver shall become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount of the outstanding Securities. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then, notwithstanding the last two sentences of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies) and only those Persons shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder unless it is of the type described in any of clauses (a) through (d) of Section 9.02 of this Indenture. In case of an amendment or waiver of the type described in clauses (a) through (d) of Section 9.02 of this Indenture, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder of a Security that evidences the same indebtedness as the Security of the consenting Holder. SECTION 9.04 Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the change terms and return it to the Holder and the Trustee may place an appropriate notation on any Security thereafter authenticated. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 9.05 Trustee to Sign Amendments, Etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to 77 this Article 9 is authorized or permitted by this Indenture. Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights of the Trustee. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.06 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article 9 shall conform to the requirements of the TIA as then in effect. ARTICLE 10 Miscellaneous SECTION 10.01 Trust Indenture Act of 1939. This Indenture is subject to the provisions of the TIA that are required to be a part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 10.02 Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first class mail addressed as follows: if to the Company: Terra Industries Inc. 600 Fourth Street Terra Centre Sioux City, Iowa 51101 Attention: Chief Financial Officer if to the Trustee: First Trust National Association 180 East Fifth Street St. Paul, Minnesota 55101 Attention: Corporate Finance The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to such Holder at its address as it appears on the Security Register by first class mail and shall be sufficiently given if so mailed within the time prescribed. Copies of any such 78 communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, and except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 10.03. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such Counsel, all such conditions precedent have been complied with. SECTION 10.04 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in the Indenture shall include: (a) a statement that the person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with, and such other opinions as the Trustee may reasonably request; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. 79 SECTION 10.05 Rules by Trustee, Paying Agent or Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 10.06 Payment Date Other Than a Business Day. If an Interest Payment Date, Redemption Date, Stated Maturity or date of maturity of any Security shall not be a Business Day at any place of payment, then payment of principal of, premium, if any, or interest on such Security, as the case may be, need not be made on such date, but may be made on the next succeeding Business Day at such place of payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity or date of maturity of such Security; provided, however, that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or date of maturity, as the case may be, to the next succeeding Business Day. SECTION 10.07 GOVERNING LAW. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES. THE TRUSTEE, THE COMPANY AND THE HOLDERS AGREE TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OF THE SECURITIES. SECTION 10.08 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.09 No Recourse Against Others. No recourse for the payment of the principal of, premium, if any, or interest on, any of the Securities or for any claim based thereon or otherwise in respect thereof or by reason thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any of the Securities or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, shareholder, officer, director, employee or controlling person, past, present or future, of the Company or any successor Person thereof. Each Holder, by accepting such Securities (or interest therein), waives and releases all such liability. SECTION 10.10 Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. 80 SECTION 10.11 Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 10.12 Separability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 10.13 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been included for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. * * * 81 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. TERRA INDUSTRIES INC. BY: /s/ Francis G. Meyer --------------------------------- Name: Francis G. Meyer Title: Vice President & Chief Financial Officer FIRST TRUST NATIONAL ASSOCIATION BY: /s/ Scott Strodthoff --------------------------------- Name: Scott Strodthoff Title: Vice President STATE OF IOWA ) ) SS: COUNTY OF WOODBURY ) On this 22nd day of June, 1995, before me personally came Francis G. Meyer, to me known, who, being by me duly sworn, did depose and say that he resides in Sioux City, Iowa, that he is Vice President and Chief Financial Officer of TERRA INDUSTRIES INC., one of the corporations described in and that executed the above instrument; and that he signed his name thereto by authority of the Board of Directors of said corporation. /s/ Jane A. Rice ------------------------------- Notary Public (Notarial Seal) STATE OF NEW YORK ) ) SS: COUNTY OF NEW YORK ) On this 22nd day of June, 1995, before me personally came Scott Strodthoff, to me known, who by me duly sworn, did depose and say that he resides in Arden Hills, Minnesota; that he is Vice President of FIRST TRUST NATIONAL ASSOCIATION, one of the entities described in and that executed the above instrument; and that he signed his name thereto by authority of the by-laws of said trust company. /s/ Lisa Hochstadt --------------------------------- Notary Public (Notarial Seal) EXHIBIT A --------- (FACE OF SERIES A SECURITY) [Legend if Security is deemed a Restricted Security] THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPHS (a)(1), (a)(2), (a)(3) OR (a)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. [Legend if Global Security] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. A-2 TERRA INDUSTRIES INC. 10 1/2% Senior Note due 2005, Series A NO. CUSIP NO. [880915 AC7] [880915 AD5] TERRA INDUSTRIES INC., a Maryland corporation (the "Company," which term includes any successor corporation) under the Indenture hereinafter referred to, for value received, promises to pay to ________________, or its registered assigns, the principal sum of ______________ ($_________), in United States dollars on June 15, 2005, at the office or agency of the Company referred to below, and to pay interest thereon from June 22, 1995, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually on June 15 and December 15, in each year, commencing December 15, 1995 at the rate of 10 1/2% per annum, in United States dollars, until the principal hereof is paid or duly provided for. In addition, in the event that either (a) an Exchange Offer Registration Statement is not filed by the Company with the Commission in connection with a Registered Exchange Offer on or prior to July 22, 1995, (b) such Exchange Offer Registration Statement is not declared effective by the Commission on or prior to September 20, 1995, or (c) (i) the Registered Exchange Offer is not consummated on or prior to October 20, 1995 or (ii) a Shelf Registration Statement has not been declared effective on or prior to October 20, 1995 in the event the Registered Exchange Offer is not consummated or a Shelf Registration has been requested by the Initial Purchasers, the interest rate borne by the Series A Securities shall be increased (an "Interest Rate Increase") by one quarter of one percent per annum; commencing July 22, 1995 in the case of (a) above, commencing September 20, 1995 in the case of (b) above, commencing October 20, 1995 in the case of (c) above; provided that the aggregate increase in such interest rate from the original interest rate will in no event exceed one percent per annum; provided, further, that upon the filing of an Exchange Offer Registration Statement in the case of (a) above, the effectiveness of the Exchange Offer Registration Statement in the case of (b) above, or the effectiveness of the Shelf Registration Statement or the day before the date of the consummation of the Registered Exchange Offer, as the case may be, in the case of (c) above, the interest rate borne by the Securities shall from the date of such filing, effectiveness or day before the date of consummation, as the case may be, be reduced by the full amount of any such Interest Rate Increase. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest A-3 Payment Date. Any such interest paid or duly provided for within 30 days after the Interest Payment Date on which such interest payment was due will, as provided in such Indenture, be paid to such Person, together with interest on such past due interest payment at the interest rate borne by the Series A Securities, to the extent lawful. Any such interest not so paid, or duly provided for, and interest on such defaulted interest at the interest rate borne by the Series A Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and shall be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on a special record date for the payment of such defaulted interest which shall be the fifteenth day next preceding the date fixed by the Company for the payment of default interest, notice whereof shall be given to Holders of Securities not less than 15 days prior to such special record date. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. A-4 IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. TERRA INDUSTRIES INC. By: ------------------------------------ Title: --------------------------------- By: ------------------------------------ Title: --------------------------------- A-5 (Form of Trustee's Certificate of Authentication) This is one of the 10 1/2% Senior Notes due 2005, Series A described in the within-mentioned Indenture. Dated: __________, ____ FIRST TRUST NATIONAL ASSOCIATION, as Trustee By: ------------------------------ Authorized Signature A-6 (REVERSE SIDE OF SERIES A SECURITY) TERRA INDUSTRIES INC. 10 1/2% Senior Note due 2005, Series A 1. Principal and Interest. ---------------------- The Company will pay the principal of this 10 1/2% Senior Note due 2005, Series A (a "Series A Security") on June 15, 2005. The Company promises to pay interest on the principal amount of this Security on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually (to the holders of record of the Securities at the close of business on June 1 or December 1 immediately preceding the applicable Interest Payment Date) on each Interest Payment Date, commencing December 15, 1995. Interest on the Securities will accrue from the most recent date to which interest has been paid, or, if no interest has been paid, from June 22, 1995; provided, however, that, if there is no existing default in the payment of interest and if this Security is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate of 10 1/2% per annum. 2. Method of Payment. ----------------- The Company will pay interest (except defaulted interest) on the principal amount of the Securities on each June 15 and December 15, commencing December 15, 1995, to the persons who are Holders (as reflected in the Security Register) at the close of business on the June 1 or December 1 immediately preceding the applicable Interest Payment Date, in each case, even if the Security is canceled on registration of transfer or registration of exchange after such payment date; provided, however, that, with respect to the payment of principal, the Company will make payment to the Holder that surrenders this Security to a Paying Agent on or after June 15, 2005. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, with respect to Securities in certificated form, the Company may pay interest by check mailed to the address of the Person entitled thereto as such address shall appear on the Security A-7 Register. If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. -------------------------- Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or co-registrar. 4. Registration Rights. ------------------- The Holder of this Series A Security is entitled to the benefits of the Registration Rights Agreement between the Company and the Initial Purchasers, dated June 22, 1995, pursuant to which, subject to the terms and conditions thereof, the Company is obligated to consummate the Registered Exchange Offer pursuant to which the Holder of this Security shall have the right to exchange this Security for 10 1/2% Senior Notes due 2005, Series B (herein called the "Series B Securities") in like principal amount as provided therein. The Series A Securities and the Series B Securities are together referred to as the "Securities." The Series A Securities rank pari passu in right of payment with the Series B Securities. 5. Indenture; Limitations. ---------------------- The Company issued the Series A Securities under an Indenture dated as of June 22, 1995 (the "Indenture"), between the Company and First Trust National Association (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control. The Securities are general obligations of the Company. The Indenture limits the original aggregate principal amount of the Series A Securities to $200,000,000. 6. Optional Redemption. ------------------- The Company may redeem all the Securities or any portion of the Securities from time to time, on or after June 15, 2000, at the following Redemption Prices (expressed as percentages of the principal amount) if redeemed during the 12-month period beginning June 15 of the years indicated: A-8 Year Redemption Price ---- ---------------- 2000........................ 105.250% 2001........................ 102.625% 2002 and thereafter......... 100.000% of the principal amount, plus accrued and unpaid interest (if any) to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). 7. Notice of Redemption. -------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder to be redeemed at such Holder's last address as it appears in the Security Register. Securities in original denominations larger than $1,000 may be redeemed in part. On the Redemption Date, interest ceases to accrue on Securities or portions of Securities called for redemption, unless the Company defaults in the payment of the Redemption Price. 8. Denominations; Transfer; Exchange. --------------------------------- If this Series A Security is in certificated form, then as provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Series A Security is registrable on the Security Register of the Company, upon surrender of this Series A Security for registration of transfer at the office or agency of the Company maintained for such purpose in The City of New York or at such other office or agency of the Company as may be maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Series A Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferree or transferees. If this Series A Securities is a Restricted Security in certificated form, then as provided in the Indenture and subject to certain limitations therein set forth, the Holder, provided it is a Qualified Institutional Buyer, may exchange this Series A Security for a Book-Entry Security by instructing the Trustee (by completing the Transferee Certificate in the form attached to this Security) to arrange for such Series A Security to be represented by a beneficial interest in a Global Security in accordance with the customary procedures of the Depository, unless the Company has elected not to issue a Global Security. If this Series A Security is a Global Security, it is exchangeable for a Series A Security in certificated form only if (x) the Depository is at any time unwilling or A-9 unable to continue as depository and a successor depository is not appointed by the Company within 30 days or (y) there shall have occurred and be continuing an Event of Default or (z) the Company may at any time determine not to have Series A Securities represented by a Global Security. In addition, in accordance with the provisions of the Indenture and subject to certain limitations therein set forth, an owner of a beneficial interest in a Global Security which is a Series A Security may request a Series A Security in certificated form, in exchange in whole or in part, as the case may be, for such beneficial owner's interest in the Global Security. In any such instance, an owner of a beneficial interest in a Global Security will be entitled to physical delivery in certificated form of Series A Securities in authorized denominations equal in aggregate principal amount to such beneficial interest and to have such Series A Securities registered in its name. Series A Securities in certificated form are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Series A Securities are exchangeable for a like aggregate principal amount of Securities of a differing authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange or redemption of Series A Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 9. Rule 144A Information. --------------------- At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the written request of a Holder of a Series A Security, the Company will promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such Series A Security who such Holder informs the Company is reasonably believed to be a "Qualified Institutional Buyer" within the meaning of Rule 144A under the Securities Act, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. 10. Persons Deemed Owners. --------------------- A Holder may be treated as the owner of a Security for all purposes. 11. Unclaimed Money. --------------- If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the A-10 Company for payment, unless an abandoned property law designates another person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. ----------------------------------------- If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Securities (a) to redemption or maturity, the Company will be discharged from the Indenture and the Securities, except in certain circumstances for certain sections thereof, and (b) to the Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 13. Amendment; Supplement; Waiver. ----------------------------- Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities and make any change that does not adversely affect the rights of any Holder. 14. Restrictive Covenants. --------------------- The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to pay dividends, create Liens, enter into sale- leaseback transactions, sell assets, engage in transactions with Affiliates or incur Indebtedness. At the end of each fiscal year, the Company must report to the Trustee on compliance with such limitations. 15. Successor Corporations. ---------------------- When a successor person or other entity assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor person will be released from those obligations. 16. Defaults and Remedies. --------------------- An Event of Default is: a default in payment of principal of or premium, if any, on the Securities; default in the payment of interest on the Securities for 30 days; failure by the Company for 30 days after notice to it to comply with any of its other agreements in the Indenture; certain events of bankruptcy or insolvency; certain final A-11 judgments which remain undischarged; and certain events of default on other Indebtedness of the Company and/or one or more of its Significant Subsidiaries. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable. If a bankruptcy or insolvency default with respect to the Company occurs and is continuing, the Securities automatically become due and payable. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of at least a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. 17. Trustee Dealings with Company. ----------------------------- The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 18. No Recourse Against Others. -------------------------- No stockholder, director, officer, employee or incorporator as such, past, present or future, of the Company or any successor corporation shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. -------------- This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Security. 20. Abbreviations. ------------- Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to Terra Industries Inc., 600 Fourth Street, Terra Centre, Sioux City, Iowa 51101, Attention: Chief Financial Officer. A-12 I or we assign and transfer this Security to: - -------------------------------------------- Please insert social security or other identifying number of assignee - --------------------------------------------------------------------- - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Print or type name, address and zip code of assignee and irrevocably appoint --------------------------------------------------------------------- [Agent], to transfer this Security on the books of the Company. The Agent may substitute another to act for him. Dated Signed ----------------------------- ----------------------------- - ---------------------------------------------------------------------------- (Sign exactly as name appears on the other side of this Security) A-13 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 4.10 or Section 4.11, as applicable, of the Indenture, check the Box: [_]. If you wish to have a portion of this Security purchased by the Company pursuant to Section 4.10 or Section 4.11 as applicable, of the Indenture, state the amount (in original principal amount): $ . --------------- Date: Your Signature: ---------------------- --------------------------- (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: ----------------------------------------------- A-14 (FACE OF SERIES B SECURITY) [Legend if Global Security] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TERRA INDUSTRIES INC. 10 1/2% Senior Note due 2005, Series B NO. CUSIP NO. 880915 -- -- TERRA INDUSTRIES INC., a Maryland corporation (the "Company," which term includes any successor corporation) under the Indenture hereinafter referred to, for value received, promises to pay to ________________ or registered assigns, the principal sum of ______________ ($_________) in United States dollars on June 15, 2005, at the office or agency of the Company referred to below, and to pay interest thereon from June 22, 1995, or from the most recent Interest Payment Date to which A-15 interest has been paid or duly provided for, semiannually on June 15 and December 15, in each year, commencing December 15, 1995 at the rate of 10 1/2% per annum, in United States dollars, until the principal hereof is paid or duly provided for; provided that to the extent interest has been paid or duly provided for with respect to the Series A Security exchanged for this Series B Security, interest on this Series B Security shall accrue from the most recent Interest Payment Date to which such interest on the Series A Security has been paid or duly provided for. In addition, for any period in which the Series A Security exchanged for this Series B Security was outstanding, in the event that either (a) an Exchange Offer Registration Statement is not filed by the Company with the Commission in connection with a Registered Exchange Offer on or prior to July 22, 1995, (b) such Exchange Offer Registration Statement is not declared effective by the Commission on or prior to September 20, 1995, or (c) (i) the Registered Exchange Offer is not consummated on or prior to October 20, 1995 or (ii) a Shelf Registration Statement has not been declared effective on or prior to October 20, 1995 in the event the Registered Exchange Offer is not consummated or a Shelf Registration has been requested by the Initial Purchasers, the interest rate borne by the Securities shall be increased (an "Interest Rate Increase") by one-quarter of one percent per annum; commencing July 22, 1995 in the case of (a) above, commencing September 20, 1995 in the case of (b) above, commencing October 20, 1995 in the case of (c) above; provided that the aggregate increase in such interest rate from the original interest rate will in no event exceed one percent per annum; provided, further, that upon the filing of an Exchange Offer Registration Statement, in the case of (a) above, the effectiveness of the Exchange Offer Registration Statement in the case of (b) above, or the effectiveness of the Shelf Registration Statement or the day before the date of the consummation of the Registered Exchange Offer, as the case may be, in the case of (c) above, the interest rate borne by the Securities shall from the date of such filing, effectiveness or day before the date of consummation, as the case may be, be reduced by the full amount of any such Interest Rate Increase; and provided, further, that to the extent interest at such increased interest rate has been paid or duly provided for with respect to the Series A Security exchanged for this Series B Security, interest at such increased interest rate, if any, on this Series B Security shall accrue from the most recent Interest Payment Date to which such interest on the Series A Security has been paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest paid or duly provided for within 30 days after the Interest Payment Date on which such interest payment was due will, as provided in such Indenture, be paid to such Person, together with interest on such past due interest payment at the interest rate borne by the Series B Securities, to the extent lawful. Any A-16 such interest not so paid, or duly provided for, and interest on such defaulted interest at the interest rate borne by the Series B Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on such Regular Record Date, and shall be paid to the Person in whose name this Security (or one or more predecessor Securities) is registered at the close of business on a special record date for the payment of such defaulted interest which shall be the fifteenth day next preceding the date fixed by the Company for the payment of default interest, notice whereof shall be given to Holders of Securities not less than 15 days prior to such special record date. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. TERRA INDUSTRIES INC. By: _________________________________ Title: ______________________________ By: _________________________________ Title: ______________________________ A-17 (Form of Trustee's Certificate of Authentication) This is one of the 10 1/2% Senior Notes due 2005, Series B described in the within-mentioned Indenture. Dated: __________, ____ FIRST TRUST NATIONAL ASSOCIATION, as Trustee By: ______________________________ Authorized Signature A-18 (REVERSE SIDE OF SERIES B SECURITY) TERRA INDUSTRIES INC. 10 1/2% Senior Note due 2005, Series B 1. Principal and Interest. ---------------------- The Company will pay the principal of this 10 1/2% Senior Note due 2005, Series B (a "Series B Security") on June 15, 2005. The Company promises to pay interest on the principal amount of this Security on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually (to the holders of record of the Securities at the close of business on June 1 or December 1 immediately preceding the applicable Interest Payment Date) on each Interest Payment Date, commencing December 15, 1995; provided that to the extent interest has been paid or duly provided for with respect to the Series A Security exchanged for this Series B Security, interest on this Series B Security shall accrue from the most recent Interest Payment Date to which such interest on the Series A Security has been paid or duly provided for. Interest on the Securities will accrue from the most recent date to which interest has been paid, or, if no interest has been paid, from June 22, 1995; provided, however, that, if there is no existing default in the payment of interest and if this Security is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate of 10 1/2% per annum. 2. Method of Payment. ----------------- The Company will pay interest (except defaulted interest) on the principal amount of the Securities on each June 15 and December 15, commencing December 15, 1995, to the persons who are Holders (as reflected in the Security Register) at the close of business on the June 1 or December 1 immediately preceding the applicable Interest Payment Date, in each case, even if the Security is cancelled on registration of transfer or registration of exchange after such payment date; provided, however, that, with respect to the payment of principal, the Company will make payment to the Holder that surrenders this Security to a Paying Agent on or after June 15, 2005. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of A-19 payment is legal tender for payment of public and private debts. However, with respect to Securities in certificated form, the Company may pay interest by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register. If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. -------------------------- Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or co-registrar. 4. Registration Rights. ------------------- The Series B Securities were issued pursuant to the Registered Exchange Offer pursuant to which the 10 1/2% Senior Notes due 2005, Series A (herein called the "Series A Securities") in like principal amount were exchanged for the Series B Securities. The Series A Securities and the Series B Securities are together referred to as the "Securities." The Series B Securities rank pari passu in right of payment with the Series A Securities. 5. Indenture; Limitations. ---------------------- The Company issued the Series B Securities under an Indenture dated as of June 22, 1995 (the "Indenture"), between the Company and First Trust National Association (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Security and the terms of the Indenture, the terms of the Indenture shall control. The Securities are general obligations of the Company. The Indenture limits the original aggregate principal amount of the Series B Securities to $200,000,000. 6. Optional Redemption. ------------------- The Company may redeem all the Securities or any portion of the Securities from time to time, on or after June 15, 2000, at the following Redemption Prices (expressed as percentages of the principal amount) if redeemed during the 12-month period beginning June 15 of the years indicated: A-20 Year Redemption Price ---- ---------------- 2000......................... 105.250% 2001......................... 102.625% 2002 and thereafter.......... 100.000% of the principal amount, plus accrued and unpaid interest (if any) to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). 7. Notice of Redemption. -------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder to be redeemed at such Holder's last address as it appears in the Security Register. Securities in original denominations larger than $1,000 may be redeemed in part. On the Redemption Date, interest ceases to accrue on Securities or portions of Securities called for redemption, unless the Company defaults in the payment of the Redemption Price. 8. Denominations; Transfer; Exchange. --------------------------------- If this Series B Security is in certificated form, then as provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Series B Security is registrable on the Security Register of the Company, upon surrender of this Series B Security for registration of transfer at the office or agency of the Company maintained for such purpose in The City of New York or at such other office or agency of the Company as may be maintained for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or its attorney duly authorized in writing, and thereupon one or more new Series B Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. In addition, the Company may at any time determine not to have Series B Securities represented in certificated form, in which event the Holder of a Series B Security in certificated form may be required to exchange this Series B Security for a Book-Entry Security. If this Series B Security is a Global Security, it is exchangeable for a Series B Security in certificated form only if (x) the Depository is at any time unwilling or unable to continue as depository and a successor depository is not appointed by the Company within 30 days or (y) there shall have occurred and be continuing an Event of Default or (z) the Company may at any time determine not to have Series B Securities represented by a Global Security. In addition, in accordance with the provisions of the A-21 Indenture and subject to certain limitations therein set forth, an owner of a beneficial interest in a Global Security which is a Series B Security may request a Series B Security in certificated form, in exchange in whole or in part, as the case may be, for such beneficial owner's interest in the Global Security. In any such instance, an owner of a beneficial interest in a Global Security will be entitled to physical delivery in certificated form of Series B Securities in authorized denominations equal in aggregate principal amount to such beneficial interest and to have such Series B Securities registered in its name. Series B Securities in certificated form are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set foth, the Series B Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange or redemption of Series B Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. 9. Rule 144A Information. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the written request of a Holders of a Series B Security, the Company will promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such Series B Security who such Holder informs the Company is reasonably believed to be a "Qualified Institutional Buyer" within the meaning of Rule 144A under the Securities Act designated by such Holders, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. 10. Persons Deemed Owners. A Holder may be treated as the owner of a Security for all purposes. 11. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. A-22 12. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Securities (a) to redemption or maturity, the Company will be discharged from the Indenture and the Securities, except in certain circumstances for certain sections thereof, and (b) to the Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities and make any change that does not adversely affect the rights of any Holder. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to pay dividends, create Liens, enter into sale- leaseback transactions, sell assets, engage in transactions with Affiliates or incur Indebtedness. At the end of each fiscal year, the Company must report to the Trustee on compliance with such limitations. 15. Successor Corporations. When a successor person or other entity assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor person will be released from those obligations. 16. Defaults and Remedies. An Event of Default is: a default in payment of principal of or premium, if any, on the Securities; default in the payment of interest on the Securities for 30 days; failure by the Company for 30 days after notice to it to comply with any of its other agreements in the Indenture; certain events of bankruptcy or insolvency; certain final judgments which remain undischarged; and certain events of default on other Indebtedness of the Company and/or one or more of its Significant Subsidiaries. A-23 If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable. If a bankruptcy or insolvency default with respect to the Company occurs and is continuing, the Securities automatically become due and payable. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of at least a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator as such, past, present or future, of the Company or any successor corporation shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 19. Authentication. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Security. 20. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to Terra Industries Inc., 600 Fourth Street, Terra Centre, Sioux City, Iowa 51101, Attention: Chief Financial Officer. A-24 I or we assign and transfer this Security to: - -------------------------------------------- Please insert social security or other identifying number of assignee - --------------------------------------------------------------------- - --------------------------------------------------------------------- - --------------------------------------------------------------------- Print or type name, address and zip code of assignee and irrevocably appoint________________________________________________________________ [Agent], to transfer this Security on the books of the Company. The Agent may substitute another to act for him. Dated ____________________ Signed ______________________ ________________________________________________________________________ (Sign exactly as name appears on the other side of this Security) A-25 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Security purchased by the Company pursuant to Section 4.10 or Section 4.11, as applicable, of the Indenture, check the Box: [ ]. If you wish to have a portion of this Security purchased by the Company pursuant to Section 4.10 or Section 4.11 as applicable, of the Indenture, state the amount (in original principal amount): $ _______________. Date: ___________________ Your Signature: _____________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: __________________________________ A-26 APPENDIX I FORM OF TRANSFEREE CERTIFICATE Date: ------------------ TERRA INDUSTRIES INC. c/o First National Trust Assocition First Trust Center 180 East 5th Street, Suite 200 St. Paul, MN 55101 Dear Sirs: I. We hereby request that $ aggregate principal amount of 10 1/2% Senior Notes due 2005, Series A (the "Notes") of Terra Industries Inc. (the "Company"), be registered in the name set forth below and confirm that either: A. For Transfers Other Than to Qualified Institutional Buyers: [Check One] [_] (1) each person in whose name the Notes are to be registered upon transfer (or, in the case of a transfer to a nominee, each beneficial owner of such Notes) has been advised that such Notes have been sold or transferred to it in reliance upon Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and the address of the person in whose name the Notes are to be registered upon transfer is an address outside the United States (as defined in Regulation S) and such person is not a U.S. Person (as defined in Regulation S). [_] (2) the new beneficial owner is an institutional investor and an "accredited investor" (as defined in Regulation D under the Securities Act) that is acquiring the Notes for investment purposes and not for distribution; it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Notes, and it and any accounts for which it is acting are each able to bear the economic risk or its investment; and it is acquiring the Notes purchased by its for its own account or for one or more accounts as to each of which it exercises sole investment discretion. A-27 If this letter is being completed by a prospective purchaser, the undersigned purchaser confirms that the Notes will only be transferred in accordance with the provisions of the Indenture, dated as of , 1995, between Terra Industries Inc. and First Trust National Association, as Trustee, pursuant to which the Notes were issued, and the legend on the Notes, and further, that it understands that, in connection with any such transfer, the Company and the Trustee may request, and if so requested the undersigned purchaser will furnish, such certificates and other information as may be required to confirm that any such transfer complies with the restrictions set forth therein. B. For Transfers to Qualified Institutional Buyers: [_] The Notes are being transferred to a "Qualified Institutional Buyer" (as defined in Rule 144A under the Securities Act), which person has been advised that the Notes have been sold or transferred to it in reliance upon Rule 144A, and such person wishes the Trustee to arrange for such Notes to be represented by a beneficial interest in a global security and held in book-entry form in accordance with the customary procedures of The Depository Trust Company. II. The Notes should be registered as follows (unless the box under I.B above is checked): Name: Address: Tax Identification Number: Physical Location of Notes (including address): Contact: III. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: ----------------------------------- Title: A-28 EX-4.3 3 RIGHTS AGREEMENT Exhibit 4.3 ------------------------- REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 22, 1995 AMONG TERRA INDUSTRIES INC. AND MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED AND CITICORP SECURITIES, INC. ------------------------- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into this 22nd day of June, 1995, among Terra Industries Inc., a Maryland corporation (the "Company"), and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citicorp Securities, Inc. (collectively, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated June 15, 1995, among the Company and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of an aggregate of $200 million principal amount of the Company's 10 1/2% Senior Notes due 2005, Series A (the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agree ment. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of l934, as amended from time to time. "Closing Date" shall mean the Closing Time as defined in the Purchase Agreement. 1 "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Depositary" shall mean The Depository Trust Company, or any other depositary appointed by the Company, provided, however, that such depositary must have an address in the Borough of Manhattan, in the City of New York. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2.1 hereof. "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2.1 hereof. "Exchange Securities" shall mean the 10 1/2% Senior Notes due 2005, Series B issued by the Company under the Indenture containing terms identical to the Securities in all material respects (except for references to series, certain interest rate provisions, restrictions on transfers and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant to the Exchange Offer. "Holder" shall mean an Initial Purchaser, for so long as it owns any Registrable Securities, and each of its successors, assigns and direct and indirect transferees for so long as such Person is a registered owner of Registrable Securities under the Indenture. "Indenture" shall mean the Indenture relating to the Securities, dated as of June 22, 1995, between the Company and First Trust National Association, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof. 2 "Initial Purchaser" or "Initial Purchasers" shall have the meaning set forth in the preamble. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company, any other obli gor on the Securities or any affiliate of the Company shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage amount. "Participating Broker-Dealer" shall mean Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc. and any other broker-dealer which makes a market in the Securities with the prior written consent of the Company and exchanges Registrable Securities in the Exchange Offer for Exchange Securities. "Person" shall mean an individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Prospectus" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. "Registrable Securities" shall mean the Securities; provided, however, that Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to the public pursuant to Rule 3 l44(k) (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have ceased to be outstanding or (iv) such Securities have been exchanged for Exchange Securities upon the consummation of the Exchange Offer (except in the case of Securities purchased from the Company and continued to be held by the Initial Purchasers). "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the customary fees and expenses of any "qualified independent underwriter" (and its counsel) in connection with any such entity's performing the duties of a "qualified independent underwriter" that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing of any of the Registrable Securities on any securities exchange or exchanges if and to the extent required under this Agreement, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or custodian, (viii) the reasonable fees and disbursements of Fried, Frank, Harris, Shriver & Jacobson, special counsel representing the Holders of Registrable Securities or the Initial Purchasers if and to the extent necessary under this Agreement and (ix) any fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. 4 "Registration Statement" shall mean any registration statement of the Company which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SEC" shall mean the Securities and Exchange Commission. "Shelf Registration" shall mean a registration effected pursuant to Section 2.2 hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2.2 of this Agreement which covers all of the Registrable Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. 5 2. Registration Under the 1933 Act. 2.1 Exchange Offer. The Company shall (A) use its best efforts to prepare and, not later than 30 days following the Closing Date, file with the SEC an Exchange Offer Registration Statement with respect to the proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities, a like principal amount of Exchange Securities, (B) use its best efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act within 90 days of the Closing Date, (C) use its best efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use its best efforts to cause the Exchange Offer to be consummated not later than 120 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act and is not a broker-dealer tendering Registrable Securities acquired directly from the Company for its own account, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act and without material restrictions under the securities laws of a substantial proportion of the several states of the United States. In connection with the Exchange Offer, the Company shall: (a) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for acceptance for a period of not less than 30 calendar days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (c) utilize the services of the Depositary for the Exchange Offer; 6 (d) permit Holders to withdraw tendered Registrable Securities at any time prior to 5:00 p.m. (Eastern Standard Time), on the last business day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing his election to have such Securities exchanged; (e) notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and (f) otherwise comply in all material respects with all applicable laws relating to the Exchange Offer. As soon as practicable after the close of the Exchange Offer, the Company shall: (i) accept for exchange all Registrable Securities duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the related letter of transmittal; (ii) deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and (iii) cause the Trustee promptly to authenticate and deliver Exchange Securities to each Holder of Registrable Securities so accepted for exchange in a principal amount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange. Interest on each Exchange Security will accrue from the last date on which interest was paid on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer shall not be subject to any conditions, other than (i) that the Exchange Offer, or the making of any exchange by a Holder, does not violate applicable 7 law or any applicable interpretation of the staff of the SEC, (ii) the due tendering of Registrable Securities in accordance with the Exchange Offer, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that all Exchange Securities to be received by it shall be acquired in the ordinary course of its business and that at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities, is not an affiliate of the Company nor a broker-dealer tendering Securities acquired directly from the Company for its own account and shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available, (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer and (v) that there shall not have been adopted or enacted any law, statute, rule or regulation which, in the Company's judgment, would reasonably be expected to materially impair the ability of the Company to proceed with the Exchange Offer. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right, subject to applicable law, to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. 2.2 Shelf Registration. (i) If, because of any change in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC, the Company is not permitted to effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason the Exchange Offer Registration Statement is not consummated within 120 days of the date hereof, (iii) upon the request of the Initial Purchasers before 60 days after the consummation of the Exchange Offer, or on such later date as may be mutually agreed upon by the Company and the Initial Purchasers, with respect to the Registrable Securities held by them on or before consummation of the Exchange Offer which constitute a portion of the Registrable Securities originally purchased from the Company (and not Registrable Securities subsequently acquired by the Initial Purchasers as Participating Broker-Dealers in connection with market making activities), or (iv) if a Holder is not permitted to participate in the Exchange Offer or would not receive fully tradable Exchange Securities pursuant to the Exchange Offer if it were to participate in the Exchange Offer and so notifies the Company within 45 days following the consummation of the Exchange Offer (and providing a 8 reasonable basis for its conclusions), the Company shall, at its cost: (a) Use its best efforts to prepare, and as promptly as practicable, file with the SEC, and thereafter shall use its best efforts to cause to be declared effective as promptly as practicable, a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders and set forth in such Shelf Registration Statement. (b) Use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by Holders for a period of three years from the date the Shelf Registration Statement is declared effective by the SEC (or one year from the date the Shelf Registration Statement is declared effective if such Shelf Registration Statement is filed upon the request of the Initial Purchasers pursuant to clause (iii) above), or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding or otherwise to be Registrable Securities. (c) Notwithstanding any other provisions hereof, use its best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the 9 Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. 2.3 Expenses. The Company shall pay all Registration Expenses in connection with the registration pursuant to Section 2.1 or 2.2. With respect to Registration Expenses described in clause (viii) of the definition of Registration Expenses, the Company shall not be obligated to make any payments in connection with the registration pursuant to Section 2.1 and shall pay no more than forty-five thousand dollars ($45,000.00) plus reasonable disbursements in connection with the registration pursuant to Section 2.2. Other than Registration Expenses, each Holder shall pay all expenses of its counsel, underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 2.4 Effectiveness. (a) The Company will be deemed not to have used its best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if the Company voluntarily takes any action that would directly result in any such Registration Statement not being declared effective or in the holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period as and to the extent contemplated hereby, unless such action is required by applicable law. (b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to a Shelf Registration Statement is prohibited by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 10 3. Registration Procedures. In connection with the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company shall use its best efforts to: (a) prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders entitled hereunder to the benefits thereof and (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein, and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act and comply with the provisions of the 1933 Act applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof; (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) hereby consent to the use (in compliance with applicable law) of the Prospectus or any amendment or supplement 11 thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) use its best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder in accordance with such Registration Statement; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), or (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject; (e) notify promptly each Holder of Registrable Securities under a Shelf Registration or any Participating Broker-Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker- Dealer, confirm such advice in writing promptly (i) when any such Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to any such Registration Statement and related Prospectus or for additional information after any such Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of any such Registration Statement or the initiation of any proceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of any such Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) in the case of a Shelf Registration, of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material 12 respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (f) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" which section shall be reasonably acceptable to the Initial Purchasers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of the Initial Purchasers and its counsel, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (iii) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of Exchange Securities received 13 in respect of such Registrable Securities pursuant to the Exchange Offer;" and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; (B) in the case of any Exchange Offer Registration Statement, the Company agrees to deliver to the Initial Purchasers on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement (i) an opinion of counsel substantially in the form attached hereto as Exhibit A, (ii) an officers' certificate substantially in the form customarily delivered in a public offering of debt securities and (iii) a comfort letter in customary form if permitted by Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accountants; and (C) notwithstanding anything else contained in this Agreement, the Company shall not be required to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement, as would otherwise be contemplated by Sections 3(b) or 3(k), for a period exceeding 180 days after the end of the Exchange Period and Participating Broker-Dealers shall not be authorized by the Company to deliver and shall not deliver such Prospectus after such period in connection with the resales contemplated by this Section 3; (g) (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel for the Holders of Registrable Securities identified to the Company copies of any request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) use its reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities covered thereby, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post- effective amendment 14 thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested); (j) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Registrable Securities; (k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Section 3(e)(v) hereof, use its best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (l) obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (m) (i) cause the Indenture to be qualified under the Trust Indenture Act of 1939 (the "TIA") in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; 15 (n) in the case of a Shelf Registration, enter into customary agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) to the extent possible, make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of similar securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iii) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Registrable Securities (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accounts), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings; (iv) if requested, enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Registrable Securities, which agreement shall be in form, substance and scope customary for similar offerings; 16 (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section including, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Registrable Securities being sold and the managing underwriters, if any. The above shall be done, to the extent customary, at (i) the effectiveness of such Registration Statement (and each post-effective amendment thereto) and (ii) each closing under any underwriting or similar agreement as and to the extent required thereunder; (o) in the case of a Shelf Registration, make available for inspection by representatives of the Holders of the Registrable Securities and any underwriters participating in any disposition pursuant to a Shelf Registration Statement and any counsel or accountant retained by such Holders or underwriters, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, special counsel or accountant in connection with a Registration Statement; (p) (i) in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Initial Purchasers and make such changes in any such document prior to the filing thereof as the Initial Purchasers may reasonably request and, except as otherwise required by applicable law, not file any such document in a form to which the Initial Purchasers on behalf of the Holders of Registrable Securities shall reasonably object, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; and 17 (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus or documents incorporated by reference into a Registration Statement or Prospectus, provide copies of such document to the Holders of Registrable Securities, to the Initial Purchasers, to counsel on behalf of the Holders identified to the Company and to the underwriter or underwriters of any then contemplated underwritten offering of Registrable Securities, if any, make such changes in any such document prior to the filing thereof as the Initial Purchasers, the counsel to the Holders or the underwriter or underwriters reasonably request and except as otherwise required by applicable law, not file any such document in a form to which the Majority Holders or the Initial Purchasers on behalf of the Holders of Registrable Securities or any underwriter may reasonably object and make the representatives of the Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such Holders, or any underwriter; (q) in the case of a Shelf Registration, use its best efforts to cause all Registrable Securities to be listed on any securities exchange on which 10 1/2% Senior Notes due 2005, Series B of the Company are then listed if requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (r) in the case of a Shelf Registration, use its best efforts to cause the Registrable Securities to be rated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any, if such Registrable Securities have not theretofore been rated; (s) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act, including pursuant to Rule 158 thereunder; (t) cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any reasonable due diligence investigation by any underwriter and its counsel (including any "qualified in- 18 dependent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (u) upon consummation of an Exchange Offer, obtain a customary opinion of counsel to the Company addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer, including that (i) the Company has duly authorized, executed and delivered the Exchange Securities and the related indenture, and (ii) each of the Exchange Securities and related indenture constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms (with customary exceptions). In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Registrable Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing. The Company may exclude from such registration the Registrable Securities of any seller or Participating Broker-Dealer who fails to furnish such information within a reasonable time after receiving such written request. Each seller or Participating Broker-Dealer as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller or Participating Broker-Dealer, as the case may be, not materially misleading. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company shall give any such notice to suspend the disposition of Registrable Securities pursuant to a Shelf Registration Statement as a result of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, the Company shall be deemed to have used its best efforts to keep the Shelf Registration 19 Statement effective during such period of suspension provided that the Company shall use its best efforts to file and have declared effective (if an amendment) as soon as practicable an amendment or supplement to the Shelf Registration Statement and shall extend the period during which the Shelf Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions; provided that such period shall not extend beyond three years. If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering; provided that such underwriters are acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes, executes and delivers to the Company and any underwriter all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 4. Indemnification; Contribution. ----------------------------- (a) The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter (any such Person being an "Underwriter") and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a 20 material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expenses whatsoever, as incurred (including fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that (a) the Company's obligations under this Section 4 shall not apply to any loss, claim, damage, liability or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Initial Purchasers, any Holder or Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) and (b) such indemnity with respect to any preliminary Prospectus or Prospectus shall not inure to the benefit of any Person (or any person controlling such Person) from whom the person asserting any such loss, claim, damage, or liability purchased the Registrable Securities which are the subject thereof if such person did not receive a copy of the final Prospectus (or the Prospectus as amended or supplemented) at or prior to the confirmation of the sale of such Registrable Securities to such person in any case where such delivery is required by the 1933 Act and the untrue statement or omission of a material fact contained in such preliminary Prospectus or Prospectus was corrected in the final Prospectus (or the Prospectus as amended or supplemented). 21 (b) Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, the Initial Purchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers (including each officer of the Company who signed the Registration Statement), and each Person, if any, who controls the Company, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company expressly for use in the Shelf Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and reasonably satisfactory to the indemnified parties defendant in such action, unless such indemnified parties reasonably object to such assumption on the ground that there may be legal defenses available to them which are different from or in addition to those available to such indemnifying party and representation of the indemnified parties and indemnifying parties would be inappropriate in the reasonable judgment of the indemnified parties. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (which, in the case of the Initial Purchasers, and their controlling persons, shall be designated in writing by the Initial Purchasers) for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same 22 general allegations or circumstances. The indemnifying party shall not be liable for any action settled by any indemnified party without its written consent. (d) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in this Section 4 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company, the Holders and the Initial Purchasers shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company and the Holders; provided, however, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. As between the Company, the Holders and the Initial Purchasers, the Company, the applicable Holders and the Initial Purchasers shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportions as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, the Holders on another hand and the Initial Purchasers on another hand, from the offering of the Securities or the Exchange Securities included in such offering as well as any other relevant equitable considerations. The relative benefits received by the Company from the offering of the Securities, the Exchange Securities or Registrable Securities shall be deemed to include the proceeds received by the Company in connection with the offering of the Registrable Securities pursuant to the Purchase Agreement. The Company, the Holders and the Initial Purchasers of the Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 4 were to be determined by pro rata allocation or by any other method of allocation which does not take into account the relevant equitable considerations. For purposes of this Section 4, each Person, if any, who controls the Initial Purchasers or a Holder within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Initial Purchasers or such Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company, as the case may be. The parties hereto agree that any underwriting discount or commission or reimbursement of fees paid to the Initial Purchasers pursuant to the Purchase Agreement shall not be deemed to be a benefit received by the Initial Purchasers in connection with the offering of the Exchange Securities or Registrable Securities included in such offering. No person shall be liable for any action settled without its written consent. 23 5. Miscellaneous. 5.1 Rule 144 and Rule 144A. During any period the Securities or Registrable Securities are "restricted securities" within the meaning of Rule 144(a)(3) under the 1933 Act and the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will upon the request of any Holder (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser of such Securities or Registrable Securities who such Holder informs the Company such Holder reasonably believes is a "Qualified Institutional Buyer" within the meaning of Rule 144A under the 1933 Act in order to permit compliance by such Holder with 144A under the 1933 Act, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. During such period, upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 5.2 No Inconsistent Agreements. The Company has not entered into and the Company will not after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. 5.3 Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure. 5.4 Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first- class mail, 24 telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Indenture, at the address specified in such Indenture. 5.5 Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or applicable law. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof. 5.6 Third Party Beneficiaries. The Initial Purchasers (even if the Initial Purchasers are not Holders of Registrable Securities) shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party 25 beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. 5.7 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.8 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 5.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. 26 5.10 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 27 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TERRA INDUSTRIES INC. By: /s/ Francis G. Meyer ------------------------------------ Name: Francis G. Meyer Title: Vice President and Chief Financial Officer 28 Confirmed and accepted as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED CITICORP SECURITIES, INC. BY: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ Michael F. Senft ----------------------------------------------- Name: Michael F. Senft Title: Managing Director 29 Exhibit A --------- FORM OF OPINION OF COUNSEL -------------------------- 1. The Exchange Offer Registration Statement and the Prospectus (other than the financial statements, notes or schedules thereto and other financial data and supplemental schedules included or incorporated by reference therein or omitted therefrom and the Form T-1, as to which such counsel need express no opinion), comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act. 2. In the course of such counsel's review and discussion of the contents of the Exchange Offer Registration Statement and the Prospectus, including documents incorporated by reference therein, with certain officers and employees of the Company and its independent accountants, but without independent check or verification, no facts have come to such counsel's attention which cause such counsel to believe that the Exchange Offer Registration Statement, including documents incorporated by reference therein (other than the financial statements, notes and schedules thereto and other financial information contained or incorporated by reference therein or omitted therefrom and the Form T-1, as to which such counsel need express no belief), at the time the Exchange Offer Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading, or that the Prospectus (other than the financial statements, notes and schedules thereto and other financial information contained therein, as to which such counsel need express no belief) contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. 1 EX-4.5 4 CREDIT AGREEMENT Exhibit 4.5 ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 12, 1995 among TERRA CAPITAL, INC. and TERRA NITROGEN, LIMITED PARTNERSHIP, as Borrowers CERTAIN GUARANTORS CERTAIN LENDERS CERTAIN ISSUING BANKS and CITIBANK, N.A., as Agent ================================================================================ TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only.
Page ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS Section 1.01. Certain Defined Terms...................................... 2 Section 1.02. Computation of Time Periods................................ 37 Section 1.03. Accounting Terms........................................... 38 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT Section 2.01. The Advances............................................... 38 Section 2.02. Making the Advances........................................ 42 Section 2.03. Repayment.................................................. 44 Section 2.04. Termination or Reduction of the Working Capital Commitments....................................... 45 Section 2.05. Prepayments................................................ 46 Section 2.06. Interest................................................... 49 Section 2.07. Fees....................................................... 49 Section 2.08. Conversion and Continuation of Advances.................... 51 Section 2.09. Increased Costs, Illegality, Etc........................... 52 Section 2.10. Payments and Computations.................................. 54 Section 2.11. Taxes...................................................... 56 Section 2.12. Sharing of Payments, Etc................................... 59 Section 2.13. Letters of Credit.......................................... 60 Section 2.14. Replacement of Lender...................................... 65 ARTICLE III CONDITIONS OF LENDING Section 3.01. Conditions Precedent to Amendment and Restatement................................................ 67 Section 3.02. Conditions Precedent to Each Borrowing and Issuance............................................... 70 Section 3.03. Determinations Under Section 3.01........................... 70 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Company.................................................... 70 Section 4.02. Representations and Warranties of each Lender..................................................... 77
(i)
Page ---- ARTICLE V COVENANTS OF TERRA Section 5.01. Affirmative Covenants...................................... 77 Section 5.02. Negative Covenants......................................... 84 Section 5.03. Reporting Requirements..................................... 94 Section 5.04. Financial Covenants........................................ 98 ARTICLE VI EVENTS OF DEFAULT Section 6.01. Events of Default.......................................... 100 Section 6.02. Actions in Respect of the Letters of Credit Upon Default....................................... 104 ARTICLE VII THE AGENT Section 7.01. Authorization and Action................................... 104 Section 7.02. Agent's Reliance, Etc...................................... 105 Section 7.03. Citibank and Affiliates.................................... 106 Section 7.04. Lender Credit Decision..................................... 106 Section 7.05. Indemnification............................................ 106 Section 7.06. Collateral Duties.......................................... 107 Section 7.07. Successor Agent............................................ 107 ARTICLE VIII THE GUARANTEE Section 8.01. The Guarantee.............................................. 108 Section 8.02. Obligations Unconditional.................................. 109 Section 8.03. Reinstatement.............................................. 110 Section 8.04. Subrogation................................................ 111 Section 8.05. Remedies................................................... 111 Section 8.06. Instrument for the Payment of Money........................ 111 Section 8.07. Continuing Guarantee....................................... 112 Section 8.08. Rights of Contribution..................................... 112 Section 8.09. General Limitation on Guarantee Obligations............................................... 113 ARTICLE IX MISCELLANEOUS Section 9.01. Amendments, Consents, Etc.................................. 113 Section 9.02. Notices, Etc............................................... 114 Section 9.03. No Waiver; Remedies........................................ 115 Section 9.04. Costs, Expenses and Indemnification........................ 115 Section 9.05. Right of Setoff............................................ 117 Section 9.06. Governing Law; Submission to Jurisdiction.............................................. 118 Section 9.07. Assignments and Participations............................. 118
(ii)
Page ---- Section 9.08. Execution in Counterparts.................................. 122 Section 9.09. No Liability of the Issuing Banks.......................... 122 Section 9.10. Confidentiality............................................ 123 Section 9.11. WAIVER OF JURY TRIAL....................................... 123 Section 9.12. Survival................................................... 123 Section 9.13. Captions................................................... 124 Section 9.14. Successors and Assigns..................................... 124
SCHEDULES --------- SCHEDULE 2.01 List of Commitments and Lending Offices SCHEDULE 4.01(b) Subsidiaries SCHEDULE 4.01(c) List of Conflicts with Credit Instruments SCHEDULE 4.01(d) List of Required Authorizations, Consents SCHEDULE 4.01(j) Plans and Multiemployer Plans SCHEDULE 4.01(q) Environmental Compliance Schedule SCHEDULE 4.01(u) Open Tax Years SCHEDULE 4.01(y) Existing Debt SCHEDULE 5.01(o) Hedge Agreements SCHEDULE 5.02(a)(iii) Existing Liens SCHEDULE 5.02(b)(xii) Terms for 1995 Terra Debt SCHEDULE 5.02(f) Existing Investments EXHIBITS -------- EXHIBIT A-1 Form of Terra Facility A Note EXHIBIT A-2 Form of Terra Facility B Note EXHIBIT A-3 Form of Terra Working Capital Facility Note EXHIBIT A-4 Form of TNLP Working Capital Facility Note EXHIBIT B-1 Form of Holdings Pledge Agreement EXHIBIT B-2 Form of Terra Capital Pledge Agreement EXHIBIT B-3 Form of Subsidiary Pledge and Security Agreement EXHIBIT B-4 Form of TNLP Pledge and Security Agreement EXHIBIT B-5 Form of Amendment to Security Documents EXHIBIT C Form of Notice of Borrowing EXHIBIT D Form of Opinion of Special Counsel for the Obligors EXHIBIT E-1 Form of Loan Purchase Agreement EXHIBIT E-2 Form of Amendment to Loan Purchase Agreement EXHIBIT F Form of Assignment and Acceptance EXHIBIT G Provisions Relating to Certain Investments (iii) CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 12, 1995 among: (1) TERRA CAPITAL, INC., a Delaware corporation (the "Company"); (2) TERRA NITROGEN, LIMITED PARTNERSHIP, a Delaware limited partnership formerly known as Agricultural Minerals, Limited Partnership and a Subsidiary of the Company ("TNLP"); (3) each of the corporations and limited partnerships listed on the signature pages hereof under the caption "GUARANTORS"; (4) each of the lenders (the "Initial Lenders") listed on the signature pages hereof; and (5) CITIBANK, N.A., as agent (together with its successor in such capacity appointed pursuant to Article VII, the "Agent") for the Lenders and the Issuing Banks hereunder. PRELIMINARY STATEMENTS: (1) The Company, Terra, TNLP, certain Guarantors, the Initial Lenders, the Issuing Banks and the Agent are parties to a Credit Agreement dated as of October 20, 1994 (as heretofore amended to and in effect on the Restatement Date, as hereinafter defined, the "Existing Credit Agreement") providing, subject to the terms and conditions thereof, for the making of working capital and term advances to, and the issuance of letters of credit for the account of, the Company and for the making of working capital and term advances to, and the issuance of letters of credit for the account of, TNLP. (2) The parties hereto wish to amend the Existing Credit Agreement, among other things, (a) to reflect the prepayment in full of the "AMLP Facility A Advances" and the reduction of the "AMLP Facility B Commitments" outstanding thereunder, (b) to reflect the prepayment in full of the "Terra Facility C Advances" outstanding thereunder, (c) to combine the "Terra Facility A Advances" and "Terra Facility D Advances" into one term credit facility hereunder, (d) to permit certain reorganization transactions herein described, and (e) to make certain other changes to the Existing Credit Agreement and the other Loan Documents, all on the terms and conditions set forth herein, it being the intention of the parties hereto that the advances and letters of credit outstanding under the Existing Credit Agreement -2- Credit Agreement on the Restatement Date shall continue and remain outstanding and not be repaid on the Restatement Date. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree that the Existing Credit Agreement shall (subject to the satisfaction of the conditions precedent specified in Section 3) be amended and restated in its entirety as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS Section 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Acquisition Amount" means, for any fiscal year of Terra, $15,000,000; provided, that the Acquisition Amount for any such fiscal year shall automatically be increased to $50,000,000 from and after the Trigger Date. "Advance" means any Terra Facility A Advance, Terra Facility B Advance or Working Capital Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the voting stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting stock, by contract or otherwise. "Agent" has the meaning specified in the recital of parties to this Agreement. "Agent's Account" means the account of the Agent maintained by the Agent at its office at 1 Court Square, Long Island City, New York 11120, Account No. 368-52248, Attention: Larry Benison (or his successor), or such other account maintained by the Agent as may be designated by the Agent in a written notice to the Lenders, each Issuing Bank and the Borrowers. Credit Agreement -3- "Allowance for Projected Common Dividends" means, for purposes of the definition of "Specified Payments", the following respective amounts for the following respective fiscal years of Terra:
Fiscal Year Allowance ----------- --------- 1995 $10,000,000 1996 $13,000,000 1997 $17,000,000 1998 $20,000,000 1999 and each fiscal year thereafter $23,000,000
"Allowance for Working Capital Increases/Decreases" means, for purposes of the definition of "Excess Cash Flow", the following respective amounts for the following respective fiscal years of Terra:
Fiscal Year Allowance ----------- --------- 1995 $15,000,000 1996 $25,000,000 1997 $25,000,000 1998 and each fiscal year thereafter $30,000,000
"AMCI" means Agricultural Minerals and Chemicals Inc., a corporation merged into Terra prior to the Restatement Date. "AMCI Senior Note Indenture" means the Indenture dated as of October 15, 1993 between Terra (as successor to AMCI) and Society National Bank, as Trustee, providing for the issuance of the AMCI Senior Notes, as from time to time amended. "AMCI Senior Notes" mean the 10-3/4% senior notes of Terra (as successor to AMCI) due 2003 issued pursuant to the AMCI Senior Note Indenture. "Applicable Commitment Fee Rate" means 0.50% per annum; provided, that, if for any Rolling Period ending after the first anniversary of the Closing Date the Debt to Cash Flow Ratio for such Rolling Period shall be less than or equal to 2.50 to 1, then, subject to the delivery to the Agent of a certificate of the Senior Financial Officer demonstrating the same prior to the end of the next succeeding fiscal quarter, the "Applicable Commitment Fee Rate" shall be Credit Agreement -4- reduced to 0.375% per annum during the period commencing on the Quarterly Date on or immediately following the date of the Agent's receipt of such certificate until the next succeeding Quarterly Date thereafter. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Applicable Letter of Credit Fee Rate" means, at any time, a rate per annum equal to the Applicable Margin for Eurodollar Rate Advances (other than Terra Facility B Advances) in effect at such time. "Applicable Margin" means, (a) (i) with respect to all Base Rate Advances (other than Terra Facility B Advances), 1.00% per annum and (ii) with respect to all Eurodollar Rate Advances (other than Terra Facility B Advances), 2.00% per annum; provided, that the Applicable Margin with respect to all Base Rate Advances and Eurodollar Rate Advances (in each case other than Terra Facility B Advances) shall, from the Restatement Date until the Quarterly Date falling in April, 1996, be 0.50% per annum (in the case of such Base Rate Advances) and 1.50% per annum (in the case of such Eurodollar Rate Advances); and provided, further, that if for any Rolling Period ending after the first anniversary of the Closing Date the Debt to Cash Flow Ratio for such Rolling Period shall be within any of the ranges specified in the schedule below, then, subject to the delivery to the Agent of a certificate of the Senior Financial Officer demonstrating the same prior to the end of the next succeeding fiscal quarter, the "Applicable Margin" shall be changed to the percentage per annum for the respective Type of Advance set forth opposite the reference to such range in such schedule during the period commencing on the Quarterly Date on or immediately following the date of the Agent's receipt of such certificate until the next succeeding Quarterly Date thereafter:
Applicable Margin (% p.a.) ----------------------------- Range of Debt Base Rate Eurodollar Rate to Cash Flow Ratio Advances Advances - ------------------------------ --------- --------------- Greater than 3.00 to 1 1.00% 2.00% Less than or equal to 3.00 to 1 and greater than 2.50 to 1 0.50% 1.50%
Credit Agreement -5-
Less than or equal to 2.50 to 1 and greater than 2.00 to 1 0.25% 1.25% Less than or equal to 2.00 to 1 0.00% 1.00%
(b) with respect to Terra Facility B Advances (i) that are Base Rate Advances, 1.50% per annum and (ii) that are Eurodollar Rate Advances, 2.50% per annum. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in accordance with Section 9.07 and in substantially the form of Exhibit F. "Available Amount" of any Letter of Credit means the maximum amount available to be drawn under such Letter of Credit (assuming compliance with all conditions to drawing specified therein). "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; (b) 0.50% per annum above the Federal Funds Rate; and (c) the sum (adjusted to the nearest 0.25% or, if there is no nearest 0.25%, to the next higher 0.25%) of (i) 0.50% per annum plus (ii) the rate obtained by dividing (x) the latest three-week moving average of secondary market morning offering rates in the United States for three- month certificates of deposit of major United States money center banks, such three-week moving average (adjusted to the bases of a year of 360 days) being determined weekly on each Monday (or, if such date is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank by (y) a percentage equal to 100% minus the average of the Credit Agreement ---------------- -6- daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank with respect to liabilities consisting of or including (among other liabilities) three-month Dollar non-personal time deposits in the United States plus (iii) the average during such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment rate payable by Citibank to the Federal Deposit Insurance Corporation (or any successor) for insuring Dollar deposits of Citibank in the United States. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.06(a)(i). "BMCH" means BMC Holdings, Inc., a Delaware corporation and wholly owned Subsidiary of the Company. "BMLP" means Beaumont Methanol, Limited Partnership, a Delaware limited partnership and wholly owned Subsidiary of the Company. "BMLP Transaction Date" means December 30, 1994. "Borrower" means each of the Company and TNLP; provided, that when reference is made in this Agreement or in any other Loan Document to the "relevant" Borrower in connection with any Facility, such reference shall be deemed to refer (a) in the case of any Term Facility or the Terra Working Capital Facility, to the Company, and (b) in the case of the TNLP Working Capital Facility, to TNLP. "Borrower's Account" means (a) in the case of the Company, the account of the Company maintained with Citibank at its office at 399 Park Avenue, New York, New York 10043, Account No. 4065-6098, and (b) in the case of TNLP, the account of TNLP maintained with Citibank at its office at 399 Park Avenue, New York, New York 10043, Account No. 4065-6071; or, in either case, such other account maintained by the relevant Borrower with Citibank and designated by such Borrower in a written notice to the Agent. Credit Agreement ---------------- -7- "Borrowing" means a Terra Facility A Borrowing, a Terra Facility B Borrowing and a Working Capital Borrowing. "Bridge Indebtedness" means any Debt incurred by the Company under Section 5.02(b)(xiii). "Business Day" means a day on which banks are not required or authorized to close in New York City and, if such Business Day relates to a Eurodollar Rate Advance, on which dealings are carried on in the London interbank market. "Capital Expenditures" means, for any period with respect to any Person, the sum of all expenditures during such period (whether paid in cash or accrued as liabilities during such period) that, in conformity with GAAP, are required to be included in or reflected on the balance sheet of such Person in respect of equipment, fixed assets, real property or improvements, or for replacements or substitutions therefor or additions thereto, plus (without duplication) the amount of expenditures deemed to be made in connection with equipment that is purchased simultaneously with the trade-in of existing equipment owned by such Person to the extent the gross amount of the purchase price of such purchased equipment exceeds the fair market value (as determined in good faith by such Person) of the equipment then being traded in, but excluding expenditures made in connection with the replacement or restoration of assets to the extent such replacement or restoration is financed from insurance proceeds paid on account of loss or damage to the assets so replaced or restored. "Capital Lease Obligations" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Cash Interest Expense" means, with respect to Terra and its Subsidiaries on a Consolidated basis, for any period (without duplication), interest expense net of interest income, whether paid or accrued (including the interest component of Capital Lease Obligations), on all Debt of Terra and its Subsidiaries on a Consolidated basis for such period, including, without limitation, (a) interest expense in respect of the Advances, (b) commissions, discounts and other fees and charges payable in connection with letters of Credit Agreement ---------------- -8- credit (including, without limitation, any Letter of Credit) and (c) the net payment, if any, payable in connection with any Hedge Agreement; excluding, in each case, interest not payable in cash (including, without limitation, amortization of original issue discount and the interest portion of any deferred payment obligation); all as determined in accordance with GAAP for such period. "Casualty Event" means, with respect to any property of any Person, any loss of or damage to, or any condemnation or other taking of, such property for which such Person or any of its Subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "Change in Non-Cash Working Capital" means, for any period, the non-cash working capital of Terra and its Subsidiaries on a Consolidated basis as at the last day of such period minus the non-cash working capital of Terra and its Subsidiaries on a Consolidated basis as at the first day of such period (which difference may be positive or negative), but excluding in each case customer deposits and prepayments. "Citibank" means Citibank, N.A., a national banking association. "Closing Date" means October 20, 1994. "Collateral" means all "Collateral" referred to in the Security Documents and all other property that is subject to any Lien created by any Security Document in favor of the Agent, the Lenders and the Issuing Banks. "Confidential Information" means information identified as such that Terra or any of its Subsidiaries furnishes to the Agent, any Issuing Bank or any Lender, but does not include any such information once such information has become generally available to the public or once such information has become available to the Agent, any Issuing Bank or any Lender from a source other than Terra and its Subsidiaries (unless, in either case, such information becomes so available as a result of the breach by the Agent, an Issuing Bank or a Lender of its duty of confidentiality set forth in Section 9.10). "Consolidated" refers to the consolidation of accounts in accordance with GAAP. Credit Agreement ---------------- -9- "Consolidated Group" means, collectively, Terra and its Consolidated Subsidiaries, and a "member" of the Consolidated Group means Terra or any such Subsidiary. "Continuation", "Continue" and "Continued" each refers to a continuation of Eurodollar Rate Advances from one Interest Period to the next Interest Period pursuant to Section 2.08. "Conversion", "Convert" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.08 or 2.09. "Current Assets" of any Person means, on any date, all assets of such Person on such date that would, in accordance with GAAP, be classified as current assets of a company conducting a business the same as or similar to that of such Person, after deducting adequate reserves in each case in which a reserve is proper in accordance with GAAP. "Current Liabilities" of any Person, on any date, means the following (determined in accordance with GAAP): (a) all Debt (other than Funded Debt) of such Person on such date, (b) all amounts of Funded Debt of such Person required to be paid or prepaid within one year after such date and (c) all other items (including taxes accrued as estimated) that in accordance with GAAP would be classified as current liabilities of such Person on such date; provided, that the term "Current Liabilities" shall not include Obligations under Hedge Agreements. "Debt" of any Person means (without duplication): (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than any trade payable having a tenor of not more than 365 days, or any like item arising from the purchase of equipment or services having a tenor of not more than 90 days, in each case incurred in the ordinary course of business and on normal business terms and in each case not overdue by more than 30 days, and other than any Obligations in respect of letters of credit supporting any such trade payable or like item), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations and Major Operating Lease Obligations of such Person, (f) all Credit Agreement ---------------- -10- Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities (other than Obligations in respect of letters of credit referred to in clause (b) of this definition), (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Redeemable capital stock, which Obligations shall be valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, (i) all Debt of others referred to in clauses (a) through (h) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (i) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Debt to Capital Ratio" means, on any date, the ratio of (i) Funded Debt of Terra and its Subsidiaries on a Consolidated basis on such date to (ii) Total Capital of Terra and its Subsidiaries on a Consolidated basis on such date. "Debt to Cash Flow Ratio" means, for any period, the ratio of (i) Funded Debt of Terra and its Subsidiaries on a Consolidated basis as of the last day of such period to (ii) EBITDA of Terra and its Subsidiaries on a Consolidated basis for such period. For purposes of computing the Debt to Cash Flow Ratio for any period ending on or prior to the first anniversary of the Closing Date, EBITDA for such period shall be calculated giving pro forma effect to the merger of AMCI with and into Terra as if such merger had occurred on the first day of such period. Credit Agreement ---------------- -11- "Default" means any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Disposition" means any sale, assignment, transfer or other disposition of any property (whether now owned or hereafter acquired) by Terra or any of its Subsidiaries, but excluding any sale, assignment, transfer or other disposition of any property (i) sold or disposed of in the ordinary course of business and on ordinary business terms, or (ii) by any Obligor to another Obligor or by any Obligor to a wholly owned Subsidiary of an Obligor, or (iii) that consists of outmoded or obsolete items, provided, that the aggregate value of all such excluded outmoded or obsolete items with a value of $1,000,000 or more each shall not exceed $10,000,000. "Dividend Payments" means dividends (in cash, property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of the Company or Terra or of any warrants, options or other rights to acquire the same (or to make any payment to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market or equity value of Terra, the Company or any of their Subsidiaries, other than any such payment made in the ordinary course of business of such Person in connection with an executive compensation plan approved by the Board of Directors of such Person), but excluding dividends payable solely in shares of common stock of Terra or the Company. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule 2.01 or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Agent. "EBITDA" means the following, determined in accordance with GAAP for Terra and its Subsidiaries on a Consolidated basis, for any period: net income (or net loss) plus the sum of (a) interest expense, (b) income tax expense and (c) depreciation expense, amortization expense and other non-cash charges deducted in arriving at such net income (or loss). "Eligible Assignee" means (a) any other Lender or any affiliate of any Lender; (b) a commercial bank organized under the laws of the United States, or any State thereof, Credit Agreement ---------------- -12- and having total assets in excess of $1,000,000,000; (c) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having a net worth in excess of $100,000,000; (d) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, so long as such bank is acting through a branch or agency located in the country in which it is organized or another country that is described in this clause (d); (e) the central bank of any country that is a member of the OECD; (f) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $100,000,000; and (g) any other Person (other than an Affiliate of the Company) approved by the Agent and the Company, such approval of the Company not to be unreasonably withheld or delayed. "Environmental Action" means any administrative, regulatory or judicial suit, demand, demand letter, claim, notice of non-compliance or violation, consent order or consent agreement relating in any way to any violation of or liability under any Environmental Law or any Environmental Permit, including without limitation (a) any claim by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law, (b) any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to the environment and (c) any notice by any governmental or regulatory authority alleging that Terra or any of its Subsidiaries is or may be responsible for, or is a potentially responsible party with respect to, any cleanup, removal, response, remedial or other actions or damages pursuant to any Environmental Law. "Environmental Law" means any federal, state or local governmental law, rule, regulation, order, writ, judgment, injunction or decree relating to pollution or protection of the environment or the treatment, storage, disposal, release, threatened release or handling of Hazardous Materials, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic Credit Agreement ---------------- -13- Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act and the Federal Insecticide, Fungicide and Rodenticide Act, in each case, as amended from time to time. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equity Issuance" means (a) any issuance or sale by Terra or any of its Subsidiaries after the Closing Date of (i) any capital stock (including, without limitation, New Terra Equity), (ii) any warrants or options exercisable in respect of capital stock (other than any warrants or options issued to directors, officers or employees of Terra or any of its Subsidiaries pursuant to employee benefit plans established in the ordinary course of business and any capital stock of Terra issued upon the exercise of such warrants or options) or (iii) any other security or instrument representing an equity interest (or the right to obtain any equity interest) in Terra or any of its Subsidiaries or (b) the receipt by Terra or any of its Subsidiaries after the Closing Date of any capital contribution (whether or not evidenced by any equity security issued by the recipient of such contribution); provided, that the term "Equity Issuance" shall not include (x) any such issuance or sale by any Subsidiary of Terra to Terra or to any wholly owned Subsidiary of Terra or (y) any capital contribution by Terra or any wholly owned Subsidiary of Terra to any Subsidiary of Terra. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" of any Person means any other Person that for purposes of Title IV of ERISA is a member of such Person's controlled group, or under common control with such Person, within the meaning of Sections 414(b), (c), (m) and (o) of the Internal Revenue Code. "ERISA Event" with respect to any Person means (a) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan of such Person or any of its ERISA Affiliates unless the 30-day notice requirement with respect to such event has been waived pursuant to regulations under Section 4043 of ERISA and excluding a reportable event under Section 4043(b)(7) of ERISA; (b) the provision by the administrator of any Plan of such Person or any of its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant to Section 4041(c) Credit Agreement ---------------- -14- of ERISA as a distress termination; (c) the cessation of operations at a facility of such Person or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by such Person or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (e) the satisfaction of the conditions set forth in Sections 302(f)(1)(A) and (B) of ERISA to the creation of a lien upon property or rights to property of such Person or any ERISA Affiliate for failure to make a required payment to a Plan; (f) the adoption of an amendment to a Plan of such Person or any of its ERISA Affiliates requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the institution by the PBGC of proceedings to terminate a Plan of such Person or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, such Plan. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule 2.01 or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Agent. "Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rates per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at approximately 5:00 P.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of such Borrowing (determined without giving effect to any assignments or participations by such Reference Bank) and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. Credit Agreement ---------------- -15- The Eurodollar Rate for each Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.09. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.06(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing means the reserve percentage (if any) applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Excess Cash Flow" means, for any fiscal year of Terra, determined in accordance with GAAP for Terra and its Subsidiaries on a Consolidated basis: (a) EBITDA for such fiscal year, minus (b) the sum of (i) Cash Interest Expense plus (ii) minority interest payments for such fiscal year (other than any such payments constituting the purchase, redemption or other acquisition of Senior Preference Units), plus (iii) the aggregate amount of Capital Expenditures made by Terra or any of its Subsidiaries during such fiscal year (but not exceeding the amount permitted to be made in such Credit Agreement ---------------- -16- fiscal year pursuant to Section 5.02(h)) plus (or, if negative, minus) (iv) the Change in Non-Cash Working Capital (but not exceeding the applicable Allowance for Working Capital Increase/Decreases) for such fiscal year, plus (v) the aggregate amount of Specified Payments in such fiscal year plus (vi) scheduled payments of principal of Debt of Terra and its Subsidiaries in such fiscal year plus (vii) cash taxes paid by Terra and its Subsidiaries in such fiscal year plus (viii) the aggregate amount of all optional prepayments of Term Advances made pursuant to Section 2.05(a) during such fiscal year, provided, that, unless the Required Lenders otherwise agree, each such optional prepayment is applied to the Advances in the manner specified in Section 2.05(c), plus (ix) for purposes of determining Excess Cash Flow for the fiscal year ending December 31, 1995, the aggregate amount of all optional prepayments of "Terra Facility C Advances" and "AMLP Facility A Advances" (each as defined in the Existing Credit Agreement) made pursuant to Section 2.05(a) of the Existing Credit Agreement during the fiscal year ending December 31, 1994 or the fiscal year ending December 31, 1995. "Excluded Period" means, with respect to any additional amount payable under Section 2.09 or 2.13, the period ending 120 days prior to the applicable Lender's delivery of a certificate referenced in Section 2.09(a), 2.09(b) or 2.13(d), as applicable, with respect to such additional amount. "Existing Credit Agreement" has the meaning specified in the Preliminary Statements to this Agreement. "Facility" means Terra Facility A, Terra Facility B or a Working Capital Facility. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day Credit Agreement ---------------- -17- during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the letter agreement dated April 28, 1995 between Terra and Citibank. "Funded Debt" of any Person means, on any date, the sum (determined without duplication) of: (a) all Debt of such Person that would be listed as long-term debt (including Capital Lease Obligations and Major Operating Lease Obligations) of such Person on a balance sheet of such Person prepared in accordance with GAAP (including, without limitation, the current portion of such Debt), plus (b) the aggregate principal amount of all outstanding Working Capital Advances, plus (c) the aggregate amount of all Letters of Credit to the extent of unreimbursed drawings thereunder; provided, that the term "Funded Debt" shall include letters of credit issued in connection with the insurance program of Terra and its Subsidiaries only to the extent of unreimbursed drawings thereunder; and provided, further, that the term "Funded Debt" shall not include Obligations under Hedge Agreements. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of, and used in, the preparation of the audited financial statements referred to in Section 4.01(f). "Guaranteed Obligations" means the Terra Guaranteed Obligations and the TNLP Guaranteed Obligations. "Guarantors" means the Terra Guarantors and the TNLP Guarantors. "Hazardous Materials" means (a) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, and radon gas, (b) any substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants" or "pollutants", or words of similar meaning and regulatory effect, under any Environmental Law and Credit Agreement ---------------- -18- (c) any other substance exposure to which is regulated under any Environmental Law. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity future or option agreements and other similar agreements designed to hedge against fluctuations in interest rates, foreign exchange rates or commodity prices, including, without limitation, the Methanol Hedging Agreement. "Holdings Pledge Agreement" means a Pledge Agreement in the form of Exhibit B-1 hereto between Terra Capital Holdings and the Agent, as from time to time amended. "Immaterial Subsidiary" means, as of any date of determination, any Subsidiary of Terra with not more than $500,000 of assets on such date nor more than $100,000 of gross income for the fiscal year of Terra ended on or most recently ended prior to such date. "Indemnified Party" has the meaning specified in Section 9.04(b). "Initial Lenders" has the meaning specified in the recital of the parties to this Agreement. "Insufficiency" means, with respect to any Plan at any time, the amount, if any, by which the "accumulated benefit obligation" (as defined in Statement of Financial Accounting Standards 87) exceeds the fair market value of the assets of such Plan as of the date of the most recent actuarial valuation for such Plan, calculated using the actuarial methods, factors and assumptions used in such valuation. "Interest Coverage Ratio" means, for any Rolling Period for which such ratio is to be determined, the ratio of (i) EBITDA of Terra and its Subsidiaries for the immediately preceding Rolling Period to (ii) Cash Interest Expense for the Rolling Period for which such ratio is to be determined. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the relevant Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period Credit Agreement ---------------- -19- selected by the relevant Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, three or six months, as the relevant Borrower may, upon notice received by the Agent not later than 10:00 A.M. (New York City time) on the second Business Day prior to the first day of such Interest Period, select; provided, that: (a) the Company may not select any Interest Period that ends after any Principal Payment Date for a Term Facility unless, after giving effect to such selection, the aggregate principal amount of Base Rate Advances and Eurodollar Rate Advances under such Facility having Interest Periods that end on or prior to such Principal Payment Date shall be at least equal to the principal amount of Advances under such Facility due and payable on or prior to such Principal Payment Date; (b) no Interest Period for any Working Capital Advance may end after the relevant Working Capital Commitment Termination Date; (c) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (d) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (e) whenever the first day of any Interest Period occurs on the last day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month), such Interest Period shall end on the last Business Day of the appropriate subsequent calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock, warrants, rights, options, obligations or other securities of such Person, any capital contribution to Credit Agreement ---------------- -20- such Person or any other investment in such Person, including, without limitation, (a) any arrangement pursuant to which the investor incurs Debt of the types referred to in clauses (i) and (j) of the definition of "Debt" in respect of such Person, (b) the acquisition of all or substantially all of the assets of such Person or of any division of such Person, and (c) any merger of or consolidation with such Person; provided, that the purchase of equipment, fixed assets, real property or improvements from such Person do not constitute Investments in such Person to the extent the same constitute Capital Expenditures. "Issuing Bank" means each Lender specified on the signature pages hereof as an "Issuing Bank", together with its successors in such capacity. "L/C Cash Collateral Account" means the Terra L/C Cash Collateral Account and the TNLP L/C Cash Collateral Account. "L/C Related Documents" has the meaning specified in Section 2.13(e). "Lenders" means the Initial Lenders listed on the signature pages hereof and each Eligible Assignee that shall become a party hereto pursuant to Section 9.07. When reference is made in this Agreement or any other Loan Document to any "relevant" Lender in connection with any Facility, such reference shall be deemed to refer to a Lender that has outstanding Advances under such Facility or, in the case of a Working Capital Facility, has a Working Capital Commitment under such Facility. "Letter of Credit Commitment" means the Terra Letter of Credit Commitment or the TNLP Letter of Credit Commitment, "Letter of Credit Liability" means a Terra Letter of Credit Liability or a TNLP Letter of Credit Liability, and "Letter of Credit Sublimit" means the Terra Letter of Credit Sublimit or the TNLP Letter of Credit Sublimit. "Letters of Credit" has the meaning specified in Section 2.13(a). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. Credit Agreement ---------------- -21- "Loan Documents" means, collectively, this Agreement, the Notes, the Security Documents and the Loan Purchase Agreement. "Loan Purchase Agreement" means a Loan Purchase Agreement between the Agent and Terra in the form of Exhibit E-1, as from time to time amended. "Major Operating Lease Obligations" means, for any Person, all obligations of such Person under an operating lease to pay required termination payments or like payments in an amount exceeding $7,000,000 and in an amount at least equal to 75% of the original acquisition cost of the leased property under such operating lease. "Management Agreements" means one or more management agreements entered into after December 15, 1994 between the Company and certain of its Affiliates providing for the performance by the Company of certain treasury, purchasing, legal and/or other services for such Affiliates, as such agreements are in effect from time to time. "Margin Stock" has the meaning specified in Regulations G, U and X. "Material Adverse Change" means, with respect to any Person, any material adverse change in the business, assets, operations, properties or financial condition of such Person and its Subsidiaries taken as a whole, or any material adverse change in the contingent liabilities of such Person which could reasonably be expected to result in any of the foregoing, other than any of the foregoing resulting solely from a general economic change in the industry of such Person and its Subsidiaries. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, properties or financial condition of Terra and its Subsidiaries taken as a whole, or a material adverse effect on the contingent liabilities of such Person which could reasonably be expected to result in any of the foregoing, (b) the rights and remedies of the Agent, any Issuing Bank or any Lender under any Loan Document or (c) the ability of any Obligor to perform its Obligations under any Loan Document to which it is or is to be a party. "Material Contract" means: (A) each Hedge Agreement; Credit Agreement ---------------- -22- (B) each contract to which Terra or any of its Subsidiaries is a party (a "Specified Party") that (a) provides for the provision of goods or services by the Specified Party or the receipt of goods or services by the Specified Party, (b) has a term of more than one year (unless such contract may be cancelled at the sole option of another Person party to such contract), (c) involves the payment or receipt by the Specified Party of consideration having a fair market value in excess of $1,000,000 in any fiscal year of Terra and (d) provides for either: (i) the provision of goods or services to another Person that is obligated to purchase from the Specified Party a specified quantity of such goods or services (but only to the extent that, if such other Person did not purchase such quantity of such goods or services, the Specified Party would not be readily able to sell such goods or services at a price equal to or higher than the price set in such contract) or (ii) the receipt of goods or services from another Person that is obligated to supply to the Specified Party a specified quantity of such goods or services (but only to the extent that, if such other Person did not supply such quantity of such goods or services, the Specified Party would not be readily able to purchase such goods or services at a price less than or equal to the price set in such contract); and (C) each contract to which Terra or any of its Subsidiaries is a party that, if such contract were to be terminated or the obligations of any other Person party to such contract were to fail to be in full force and effect, could reasonably be expected, either individually or in the aggregate with any other such event, to have a Material Adverse Effect. "Material Subsidiary" means any Subsidiary of Terra other than an Immaterial Subsidiary. "Merger Agreement" means the Merger Agreement dated as of August 8, 1994, among Terra, AMCI Acquisition Corporation and AMCI, as from time to time amended. "Methanol Hedging Agreement" means the Methanol Hedging Agreement dated as of the Closing Date between BMLP (as successor to Beaumont Methanol Corporation) and Morgan Stanley Leveraged Equity Fund II, as Agent, as from time to time amended. "Minorco" means Minorco, a Luxembourg corporation, and its successors. Credit Agreement ---------------- -23- "Minorco USA" means Minorco (U.S.A.) Inc., a Colorado corporation, and its successors. "Multiemployer Plan" of any Person means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which such Person or any of its ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of such Person or any of its ERISA Affiliates and at least one Person other than such Person and its ERISA Affiliates or (b) was so maintained and in respect of which such Person or any of its ERISA Affiliates has or would have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Available Proceeds" means: (i) in the case of any Disposition, the amount of Net Cash Payments received in connection with such Disposition; (ii) in the case of any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by Terra and its Subsidiaries (and, in the case of business interruption insurance, not contractually required to be paid over to Morgan Stanley Leveraged Equity Fund II, as agent, or its successors or assigns) in respect of such Casualty Event net of (A) reasonable expenses incurred by Terra and its Subsidiaries in connection therewith, (B) contractually required repayments of Debt to the extent secured by a Lien on the property suffering such Casualty Event and any income and transfer taxes payable by Terra or any of its Subsidiaries in respect of such Casualty Event and (C) amounts promptly applied to or set aside for the repair or replacement of the property suffering such Casualty Event; provided, that (x) the proceeds of business interruption insurance shall not be deemed to be Net Available Proceeds for purposes of this clause (ii) if and to the extent they are otherwise included in the calculation of Excess Cash Flow for the relevant period and (y) the proceeds of insurance received by Terra and its Subsidiaries in connection with the December 13, 1994 Casualty Event at the Port Neal Facility shall be deemed to be applied to the repair or replacement of the Port Neal Facility if Credit Agreement ---------------- -24- such proceeds are applied to the purchase of one or more Subsidiaries of the Company, or any of their respective properties, as contemplated in the definition of "Reorganization Transaction" in this Section 1.01; (iii) in the case of any Equity Issuance, the aggregate amount of all cash received by Terra and its Subsidiaries in respect of such Equity Issuance net of reasonable expenses (including reasonable registration fees, underwriting fees and discounts and similar expenses) incurred by Terra and its Subsidiaries in connection therewith; and (iv) in the case of any issuance of any New Terra Debt or 1995 Terra Debt, the aggregate amount of all cash received by Terra and its Subsidiaries in respect thereof net of reasonable expenses (including reasonable registration fees, underwriting fees and discounts and exchange offer expenses) incurred by Terra and its Subsidiaries in connection therewith. "Net Cash Payments" means, with respect to any Disposition, the aggregate amount of all cash payments, and the fair market value of any non-cash consideration, received by Terra and its Subsidiaries directly or indirectly in connection with such Disposition; provided, that (a) Net Cash Payments shall be net of (i) the amount of any legal, title and recording tax expenses, commissions and other reasonable fees and expenses (including reasonable expenses of preparing the relevant property for sale) paid by Terra and its Subsidiaries in connection with such Disposition and (ii) any Federal, state and local income or other taxes estimated in good faith to be payable by Terra and its Subsidiaries as a result of such Disposition and (b) Net Cash Payments shall be net of any repayments by Terra or any of its Subsidiaries of Debt to the extent that (i) such Debt is secured by a Lien on the property that is the subject of such Disposition and (ii) the transferee of (or holder of a Lien on) such property requires that such Debt be repaid as a condition to the purchase of such property. "Net Worth" means, at any time, the sum of the following for Terra and its Subsidiaries on a Consolidated basis: (a) the amount of capital stock; plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit). Credit Agreement ---------------- -25- "New Terra Equity" means any convertible Preferred Stock or other equity securities issued by Terra after the Closing Date, the proceeds of which are used first to repay Bridge Indebtedness and, after payment in full of Bridge Indebtedness, to prepay Term Advances pursuant to Section 2.05(b). "1995 Terra Debt" means any Debt incurred by Terra under Section 5.02(b)(xii). "Note" means a Terra Facility A Note, a Terra Facility B Note or a Working Capital Note. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Issuance" has the meaning specified in Section 2.13(b)(i). "Obligation" means, with respect to any Person, any obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(g). Without limiting the generality of the foregoing, the Obligations of the Obligors under the Loan Documents include (a) their respective obligations to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable under any Loan Document and (b) their respective obligations to reimburse any amount in respect of any of the foregoing that any Lender, in its sole discretion, may elect to pay or advance on behalf of such Obligor. "Obligors" means the Terra Obligors and the TNLP Obligors. "OECD" means the Organization for Economic Cooperation and Development. "Other Taxes" has the meaning specified in Section 2.11(b). Credit Agreement ---------------- -26- "PBGC" means the Pension Benefit Guaranty Corporation. "Permitted Investments" means (a) direct obligations of the United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America, or by any agency thereof, in either case maturing not more than 270 days from the date of acquisition thereof, (b) certificates of deposit issued by, and repurchase and reverse repurchase agreements with, any Initial Lender or any bank or trust company organized under the laws of the United States of America or any state thereof, having capital, surplus and undivided profits of at least $500,000,000 and whose unsecured, unguaranteed long-term senior debt obligations are rated at least A by Standard & Poor's Ratings Group and at least A2 by Moody's Investors Service, Inc., maturing not more than 270 days from the date of acquisition thereof, (c) commercial paper and variable rate demand notes, in each case rated A-1 or better by Standard & Poor's Ratings Group and P-1 or better by Moody's Investors Service, Inc. and maturing not more than 270 days from the date of acquisition thereof, and (d) obligations of not more than $100,000 in the aggregate at any one time of any bank or bank holding company with a capital and surplus of less than $500,000,000 or whose unsecured, unguaranteed long-term senior debt obligations are rated less than A by Standard & Poor's Ratings Group or less than A2 by Moody's Investors Service, Inc. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced (or, if such a proceeding has been commenced, such proceeding is being contested in good faith by appropriate proceedings and enforcement of any Lien has been and is stayed): (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 5.01(b), (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens, statutory landlord's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings, (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations, Credit Agreement ---------------- -27- (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases (other than capital leases), surety and appeal bonds, and performance bonds and other obligations of a like nature incurred, in each case arising in the ordinary course of business, (e) as to any particular property at any time, such easements, encroachments, covenants, rights of way, minor defects, irregularities or encumbrances on title which do not materially impair the use of such property for the purpose for which it is held by the owner thereof, (f) municipal and zoning ordinances that are not violated in any material respect by the existing improvements and the present use made by the owner thereof, and (g) real estate taxes and assessments not yet delinquent. "Permitted Receivables Facilities" means, collectively, (a) the Receivables Purchase Agreement dated as of March 31, 1994 among TI, as Seller, the financial institutions party thereto, as Purchasers, and Bank of America Illinois, successor to Continental Bank N.A., as agent, as from time to time amended, or any replacement or refinancing thereof, and (b) one or more additional facilities entered into by the Company and/or any of its Subsidiaries (which may be effected by an amendment to the facility referred to in clause (a) of this definition or otherwise) providing for the sale of Receivables, provided, that the aggregate amount outstanding under all of the Permitted Receivables Facilities, taken together, may not at any time exceed $150,000,000 plus reasonable reserves. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Port Neal Facility" means TI's facility in Port Neal, Iowa. Credit Agreement ---------------- -28- "Post-Default Rate" means a rate per annum equal to 2% plus the Applicable Margin plus the Base Rate as in effect from time to time. "Preferred Stock" means, with respect to any corporation, capital stock issued by such corporation that is entitled to a preference or priority over any other capital stock issued by such corporation upon any distribution of such corporation's assets, whether by dividend or upon liquidation. "Principal Payment Date" means any of the Terra Facility A Principal Payment Dates and the Terra Facility B Principal Payment Dates. "Pro Rata Share" of any amount means, with respect to any Lender under any Facility at any time, the product of (a) a fraction the numerator of which is the amount of such Lender's Advances under such Facility (or, in the case of a Working Capital Facility prior to the Working Capital Commitment Termination Date for such Facility, the amount of such Lender's Working Capital Commitment under such Facility), and the denominator of which is the aggregate Advances or Working Capital Commitments, as the case may be, under such Facility at such time, multiplied by (b) such amount. "Purchase Event" means that for any fiscal year of Terra, the aggregate amount of Dividend Payments with respect to the capital stock of the Company exceeds the sum of (a) the aggregate amount of Specified Payments plus (b) 50% of the portion of Excess Cash Flow for the prior fiscal year that is not required to be applied to the prepayment of Advances. "Quarterly Dates" means January 20, April 20, July 20 and October 20 in each year, the first of which shall be the first such day after the Restatement Date, provided, that, if any such day is not a Business Day, the relevant Quarterly Date shall be the immediately preceding Business Day. "Receivables" means accounts and notes receivable and, in each case, related reserves. "Redeemable" means any capital stock, Debt or other right or Obligation that (a) the issuer thereof has undertaken to redeem at a fixed or determinable date or dates prior to the final Principal Payment Date hereunder, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control Credit Agreement ---------------- -29- of the issuer or (b) is redeemable on any date prior to said final Principal Payment Date at the option of the holder thereof. "Reference Banks" means Citibank, Bank of America Illinois and NationsBank of Texas, N.A. (or their respective Applicable Lending Offices, as the case may be). "Register" has the meaning specified in Section 9.07(c). "Regulation G", "Regulation U" and "Regulation X" mean Regulations G, U and X of the Board of Governors of the Federal Reserve System, respectively, as in effect from time to time. "Related Document" means the Merger Agreement and the Methanol Hedging Agreement. "Required Lenders" means at any time Lenders owed or holding in the aggregate at least 51% of the sum of the then aggregate unpaid principal amount of the Advances, the then aggregate unused Working Capital Commitments and the aggregate Available Amount of all Letters of Credit. For purposes of this definition, the Available Amount of each Letter of Credit shall be considered to be owed to the relevant Lenders according to their respective Pro Rata Shares of the Working Capital Facility under which such Letter of Credit has been issued. "Reorganization Transaction" means a corporate reorganization of one or more Subsidiaries of the Company consummated prior to March 31, 1997, pursuant to which TI will acquire, directly or through one or more intermediate transactions, not less than 80% of the equity interests in TNC or any of its Subsidiaries (or any of their respective successors), which reorganization shall be subject to each of the following conditions: (a) after giving effect to and at all times during the Reorganization Transaction, the Agent, for its benefit and the benefit of the Lenders and Issuing Banks, will hold security interests in all Collateral so held by the Agent immediately prior to the Reorganization Transaction; (b) none of Terra Capital Holdings, TMC, BMCH or BMLP shall be party to any part of the Reorganization Transaction (except that Terra Capital Holdings may receive capital contributions from Terra, and may make capital contributions to one or more of its Credit Agreement ---------------- -30- Subsidiaries, in connection with the Reorganization Transaction); (c) no Obligor shall, after giving effect to the Reorganization Transaction, be subject to any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the declaration or payment of dividends or the making of loans or advances to or Investments in or the sale, assignment, transfer or other disposition of property to Terra or any Subsidiary thereof, in each case other than any such arrangement binding upon such Person immediately prior to the Reorganization Transaction; (d) no part of the Reorganization Transaction shall consist of the sale of ownership interests in any Subsidiary of the Company to any Person other than the Company or a Subsidiary of the Company; (e) no part of the Reorganization Transaction shall have a Material Adverse Effect; and (f) the Obligors shall have delivered to the Agent such agreements, instruments and other documents (including, without limitation, charter documents, proof of corporate and other authority, certificates of officers of the Obligors, amendments and supplements to Security Documents, Uniform Commercial Code financing statements, legal opinions and evidence of all necessary government and third-party consents, authorizations and approvals) as the Agent may reasonably request in connection with the Reorganization Transaction. "Restatement Date" has the meaning assigned to such term in Section 3.01. "Rolling Period" means any period of four consecutive fiscal quarters of Terra. "Security Documents" means the Holdings Pledge Agreement, the Terra Capital Pledge Agreement, the Subsidiary Pledge and Security Agreement, the TNLP Pledge and Security Agreement, each security agreement or other grant of security now or hereafter made by any Obligor to secure any of the Obligations hereunder and under the other Loan Documents, and all Uniform Commercial Code financing statements required by this Agreement or any of the Credit Agreement ---------------- -31- foregoing to be filed with respect to the security interests in personal property created pursuant thereto. "Senior Financial Officer" means the Chief Financial Officer of Terra. "Senior Preference Units" means the "Senior Preference Units" issued and outstanding under, and as defined in, the Agreement of Limited Partnership dated as of December 4, 1991 of TNCLP, as such Agreement of Limited Partnership is in effect on the Restatement Date. "Single Employer Plan" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that is subject to Title IV of ERISA and that (a) is maintained for employees or former employees of such Person or any of its ERISA Affiliates and no Person other than such Person and its ERISA Affiliates or (b) was so maintained and in respect of which such Person or any of its ERISA Affiliates has or would have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" and "Solvency" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. "Specified Paydown Date" means the earliest date as of which the aggregate outstanding principal amount of the Term Advances does not exceed $238,750,000. "Specified Payments" means, for any fiscal year of Terra, (a) all interest due and payable on the AMCI Senior Notes and on the 1995 Terra Debt (if any) during such fiscal year, (b) all dividends paid on shares of common stock of Terra during such fiscal year, and all payments made by Terra in respect of the purchase, redemption, retirement or other acquisition of shares of common stock of Terra during such fiscal year, in an aggregate amount, as to all such Credit Agreement ---------------- -32- dividends and payments, not exceeding the Allowance for Projected Common Dividends for such fiscal year, (c) all scheduled dividends on New Terra Equity payable during such fiscal year, (d) all scheduled dividends payable during such fiscal year on convertible Preferred Stock or other equity securities (other than New Terra Equity) issued and applied to prepay the Advances, (e) ordinary and necessary expenses incurred by Terra as a result of its operations as a publicly-held holding company and (f) other payments in an aggregate amount up to $5,000,000 per year to the extent required under pre-existing obligations. "SPU Redemption" means the purchase, redemption or other acquisition from time to time of all or a portion of the outstanding Senior Preference Units by Terra and its Subsidiaries (or any of them): (a) on such terms and conditions as could not reasonably be expected to have a Material Adverse Effect; and (b) in accordance in all material respects with the terms and conditions hereof. "SPU Redemption Time" means the time as of which all of the Senior Preference Units shall have been purchased or otherwise redeemed pursuant to the SPU Redemption. "Subordinated Indebtedness" means Debt of Terra or any of its Subsidiaries the payment of which is subordinated in right of payment to the prior payment in full of the Advances. "Subsidiary" of any Person means any corporation, partnership, joint venture, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Subsidiary Guarantor" means TNC, BMCH, TMC and BMLP and (from and after the SPU Redemption Time) TNLP and its successors. Credit Agreement ---------------- -33- "Subsidiary Pledge and Security Agreement" means a Pledge and Security Agreement in the form of Exhibit B-3 hereto between certain of the Guarantors and the Agent, as from time to time amended. "Term Advances" means each of the Terra Facility A Advances and the Terra Facility B Advances and "Term Facility" means each of Terra Facility A and Terra Facility B. "Terra" means Terra Industries Inc., a Maryland corporation and an indirect parent of the Company. "Terra Advance" means a Terra Facility A Advance, a Terra Facility B Advance and a Terra Working Capital Advance. "Terra Capital Holdings" means Terra Capital Holdings, Inc., a Delaware corporation and the direct parent of the Company. "Terra Capital Pledge Agreement" means a Pledge Agreement in the form of Exhibit B-2 hereto between the Company and the Agent, as from time to time amended. "Terra Facility A" means the term credit facility provided hereunder in respect of the Terra Facility A Advances, "Terra Facility A Advance" has the meaning specified in Section 2.01(a) and "Terra Facility A Borrowing" means a borrowing consisting of simultaneous Terra Facility A Advances of the same Type. "Terra Facility A Note" means a promissory note of the Company payable to the order of a Lender, in substantially the form of Exhibit A-1, as from time to time amended. "Terra Facility A Principal Payment Dates" means the Quarterly Dates falling on or nearest to April 20 and October 20 of each year, commencing with October 20, 1995 through and including October 20, 1999. "Terra Facility B" means the term credit facility provided hereunder in respect of the Terra Facility B Advances, "Terra Facility B Advance" has the meaning specified in Section 2.01(b) and "Terra Facility B Borrowing" means a borrowing consisting of simultaneous Terra Facility B Advances of the same Type. "Terra Facility B Note" means a promissory note of the Company payable to the order of a Lender, in substantially Credit Agreement ---------------- -34- the form of Exhibit A-2 hereto, as from time to time amended. "Terra Facility B Principal Payment Dates" means the Quarterly Dates falling on or nearest to April 20 and October 20 of each year, commencing with October 20, 1995 through and including October 20, 2001. "Terra Guaranteed Obligations" has the meaning specified in Section 8.01. "Terra Guarantors" means Terra, Terra Capital Holdings, TNC, TMC, BMCH, BMLP and (from and after the SPU Redemption Time) TNLP and its successors. "Terra L/C Cash Collateral Account" means each of the "Terra L/C Cash Collateral Account" under the Terra Capital Pledge Agreement and the "Terra L/C Cash Collateral Account" under the Subsidiary Pledge and Security Agreement. "Terra Letter of Credit" means a letter of credit issued by an Issuing Bank for account of the Company or any of its Subsidiaries (other than, prior to the SPU Redemption Time, TNLP or any of its Subsidiaries) pursuant to Section 2.13(a). "Terra Letter of Credit Commitment" means, with respect to any Issuing Bank at any time, the amount set forth opposite such Issuing Bank's name on Schedule 2.01 under the caption "Terra Letter of Credit Commitment", as such amount may be reduced pursuant to Section 2.04. "Terra Letter of Credit Liability" means, as of any date of determination, all of the liabilities of the Company to the Issuing Banks in respect of Terra Letters of Credit, whether such liability is contingent or fixed, and shall consist of the sum of (a) the aggregate Available Amount of all Terra Letters of Credit then outstanding, plus (b) the aggregate amount that has then been paid by, and has not been reimbursed to, any Issuing Bank under Terra Letters of Credit. "Terra Letter of Credit Sublimit" means (a) prior to the SPU Redemption Time, $30,000,000 and (b) from and after the SPU Redemption Time, $45,000,000. "Terra Obligors" means the Terra Guarantors and the Company. "Terra Working Capital Advance" means an Advance made or outstanding pursuant to Section 2.01(c), "Terra Working Credit Agreement ---------------- -35- Capital Borrowing" means a borrowing consisting of simultaneous Terra Working Capital Advances of the same Type and "Terra Working Capital Commitment" has the meaning specified in Section 2.01(c). "Terra Working Capital Commitment Termination Date" means the earlier of (a) October 20, 1999 (provided, that if such day is not a Business Day, the Terra Working Capital Commitment Termination Date shall be the immediately preceding Business Day), and (b) the termination or cancellation of the Terra Working Capital Commitments pursuant to the terms of this Agreement. "Terra Working Capital Facility" means the revolving credit facility provided hereunder in respect of the Terra Working Capital Commitments. "Terra Working Capital Facility Note" means a promissory note of the Company payable to the order of a Lender, in substantially the form of Exhibit A-3, as from time to time amended. "TI" means Terra International, Inc., a Delaware corporation and a wholly owned Subsidiary of the Company. "TMC" means Terra Methanol Corporation, a Delaware corporation and a wholly owned Subsidiary of the Company. "TNC" means Terra Nitrogen Corporation, a Delaware corporation formerly known as Agricultural Minerals Corporation and a wholly owned Subsidiary of the Company. "TNCLP" means Terra Nitrogen Company, L.P., a Delaware limited partnership formerly known as Agricultural and Minerals Company, L.P. and a Subsidiary of the Company. "TNLP Guaranteed Obligations" has the meaning specified in Section 8.01. "TNLP Guarantors" means Terra, Terra Capital Holdings, the Company, TNC, TMC, BMCH and BMLP. "TNLP Letter of Credit" means a letter of credit issued by an Issuing Bank for account of TNLP or any of its Subsidiaries pursuant to Section 2.13(a). "TNLP Letter of Credit Commitment" means, with respect to any Issuing Bank at any time, the amount set forth opposite such Issuing Bank's name on Schedule 2.01 under the caption "TNLP Letter of Credit Commitment", as such amount may be reduced pursuant to Section 2.04. Credit Agreement ---------------- -36- "TNLP Letter of Credit Liability" means, as of any date of determination, all of the liabilities of TNLP to the Issuing Banks in respect of TNLP Letters of Credit, whether such liability is contingent or fixed, and shall consist of the sum of (a) the aggregate Available Amount of all TNLP Letters of Credit then outstanding, plus (b) the aggregate amount that has then been paid by, and has not been reimbursed to, any Issuing Bank under TNLP Letters of Credit. "TNLP Letter of Credit Sublimit" means $15,000,000. "TNLP Obligors" means the TNLP Guarantors and TNLP. "TNLP Pledge and Security Agreement" means a Pledge and Security Agreement in the form of Exhibit B-4 between TNLP and the Agent, as from time to time amended. "TNLP Working Capital Advance" means an Advance made or outstanding pursuant to Section 2.01(d), "TNLP Working Capital Borrowing" means a borrowing consisting of simultaneous TNLP Working Capital Advances of the same Type and "TNLP Working Capital Commitment" has the meaning specified in Section 2.01(d). "TNLP Working Capital Commitment Termination Date" means the earliest of (a) October 20, 1999 (provided, that if such day is not a Business Day, the TNLP Working Capital Commitment Termination Date shall be the immediately preceding Business Day), (b) the termination or cancellation of the TNLP Working Capital Commitments pursuant to the terms of this Agreement, and (c) the date on which the SPU Redemption Time occurs. "TNLP Working Capital Facility" means the revolving credit facility provided hereunder in respect of the TNLP Working Capital Commitments. "TNLP Working Capital Facility Note" means a promissory note of TNLP payable to the order of a Lender, in substantially the form of Exhibit A-4, as from time to time amended. "Total Capital" means, on any date, the sum of (i) Funded Debt of Terra and its Subsidiaries on a Consolidated basis on such date plus (ii) Net Worth of Terra and its Subsidiaries on a Consolidated basis on such date. "Trigger Date" means the earliest date as of which each of the following is true: Credit Agreement ---------------- -37- (a) the aggregate outstanding principal amount of the Term Advances does not exceed $150,000,000; and (b) the Debt to Cash Flow Ratio for the most recently completed four fiscal quarters of Terra ending on or most recently ended prior to the date of determination does not exceed 2.50 to 1. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "Unused Terra Working Capital Commitment" means, with respect to any Lender at any time, (a) such Lender's Terra Working Capital Commitment at such time minus (without duplication) (b) the sum of (i) the aggregate outstanding principal amount of all Terra Working Capital Advances made by such Lender and (ii) such Lender's Pro Rata Share of the aggregate Available Amount of all Terra Letters of Credit outstanding at such time and of all unreimbursed drawings thereunder. "Unused TNLP Working Capital Commitment" means, with respect to any Lender at any time, (a) such Lender's TNLP Working Capital Commitment at such time minus (without duplication) (b) the sum of (i) the aggregate outstanding principal amount of all TNLP Working Capital Advances made by such Lender and (ii) such Lender's Pro Rata Share of the aggregate Available Amount of all TNLP Letters of Credit outstanding at such time and of all unreimbursed drawings thereunder. "U.S. Dollars" and "$" means lawful money of the United States of America. "Working Capital Advance" means a Terra Working Capital Advance or a TNLP Working Capital Advance, "Working Capital Borrowing" means a Terra Working Capital Borrowing or a TNLP Working Capital Borrowing, "Working Capital Commitment" means a Terra Working Capital Commitment or TNLP Working Capital Commitment, "Working Capital Commitment Termination Date" means the Terra Working Capital Commitment Termination Date or the TNLP Working Capital Commitment Termination Date, and "Working Capital Facility" means the Terra Working Capital Facility or the TNLP Working Capital Facility. Section 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" mean "to but excluding". Credit Agreement ---------------- -38- Section 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT Section 2.01. The Advances. (a) Terra Facility A. (i) On the Restatement Date, the "Terra Facility A Advance" and "Terra Facility D Advance" of each Lender under the Existing Credit Agreement shall automatically, without any action on the part of any Person, be consolidated into one advance to the Company and shall be deemed to be a Terra Facility A Advance hereunder for all purposes of this Agreement (each, a "Terra Facility A Advance"). The principal amount of the Terra Facility A Advance of each Lender as of the Restatement Date shall be the amount set forth opposite such Lender's name on Schedule 2.01 under the caption "Terra Facility A Advances" and the aggregate principal amount thereof as of the Restatement Date shall be $209,285,714.22. (ii) The amount of any Terra Facility A Advance that is repaid or prepaid may not be reborrowed. (b) Terra Facility B. (i) On the Restatement Date, the "Terra Facility B Advance" of each Lender under the Existing Credit Agreement shall automatically, without any action on the part of any Person, be deemed to be a Terra Facility B Advance hereunder for all purposes of this Agreement (each, a "Terra Facility B Advance"). The principal amount of the Terra Facility B Advance of each Lender as of the Restatement Date shall be the amount set forth opposite such Lender's name on Schedule 2.01 under the caption "Terra Facility B Advances" and the aggregate principal amount thereof as of the Restatement Date shall be $79,500,000.00. (ii) The amount of any Terra Facility B Advance that is repaid or prepaid may not be reborrowed. Credit Agreement ---------------- -39- (c) Terra Working Capital Facility. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances ("Terra Working Capital Advances") to the Company from time to time on any Business Day during the period from the Restatement Date until the Terra Working Capital Commitment Termination Date in an aggregate amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 under the caption "Terra Working Capital Commitment" or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register as such Lender's "Terra Working Capital Commitment" (such amount being such Lender's "Terra Working Capital Commitment"), and, as to all Lenders, in an aggregate amount at any one time outstanding not to exceed $200,000,000 (provided, that at all times prior to the SPU Redemption Time the aggregate amount of the Terra Working Capital Commitments shall be deemed to be reduced for all purposes hereof by the aggregate amount of the TNLP Working Capital Commitments as in effect from time to time). On the Restatement Date, all outstanding "Terra Facility E Advances" of each Lender under the Existing Credit Agreement shall automatically, without any action on the part of any Person, be deemed to be Terra Working Capital Advances hereunder. The aggregate principal amount of the Terra Working Capital Advances of each Lender as of the Restatement Date shall be the amount set forth opposite such Lender's name on Schedule 2.01 under the caption "Terra Working Capital Advances". (ii) The Terra Working Capital Advances shall be made by the Lenders ratably according to their respective Terra Working Capital Commitments. (iii) Within the limits of each Lender's Terra Working Capital Commitment in effect from time to time, the Company may borrow under this Section 2.01(c) and/or obtain the issuance of Letters of Credit under Section 2.13, prepay pursuant to Section 2.05(a) and reborrow under this Section 2.01(c); provided, that the aggregate outstanding principal amount of Terra Working Capital Advances when added to the aggregate Terra Letter of Credit Liability may not at any time exceed the aggregate amount of the Terra Working Capital Commitments at such time. (iv) The proceeds of the Terra Working Capital Advances shall be used solely to finance the ongoing working capital needs of the Company and its Subsidiaries (other than, prior to the SPU Redemption Time, TNLP and its successors); provided, that: Credit Agreement ---------------- -40- (x) if all or any portion of the proceeds of the issuance (if any) of the 1995 Terra Debt not applied to the repayment of Bridge Indebtedness shall be applied to repay Terra Working Capital Advances under Section 2.05(a) during the fiscal year of Terra ending December 31, 1995 (the aggregate amount so applied to repay the Terra Working Capital Advances being the "Application Amount"), proceeds of subsequent Borrowings under the Terra Working Capital Facility shall also be permitted to be used either (1) to finance the SPU Redemption during such fiscal year or (2) to finance the prepayment of Advances pursuant to Section 2.05(b)(v), in either case in an aggregate amount not exceeding the Application Amount; and (y) proceeds of Terra Working Capital Advances in an aggregate amount not exceeding $40,000,000 (in addition to Terra Working Capital Advances referred to in clause (x) above) may be used to finance the SPU Redemption during the fiscal year of Terra ending December 31, 1995. (v) Notwithstanding the foregoing provisions of Section 2.01(c), the Company agrees that, for a period of 30 consecutive days during each period of 12 consecutive months commencing on the date of the initial Terra Working Capital Borrowing or the last day of the previous such 12-month period and ending one year thereafter, no Terra Working Capital Borrowings may be made or outstanding under this Section 2.01(c); provided, that this Section 2.01(c)(v) shall not prevent the Company from requesting the issuance of Terra Letters of Credit during any such period pursuant to Section 2.13, or the Lenders from making Terra Working Capital Advances in respect thereof pursuant to Section 2.13(c), which Terra Working Capital Advances (subject to the other terms and conditions of this Agreement) may remain outstanding during such period. (d) TNLP Working Capital Facility. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances ("TNLP Working Capital Advances") to TNLP from time to time on any Business Day during the period from the Restatement Date until the TNLP Working Capital Commitment Termination Date in an aggregate amount at any one time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 under the caption "TNLP Working Capital Commitment" or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register as such Lender's "TNLP Working Capital Credit Agreement ---------------- -41- Commitment" (such amount being such Lender's "TNLP Working Capital Commitment"), and, as to all Lenders, in an aggregate amount at any one time outstanding not to exceed $25,000,000. On the Restatement Date, all outstanding "AMLP Facility B Advances" of each Lender under the Existing Credit Agreement shall automatically, without any action on the part of any Person, be deemed to be TNLP Working Capital Advances hereunder. The aggregate principal amount of the TNLP Working Capital Advances of each Lender as of the Restatement Date shall be the amount set forth opposite such Lender's name on Schedule 2.01 under the caption "TNLP Working Capital Advances". (ii) The TNLP Working Capital Advances shall be made by the Lenders ratably according to their respective TNLP Working Capital Commitments. (iii) Within the limits of each Lender's TNLP Working Capital Commitment in effect from time to time, TNLP may borrow under this Section 2.01(d) and/or obtain the issuance of Letters of Credit under Section 2.13, prepay pursuant to Section 2.05(a) and reborrow under this Section 2.01(d); provided, that the aggregate outstanding principal amount of TNLP Working Capital Advances when added to the aggregate TNLP Letter of Credit Liability may not at any time exceed the aggregate amount of the TNLP Working Capital Commitments at such time. (iv) The proceeds of the TNLP Working Capital Advances shall be used solely to finance the ongoing working capital needs of TNLP. (v) Notwithstanding the foregoing provisions of Section 2.01(d), TNLP agrees that, for a period of 30 consecutive days during each period of 12 consecutive months commencing on the date of the initial TNLP Working Capital Borrowing or the last day of the previous such 12-month period and ending one year thereafter, no TNLP Working Capital Borrowings may be made or outstanding under this Section 2.01(d); provided, that this Section 2.01(d)(v) shall not prevent TNLP from requesting the issuance of TNLP Letters of Credit during any such period pursuant to Section 2.13, or the Lenders from making TNLP Working Capital Advances in respect thereof pursuant to Section 2.13(c), which TNLP Working Capital Advances (subject to the other terms and conditions of this Agreement) may remain outstanding during such period. Credit Agreement ---------------- -42- (e) Minimum Amounts. Each Working Capital Borrowing shall be in an aggregate amount at least equal to $3,000,000 or an integral multiple of $1,000,000 in excess thereof. (f) No Responsibility to Third Parties. Neither the Agent nor any Lender nor any Issuing Bank shall have any responsibility as to the application or use of any of the proceeds of any Advance. Section 2.02. Making the Advances. (a) (i) Except as otherwise provided in Section 2.13, each Working Capital Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the Business Day of (or, with respect to a Borrowing of Eurodollar Rate Advances, 10:00 A.M. (New York City time) on the second Business Day prior to the date of) the proposed Borrowing, by the relevant Borrower to the Agent, which shall give to each Lender prompt notice thereof by telex, telecopier or cable. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telex, telecopier or cable, confirmed immediately in writing, in substantially the form of Exhibit C, specifying therein (1) the requested date of such Borrowing, (2) the Facility under which such Borrowing is to be made, (3) the requested Type of Advances comprising such Borrowing, (4) the requested aggregate amount of such Borrowing and (5) in the case of a Borrowing consisting of Eurodollar Rate Advances, the requested initial Interest Period for each such Advance. (ii) In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Agent shall promptly notify each relevant Lender of the applicable interest rate under Section 2.06(a)(ii). (iii) Each Lender shall, before 1:00 P.M. (New York City time) on the date of each Working Capital Borrowing after the Restatement Date, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will transfer same day funds to the relevant Borrower's Account; provided, that (i) in the case of any Terra Working Capital Borrowing, the Agent shall first make a portion of such funds equal to any unreimbursed drawing under any Terra Letter of Credit available to each Issuing Bank having issued any such Letter of Credit for reimbursement of such drawing, and (ii) in the case of any TNLP Working Capital Borrowing, the Agent shall first make a portion of such funds equal to any unreimbursed drawing Credit Agreement ---------------- -43- under any TNLP Letter of Credit available to each Issuing Bank having issued any such Letter of Credit for reimbursement of such drawing. (b) Anything in subsection (a) above to the contrary notwithstanding, (i) neither Borrower may select Eurodollar Rate Advances (y) for any Borrowing if the aggregate amount of such Borrowing is less than $3,000,000 or (z) if the obligation of the relevant Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or 2.09, and (ii) Eurodollar Rate Advances may not be outstanding under more than (x) 15 separate Interest Periods under either Working Capital Facility at any one time and (y) three separate Interest Periods under either Term Facility at any one time. (c) Each Notice of Borrowing shall be irrevocable and binding on the relevant Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the relevant Borrower shall indemnify each relevant Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (d) Unless the Agent shall have received notice from a relevant Lender prior to 12:00 Noon (New York City time) on the date of any Working Capital Borrowing that such Lender will not make available to the Agent such Lender's ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with Section 2.02(a) and the Agent may, in reliance upon such assumption, make available to the relevant Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent and the Agent shall have made available such corresponding amount to the relevant Borrower, such Lender and the relevant Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the relevant Borrower until the date such amount is repaid to the Agent, at (i) in the case of the relevant Borrower, the interest rate applicable at Credit Agreement ---------------- -44- such time under Section 2.06 to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement. (e) The failure of any Lender to make the Advance to be made by it as part of any Working Capital Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. Section 2.03. Repayment. (a) Term Advances. The Company hereby promises to pay to the Agent for the account of each Lender the full outstanding principal amount of such Lender's Advances under each Term Facility as follows: (i) in the case of the Terra Facility A Advances, in nine consecutive semi-annual installments, one such installment to be payable on each Terra Facility A Principal Payment Date set forth below in a principal amount equal to the amount set forth below opposite such Terra Facility A Principal Payment Date:
Terra Facility A Principal Payment Date Falling on or Nearest To Amount ----------------------- -------------- October 20, 1995 $23,253,968.25 April 20, 1996 23,253,968.25 October 20, 1996 23,253,968.25 April 20, 1997 23,253,968.25 October 20, 1997 23,253,968.25 April 20, 1998 23,253,968.25 October 20, 1998 23,253,968.25 April 20, 1999 23,253,968.25 October 20, 1999 23,253,968.22
(ii) in the case of the Terra Facility B Advances, in 13 consecutive semi- annual installments, one such installment to be payable on each Terra Facility B Principal Payment Date set forth below in a principal amount equal to the amount set forth below opposite such Terra Facility B Principal Payment Date: Credit Agreement ---------------- -45-
Terra Facility B Principal Payment Date Falling on or Nearest To Amount ------------------------ -------------- October 20, 1995 $ 500,000.00 April 20, 1996 500,000.00 October 20, 1996 500,000.00 April 20, 1997 500,000.00 October 20, 1997 500,000.00 April 20, 1998 500,000.00 October 20, 1998 500,000.00 April 20, 1999 500,000.00 October 20, 1999 15,100,000.00 April 20, 2000 15,100,000.00 October 20, 2000 15,100,000.00 April 20, 2001 15,100,000.00 October 20, 2001 15,100,000.00
(b) Terra Working Capital Advances. The Company hereby promises to pay to the Agent for the account of each Lender the full outstanding principal amount of the Terra Working Capital Advances of such Lender on the Terra Working Capital Commitment Termination Date. (c) TNLP Working Capital Advances. TNLP hereby promises to pay to the Agent for the account of each Lender the full outstanding principal amount of the TNLP Working Capital Advances of such Lender on the TNLP Working Capital Commitment Termination Date. (d) All Advances. (i) All repayments of principal under this Section 2.03 shall be made together with interest accrued to the date of such repayment on the principal amount repaid. (ii) If any Principal Payment Date falls on a day that is not a Business Day, such Principal Payment Date shall be the immediately preceding Business Day. Section 2.04. Termination or Reduction of the Working Capital Commitments. (a) Optional. The Borrowers may at any time or from time to time, upon not less than two Business Days' notice to the Agent, terminate in whole or reduce in part the Working Capital Commitments under the relevant Working Capital Facility, provided, that (i) each partial reduction of the Working Capital Commitments under such Facility shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess Credit Agreement ---------------- -46- thereof, and (ii) the aggregate amount of the Working Capital Commitments under either Working Capital Facility shall not be reduced below the Letter of Credit Commitment for such Facility. (b) Mandatory. The Terra Working Capital Commitments shall be automatically and permanently reduced to zero on the Terra Working Capital Commitment Termination Date. The TNLP Working Capital Commitments shall be automatically and permanently reduced to zero on the TNLP Working Capital Commitment Termination Date. (c) Reductions Pro Rata. Each reduction of the Working Capital Commitments under a Working Capital Facility shall be applied to the respective Working Capital Commitments of the Lenders according to their respective Pro Rata Shares of such Working Capital Facility. (d) General. Working Capital Commitments once terminated or reduced may not be reinstated. Section 2.05. Prepayments. (a) Optional Prepayments. (i) Either Borrower may, upon at least two Business Days' notice (in the case of prepayment of Eurodollar Rate Advances) or upon notice given on the date of prepayment (in the case of prepayments of Base Rate Advances) to the Agent (which notice shall state the Facilities to be prepaid and the proposed date and aggregate principal amount of the prepayment), and if such notice is given such Borrower shall, prepay the outstanding principal amount of the Advances under the specified Facilities in the aggregate amount and on the date specified in such notice, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, that (x) each partial prepayment shall be in an aggregate principal amount of $3,000,000 or an integral multiple of $1,000,000 in excess thereof, (y) any such prepayment of a Eurodollar Rate Advance other than on the last day of the Interest Period therefor shall be accompanied by, and subject to, the payment of any amount payable under Section 9.04(c) in respect of such prepayment and (z) each such notice shall be made on the relevant day not later than, in the case of prepayments of Eurodollar Rate Advances, 10:00 A.M. (New York City time) and, in the case of prepayments of Base Rate Advances, 12:00 Noon (New York City time). (ii) Each prepayment of Advances under this Section 2.05(a) shall be made for account of the relevant Lenders according to their respective Pro Rata Shares of the Credit Agreement ---------------- -47- principal amount of the Advances then outstanding under the relevant Facility. (b) Mandatory Prepayments. (i) Excess Cash Flow. Not later than the date 90 days after the end of each fiscal year of the Company commencing with the fiscal year ending December 31, 1995, the Company shall prepay the Advances in an aggregate amount equal to (x) 75% of Excess Cash Flow for such fiscal year minus (y) in the case of the prepayment made with respect to Excess Cash Flow for the fiscal year ending December 31, 1995, the Excess SPU Amount (as defined below), if any; provided, that once an aggregate amount of $20,000,000 or more has been prepaid pursuant to this clause (i), the figure 75% set forth above shall automatically be deemed to be reduced to 50%. For purposes of this clause (i), "Excess SPU Amount" means the excess, if any, of the aggregate consideration paid by Terra and its Subsidiaries to purchase, redeem or otherwise acquire Senior Preference Units pursuant to the SPU Redemption over the aggregate amount of Debt (other than Terra Working Capital Advances) incurred by Terra and its Subsidiaries to finance such purchase, redemption or other acquisition. (ii) Sale of Assets. Without limiting the obligation of the Company to obtain the consent of the Required Lenders pursuant to Section 5.02(e) to any Disposition not otherwise permitted hereunder, upon the occurrence of any Disposition, the Company shall prepay the Advances in an aggregate amount equal to 100% of the Net Available Proceeds of such Disposition; provided, that (x) for purposes of this clause (ii) the aggregate Net Available Proceeds of all such Dispositions in such Fiscal Year shall be deemed to be reduced by $10,000,000 (but shall not be deemed to be less than zero); (y) the sale by the Company or any of its Subsidiaries of Receivables under a Permitted Receivables Facility shall not be deemed to be a Disposition for purposes of this clause (ii); and (z) upon the Specified Paydown Date, the figure 100% set forth above shall automatically be deemed to be reduced to 75%. (iii) Equity Issuance, Etc. Upon the making of any Equity Issuance or any other public issuance of securities (including without limitation the New Terra Equity but excluding the issuance (if any) of the 1995 Terra Debt), the Company shall prepay the Advances in an aggregate amount equal to the excess, if any of (x) 100% of the Net Available Proceeds thereof over (y) the aggregate amount of Bridge Indebtedness contractually required to be repaid by the Company in connection with such issuance; provided, that Credit Agreement ---------------- -48- this clause (iii) shall cease to apply upon the Specified Paydown Date. (iv) Casualty Events. Upon the date 90 days following the receipt by Terra or any of its Subsidiaries of the proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any property of Terra or any of its Subsidiaries (or upon such earlier date as Terra or such Subsidiary, as the case may be, shall have determined not to repair or replace the property affected by such Casualty Event), the Company shall prepay the Advances in an aggregate amount, if any, equal to 100% of the Net Available Proceeds of such Casualty Event not theretofore applied to the repair or replacement of such property or set aside for such purpose (provided, that funds so set aside are applied to the repair or replacement of such property as soon as reasonably practicable under the circumstances); provided, that upon the Specified Paydown Date, the figure 100% set forth above shall automatically be deemed to be reduced to 75%. Nothing in this clause (iv) shall be deemed to limit any obligation of Terra or any of its Subsidiaries pursuant to any of the Security Documents to remit to a collateral or similar account (including, without limitation, a Collateral Account under and as defined in the Security Documents) maintained by the Agent pursuant to any of the Security Documents the proceeds of insurance, condemnation award or other compensation received in respect of any Casualty Event. (v) Non-Redemption of Senior Preference Units, Etc. On December 31, 1995, the Company shall prepay the Advances in an aggregate amount equal to the excess, if any, of (x) 100% of the net proceeds received by Terra and its Subsidiaries from the issuance (if any) of the 1995 Terra Debt to the extent such proceeds (or proceeds of Terra Working Capital Advances, if such use is permitted pursuant to Section 2.01(c)(iv)) have not theretofore been applied to the redemption of Senior Preference Units pursuant to the SPU Redemption over (y) the aggregate amount of Bridge Indebtedness contractually required to be repaid by the Company in connection with such issuance. (c) Application. Prepayments described in Section 2.05(b) shall be applied to the prepayment of the Term Advances ratably according to the respective aggregate outstanding principal amounts thereof and to the respective installments thereof ratably. (d) Payments with Interest. All prepayments under this Section 2.05 shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. Credit Agreement ---------------- -49- Section 2.06. Interest. (a) Ordinary Interest. The Company shall pay interest on the unpaid principal amount of each Terra Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, and TNLP shall pay interest on the unpaid principal amount of each TNLP Working Capital Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, in each case at the following rates per annum: (i) Base Rate Advances. While such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (1) the Base Rate in effect from time to time plus (2) the Applicable Margin in effect from time to time, payable in arrears quarterly on each Quarterly Date and on the date such Base Rate Advance shall be Converted (but only on the amount Converted) or paid in full. (ii) Eurodollar Rate Advances. While such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (1) the Eurodollar Rate for such Interest Period for such Advance plus (2) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each three-month anniversary of the first day of such Interest Period occurring during such Interest Period. (b) Post-Default Interest. If (a) any Obligor shall fail to pay when due (by acceleration or otherwise) any amount payable under any Loan Document after any applicable grace period provided in Section 6.01(a), or (b) (i) an Event of Default shall have occurred and be continuing during any period and (ii) the Agent or the Required Lenders, through the Agent, shall have notified the Company thereof, each Borrower shall, notwithstanding anything else in this Agreement to the contrary, pay to the Agent for account of each Lender interest, during such period, at the applicable Post-Default Rate on any principal of any Advance made by such Lender to such Borrower, and on any other amount whatsoever then due and payable by such Borrower hereunder or under the Notes held by such Lender to or for account of such Lender, such interest to be payable from time to time on demand. Section 2.07. Fees. (a) Commitment Fee. Each Borrower hereby promises to pay to the Agent for the account of each Lender a commitment fee (i) in the case of the Company, on the average daily unused Credit Agreement ---------------- -50- portion of such Lender's Terra Working Capital Commitment and (ii) in the case of TNLP, on the average daily unused portion of such Lender's TNLP Working Capital Commitment, in each case for the period from the Restatement Date (or from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender other than the Initial Lenders) until the Working Capital Commitment Termination Date for the relevant Facility at the Applicable Commitment Fee Rate, payable in arrears (x) quarterly after the Restatement Date on each Quarterly Date and (y) on the Working Capital Commitment Termination Date for the relevant Facility. Notwithstanding anything to the contrary contained herein or in the Existing Credit Agreement, commitment fee accrued under Section 2.07(a) of the Existing Credit Agreement for the period prior to the Restatement Date shall be payable on the first Quarterly Date hereunder following the Restatement Date. (b) Letter of Credit Commission, Etc. (i) The Company hereby promises to pay to the Agent (A) for the account of each Issuing Bank a non-refundable fronting fee of 1/4% per annum of the face amount of each Terra Letter of Credit issued by it for the period from the date of issuance thereof until such Letter of Credit has been drawn in full, expires or is terminated and (B) for the account of each Lender a non-refundable commission on such Lender's Pro Rata Share of the average daily aggregate Available Amount of all Terra Letters of Credit then outstanding at the Applicable Letter of Credit Fee Rate, such fees to be payable in arrears on each Quarterly Date and on the Terra Working Capital Commitment Termination Date and calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day. (ii) TNLP hereby promises to pay to the Agent (A) for the account of each Issuing Bank a non-refundable fronting fee of 1/4% per annum of the face amount of each TNLP Letter of Credit issued by it for the period from the date of issuance thereof until such Letter of Credit has been drawn in full, expires or is terminated and (B) for the account of each Lender a non-refundable commission on such Lender's Pro Rata Share of the average daily aggregate Available Amount of all TNLP Letters of Credit then outstanding at the Applicable Letter of Credit Fee Rate, such fees to be payable quarterly in arrears on each Quarterly Date and on the TNLP Working Capital Commitment Termination Date and calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day. (c) Letter of Credit Expenses. Each Borrower shall pay to each Issuing Bank, for its own account, such commission, Credit Agreement ---------------- -51- issuance fees, transfer fees and other fees and charges in connection with the issuance or administration of the Letters of Credit issued by it as such Borrower and such Issuing Bank shall agree; provided, that all fees and other charges payable pursuant to this Section 2.07(c) shall be the customary amounts charged by such Issuing Bank in connection with the issuance or administration of similar letters of credit and the amounts so determined shall be adjusted as necessary to avoid a duplicative payment hereunder. (d) Other Fees. Terra shall, on the Restatement Date, pay to the Agent the fees payable pursuant to the Fee Letter. Section 2.08. Conversion and Continuation of Advances. (a) Optional Conversion. Each Borrower may on any Business Day, upon notice given to the Agent not later than 10:00 A.M. (New York City time) on the second Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.09 and 2.10, Convert all or any portion of the Advances of one Type outstanding under any Facility (and, in the case of Eurodollar Rate Advances, having the same Interest Period); provided, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b)(i) and no Conversion of any Advances shall result in a greater number of separate Interest Periods in respect of Eurodollar Rate Advances under any Facility than permitted under Section 2.02(b)(ii). Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the aggregate amount, Type and Facility of the Advances (and, in the case of Eurodollar Rate Advances, the Interest Period therefor) to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Advances. Each notice of Conversion shall be irrevocable and binding on the relevant Borrower. (b) Certain Mandatory Conversions. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $3,000,000 such Advances shall automatically Convert into Base Rate Advances. (ii) If a Borrower shall fail to select the duration of any Interest Period for any outstanding Eurodollar Rate Advances in accordance with the provisions contained in the Credit Agreement ---------------- -52- definition of "Interest Period" in Section 1.01 and in clause (a) or (c) of this Section 2.08, the Agent will forthwith so notify such Borrower and the relevant Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (iii) Upon the occurrence and during the continuance of any Event of Default and upon notice from the Agent to the Borrowers at the request of the Required Lenders, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, or to Continue, Eurodollar Rate Advances shall be suspended. (c) Continuations. Each Borrower may, on any Business Day, upon notice given to the Agent not later than 10:00 A.M. (New York City time) on the second Business Day prior to the date of the proposed Continuation and subject to the provisions of Sections 2.09, Continue all or any portion of the Eurodollar Rate Advances outstanding under a relevant Facility having the same Interest Period as such Eurodollar Rate Advances; provided, that any such Continuation shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Continuation of Eurodollar Rate Advances shall be in an amount not less than the minimum Borrowing amount specified in Section 2.02(b)(i) and no Continuation of any Eurodollar Rate Advances shall result in a greater number of separate Interest Periods in respect of Eurodollar Rate Advances under any Facility than permitted under Section 2.02(b)(ii). Each such notice of Continuation shall, within the restrictions specified above, specify (i) the date of such Continuation, (ii) the aggregate amount and Facility of, and the Interest Period for, the Advances being Continued and (iii) the duration of the initial Interest Period for the Eurodollar Rate Advances subject to such Continuation. Each notice of Continuation shall be irrevocable and binding on the relevant Borrower. Section 2.09. Increased Costs, Illegality, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of (to the extent any such introduction or change occurs after the date hereof) any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority adopted or made after the date hereof (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances under any Facility, then the relevant Borrower shall from time to time, upon demand by such Lender (with a copy Credit Agreement ---------------- -53- of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost; provided, that, before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate as to the amount of such increased cost, submitted to the relevant Borrower by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Lender determines in good faith that compliance with any law or regulation enacted or introduced after the date hereof or any guideline or request from any central bank or other governmental authority adopted or made after the date hereof (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type or the issuance of the Letters of Credit (or similar contingent obligations), then, upon demand by such Lender (with a copy of such demand to the Agent), each Borrower shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder or to the issuance or maintenance of any Letters of Credit. A certificate as to such amounts submitted to the relevant Borrower by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any Eurodollar Rate Advances, (i) the Required Lenders reasonably determine and notify the Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, or (ii) if fewer than two Reference Banks furnish timely information to the Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances, the Agent shall forthwith so notify the Borrowers and the Lenders, whereupon (x) each Eurodollar Rate Advance will automatically, on the last day of any then existing Interest Period therefor, Convert to a Base Rate Advance, and (y) the obligation of the Lenders to make, or to Convert Advances into, or to Continue, Eurodollar Rate Advances shall be suspended until Credit Agreement ---------------- -54- the Agent shall notify the Borrowers and such Lenders that the circumstances causing such suspension no longer exist. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of (to the extent any such introduction or change occurs after the date hereof) any law or regulation shall make it unlawful, or any central bank or other governmental authority having appropriate jurisdiction shall assert in writing that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Agent, (i) each Eurodollar Rate Advance of such Lender will automatically, upon such demand, Convert to a Base Rate Advance and (ii) the obligation of such Lender to make, or to Convert Advances into, or to Continue, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrowers that such Lender has determined that the circumstances causing such suspension no longer exist; provided, that, before making any such demand, such Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow such Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. (e) Neither Borrower shall be obligated to pay any additional amounts arising pursuant to clauses (a) and (b) of this Section 2.09 that are attributable to the Excluded Period with respect to such additional amount; provided, that if an applicable law, rule, regulation, guideline or request shall be adopted or made on any date and shall be applicable to the period (a "Retroactive Period") prior to the date on which such law, rule, regulation, guideline or request is adopted or made, the limitation on the Borrowers' obligations to pay such additional amounts hereunder shall not apply to the additional amounts payable in respect of such Retroactive Period. Section 2.10. Payments and Computations. (a) Each Borrower shall make each payment hereunder and under the Notes not later than 12:00 Noon (New York City time) on the day when due in U.S. Dollars to the Agent at the Agent's Account in same day funds and, except as expressly set forth herein, without deduction, set-off or counterclaim. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or commitment Credit Agreement ---------------- -55- fees under or in respect of a particular Facility ratably (other than amounts payable pursuant to Section 2.09(a), 2.09(b), 2.11, 2.13(d) or 9.04(c), or amounts payable to an Issuing Bank in respect of Letters of Credit) to the relevant Lenders for the account of their Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date of such Assignment and Acceptance, the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) If the Agent receives funds for application to the Obligations under the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility to which, or the manner in which, such funds are to be applied, and neither Borrower has otherwise directed how such funds are to be applied (which direction is consistent with the terms of the Loan Documents), the Agent may, but shall not be obligated to, elect to distribute such funds to each Lender ratably in accordance with such Lender's proportionate share of the principal amount of all outstanding Advances and the Available Amount of all Letters of Credit then outstanding, in repayment or prepayment of such of the outstanding Advances or other Obligations owed to such Lender, and for application to such principal installments, as the Agent shall direct. (c) Each Borrower hereby authorizes each Lender, if and to the extent payment owed to such Lender is not made when due hereunder or under any Note held by such Lender, to charge from time to time against any or all of such Borrower's accounts with such Lender any amount so due (with notice to the Agent and the relevant Borrower promptly following such charge). (d) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. (e) All computations of interest, fees and Letter of Credit commissions shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days Credit Agreement ---------------- -56- (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Agent of an interest rate, fee or commission hereunder made in accordance with the provisions of this Agreement shall be conclusive and binding for all purposes, absent manifest error. (f) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the immediately preceding Business Day. (g) Unless the Agent shall have received notice from a Borrower prior to the date on which any payment is due to any Lender hereunder that such Borrower will not make such payment in full, the Agent may assume that such Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each such Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such payment in full to the Agent, each such Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate. Section 2.11. Taxes. (a) Any and all payments by each Obligor hereunder or under the relevant Notes shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Issuing Bank, each Lender and the Agent, net income taxes that are imposed by the United States and franchise taxes and net income taxes that are imposed on such Issuing Bank, such Lender or the Agent by the state or foreign jurisdiction under the laws of which such Issuing Bank, such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of such Issuing Bank and each Lender, franchise taxes and net income taxes that are imposed on it by the state or foreign jurisdiction of such Issuing Bank's or such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and Credit Agreement ---------------- -57- liabilities being hereinafter referred to as "Taxes"). If an Obligor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Issuing Bank, any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11) such Issuing Bank, such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Obligor shall make such deductions and (iii) such Obligor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Obligor agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made by it hereunder or under the Notes or from the execution, delivery or registration of this Agreement or the Notes (hereinafter referred to as "Other Taxes"). (c) Each Obligor will indemnify each Issuing Bank, each Lender and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.11) paid by such Issuing Bank, such Lender or the Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from such date such Issuing Bank, such Lender or the Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, each Obligor will furnish to the Agent, at its address referred to in Section 9.02, appropriate evidence of payment thereof. If such Obligor shall make a payment hereunder or under the Notes through an account or branch outside the United States, or a payment is made on behalf of such Obligor by a payor that is not a United States Person, such Obligor will, if no taxes are payable in respect of such payment, furnish, or will cause such payor to furnish, to the Agent, at such address, a certificate from the appropriate taxing authority or authorities, or an opinion of counsel acceptable to the Agent, in either case stating that such payment is exempt from or not subject to Taxes. For purposes of this subsection (d) and subsection (e), the terms "United States" and "United States Person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement (in the case Credit Agreement ---------------- -58- of each Initial Lender) and on the date of the Assignment and Acceptance pursuant to which it became a Lender (in the case of each other Lender), and from time to time thereafter if requested in writing by either Borrower or the Agent (but only so long as such Lender remains lawfully able to do so after the date such Lender becomes a Lender hereunder), provide the Agent and the Borrowers with either (i) Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party that reduces the rate of withholding tax on payments under this Agreement and the Notes or certifying that the income receivable pursuant to this Agreement and the Notes is effectively connected with the conduct of a trade or business in the United States or (ii) Internal Revenue Service form W-8, upon which each Borrower is entitled to rely, from a Lender that has not at the time such Lender becomes a Lender hereunder been named in any notice issued by the Secretary of the Treasury (or such Secretary's authorized delegate) pursuant to Sections 881(c)(2)(B) or 871(h)(5) of the Internal Revenue Code, or any successor form or statement prescribed by the Internal Revenue Service in order to establish that such Lender is entitled to treat the interest payments under this Agreement and the Notes as portfolio interest that is exempt from withholding tax under the Internal Revenue Code, together with a certificate stating that such Lender is not described in Section 881(c)(3) of the Internal Revenue Code. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero (or if the Lender cannot provide at such time such form because it is not entitled to reduced withholding under a treaty, the payments are not effectively connected income and the payments do not qualify as portfolio interest), withholding tax at such rate (or at the then existing U.S. statutory rate if the Lender cannot provide the form) shall be excluded from Taxes unless and until such Lender provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be excluded from Taxes for periods governed by such form; provided, that, if at the date of the Assignment and Acceptance pursuant to which a Lender assignee becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to the extent such tax results in liability for such payments, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States interest withholding tax, if any, applicable with respect to the Lender assignee on such date. (f) For any period with respect to which a Lender has failed to provide the Borrowers and the Agent with the Credit Agreement ---------------- -59- appropriate form described in Section 2.11(e) (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e)), such Lender shall not be entitled to indemnification under subsection (a) or (c) with respect to Taxes imposed by the United States. (g) Any Lender or any Issuing Bank claiming any additional amounts payable pursuant to this Section 2.11 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office(s) if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender or Issuing Bank, be otherwise disadvantageous to such Lender or Issuing Bank. (h) Without prejudice to the survival of any other agreement of the Borrowers hereunder, the agreements and obligations of the Borrowers contained in this Section 2.11 shall survive the payment in full of principal and interest hereunder and under the Notes. Section 2.12. Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances owing to it under any Facility (other than pursuant to Section 2.09(a), 2.09(b), 2.11, 2.13(d) or 9.04(c), or payments to an Issuing Bank in respect of Letters of Credit) in excess of its ratable share of payments on account of the Advances under such Facility obtained by all the relevant Lenders, such Lender shall forthwith purchase from the other relevant Lenders such participations in the Advances under such Facility owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each relevant Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.12 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of such Borrower in the amount of such participation. Credit Agreement ---------------- -60- Section 2.13. Letters of Credit. (a) Issuance of Letters of Credit, Etc. Each Borrower may request one or more Issuing Banks to issue, on the terms and conditions hereinafter set forth, letters of credit for the account of such Borrower under its respective Working Capital Facility (letters of credit so issued under the Terra Working Capital Facility being herein called "Terra Letters of Credit" and letters of credit so issued under the TNLP Working Capital Facility being herein called "TNLP Letters of Credit"; the Terra Letters of Credit and the TNLP Letters of Credit being collectively called the "Letters of Credit") from time to time on any Business Day during the period from the Closing Date until the date 90 days prior to the Working Capital Commitment Termination Date under the relevant Facility; provided, that: (i) the Terra Working Capital Commitments shall be utilized under this Section 2.13 solely for the issuance of Terra Letters of Credit for the account of the Company and, to the extent specified by the Company, any of its Subsidiaries (other than, prior to the SPU Redemption Time, TNLP or any of its Subsidiaries); (ii) the TNLP Working Capital Commitments shall be utilized under this Section 2.13 solely for the issuance of TNLP Letters of Credit for the account of TNLP and, to the extent specified by TNLP, any of its Subsidiaries; (iii) the aggregate Available Amount of all Letters of Credit issued by all Issuing Banks under either Working Capital Facility shall not exceed at any time the Letter of Credit Sublimit for such Facility, and the aggregate outstanding principal amount of all Working Capital Advances under such Facility when added to the aggregate amount of Letter of Credit Liabilities under such Facility shall not exceed the aggregate Working Capital Commitments of the relevant Lenders under such Facility on such Business Day; (iv) the aggregate amount of all Letter of Credit Liabilities under Letters of Credit issued by any Issuing Bank under either Working Capital Facility shall not exceed at any time the Letter of Credit Commitment of such Issuing Bank for such Facility; and (v) no Letter of Credit shall have an expiration date later than, or shall permit the account party or the beneficiary to the require renewal thereof to a date beyond, the date 30 days prior to the Working Capital Commitment Termination Date for the relevant Facility. Credit Agreement ---------------- -61- On the Restatement Date, all outstanding "Terra Letters of Credit" outstanding under the Existing Credit Agreement (the "Existing Terra Letters of Credit") shall automatically, without any action on the part of any Person, be deemed to be Terra Letters of Credit hereunder for all purposes of this Agreement. On the Restatement Date, all outstanding "AMLP Letters of Credit" outstanding under the Existing Credit Agreement (the "Existing AMLP Letters of Credit") shall automatically, without any action on the part of any Person, be deemed to be TNLP Letters of Credit hereunder for all purposes of this Agreement. At the SPU Redemption Time, all outstanding TNLP Letters of Credit shall automatically, without any action on the part of any Person, be deemed to be Terra Letters of Credit hereunder for all purposes of this Agreement. On each day during the period commencing with the issuance by an Issuing Bank of any Terra Letter of Credit (or, in the case of any Existing Terra Letter of Credit, during the period commencing with the Restatement Date) and until such Letter of Credit shall have been drawn in full or expired or been terminated, the Terra Working Capital Commitment of each Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Lender's Pro Rata Share of the then undrawn amount of such Letter of Credit. On each day during the period commencing with the issuance by an Issuing Bank of any TNLP Letter of Credit (or, in the case of any Existing TNLP Letter of Credit, during the period commencing with the Restatement Date) and until such Letter of Credit shall have been drawn in full or expired or been terminated, the TNLP Working Capital Commitment of each Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Lender's Pro Rata Share of the then undrawn amount of such Letter of Credit. (b) Request for Issuance. (i) Each Letter of Credit shall be issued upon notice, given not later than 1:00 P.M. (New York City time) two Business Days prior to the date of the proposed issuance of such Letter of Credit, by the relevant Borrower to the relevant Issuing Bank, which shall give to the Agent and each Lender prompt notice thereof by telex or telecopier. Each such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by telex or telecopier, confirmed promptly in writing, specifying therein (A) the requested date of such issuance (which shall be a Business Day), (B) the Available Amount requested for such Letter of Credit, (C) the expiration date of such Letter of Credit, (D) the account party or parties for such Letter of Credit, (E) the name and address of the issuer and the beneficiary of such Letter of Credit, and (F) the form of such Letter of Credit, together with a description of the nature of the transactions or obligations proposed to be supported Credit Agreement ---------------- -62- thereby. If the requested form of such Letter of Credit is acceptable to such Issuing Bank in its discretion, such Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Letter of Credit available to the relevant Borrower at its office referred to in Section 9.02 or as otherwise agreed with such Borrower in connection with such issuance. (ii) Each Issuing Bank shall furnish (A) to the Agent on the first Business Day of each week a written report summarizing the issuance and expiration dates of Letters of Credit issued by such Issuing Bank during the previous week and drawings during such week under all Letters of Credit issued by such Issuing Bank, (B) to each Lender and to the relevant Borrower on the first Business Day of each month, a written report summarizing the issuance and expiration dates of the Letters of Credit issued by such Issuing Bank under the relevant Facility during the preceding month and drawings during such month under all Letters of Credit under such Facility issued by the Issuing Bank and (C) to the Agent and each Lender on the first Business Day of each calendar quarter, a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit issued by such Issuing Bank under the relevant Facility. (c) Drawing and Reimbursement. (i) The payment by an Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by such Issuing Bank of an advance to the relevant Borrower in the amount of such payment, which the relevant Borrower agrees to repay on demand and, if not paid on demand, shall bear interest, from the date demanded to the date paid in full (and which interest shall be payable on demand), (x) from and including the date of demand to but not including the second Business Day thereafter at the Base Rate in effect for each such day plus the Applicable Margin in effect for each such day, and (y) from and including said second Business Day thereafter at the Post-Default Rate. Without limiting the obligations of such Borrower hereunder, upon demand by such Issuing Bank through the Agent, each Lender having a Working Capital Commitment under the relevant Facility shall make Working Capital Advances under such Facility in an aggregate amount equal to the amount of such Lender's Pro Rata Share of such advance by making available for the account of its Applicable Lending Office to the Agent for the account of such Issuing Bank, by deposit to the Agent's Account, in same day funds, an amount equal to the sum of (A) its Pro Rata Share of the outstanding principal amount of such Credit Agreement ---------------- -63- advance plus (B) interest accrued and unpaid to and as of such date on the outstanding principal amount of such advance. (ii) Each Lender agrees to make such Working Capital Advances on the Business Day on which demand therefor is made by the relevant Issuing Bank through the Agent (provided, that notice of such demand is given not later than 12:00 Noon (New York City time) on such Business Day) or (if notice of such demand is given after such time) the first Business Day next succeeding such demand. (iii) If and to the extent that any relevant Lender shall not have so made the amount of such Working Capital Advance available to the Agent for account of such Issuing Bank, such Lender agrees to pay to the Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the relevant Issuing Bank until the date such amount is paid to the Agent, at the Federal Funds Rate. (iv) The Working Capital Advances provided for in this Section 2.13 shall be made by the Lenders irrespective of whether there has occurred and is continuing any Default or Event of Default or of whether any other condition precedent specified in Article III has not been satisfied, and the obligation of each Lender under each relevant Facility to make such Working Capital Advances is absolute and unconditional. (d) Increased Costs. (i) If any change in any law or regulation or in the interpretation thereof (to the extent any such change occurs after the date hereof) by any court or administrative or governmental authority charged with the administration thereof shall either (x) impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit or guarantees issued by, or assets held by, or deposits in or for the account of, any Issuing Bank or any Lender or (y) impose on any Issuing Bank or any Lender any other condition regarding this Agreement or such Issuing Bank or such Lender or any Letter of Credit, and the result of any event referred to in the preceding clause (x) or (y) shall be to increase the cost to such Issuing Bank or Lender of issuing or maintaining any Letter of Credit or any commitment hereunder in respect of Letters of Credit, then, upon demand by such Issuing Bank or such Lender, the Borrowers shall immediately pay to such Issuing Bank or such Lender, from time to time as specified by such Issuing Bank or such Lender, additional amounts that shall be sufficient Credit Agreement ---------------- -64- to compensate such Issuing Bank or such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrowers by such Issuing Bank or such Lender shall be conclusive and binding for all purposes, absent manifest error. (ii) Neither Borrower shall be obligated to pay any additional amounts arising pursuant to this Section 2.13(d) that are attributable to the Excluded Period with respect to such additional amounts; provided, that if an applicable law, rule, regulation, guideline or request shall be adopted or made on any date and shall be applicable to the period (a "Retroactive Period") prior to the date on which such law, rule, regulation, guideline or request is adopted or made, the limitation on either Borrower's obligation to pay such additional amounts hereunder shall not apply to the additional amounts payable in respect of such Retroactive Period. (e) Obligations Absolute. The Obligations of each Borrower under this Agreement and any other agreement or instrument relating to any Letter of Credit (as hereafter amended, supplemented or otherwise modified from time to time, collectively, the "L/C Related Documents") shall, to the extent permitted by law, be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of such L/C Related Document under all circumstances, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of any one or more of such other documents and agreements, including, but not limited to, the L/C Related Documents; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of such Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (iii) the existence of any claim, set-off, defense or other right that such Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), any Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (iv) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, Credit Agreement ---------------- -65- invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by an Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not comply with the terms of such Letter of Credit, except to the extent that such payment resulted from such Issuing Bank's willful misconduct or gross negligence in determining whether such draft or certificate complies on its face with the terms of such Letter of Credit; (vi) any exchange, release or nonperfection of any Collateral or other collateral, or any release or amendment or waiver of or consent to departure from any guarantee, for all or any of the Obligations of such Borrower in respect of the L/C Related Documents; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, such Borrower or a guarantor. Section 2.14. Replacement of Lender. (a) Subject to clause (c) below, in the event that any Lender requests compensation pursuant to Section 2.09(a), 2.09(b) or 2.13(d), or the obligation of any Lender to make, or to Convert Base Rate Advances into, or to Continue, Eurodollar Rate Advances shall be suspended pursuant to Section 2.09(c) or 2.09(d) (such Lender being herein called an "Affected Lender"), then, so long as such condition exists, the Borrowers may, after the date 30 days after the date of such request or suspension, either: (i) (x) designate an Eligible Assignee acceptable to the Agent and each Issuing Bank (which acceptance will not be unreasonably withheld) that is not an Affiliate of the Borrowers (such Eligible Assignee being herein called a "Replacement Lender") to assume the Affected Lender's Working Capital Commitments and other obligations hereunder and to purchase the Affected Lender's Advances and other rights under the Loan Documents (all without recourse to or representation or warranty by, or expense to, the Affected Lender) for a purchase price equal to the aggregate principal amount of the outstanding Advances held by the Affected Lender plus all accrued but unpaid interest on such Advances and accrued but unpaid fees owing to the Affected Lender (and upon such assumption, purchase and substitution, and subject to the execution and delivery to the Agent by the Replacement Lender of documentation satisfactory to the Credit Agreement ---------------- -66- Agent, and, in the case of an Affected Lender that has made a Terra Facility B Advance, compliance with the requirements of Section 9.07(c), the Replacement Lender shall succeed to the rights and obligations of the Affected Lender hereunder and the other Loan Documents), and (y) pay to the Affected Lender all amounts payable to such Affected Lender under Section 9.04(c), calculated as if the purchase by the Replacement Lender constituted a mandatory prepayment of Advances by the Borrowers, and (z) pay to the Agent the processing and recordation fee specified in Section 9.07(a)(vi) with respect to such assignment; or (ii) (x) terminate the Working Capital Commitments of the Affected Lender and (y) pay to the Affected Lender the aggregate principal amount of the outstanding Advances held by the Affected Lender plus all accrued but unpaid interest on such Advances and accrued but unpaid fees owing to the Affected Lender plus all amounts payable to the Affected Lender under Section 9.04(c) as a result of such prepayment. In the event that the Borrowers exercise their rights under the preceding sentence, the Affected Lender shall no longer be a party hereto or have any rights or obligations hereunder or under the other Loan Documents; provided, that the obligations of the Borrowers to the Affected Lender under Sections 2.09, 2.11 and 9.04 with respect to events occurring or obligations arising before or as a result of such replacement shall survive such exercise. (b) If the Borrowers exercise their rights under clause (a)(ii) above, the Borrowers may, not later than the date 60 days after such exercise, designate an Eligible Assignee acceptable to the Agent and each Issuing Bank (which acceptance will not be unreasonably withheld) that is not an Affiliate of the Borrowers (such Eligible Assignee being herein called a "Substitute Lender") to assume Working Capital Commitments hereunder and to make Advances hereunder in an amount equal to the respective Working Capital Commitments and Advances of the Affected Lender under each of the Facilities and, subject to (x) the execution and delivery to the Agent by the Substitute Lender of documentation satisfactory to the Agent and (y) the payment by the Borrowers to the Agent of the processing and recordation fee specified in Section 9.07(a)(vi) with respect to such assignment, and (z) in the case of a Substitute Lender that will acquire Terra Facility B Advances, compliance with Section 9.07(c), the Substitute Lender shall succeed to the rights and obligations of the Affected Lender hereunder and under the other Loan Documents. Upon the Substitute Lender so becoming a party hereto, the Borrowers shall borrow Advances from the Substitute Lender and/or prepay the principal of the Advances of the other Lenders in such manner as will result in the Credit Agreement ---------------- -67- outstanding principal amount of the Advances under each Facility being held by the Lenders according to their respective Pro Rata Shares of the relevant Facilities. (c) The Borrowers may not exercise their rights under this Section 2.14: (i) with respect to any Affected Lender unless the Borrowers simultaneously exercise such rights with respect to all Affected Lenders, (ii) if a Default or an Event of Default has occurred and is then continuing, or (iii) with respect to any exercise of rights under clause (b) above, if, at the time of such exercise, the aggregate amount of the Working Capital Commitments that shall have been terminated pursuant to said clause (b) (including the Working Capital Commitments then proposed to be terminated) shall exceed 30% of the aggregate amount of the Working Capital Commitments in effect on the Restatement Date. ARTICLE III CONDITIONS OF LENDING Section 3.01. Conditions Precedent to Amendment and Restatement. The Existing Credit Agreement shall be amended and restated to read in full as set forth herein on the date (the "Restatement Date") on which the Agent shall notify the Company that the Agent shall have received the following in form and substance satisfactory to it: (a) The Notes, duly executed by each Borrower. (b) The following documents, each dated the Restatement Date (unless otherwise specified), in form and substance satisfactory to the Agent (unless otherwise specified) and in sufficient copies for the Agent, each Lender and each Issuing Bank: (i) a copy of each amendment to the charter or articles of incorporation or articles of limited partnership, as the case may be, of each Obligor made subsequent to the Closing Date (or, in the case of BMLP and TMC, subsequent to BMLP Transaction Date), certified (as of a date reasonably near the Restatement Date) by the Secretary of State of the state of its Credit Agreement ---------------- -68- incorporation or organization as being a true and correct copy thereof; and (ii) a certificate of each Obligor, signed on its behalf by its President or a Vice President and its Secretary or any Assistant Secretary, dated the Restatement Date (the statements made in which certificate shall be true on and as of the Restatement Date), certifying as to (A) the absence, except to the extent provided in said certificate, of any amendments to the charter or articles of incorporation or organization of such Obligor since the Closing Date (or, in the case of BMLP and TMC, subsequent to BMLP Transaction Date), (B) the absence, except to the extent provided in said certificate, of any amendments to the bylaws of such Obligor subsequent to the Closing Date (or, in the case of BMLP and TMC, subsequent to BMLP Transaction Date), and (C) the due incorporation or organization and good standing of such Obligor as a corporation or limited partnership, as the case may be, organized under the laws of its state of incorporation or organization, and the absence of any proceeding for the dissolution or liquidation of such Obligor. (c) An amendment to each of the Holdings Pledge Agreement, the Terra Capital Pledge Agreement, the Subsidiary Pledge and Security Agreement and the TNLP Pledge and Security Agreement, in substantially the form of Exhibit B-5, duly executed by each of the intended parties thereto, together with: (i) such appropriately completed and duly executed copies of Uniform Commercial Code financing statements and financing statement amendments as the Agent shall have requested in order to continue the perfection and protection of the Liens created by the Security Documents and covering the Collateral described therein, and (ii) executed and delivered documents for recordation and filing of or with respect to such Security Documents that the Agent may deem necessary or desirable in order to continue the perfection and protection of the Liens created thereby. (d) An amendment to the Loan Purchase Agreement, in substantially the form of Exhibit E-2, duly executed by Terra and the Agent. Credit Agreement ---------------- -69- (e) A true and correct copy of the materials (if any) distributed generally to the holders of the Senior Preference Units in connection with the SPU Redemption. (f) A favorable opinion of Kirkland & Ellis, special counsel for the Obligors, in substantially the form of Exhibit D and as to such other matters as the Agent, any Issuing Bank or any Lender through the Agent may reasonably request. (g) A favorable opinion of Milbank, Tweed, Hadley & McCloy, special New York counsel for the Agent, in form and substance satisfactory to the Agent. (h) A certificate of the Senior Financial Officer to the effect that: (x) the representations and warranties contained in each Loan Document are correct on and as of the Restatement Date, before and after giving effect to the amendment and restatement provided for hereby, as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (y) no event has occurred and is continuing that constitutes a Default or an Event of Default. (i) Evidence of payment by Terra of all accrued fees and expenses of the Agent (including the reasonable and documented fees and expenses of counsel to the Agent in connection with this Agreement to the extent that statements for such fees and expenses have been delivered to the Borrowers at least one Business Day prior to the Restatement Date). (j) Evidence that TNLP shall have repaid in full all of the "AMLP Facility A Advances" outstanding under the Existing Credit Agreement. (k) Evidence of receipt of all governmental and third party consents and approvals necessary in connection with this Agreement (without the imposition of any conditions except those that are acceptable to the Lenders) and that the same remain in effect. (l) Such other approvals, opinions and documents relating to this Agreement and the transactions contemplated hereby as any Lender or any Issuing Bank may, through the Agent, reasonably request. Credit Agreement ---------------- -70- Section 3.02. Conditions Precedent to Each Borrowing and Issuance. The obligation of each Lender to make an Advance on the occasion of each Borrowing (excluding, however, the making of any Working Capital Advance pursuant to Section 2.13), and the right of each Borrower to request the issuance of Letters of Credit under either Working Capital Facility, shall be subject to the further conditions precedent that on the date of such Borrowing or issuance the following statements shall be true (and each of the giving of the applicable Notice of Borrowing or Notice of Issuance and the acceptance by the relevant Borrower of the proceeds of such Borrowing or of such Letter of Credit shall constitute a representation and warranty by such Borrower that on the date of such Borrowing or issuance such statements are true): (i) the representations and warranties contained in each Loan Document are correct on and as of the date of such Borrowing or issuance, before and after giving effect to such Borrowing or issuance and to the application of the proceeds therefrom, as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (ii) no event has occurred and is continuing, or would result from such Borrowing or issuance or from the application of the proceeds therefrom, that constitutes a Default or an Event of Default. Section 3.03. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lenders unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Restatement Date specifying its objection thereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Company. The Company represents and warrants as follows: (a) Each Obligor (i) is a corporation (or, in the case of TNLP or BMLP, a limited partnership) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified and in good standing as a foreign corporation (or limited Credit Agreement ---------------- -71- partnership, as the case may be) in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and where, in each case, failure so to qualify and be in good standing could reasonably be expected to have a Material Adverse Effect and (iii) has all requisite power (corporate or other) and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (b) Set forth on Schedule 4.01(b) is a complete and accurate list of all Material Subsidiaries of each Obligor as of the Restatement Date, showing as of such date (as to each such Subsidiary) the jurisdiction of its organization, the number of shares of each class of capital stock or partnership interests authorized, and the number outstanding and the percentage of the outstanding shares or interests of each such class owned (directly or indirectly) by such Obligor and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights. All of the outstanding capital stock or partnership interests of all of such Subsidiaries has been validly issued, is fully paid and non-assessable and is owned by such Obligor or one or more of its Subsidiaries free and clear of all Liens, except those created by the Security Documents. Each Material Subsidiary (i) is a corporation (or, in the case of TNLP or BMLP, a limited partnership) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified and in good standing as a foreign corporation or limited partnership, as the case may be, in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and where, in each case, failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect and (iii) has all requisite power (corporate or other) and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (c) The execution, delivery and performance by each Obligor of this Agreement, the Notes and each other Loan Document to which it is or is intended to be a party, and the consummation of the credit transactions between Borrowers and Lenders contemplated hereby, are within such Obligor's powers (corporate or other), have been (or will, prior to the Restatement Date, be) duly authorized by all necessary corporate action, and do not (i) contravene such Obligor's charter, by-laws or in the case of TNLP or BMLP, its agreement of limited partnership, (ii) violate any Credit Agreement ---------------- -72- applicable law (including, without limitation, the Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule, regulation (including, without limitation, Regulation U and Regulation X), order, writ, judgment, injunction, decree, determination or award (except for any such violation, by action or inaction of any Obligor, that could not reasonably be expected to have a Material Adverse Effect and that could not result in any liability of any Lender), (iii) except as set forth on Schedule 4.01(c), conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Obligor, any of its Subsidiaries or any of their properties (except for any such conflict, breach or default, caused by action or inaction of any Obligor, that could not reasonably be expected to have a Material Adverse Effect and that could not result in any liability of any Lender) or (iv) except for the Liens created by the Security Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Obligor or any of its Subsidiaries. No Obligor or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could be reasonably expected to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Obligor of this Agreement, the Notes or any other Loan Document to which it is or is to be a party, or for the consummation of the credit transactions between Borrowers and Lenders contemplated hereby, (ii) the grant by any Obligor of the Liens granted by it pursuant to the Security Documents, (iii) the perfection or maintenance of the Liens created by the Security Documents (except for the filings required to be made pursuant to Section 3.01(c)) or (iv) the exercise by the Agent or any Lender or Issuing Bank of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Security Documents, except for the authorizations, approvals, actions, notices and filings listed on Schedule 4.01(d), all of which have been duly obtained, taken, given or made and are in full force and effect. Credit Agreement ---------------- -73- (e) This Agreement has been, and each of the Notes and each other Loan Document when delivered will have been, duly executed and delivered by each Obligor that is intended to be a party thereto. This Agreement is, and each of the Notes and each other Loan Document when delivered will be, the legal, valid and binding obligation of each Obligor that is intended to be a party thereto, enforceable against such Obligor in accordance with its terms. (f) The balance sheet of Terra as at December 31, 1994 and the related statements of income and cash flows of Terra for the twelve months then ended, accompanied by an opinion of Deloitte & Touche, independent public accountants, and the balance sheet of Terra as at March 31, 1995 and the related statements of income and cash flows of Terra for the three months then ended, duly certified by the chief financial officer of Terra, copies of which have been furnished to each Lender, present fairly, in all material respects, subject, in the case of said balance sheet as at March 31, 1995, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments, the financial condition of Terra as at such dates and the results of the operations of Terra for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis. Since December 31, 1994, there has been no Material Adverse Change with respect to Terra. (g) (A) No written information, exhibit or report (as at the Restatement Date) furnished by any officer of Terra to the Agent, any Issuing Bank or any Lender in connection with the negotiation of the Loan Documents (when taken together) contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading and (B) none of the information, exhibits or reports furnished by any Obligor to the Agent, any Issuing Bank or any Lender pursuant to Section 5.03 contained (on the date of delivery thereof) any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading. (h) There is no action, suit, litigation or proceeding against any Obligor or any of its Subsidiaries or any of their respective property, including any Environmental Action, pending before any court, governmental agency or arbitrator, or (to the knowledge of any Obligor) threatened, nor (to the knowledge of any Obligor) is there any investigation pending in respect of any Obligor, that (i) could reasonably be expected to have a Material Adverse Effect, or (ii) on the Restatement Date could reasonably be Credit Agreement ---------------- -74- expected to affect the legality, validity or enforceability of this Agreement, any Note, any other Loan Document or the consummation of the transactions contemplated hereby. (i) No Obligor is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock; except as expressly permitted in Section 2.01(c)(iv), no proceeds of any Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock; and no proceeds of any Advance will be used for any purpose which violates the provisions of the regulations of the Board of Governors of the Federal Reserve System. After applying the proceeds of each Advance, not more than 25% of the value of the assets of either Borrower and such Borrower's Subsidiaries (as determined in good faith by such Borrower) that are subject to Section 5.02(a) or Section 5.02(e) will consist of or be represented by Margin Stock. If requested by any Lender or the Agent, each Borrower will furnish to the Agent and each Lender a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U, the statements made in which shall be such, in the opinion of each Lender, as to permit the transactions contemplated hereby in accordance with Regulation U. (j) Set forth on Schedule 4.01(j) is a complete and accurate list, as of the Restatement Date, of each Plan that is subject to Title IV of ERISA and each Multiemployer Plan with respect to any employees or former employees of any Obligor or any of its ERISA Affiliates. (k) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan of any Obligor or any of its ERISA Affiliates that could reasonably be expected to have a Material Adverse Effect. (l) Since the date of the Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Plan of any Obligor or any of its ERISA Affiliates, there has been no change in the funding status of any such Plan except to the extent that such change is not reasonably expected to have a Material Adverse Effect. (m) Neither any Obligor nor any of its ERISA Affiliates has incurred or is reasonably expected to incur any withdrawal liability to any Multiemployer Plan except to the extent such withdrawal liability is not reasonably expected to have a Material Adverse Effect. (n) Neither any Obligor nor any of its ERISA Affiliates has been notified by the sponsor of a Credit Agreement ---------------- -75- Multiemployer Plan of any Obligor or any of its ERISA Affiliates that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA. (o) As of the Restatement Date, the aggregate annualized cost on a pay-as-you-go basis (including, without limitation, the cost of insurance premiums) with respect to post-retirement benefits under welfare plans (other than post-retirement benefits required to be provided by Section 4980B of the Code or applicable state law) for which Terra and its Subsidiaries is liable does not exceed $1,000,000. (p) Neither the business nor the properties of any Obligor or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that could reasonably be expected to have a Material Adverse Effect. (q) Except as set forth on Part I of Schedule 4.01(q) and except to the extent any of the following could not reasonably be expected to have a Material Adverse Effect, the operations and properties of each Obligor and each of its Subsidiaries comply in all material respects with all Environmental Laws, all necessary Environmental Permits have been obtained and are in effect for the operations and properties of each Obligor and its Subsidiaries, each Obligor and its Subsidiaries are in compliance in all material respects with all such Environmental Permits, and no circumstances exist that could (i) form the basis of an Environmental Action against any Obligor or any of its Subsidiaries or (ii) cause any such property to be subject to any material restrictions on ownership, occupancy, use or transferability under any Environmental Law. (r) Except as set forth on Part II of Schedule 4.01(q) and except to the extent any of the following could not reasonably be expected to have a Material Adverse Effect, as of the Restatement Date none of the properties of any Obligor or any of its Subsidiaries is listed or proposed for listing on the National Priorities List under CERCLA or on the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the Environmental Protection Agency or any analogous state list of sites requiring investigation or cleanup, and no underground storage tanks, as such term is defined in 42 U.S.C. 6901, are located on any property of any Obligor or any of its Subsidiaries. Credit Agreement ---------------- -76- (s) Except as set forth on Part III of Schedule 4.01(q) and except to the extent any of the following could not reasonably be expected to have a Material Adverse Effect, as of the Restatement Date neither any Obligor nor any of its Subsidiaries has been notified in writing by any federal, state or local governmental agency or any other Person that any Obligor or any of its Subsidiaries is potentially liable for the remedial or other costs with respect to treatment, storage, disposal, release, arrangement for disposal or transportation of any Hazardous Substance generated by any Obligor or any of its Subsidiaries, and Hazardous Materials have not been generated, used, treated, handled, stored or disposed of on, or released or transported to or from, any property of such Obligor (or, to its knowledge, any adjoining property) except in compliance in all material respects with all Environmental Laws and Environmental Permits, and all other wastes generated at any such properties by any Obligor or any of its Subsidiaries (and their respective agents, employees and contractors) have been disposed of in compliance with all Environmental Laws and Environmental Permits. (t) Each Obligor and each of its Subsidiaries has filed, has caused to be filed or has been included in, all federal and state income tax returns and all other material tax returns (federal, state, local and foreign) required to be filed and has paid (or is contesting in good faith by appropriate proceedings) all taxes shown thereon to be owing, together with applicable interest and penalties. (u) Set forth on Schedule 4.01(u) is a complete and accurate list, as of the date hereof, of each taxable year of Terra for which federal income tax returns have been filed and for which the expiration of the applicable statute of limitations for assessment or collection has not occurred by reason of extension or otherwise (an "Open Year"). (v) As of the Restatement Date, there are no adjustments to the federal income tax liability of Terra proposed by the Internal Revenue Service with respect to Open Years. No issues have been raised by the Internal Revenue Service in respect of Open Years that, in the aggregate, could reasonably be expected to have a Material Adverse Effect. (w) Neither any Obligor nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Neither any Obligor nor Credit Agreement ---------------- -77- any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by the Borrowers, nor the consummation of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (x) Each of Terra and the Company (both individually and collectively with their respective Subsidiaries) is Solvent. (y) Set forth on Part I of Schedule 4.01(y) is a complete and accurate list, as of the Closing Date, of all existing Debt of each Obligor, showing as of the Closing Date (i) the principal amount outstanding thereunder, (ii) whether such Debt is secured by any Lien and (iii) the aggregate principal amount of such Debt scheduled to be paid during each fiscal year of Terra to and including the fiscal year of Terra in which the final Principal Payment Date is scheduled to occur. Section 4.02. Representations and Warranties of each Lender. Each Lender hereby represents and warrants that such Lender, in good faith, has not relied upon Margin Stock as collateral for the Obligations of the Obligors hereunder and under the other Loan Documents. ARTICLE V COVENANTS OF TERRA Section 5.01. Affirmative Covenants. So long as any principal of or interest on any Advance or any other amount payable under this Agreement shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Working Capital Commitment hereunder, Terra will, and will cause each of the Obligors to: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970 (except to the extent that non- compliance with any thereof could not reasonably be expected to have a Material Adverse Effect). Credit Agreement ---------------- -78- (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, that neither such Obligor nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained to the extent required by GAAP, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors. (c) Compliance with Environmental Laws. Comply, and cause each of its Subsidiaries and all lessees and other Persons occupying its properties to comply, with all Environmental Laws and Environmental Permits applicable to its operations and properties; obtain and renew, and cause each of its Subsidiaries to obtain and renew, all Environmental Permits necessary for its operations and properties; and conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, that (i) neither such Obligor nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves to the extent required by GAAP are being maintained with respect to such circumstances and (ii) no such compliance with laws and permits, obligation to obtain or renew permits or obligation to undertake any such investigation, study, sampling, testing, removal, remedial or other action shall be required hereunder to the extent no Material Adverse Effect could reasonably be expected to result from any failure to so comply, obtain, renew or undertake, either individually or in the aggregate. (d) Maintenance of Insurance. Maintain, and cause each of its Material Subsidiaries to maintain, with responsible and reputable insurance companies or associations, insurance, including business interruption insurance with respect to each manufacturing plant, in such amounts and covering such risks as is usually carried by companies engaged in similar businesses. (e) Preservation of Corporate Existence, Etc. Subject to Section 5.02(d) and (e), preserve and maintain, and cause Credit Agreement ---------------- -79- each of its Material Subsidiaries to preserve and maintain, its corporate existence, rights (charter and statutory) and franchises; provided, that the Obligors may consummate the Reorganization Transaction, and that neither any Obligor nor any of its Subsidiaries shall be required to preserve any right or franchise if the Board of Directors of such Obligor or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Obligor or such Subsidiary, as the case may be, and that the loss thereof will not have a Material Adverse Effect. (f) Visitation Rights. At any reasonable time and as may be reasonably requested from time to time, permit the Agent, any Issuing Bank or any of the Lenders or any agents or representatives thereof to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, such Obligor and any of its Subsidiaries (in the presence of an appropriate officer or representative of the relevant Obligor), and to discuss the affairs (including, but not limited to, the compliance by such Obligor and its Subsidiaries with all Environmental Laws), finances and accounts of such Obligor and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (g) Preparation of Environmental Reports. Upon either (i) the acquisition of any real property by such Obligor or any of its Subsidiaries the purchase price of which exceeds $500,000 or (ii) the occurrence and during the continuance of a Default or Event of Default arising under Section 5.01(c), and in each case at the written request of the Agent, such Obligor shall provide to the Agent, each Issuing Bank and each Lender within a reasonable time after such acquisition or request, as the case may be, at the expense of such Obligor, an environmental site assessment report for the acquired property (in the case of an acquisition as described in clause (i)) or for any properties of such Obligor which are the subject of any such Default or Event of Default (in the case of an event as described in clause (ii)) prepared by an environmental consulting firm reasonably acceptable to the Agent, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance, removal or remedial action in connection with any Hazardous Materials on such properties. Without limiting the generality of the foregoing, if the Agent determines at any time that a material risk exists that any such report will not be provided within a reasonable time following such request, the Agent may retain an environmental consulting firm to prepare such report at the expense of such Obligor, such Credit Agreement ---------------- -80- Obligor and each of its Subsidiaries hereby granting to the Agent, each Issuing Bank, each Lender, such firm and any agents or representatives thereof an irrevocable non-exclusive license, subject to the rights of tenants, to enter onto its properties to undertake such an assessment. (h) Keeping of Books. Keep, and cause each of its Material Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of such Obligor and each such Subsidiary in accordance with GAAP. (i) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Material Subsidiaries to maintain and preserve, except to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (j) Compliance with Terms of Leaseholds. Make all payments and otherwise perform all obligations in respect of all leases of real property, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or canceled, except to the extent any such lease is no longer used or useful in the conduct of its business or which, in the exercise of the reasonable judgment of the relevant Obligor, is to be refinanced and except to the extent failure to comply with the foregoing would not have a Material Adverse Effect, and cause each of its Material Subsidiaries to do so. (k) Performance of Related Documents. Perform and observe all of the terms and provisions of each Related Document to be performed or observed by it, maintain each such Related Document in full force and effect and enforce such Related Document in accordance with its terms, except to the extent the failure to do any of the foregoing could not reasonably be expected to have a Material Adverse Effect. (l) Performance and Compliance with Material Contracts. Perform and observe, and cause each of its Subsidiaries to perform and observe, all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect and enforce each such Material Contract in accordance with its terms, except to the extent the failure Credit Agreement ---------------- -81- to do any of the foregoing could not reasonably be expected to have a Material Adverse Effect. (m) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of its Affiliates on terms that are fair and reasonable and no less favorable to such Obligor or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person that is not an Affiliate; provided, that this Section 5.01(m) shall not be applicable to (i) the transactions expressly contemplated by the Related Documents; (ii) transactions between such Obligor and its wholly owned Subsidiaries or between wholly owned Subsidiaries of such Obligor unless otherwise prohibited by this Agreement; (iii) compensation paid for services rendered by any director or officer of such Obligor or any director or officer of a Subsidiary of such Obligor serving at the direction or request of such Obligor to the extent such compensation is determined in the good faith exercise of business judgment by the Board of Directors of such Obligor to be reasonable and appropriate to the functions of such office; and (iv) the Reorganization Transaction. (n) Further Assurances. (i) Promptly upon reasonable request by the Agent or any Lender or Issuing Bank through the Agent correct, and cause each Subsidiary promptly to correct, any material defect or error that may be discovered in any Loan Document, which material defect or error is the result of any untrue statement of material fact under any Loan Document or the omission to state a material fact necessary to make the statements made therein not misleading, or in the execution, acknowledgment or recordation of any Loan Document, and (ii) promptly upon reasonable request by the Agent or any Lender or Issuing Bank through the Agent do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re- register, and cause any such Subsidiary promptly to do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re- register, any and all such further acts, deeds, conveyances, pledge agreements, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Agent or any Lender Credit Agreement ---------------- -82- or Issuing Bank through the Agent may reasonably require from time to time in order to (A) subject to the Liens created by any of the Security Documents any of such Obligor's and its Subsidiaries' properties, rights or interests covered or now or hereafter intended to be covered by any of the Security Documents, (B) perfect and maintain the validity, effectiveness and priority of any of the Security Documents and the Liens intended to be created thereby and (C) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Agent, the Lenders and any Issuing Bank the rights granted or now or hereafter intended to be granted to the Agent, the Lenders and the Issuing Banks under any Security Document or under any other instrument executed in connection with any Security Document to which such Obligor, any other Obligor or any of their respective Subsidiaries is or may become a party. (o) Interest Rate Hedging. Cause the Company to maintain in full force and effect until December 31, 1997 one or more interest rate Hedge Agreements with Persons acceptable to the Lenders in their reasonable determination with respect to a notional amount equal to 80% of the amount of the Relevant Debt providing effective protection against the Average Rate exceeding a rate per annum equal to 10% during the hedging period. For the purposes of this Section 5.01(o), the following terms have the following respective meanings: "Average Rate" means, on any date, the weighted average rate of interest per annum payable on all Relevant Debt, excluding the Applicable Margin. "Relevant Debt" means Debt under Terra Facility A and Terra Facility B in an aggregate amount, for any period, equal to the amount set forth opposite such period on Schedule 5.01(o). (p) Ownership of the Obligors. Take, and will cause each of its Subsidiaries to take, such action from time to time as shall be necessary to ensure that, except to the extent necessary to give effect to the Reorganization Transaction: (i) Terra will at all times own, beneficially and of record, all of the issued and outstanding capital stock (other than directors' qualifying shares) of Terra Capital Holdings; Credit Agreement ---------------- -83- (ii) Terra Capital Holdings will at all times own, beneficially and of record, all of the issued and outstanding capital stock (other than directors' qualifying shares) of the Company, and will own no other property (other than cash and other property incidental to its business as a holding company); (iii) the Company will at all times own (1) beneficially and of record, all of the issued and outstanding capital stock (other than directors' qualifying shares) of TI, BMCH, TMC and TNC and (2) no other property (other than (v) cash, (w) Receivables of one or more of its Subsidiaries transferred to it pursuant to the terms of the Permitted Receivables Facilities, (x) Senior Preference Units purchased pursuant to the SPU Redemption, and capital stock of a wholly owned Subsidiary of the Company organized for the purpose of holding such Senior Preference Units, (y) other property incidental to its business as a holding company and (z) other property used solely in connection with its performance of services pursuant to the terms of the Management Agreements); (iv) BMCH will at all times own, beneficially and of record, a 99% limited partnership interest in BMLP; and at all times BMCH will own no other property (other than cash and other property incidental to its business as a holding company); (v) TMC will at all times own, beneficially and of record, a 1% general partnership interest in BMLP; and at all times TMC will own no other property (other than cash and other property incidental to its business as a holding company); (vi) TNC will own no property other than ownership interests of TNCLP and its successors and a general partnership interest in TNLP and its successors (other than (x) cash, (y) capital stock of a wholly owned Subsidiary of TNC organized for the purpose of holding Senior Preference Units and (z) other property incidental to its business as a holding company); and (vii) TNCLP will at all times own no property other than ownership interests of TNLP and its successors (other than cash, Senior Preference Units purchased pursuant to the SPU Redemption and other property incidental to its business as a holding company). In the event that any such additional shares of stock or other ownership interests shall be issued to an Obligor by Credit Agreement ---------------- -84- any Subsidiary, the respective Obligor agrees forthwith to deliver to the Agent pursuant to the Security Documents the certificates (if any) evidencing such ownership interests accompanied by undated powers executed in blank and to take such other action as the Agent shall request to perfect the security interest created therein pursuant to the Security Documents. Without limiting the foregoing, neither TNCLP nor TNLP shall convert to a corporate form except pursuant to the SPU Redemption. (q) Delivery of Management Agreements. On or prior to the date of execution of each Management Agreement, notify the Agent thereof (and the Agent shall notify the Lenders thereof promptly) and shall deliver to the Agent, in sufficient quantities for each Lender and Issuing Bank, a certified copy thereof (each such Management Agreement to be in form and substance reasonably satisfactory to the Agent). Promptly following each amendment, waiver and consent relating to a Management Agreement, Terra shall give the Agent notice thereof (and the Agent shall notify the Lenders thereof promptly), and shall deliver to the Agent a certified or conformed copy of each such amendment, waiver and consent. Section 5.02. Negative Covenants. So long as any principal of or interest on any Advance or any other amount payable under this Agreement shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Working Capital Commitment hereunder, Terra will not, and will not permit any of its Material Subsidiaries to: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Material Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or sign or file, or permit any of its Subsidiaries to sign or file, under the Uniform Commercial Code of any jurisdiction, a financing statement that names such Obligor or any of its Subsidiaries as debtor, or sign, or permit any of its Subsidiaries to sign, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, excluding from the operation of the foregoing restrictions the following: (i) Liens created by the Loan Documents; (ii) Permitted Liens; Credit Agreement ---------------- -85- (iii) Liens existing on the Closing Date and described on Schedule 5.02(a)(iii); (iv) Liens on cash (in an aggregate amount, for Terra and its Subsidiaries taken as a whole, not exceeding $10,000,000 at any time) to secure the Obligations in respect of letters of credit permitted under Section 5.02(b)(iv); (v) Liens on Receivables and incidental property of the Company or any of its Subsidiaries to secure such Person's Obligations under the Permitted Receivables Facilities; (vi) Purchase money Liens upon or in property acquired or held by Terra or such Subsidiary in the ordinary course of business to secure the purchase price of such property or to secure Debt (including, without limitation, commercial letters of credit) incurred solely for the purpose of financing the acquisition, construction or improvement of any such property to be subject to such Liens, or Liens existing on any such property at the time of acquisition (and not created in anticipation thereof), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, that (x) no such Lien shall extend to or cover any property other than the property being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; and (y) the Debt secured by any such Lien shall at no time exceed 80% of the fair market value (as determined in good faith by the Senior Financial Officer) of such property at the time it was acquired (provided, that upon the Specified Paydown Date, the figure 80% set forth above shall automatically be deemed to be increased to 90%); (vii) Any Lien arising after the Closing Date in favor of any state of the United States of America or any agency, political subdivision or instrumentality thereof, upon any pollution abatement or control facilities being financed in compliance with Section 103(c)(4)(F) of the Internal Revenue Code of 1986, as in effect on the date of this Agreement (or any successor statute which is similar in all substantive respects), the interest payable in respect of which financing is excluded from gross income under said Section 103, provided, however, that (x) the Debt secured by such Lien is not prohibited by clause (b) of this Section 5.02, and (y) such Lien does not cover any Credit Agreement ---------------- -86- other property at any time owned by Terra or any Material Subsidiary; (viii) Liens on property that is the subject of a capital lease to secure the performance of the Capital Lease Obligations relating thereto; (ix) Liens upon property of a Person that becomes a Subsidiary of Terra after the Closing Date, each of which Liens existed on such property before the time such Person became a Subsidiary of Terra and was not created in anticipation thereof; provided, that no such Lien shall extend to or cover any property of Terra or any of its Subsidiaries other than the property subject to such Liens at the time such Person became a Subsidiary of Terra and improvements thereon; (x) Leases or subleases, and licenses or sublicenses, granted to third Persons not interfering in any material respect with the business of Terra or such Subsidiary; (xi) Easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of Terra or such Subsidiary; (xii) Liens arising from Uniform Commercial Code financing statements regarding operating leases permitted by this Agreement; (xiii) Any interest or title of a lessor or sublessor or licensor under any lease or license permitted or not prohibited by this Agreement; (xiv) Additional Liens upon property created after the Closing Date, provided, that the aggregate Debt secured thereby and incurred on and after the Closing Date shall not exceed $7,000,000 in the aggregate at any one time outstanding; and (xv) The replacement, extension or renewal of any Lien permitted by clauses (iii), (iv), (v), (ix) and (xiv) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the principal amount or change in any direct or contingent obligor) of the Debt secured thereby. Credit Agreement ---------------- -87- (b) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt other than: (i) Debt under the Loan Documents; (ii) Debt in respect of Hedge Agreements permitted by Section 5.02(c); (iii) Debt in respect of unsecured trade payables (and Obligations in respect of letters of credit supporting such trade payables); (iv) Debt (including, without limitation, Obligations in respect of letters of credit) not secured by any Lien (other than Liens permitted by Section 5.02(a)(iv)), so long as, on the date of the incurrence thereof, the aggregate principal amount (or the U.S. Dollar equivalent of the aggregate principal amount) of all Debt of Terra and its Subsidiaries on a Consolidated basis (as reasonably determined by the Senior Financial Officer on and as of the date of such incurrence) then outstanding under this clause (iv) (including, without limitation, the Debt proposed to be incurred on such date) does not exceed $35,000,000; (v) Obligations of the Company and its Subsidiaries under the Permitted Receivables Facilities; (vi) Debt securities of Terra issued in a public offering pursuant to an effective registration statement the terms of which (including, without limitation, as to interest rates, amortization (provided, that in any event no payments of principal, redemptions, sinking fund payments or the like shall be scheduled to be made before the final Principal Payment Date), redemption, average life to maturity, covenants, events of default and other terms) are reasonably satisfactory to the Required Lenders, the Net Available Proceeds of which are used first to repay Bridge Indebtedness and, after payment in full of Bridge Indebtedness, to repay Advances in the manner specified in Section 2.05(c); (vii) Debt outstanding (or committed to be made available) as at June 30, 1994 and set forth on Schedule 4.01(y); (viii) endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; Credit Agreement ---------------- -88- (ix) in the case of any of its Subsidiaries, Debt owed to Terra or to a wholly owned Subsidiary of Terra; (x) Debt secured by Liens permitted under Section 5.02(a)(vi); purchase money Debt secured by Liens permitted under 5.02(a)(ix); and Debt in an aggregate principal amount not exceeding $7,000,000 at any one time outstanding secured by Liens permitted under Section 5.02(a)(xiv); (xi) Debt of Subsidiaries of Terra acquired by Terra or any of its Subsidiaries after the Closing Date in an aggregate principal amount not exceeding $15,000,000 at any one time outstanding (provided, that after the Trigger Date the figure $15,000,000 set forth above shall be deemed to be increased to $50,000,000); (xii) Debt of Terra incurred during the period following the Restatement Date and prior to the SPU Redemption Time in an aggregate principal amount not exceeding $200,000,000 (and Debt of Terra evidenced by instruments issued in exchange for such Debt), the terms and conditions of which are in all material respects as contemplated in Schedule 5.02(b)(xii), and the Net Available Proceeds of which are used (1) first to repay Bridge Indebtedness and (2) after payment in full of Bridge Indebtedness, for one or more of the following: (x) to finance the SPU Redemption, (y) to repay Terra Working Capital Advances in the manner specified in Section 2.01(c)(iv) and (z) to repay Advances in the manner specified in Section 2.05(c); (xiii) unsecured Debt of the Company to one or more of the Lenders in an aggregate principal amount not exceeding $75,000,000 having a final maturity no later than the first anniversary of the Restatement Date, the proceeds of which are used to finance in part the SPU Redemption; and (xiv) renewals, refinancings and replacements of the Debt permitted under clauses (vi), (vii), (ix) and (xiii) above (without increase in the principal amount or change in any direct or contingent obligor and not including any Debt to be paid or prepaid with the proceeds of Advances). (c) Hedge Agreements. Enter into or permit to be outstanding, or permit any of its Subsidiaries to enter into or permit to be outstanding, any Hedge Agreement other than (x) Hedge Agreements entered into pursuant to Section 5.01(o), (y) the Methanol Hedging Agreement, and (z) other Hedge Agreements entered into in the ordinary Credit Agreement ---------------- -89- course of business and in a reasonably prudent manner and not for speculative purposes, in each case in order to protect against the fluctuation in interest rates, foreign exchange rates or commodity prices. (d) Mergers, Etc. Merge with or into or consolidate with or into any Person, or permit any of its Material Subsidiaries to do so, except that: (i) if no Default or Event of Default shall have occurred and be continuing or would result therefrom, (x) any Subsidiary of the Company may be merged or consolidated with or into the Company (provided, that the Company shall be the continuing or surviving corporation) or any other wholly owned Subsidiary of the Company and (y) the Company or any of its Subsidiaries may merge or consolidate with any other Person; provided, that (1) in the case of a merger or consolidation of the Company, the Company is the continuing or surviving corporation, and (2) in any other case, the continuing or surviving corporation is a wholly owned Subsidiary of the Company; and (ii) nothing herein shall be deemed to prohibit the Reorganization Transaction. (e) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of (including, without limitation, in a sale-leaseback transaction), or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of (including, without limitation, in a sale-leaseback transaction), any of its assets, including (without limitation) any manufacturing plant or substantially all assets constituting the business of a division, branch or other unit operation, except: (i) sales of inventory in the ordinary course of its business; (ii) sales or other dispositions of obsolete or worn-out equipment no longer used or useful in its business; (iii) dispositions of assets by one member of the Specified Group to another member of the Specified Group (where "Specified Group" means, collectively, the Company and each of its wholly owned Subsidiaries other than, prior to the SPU Redemption Time, TNLP). (iv) to the extent not permitted pursuant to clause (iii) above, dispositions of assets by one Obligor to another and by an Obligor to one of its or Credit Agreement ---------------- -90- any other Obligor's wholly owned Subsidiaries, and other Dispositions in an aggregate amount not to exceed $10,000,000 in any period of 12 consecutive months, provided, that, in the case of all Dispositions under this clause (iv) (A) each such asset is sold for an amount not less than its fair market value, (B) no such asset may be sold to the extent that it is, individually or when considered with any other asset or assets sold or expected to be sold in such period, material to the business, assets, operations, properties or financial condition of Terra and its Subsidiaries taken as a whole, and (C) the Net Available Proceeds of such Disposition are applied in accordance with and to the extent required by Section 2.05(b), and to the extent the assets subject to the Disposition constituted part of the Collateral, all other cash and non-cash proceeds of such Disposition become subject to the Lien created by the Security Documents in accordance with the terms thereof; (v) nothing in this Section 5.02(e) shall prohibit the Company or any of its Subsidiaries from selling Receivables under any Permitted Receivables Facility (subject to the restrictions specified in the definition of said term); and (vi) nothing in this Section 5.02(e) shall prohibit the Reorganization Transaction. (f) Investments. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment, other than: (i) Investments by Terra and its Subsidiaries in cash and Permitted Investments; (ii) Investments constituting (A) operating deposit accounts with banks and (B) Receivables arising in the ordinary course of business on ordinary business terms, in each case in accordance with, and subject to the terms of, the Security Documents; (iii) Investments described in Schedule 5.02(f); (iv) Investments arising solely by reason of any merger or consolidation expressly permitted by Section 5.02(d)(i)(x); (v) Subject to the terms set forth on Exhibit G, Investments (including, without limitation, Investments arising by reason of any merger or consolidation permitted under Section 5.02(d)(i)(y)) in any fiscal Credit Agreement ---------------- -91- year of Terra consisting of acquisitions of ownership interests in one or more entities engaged in the same or allied line or lines of business as Terra and its Subsidiaries, taken as a whole, in an aggregate amount not exceeding the sum of (x) the Acquisition Amount for such fiscal year (to the extent not utilized to make Capital Expenditures pursuant to Section 5.02(h)(i)) plus (y) 50% of the unused Acquisition Amount for the prior fiscal year; (vi) Investments consisting of acquisitions of property (including, without limitation, ownership interests in any Person) by Terra or any of its Subsidiaries so long as (x) the aggregate fair market value of all such property acquired in any fiscal year of Terra shall not exceed $25,000,000 (provided, that after the Trigger Date the figure $25,000,000 set forth above shall be deemed to be increased to $50,000,000), and (y) the consideration paid by Terra and its Subsidiaries for each such acquisition consists solely of equity securities issued by Terra; (vii) Investments in respect of Hedge Agreements permitted by Section 5.02(c); (viii) Investments in Lynn Seeds, Inc. in an aggregate amount not exceeding $4,000,000; (ix) Investments in Agro-Terra Internacional, S.A. de C.V., a joint venture between TI and Grupo Acerero del Norte, S.A. de C.V., in an aggregate amount not exceeding $5,000,000; (x) Investments made pursuant to Terra's Supplemental Deferred Compensation Plan, and its Excess Benefit Plan, each as in effect on the Closing Date; (xi) Investments by Terra consisting of the purchase, redemption, retirement or other acquisition of shares of common stock of Terra, and Investments by Terra and its Subsidiaries consisting of the purchase, redemption or other acquisition of Senior Preference Units pursuant to the SPU Redemption; and (xii) other Investments contemplated by the Reorganization Transaction. (g) Payments to Minority Interests. Pay or cause to be paid, or permit any of its Subsidiaries to pay or cause to be paid, to any holder of a minority interest any amount with respect to such minority interest in excess of the Credit Agreement ---------------- -92- amount to which such holder is legally entitled, unless Terra or such Subsidiary simultaneously receives payment in an amount equal to or greater than its ratable share of the amount of the related distribution (determined in accordance with the respective interests then held by Terra and such Subsidiary, on the one hand, and such holder, on the other), it being understood that the SPU Redemption will not constitute a breach of this Section 5.02(g). (h) Capital Expenditures. -------------------- (i) Make Capital Expenditures (except as permitted under Section 5.02(h)(ii)) in any fiscal year in an aggregate amount, for Terra and its Subsidiaries on a Consolidated basis, exceeding the sum of (x) $40,000,000 plus (y) an amount equal to the portion (if any) of the Acquisition Amount for such fiscal year not used to make Investments pursuant to Section 5.02(f)(v), provided, that if the aggregate amount of such Capital Expenditures made pursuant to this clause (i) in any fiscal year shall be less than $40,000,000, then the shortfall shall be added to the amount of Capital Expenditures permitted hereunder for the immediately succeeding (but not any other) fiscal year; or (ii) During the period from the Restatement Date to December 31, 1997, make Capital Expenditures in connection with the reconstruction of the Port Neal Facility, in addition to Capital Expenditures allowed under Section 5.02(h)(i), in an aggregate amount exceeding $30,000,000. (i) Change in Nature of Business. Make, or permit any of its Material Subsidiaries to make, any material change in the nature of the business of Terra and its Subsidiaries taken as a whole as carried on at the Closing Date (but after giving effect to the transactions contemplated by the Merger Agreement). (j) Charter Amendments. Amend, or permit any of its Material Subsidiaries to amend, its articles of incorporation or bylaws, or amend any partnership agreement to which it or any of its Subsidiaries is a party (except for amendments to authorize the issuance of preferred or common stock), in each case to the extent any such amendment could reasonably be expected to have a Material Adverse Effect. (k) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as Credit Agreement ---------------- -93- required or permitted by generally accepted accounting principles in effect in the United States; provided, that in the event of any change in generally accepted accounting principles from the date of the financial statements referred to in Section 4.01(f) and upon delivery of any financial statement and accompanying certificate of compliance required to be furnished under subsections (b) and (c) of Section 5.03, Terra shall deliver to the Lenders a statement of reconciliation conforming any information contained in such financial statement and a certificate of compliance required to be furnished pursuant to subsections (b) and (c) of Section 5.03 with GAAP (it being understood that compliance with financial covenants herein shall be measured and determined on the basis of GAAP). (l) Amendment of Related Documents. Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of any Related Document or agree in any manner to any other amendment, modification or change of any term or condition of any Related Document to the extent any of the foregoing could reasonably be expected to have a Material Adverse Effect, or permit any of its Subsidiaries to do any of the foregoing. (m) Certain Obligations Respecting Subsidiaries. Enter into, or permit any of its Subsidiaries to enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the declaration or payment of dividends or the making of loans or advances to or Investments in or the sale, assignment, transfer or other disposition of property to Terra or any Subsidiary thereof. (n) Subordinated Indebtedness. Purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Subordinated Indebtedness (and such Obligor will not permit any of its Subsidiaries to do any of the foregoing), in each case except for regularly scheduled payments of principal and interest in respect thereof required pursuant to the instruments evidencing such Subordinated Indebtedness, or amend the documentation creating or evidencing Subordinated Indebtedness. Credit Agreement ---------------- -94- (o) Transactions with Affiliates. Except to the extent otherwise expressly permitted hereunder, enter into any transaction with any Affiliate on terms less favorable than would pertain in a transaction entered into with a third party on an arm's-length basis. (p) Amendments to Management Agreements. Without the consent of the Agent, amend, modify or change in any material respect the terms or conditions of any Management Agreement. (q) Margin Stock. Permit more than 25%, after applying the proceeds of each Advance, of the value of the assets of either Borrower and such Borrower's Subsidiaries (as determined in good faith by such Borrower) that are subject to Section 5.02(a) or Section 5.02(e) to consist of or be represented by Margin Stock. Section 5.03. Reporting Requirements. So long as any principal of or interest on any Advance or any other amount payable under this Agreement shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Working Capital Commitment hereunder: (a) Default Notice. Each Obligor will furnish to the Agent, as soon as possible and in any event within five Business Days after such Obligor knows or has reason to believe that a Default or Event of Default has occurred (which Default or Event of Default is continuing on the date of the following statement), a statement of the Senior Financial Officer setting forth details of such Default or Event of Default and the action that such Obligor has taken and proposes to take with respect thereto. (b) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of Terra, Terra will furnish to the Agent, with sufficient copies for each Lender and each Issuing Bank, a Consolidated balance sheet of Terra and its Subsidiaries as of the end of such quarter and Consolidated statements of income and cash flows, and statements of earnings by product line, of Terra and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year in reasonable detail and duly certified (subject to year-end audit adjustments) by the Senior Financial Officer as having been prepared in accordance with GAAP, together with (i) a certificate of said officer (A) stating that no Default or Event of Default Credit Agreement ---------------- -95- has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that Terra has taken and proposes to take with respect thereto, (B) stating that since December 31, 1994, there has been no Material Adverse Change with respect to Terra and (C) providing a comparison between the financial position and results of operations set forth in such financial statements with the comparable information set forth in the financial projections and budget most recently delivered pursuant to 5.03(m) of the Existing Credit Agreement or Section 5.03(l) and (ii) a schedule in form satisfactory to the Agent of the computations used by Terra in determining compliance with the covenants contained in Section 5.04. (c) Annual Financials. As soon as available and in any event within 90 days after the end of each fiscal year of Terra, Terra will furnish to the Agent, with sufficient copies for each Lender and each Issuing Bank, a copy of the annual audit report for such year for Terra and its Subsidiaries, including therein a Consolidated balance sheet of Terra and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows, and statements of earnings by product line, of Terra and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year accompanied by an unqualified opinion of Deloitte & Touche or other independent public accountants of nationally recognized standing stating that, except as expressly disclosed therein, said Consolidated financial statements present fairly, in all material respects, the Consolidated financial position and results of operations of Terra and its Consolidated Subsidiaries as of the last day of, and for, such fiscal year, together with (i) a certificate of such accounting firm to the Lenders stating that in the course of the regular audit of the business of Terra and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default or Event of Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof (it being understood that said accountants shall have no liability to the Agent, the Lenders or the Issuing Banks for failure to obtain knowledge of any Default or Event of Default), (ii) a schedule in form satisfactory to the Agent of the computations used by such accountants in determining, as of the end of such fiscal year, compliance with the covenants contained in Section 5.04 and (iii) a certificate of the Senior Financial Officer (A) stating that no Default or Event of Default has occurred and is continuing or, if a Credit Agreement ---------------- -96- Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that Terra has taken and proposes to take with respect thereto, (B) stating that since December 31, 1994, there has been no Material Adverse Change with respect to Terra and (C) providing a comparison between the financial position and results of operations set forth in such financial statements with the comparable information set forth in the financial projections and budget most recently delivered pursuant to Section 5.03(m) of the Existing Credit Agreement or Section 5.03(l). (d) ERISA Events. Promptly and in any event within 10 Business Days after any Obligor knows or has reason to know that any ERISA Event (including, for this purpose, a reportable event listed in Section 4043(b)(7) of ERISA) with respect to any Obligor or any of its ERISA Affiliates has occurred, Terra will furnish to the Agent a statement of the Senior Financial Officer describing such ERISA Event and the action, if any, that such Obligor or such ERISA Affiliate has taken and proposes to take with respect thereto. (e) Plan Terminations. Promptly and in any event within 10 Business Days after receipt thereof by any Obligor or any of its ERISA Affiliates, such Obligor will furnish to the Agent copies of each notice from the PBGC stating its intention to terminate any Plan of any Obligor or any of its ERISA Affiliates or to have a trustee appointed to administer any such Plan. (f) Plan Annual Reports. Promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, each Obligor will furnish to the Agent copies of such Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan of each Obligor or any of its ERISA Affiliates that is then being maintained for employees or former employees of such Person. (g) Multiemployer Plan Notices. Promptly and in any event within five Business Days after receipt thereof by any Obligor or any of its ERISA Affiliates from the sponsor of a Multiemployer Plan of any Obligor or any of its ERISA Affiliates, such Obligor will furnish to the Agent copies of each notice concerning (i) the imposition of withdrawal liability by any such Multiemployer Plan, (ii) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (iii) the amount of liability incurred, or that is reasonably expected to be incurred, by such Obligor or any of its ERISA Affiliates in connection with any event described in clause (i) or (ii). Credit Agreement ---------------- -97- (h) Litigation. Promptly after the commencement thereof, Terra will furnish to the Agent notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Obligor or any of its Subsidiaries of the type described in Section 4.01(h). (i) Environmental Conditions. Promptly after receiving notice thereof, Terra will furnish to the Agent notice of any condition or occurrence on any property of any Obligor that results in a material noncompliance by any Obligor or any of its Subsidiaries with any Environmental Law or Environmental Permit which noncompliance could reasonably be expected to have a Material Adverse Effect, or could (i) form the basis of an Environmental Action against any Obligor or any of its Subsidiaries or such property that could reasonably be expected to have a Material Adverse Effect or (ii) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law that could reasonably be expected to have Material Adverse Effect. (j) Public Filings. Terra shall, promptly upon their becoming available, deliver to the Agent, each Issuing Bank and each Lender copies of all registration statements and regular periodic reports, if any, that Terra, the Company or TNLP shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange. (k) Shareholder Reports, Etc. Terra shall deliver to the Agent, each Issuing Bank and each Lender promptly upon the mailing thereof to the shareholders of Terra or TNLP generally or to holders of Subordinated Indebtedness, New Terra Debt or 1995 Terra Debt generally, copies of all financial statements and proxy statements so mailed. (l) Financial Projections and Budget. As soon as available and in any event within 90 days after the first day of each fiscal year of Terra, Terra will furnish to the Agent, with sufficient copies for each Lender and each Issuing Bank, financial projections and a budget for such fiscal year and each subsequent fiscal year of Terra to and including the later of (i) the fiscal year in which the final Principal Payment Date is scheduled to occur and (ii) the fifth fiscal year ending after the date of determination, in each case, in form and detail similar to the financial projections and budget delivered under Section 5.03(m) of the Existing Credit Agreement. Credit Agreement ---------------- -98- (m) SPU Redemption. As soon as available, Terra will furnish to the Agent, each Lender and each Issuing Bank true and correct copies of all materials distributed generally to the holders of the Senior Preference Units in connection with the SPU Redemption. (n) Other Information. Each Obligor shall furnish to the Lenders through the Agent such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Obligor or any of its Subsidiaries as the Agent, any Issuing Bank or any Lender may from time to time reasonably request. Section 5.04. Financial Covenants. So long as any principal of or interest on any Advance or any other amount payable under this Agreement shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Working Capital Commitment hereunder, Terra will: (a) Debt to Cash Flow Ratio. Until the Specified Paydown Date, maintain the Debt to Cash Flow Ratio at not more than the ratio set forth below for each day during each Rolling Period ending in the respective fiscal years of Terra set forth below: Each Rolling Period Ending In Ratio -------------- ----- 1994 or 1995 3.75 to 1.00 1996 and each fiscal 3.00 to 1.00 year thereafter (b) Debt to Capital Ratio. From and after the Specified Paydown Date, maintain the Debt to Capital Ratio at not more than the ratio set forth below for each day in the respective periods set forth below: Credit Agreement ---------------- -99- Period Ratio ------ ----- From the Closing Date 0.65 to 1.00 to September 30, 1995 From October 1, 1995 0.625 to 1.00 to April 1, 1996 April 2, 1996 0.60 to 1.00 to September 30, 1996 From October 1, 1996 0.55 to 1.00 to September 30, 1997 From and after 0.50 to 1.00 October 1, 1997 (c) Current Ratio. Maintain the ratio of Consolidated Current Assets of Terra and its Subsidiaries (determined in accordance with GAAP) to Consolidated Current Liabilities of Terra and its Subsidiaries (determined in accordance with GAAP) at not less than the ratio set forth below for each day during each fiscal quarter occurring in the respective fiscal years of Terra set forth below: Each Fiscal Quarter In Ratio ----------- ----- 1994 1.25 to 1.00 1995 1.25 to 1.00 1996 1.25 to 1.00 1997 1.25 to 1.00 1998 and each fiscal 1.50 to 1.00 year thereafter (d) Interest Coverage Ratio. Maintain the Interest Coverage Ratio at not less than the ratio set forth below for each Rolling Period ending in the respective fiscal years of Terra set forth below: Credit Agreement ---------------- -100- Each Rolling Period Ending In Ratio -------------- ----- 1994 4.00 to 1.00 1995 4.00 to 1.00 1996 4.00 to 1.00 1997 4.00 to 1.00 1998 4.50 to 1.00 1999 4.50 to 1.00 2000 4.50 to 1.00 2001 5.00 to 1.00 (e) Net Worth. Maintain Net Worth on each day of not less than (i) $375,000,000 plus (ii) the aggregate increase in the amount of capital stock and additional paid-in capital of Terra subsequent to the Closing Date, plus (iii) 50% of net income (if positive) for each fiscal year of Terra ending on or after December 31, 1994. ARTICLE VI EVENTS OF DEFAULT Section 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) either Borrower (i) shall fail to pay when due any principal of any Advance made to it or (ii) shall fail for two Business Days to pay when due any interest on any Advance made to it or any other amount payable by it under any Loan Document; or (b) any representation or warranty made by any Obligor (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) any Obligor shall fail to perform or observe any term, covenant or agreement contained in clause (e), (o) or (p) of Section 5.01, or clause (a), (b), (c), (d), (e), (g), (i) or (q) of Section 5.02, or clause (a), (e) or (i) of Section 5.03, or Section 5.04; or (d) Terra shall fail to pay and perform its obligations under the Loan Purchase Agreement; or (e) any Obligor shall fail to perform any other term, covenant or agreement contained in any Loan Document on its Credit Agreement ---------------- -101- part to be performed or observed if such failure shall remain unremedied for a period of 30 days; or (f) any Obligor or any of its Material Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt that is outstanding in a principal or notional amount of at least $5,000,000 in the aggregate (but excluding Debt outstanding hereunder) of such Obligor or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder or holders (or an agent or trustee on its or their behalf) thereof to cause, such Debt to mature; or any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (g) any Obligor or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Obligor or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Credit Agreement ---------------- -102- Obligor or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (g); or (h) any judgment or order for the payment of money in excess of $10,000,000 shall be rendered against any Obligor or any of its Material Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect, unless such judgment or order shall have been vacated, satisfied or dismissed or bonded pending appeal; or (i) any non-monetary judgment or order shall be rendered against any Obligor or any of its Subsidiaries that could be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect unless such judgment or order shall have been vacated, satisfied, discharged or bonded pending appeal; or (j) any Security Document after delivery thereof pursuant to Section 3.01 of the Existing Credit Agreement shall for any reason (other than pursuant to the terms hereof and thereof) cease to create a valid and perfected first priority Lien (subject only to Permitted Liens) on the Collateral purported to be covered thereby; or (k) (i) prior to the Specified Paydown Date, Minorco ceases to own, directly or indirectly, a majority of the issued and outstanding shares of voting capital stock of Terra; or (ii) after the Specified Paydown Date, (y) Minorco ceases to own, directly or indirectly, at least 20% of the issued and outstanding shares of voting capital stock of Terra, or (z) Minorco ceases to hold, directly or indirectly, a plurality of the issued and outstanding shares of capital stock of Terra; or (l) any ERISA Event shall have occurred with respect to a Plan of any Obligor or any of its ERISA Affiliates and the amount (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans of the Obligors and their ERISA Affiliates with respect to which an ERISA Event shall have occurred and then exist (or the liability of the Obligors and their ERISA Affiliates related to such ERISA Event) could reasonably be expected to have a Material Adverse Effect; provided, that with respect to any Multiple Employer Plan, such Insufficiency shall include only the Credit Agreement ---------------- -103- portion thereof attributable to such Obligor or its ERISA Affiliates; or (m) any Obligor or any of its ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan of any Obligor or any of its ERISA Affiliates that it has incurred withdrawal liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Obligors and their ERISA Affiliates as withdrawal liability (determined as of the date of such notification), could reasonably be expected to have a Material Adverse Effect; or (n) any Obligor or any of its ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan of any Obligor or any of its ERISA Affiliates that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Obligors and their ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs by an amount that could reasonably be expected to have a Material Adverse Effect; or (o) there shall have been asserted against Terra or any of its Subsidiaries an Environmental Claim that, in the judgment of the Required Lenders, is reasonably likely to be determined adversely to Terra or any of its Subsidiaries, and the amount thereof (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (insofar as such amount is payable by Terra or any of its Subsidiaries but after deducting any portion thereof that is reasonably expected to be paid by other creditworthy Persons); then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the obligation of each Lender to make Working Capital Advances and of each Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate (and this clause (i) shall also be applicable if there shall occur a Purchase Event), and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Advances and the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Advances and the Notes, all such interest and all such amounts shall become and be forthwith due and Credit Agreement ---------------- -104- payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; provided, that in the event of an actual or deemed entry of an order for relief with respect to any Obligor or any of its Subsidiaries under the Federal Bankruptcy Code, (x) the obligation of each Lender to make Working Capital Advances and of any Issuing Bank to issue Letters of Credit shall automatically be terminated and (y) the Advances and the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. Section 6.02. Actions in Respect of the Letters of Credit Upon Default. If any Event of Default shall have occurred and be continuing, the Agent may, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrowers to, and forthwith upon such demand the Borrowers will, pay to the Agent on behalf of the Lenders in same day funds at the Agent's Office, for deposit in the relevant L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding, which funds shall be retained by the Agent in the relevant L/C Collateral Account (as provided therein as collateral security for the Letter of Credit Liabilities) until such time as the Letters of Credit shall have been terminated and all of such Letter of Credit Liabilities paid in full. If at any time the Agent determines that any funds held in the relevant L/C Cash Collateral Account are subject to any right or claim of any Person other than the Agent and the Lenders or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrowers will, forthwith upon demand by the Agent, pay to the Agent, as additional funds to be deposited and held in the relevant L/C Cash Collateral Account, an amount equal to excess of (a) such aggregate Available Amount over (b) total amount of funds, if any, then held in such L/C Cash Collateral Account that the Agent determines to be free and clear of any such right and claim. ARTICLE VII THE AGENT Section 7.01. Authorization and Action. Each Lender and each Issuing Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for Credit Agreement ---------------- -105- by the Loan Documents, including, without limitation, enforcement or collection of the Notes, the Agent shall not be required to exercise any discretion or take any action, and shall not be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) except upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of the Notes; provided, that the Agent shall not be required to take any action that exposes it to personal liability or that is contrary to this Agreement or applicable law. The Agent agrees to give to each Issuing Bank and each Lender prompt notice of each notice given to it by the Borrowers or Terra pursuant to the terms of this Agreement. Each Lender and Issuing Bank hereby authorizes the Agent (i) to execute and deliver each of the Security Documents and (ii) to execute and deliver the Loan Purchase Agreement (and each Lender and Issuing Bank agrees that, upon such execution and delivery, it will be bound by the Loan Purchase Agreement as if such Lender or Issuing Bank, as the case may be, were a signatory thereto). Chemical Bank as Co- Arranger shall, in such capacity, have no duties, responsibilities or liabilities whatsoever under this Agreement or any other Loan Document. Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent (i) may treat the payee of any Note as the holder thereof until the Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07; (ii) may consult with legal counsel (including counsel for any Obligor), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by them in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Issuing Bank or any Lender and shall not be responsible to any of them for any statements, warranties or representations made in or in connection with the Loan Documents; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Obligor or to inspect the property (including the books and records) of any Obligor; (v) shall not be responsible to any Issuing Bank or any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy, cable Credit Agreement ---------------- -106- or telex) believed by it to be genuine and signed or sent by the proper party or parties. Section 7.03. Citibank and Affiliates. With respect to its Working Capital Commitments, the Advances made by it and the Notes issued to it, Citibank shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures for, accept investment banking engagements from and generally engage in any kind of business with, any Obligor, any of its Subsidiaries, any of its Affiliates and any Person who may do business with or own securities of any Obligor or any such Subsidiary or Affiliate, all as if Citibank were not the Agent and without any duty to account therefor to the Lenders or any Issuing Bank. Section 7.04. Lender Credit Decision. Each Lender and each Issuing Bank acknowledges that it has, independently and without reliance upon the Agent, any Issuing Bank or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender and each Issuing Bank also acknowledges that it will, independently and without reliance upon the Agent, any Issuing Bank or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Section 7.05. Indemnification. The Lenders agree to indemnify the Agent (to the extent not promptly reimbursed by the Borrowers), ratably according to the principal amounts of the Notes then held by each of them (or if no Advances are at the time outstanding, ratably according to the amounts of their Working Capital Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against any of them in any way relating to or arising out of the Loan Documents or any action taken or omitted by any of them under the Loan Documents; provided, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Agent. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs and expenses payable by the Borrowers under Section 9.04 of this Agreement, under the Holdings Pledge Agreement, under the Terra Capital Credit Agreement ---------------- -107- Pledge Agreement, under the Subsidiary Pledge and Security Agreement and under the TNLP Pledge and Security Agreement, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrowers. Section 7.06. Collateral Duties. (a) Except for action expressly required of the Agent hereunder and under the Security Documents, the Agent shall in all cases be fully justified in refusing to act hereunder and thereunder unless it shall be further indemnified to its satisfaction by the Lenders and the Issuing Banks proportionately in accordance with the Obligations then due and payable to each of them against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. (b) Except as expressly provided herein, the Agent shall have no duty to take any affirmative steps with respect to the collection of amounts payable in respect of the Collateral. The Agent shall incur no liability as a result of any private sale of the Collateral. (c) The Lenders and the Issuing Banks hereby consent, and agree upon written request by the Agent to execute and deliver such instruments and other documents as the Agent may deem desirable to confirm such consent, to the release of the Liens on any of the Collateral, including any release in connection with any sale, transfer or other disposition of the Collateral or any part thereof in accordance with the Loan Documents. (d) The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Agent accords its own property, it being understood that none of the Agent, any Lender or any Issuing Bank shall have responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent, any Lender or any Issuing Bank has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral. Section 7.07. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Issuing Banks, the Lenders and the Borrowers and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint (subject, so long as no Default or Event of Default has occurred and is continuing, to the consent of the Credit Agreement ---------------- -108- Borrowers, which consent shall not be unreasonably withheld) a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the Agent, as the case may be, then the retiring Agent may, on behalf of the Issuing Banks and the Lenders, appoint (subject, so long as no Default or Event of Default has occurred and is continuing, to the consent of the Borrowers, which consent shall not be unreasonably withheld) a successor Agent, which shall be an Initial Lender or a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, as the case may be, and such retiring Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to the benefit of the Agent as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and under the Security Documents. ARTICLE VIII THE GUARANTEE Section 8.01. The Guarantee. (a) The Terra Guarantors hereby jointly and severally guarantee to each Lender, each Issuing Bank and the Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Terra Advances made by the Lenders to, and the Notes held by each Lender of, the Company and all other amounts from time to time owing to the Lenders, each Issuing Bank or the Agent by the Company under this Agreement and under the Notes and by any Terra Obligor under any of the other Loan Documents, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Terra Guaranteed Obligations"). The Terra Guarantors hereby further jointly and severally agree that if the Company shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Terra Guaranteed Obligations, the Terra Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Terra Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration Credit Agreement ---------------- -109- or otherwise) in accordance with the terms of such extension or renewal. (b) The TNLP Guarantors hereby jointly and severally guarantee to each Lender, each Issuing Bank and the Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the TNLP Advances made by the Lenders to, and the Notes held by each Lender of, TNLP and all other amounts from time to time owing to the Lenders, each Issuing Bank or the Agent by TNLP under this Agreement and under the Notes and by any TNLP Obligor under any of the other Loan Documents, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "TNLP Guaranteed Obligations"). The TNLP Guarantors hereby further jointly and severally agree that if TNLP shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the TNLP Guaranteed Obligations, the TNLP Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the TNLP Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. Section 8.02. Obligations Unconditional. (a) The obligations of the Terra Guarantors under Section 8.01 are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Company under this Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Terra Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 8.02 that the obligations of the Terra Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. (b) The obligations of the TNLP Guarantors under Section 8.01 are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of TNLP under this Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the TNLP Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might Credit Agreement ---------------- -110- otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 8.02 that the obligations of the TNLP Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. (c) Without limiting the generality of the foregoing clauses (a) and (b), it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Agent, any Issuing Bank or any Lender as security for any of the Guaranteed Obligations shall fail to be perfected. The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent, any Issuing Bank or any Lender exhaust any right, power or remedy or proceed against either Borrower under this Agreement or the Notes or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. Section 8.03. Reinstatement. The obligations of the Guarantors under this Section 8 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the relevant Borrower in respect of the relevant Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the relevant Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or Credit Agreement ---------------- -111- reorganization or otherwise, and the relevant Guarantors jointly and severally agree that they will indemnify the Agent, each Issuing Bank and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Agent, such Issuing Bank or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. Section 8.04. Subrogation. To the extent that, as a result of this Article VIII, any Lender or Issuing Bank would be subject to an extended preference period under Section 547 of the Bankruptcy Code, each Guarantor hereby waives all rights of subrogation, whether arising by contract or operation of law (including, without limitation, any such right arising under the Bankruptcy Code) or otherwise, by reason of any payment by it pursuant to the provisions of this Section 8 and agrees with the relevant Borrower for the benefit of each of its creditors (including, without limitation, each Lender, each Issuing Bank and the Agent) that any such payment by it shall constitute a contribution of capital by such Guarantor to the relevant Borrower (or an investment in the equity capital of the relevant Borrower by such Guarantor). Section 8.05. Remedies. The Guarantors jointly and severally agree that, as between the Guarantors and the Lenders and the Issuing Banks, the obligations of the Borrowers under this Agreement and the Notes may be declared to be forthwith due and payable as provided in Section 6 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 6) for purposes of Section 8.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the relevant Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the relevant Borrower) shall forthwith become due and payable by the Guarantors for purposes of said Section 8.01. Section 8.06. Instrument for the Payment of Money. Each Guarantor hereby acknowledges that the guarantee in this Section 8 constitutes an instrument for the payment of money, and consents and agrees that any Lender, any Issuing Bank or the Agent, at its sole option, in the event of a dispute by such Guarantor in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. Credit Agreement ---------------- -112- Section 8.07. Continuing Guarantee. The guarantee in this Section 8 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. Section 8.08. Rights of Contribution. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such Subsidiary Guarantor's Pro Rata Portion (as defined below and determined, for this purpose, without reference to the properties, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any Excess Funding Guarantor under this Section 8.08 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Section 8 and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this Section 8.08, (i) "Excess Funding Guarantor" shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Portion of such Guaranteed Obligations, (ii) "Excess Payment" shall mean, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Portion of such Guaranteed Obligations and (iii) "Pro Rata Portion" shall mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all properties of such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder and any obligations of any other Subsidiary Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which the aggregate fair saleable value of all properties of the Company and all of the Subsidiary Guarantors exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Company and the Subsidiary Guarantors hereunder) of the Company and all of the Subsidiary Guarantors, all as of the Closing Date. If any Subsidiary becomes a Subsidiary Guarantor hereunder subsequent to the Closing Date, then for purposes of this Section 8.08 such subsequent Subsidiary Guarantor shall be deemed to have been a Credit Agreement ---------------- -113- Subsidiary Guarantor as of the Closing Date and the aggregate present fair saleable value of the properties, and the amount of the debts and liabilities, of such Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such value and amount on the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. Section 8.09. General Limitation on Guarantee Obligations. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under Section 8.01 would otherwise, taking into account the provisions of Section 8.08, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 8.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Guarantor, any Lender, any Issuing Bank, the Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. ARTICLE IX MISCELLANEOUS Section 9.01. Amendments, Consents, Etc. (a) No amendment or waiver of any provision of this Agreement, the Notes or the other Loan Documents, nor any consent to any departure by any Obligor from any provision of this Agreement, the Notes or the other Loan Documents, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that (i) no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (1) waive any of the conditions specified in Section 3.01, (2) change the percentage of the Working Capital Commitments or of the aggregate unpaid principal amount of the Advances, or the number or percentage of Lenders, that shall be required for the Lenders or any of them to take any action hereunder, (3) amend this Section 9.01, (4) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (5) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder or amend Section 2.03 or 2.05, or (6) release any Guarantor from its obligations under Article VIII and (ii) no amendment, waiver or Credit Agreement ---------------- -114- consent shall, unless in writing and signed by the Required Lenders and each Lender that would be adversely affected by such amendment, waiver or consent, (1) increase the Working Capital Commitment of such Lender or subject such Lender to any additional obligations, (2) reduce the principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender, (3) postpone any date fixed for any payment of principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender or (4) change the order of application of any prepayment set forth in Section 2.05 in any manner that materially affects such Lender; and provided, further, that no amendment, waiver or consent shall, unless in writing and (x) signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement, any Note or any other Loan Document, and (y) signed by each Issuing Bank in addition to the Lenders required to take such action, amend Section 2.07, 2.13 or 3.02, increase the Letter of Credit Sublimit or otherwise affect the rights or obligations of any Issuing Bank under this Agreement. (b) Except as otherwise provided in the Security Documents, the Agent shall not consent to release any Collateral (except as contemplated by the Security Documents) or terminate any Lien under any Security Document unless such release or termination shall be consented to in writing by Lenders owed or holding in the aggregate at least 75% of the sum of the then aggregate unpaid principal amount of the Advances, the then aggregate unused Working Capital Commitments and the aggregate Available Amount of all Letters of Credit (for which purposes the Available Amount of each Letter of Credit shall be considered to be owed to the relevant Lenders according to their respective Pro Rata Shares of the Working Capital Facility under which such Letter of Credit has been issued); provided, that the consent of all Lenders shall be required to release all or substantially all of the Collateral, except upon the termination of the Liens created by each of the Security Documents in accordance with the terms thereof. Section 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopy communication) and mailed, telecopied or delivered: (a) if to the Borrowers, care of Terra Industries Inc., 600 Fourth Street, Sioux City, Iowa 51102, Attention: Francis G. Meyer, Vice President and Chief Financial Officer, telephone number (712) 279-8790; telecopier number (712) 279-8703; (b) if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule 2.01; Credit Agreement ---------------- -115- (c) if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; (d) if to any Issuing Bank, at its address beneath its signature hereto; (e) if to the Agent, at its address at 1 Court Square, Long Island City, New York 11120, Attention: Larry Benison (or his successor), telephone number (718) 248-4504, telecopier number (718) 248-4844; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed or telecopied, be effective when deposited in the mails or transmitted by telecopier, respectively, except that notices and communications to the Agent pursuant to Article II, III or VII shall not be effective until received by the Agent. Section 9.03. No Waiver; Remedies. No failure on the part of any Lender, any Issuing Bank or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Each Obligor irrevocably waives, to the fullest extent permitted by applicable law, any claim that any action or proceeding commenced by the Agent, any Issuing Bank or any Lender relating in any way to this Agreement should be dismissed or stayed by reason, or pending the resolution, of any action or proceeding commenced by any Obligor relating in any way to this Agreement whether or not commenced earlier. To the fullest extent permitted by applicable law, the Obligors shall take all measures necessary for any such action or proceeding commenced by the Agent, any Issuing Bank or any Lender to proceed to judgment prior to the entry of judgment in any such action or proceeding commenced by any Obligor. Section 9.04. Costs, Expenses and Indemnification. (a) Each Borrower agrees to pay on demand (i) all costs and expenses of the Agent, the Issuing Banks and the Lenders in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents including, without limitation, (A) all due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, duplication, appraisal, insurance, consultant, search, filing and recording fees and expenses, Credit Agreement ---------------- -116- ongoing audit expenses and all other reasonable out-of-pocket expenses incurred by the Agent (including the reasonable and documented fees and expenses of Milbank, Tweed, Hadley & McCloy, special counsel to the Agent, but not, under this clause (A) or clause (B) below, of any other counsel) whether or not any of the transactions contemplated by this Agreement are consummated, (B) the reasonable and documented fees and expenses of counsel for the Agent with respect thereto, with respect to advising the Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, and (C) with respect to negotiations with any Obligor or with other creditors of any Obligor or any of its Subsidiaries arising out of any Default or Event of Default or any events or circumstances that may reasonably be expected to give rise to a Default or Event of Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all costs and expenses of the Agent, the Issuing Banks and the Lenders in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally or otherwise (including, without limitation, the reasonable and documented fees and expenses of counsel for the Agent, each Issuing Bank and each Lender with respect thereto). (b) Each Borrower agrees to indemnify and hold harmless the Agent, each Issuing Bank and each Lender and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of, or in connection with the preparation for a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) the Reorganization Transaction or any part thereof, (ii) the SPU Redemption or any part thereof, (iii) the Transactions (as defined in the Existing Credit Agreement) or any part thereof, including, without limitation, the Initial Merger and the Second Merger referred to therein and any of the other transactions contemplated thereby (collectively, the "Merger Transactions") or (iv) the actual or alleged presence of Hazardous Materials on any property owned by an Obligor or any Environmental Action relating in any way to any Obligor or any of its Subsidiaries, in each case whether or not such investigation, litigation or proceeding is brought by any Obligor, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the Reorganization Transaction, the SPU Redemption or the other transactions Credit Agreement ---------------- -117- contemplated hereby are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. Each Borrower also agrees not to assert any claim against the Agent, any Issuing Bank, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Reorganization Transaction or any part thereof, the SPU Redemption or any part thereof, the Merger Transactions or any part thereof or the other transactions contemplated herein or in any other Loan Document or the actual or proposed use of the proceeds of the Advances. For purposes of this Section 9.04(b), the term "non- appealable" includes any judgment as to which all appeals have been taken or as to which the time for taking an appeal shall have expired. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by a Borrower to or for the account of a relevant Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.03, 2.05, 2.08(b)(i) or 2.09(d) or as the result of acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, such Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (d) If any Obligor fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, reasonable and documented fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Obligor by the Agent or any Lender, in its sole discretion. Section 9.05. Right of Setoff. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of each Borrower against any and all of the Credit Agreement ---------------- -118- Obligations of such Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the relevant Borrower after any such setoff and application; provided, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) that such Lender may have. Section 9.06. Governing Law; Submission to Jurisdiction. This Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each Obligor irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 9.07. Assignments and Participations. (a) Each Lender may assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Working Capital Commitments, the Advances owing to it and the Note or Notes held by it); provided, that: (i) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an affiliate of a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Working Capital Commitments of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than the lesser of (x) such Lender's Working Capital Commitments hereunder and (y) $5,000,000 or an integral multiple of $1,000,000 in excess thereof (except as otherwise agreed by the relevant Borrower and the Agent), (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an affiliate of a Lender, each such assignment shall be made only upon the prior written approval of the relevant Credit Agreement ---------------- -119- Borrower, the Agent and each Issuing Bank, such approval not to be unreasonably withheld, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment by a Lender of its Advances or Note under any Facility (or, in the case of a Working Capital Facility, its related Working Capital Commitment) shall be made in such manner so that the same portion of its Advances and Note under such Facility (and, in the case of a Working Capital Facility, its related Working Capital Commitment) is assigned to the respective assignee, (v) each such assignment by a Lender of its Terra Facility A Advances, Terra Facility A Notes, Working Capital Advances, Working Capital Notes or Working Capital Commitment shall be made in such manner so that the same portion of its Terra Facility A Advances, Terra Facility A Notes, Working Capital Advances, Working Capital Notes and Working Capital Commitment is assigned to the respective assignee, and (vi) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,000. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of Credit Agreement ---------------- -120- this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Obligor or the performance or observance by the Obligors of any of their respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (c) The Agent, acting for this purpose as an agent of the Borrowers, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Working Capital Commitments of, and principal amount of the Advances owing under each Facility to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. No assignment of any Terra Facility B Advance shall be effective until it is recorded in the Register pursuant to this Section 9.07(c). The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any Note or Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit F hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrowers. Within five Business Days after its receipt of such notice, the relevant Borrower, at its own expense, shall Credit Agreement ---------------- -121- execute and deliver to the Agent in exchange for the surrendered Note or Notes a new Note or Notes to the order of such assignee in an amount equal to the portion of the Facilities assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a portion of such Facilities, a new Note or Notes to the order of the assigning Lender in an amount equal to the portion so retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1, A-2, A-3 or A-4, as the case may be. (e) Each Lender may sell participations in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Working Capital Commitments, the Advances owing to it and the Note or Notes held by it); provided, that (i) such Lender's obligations under this Agreement (including, without limitation, its Working Capital Commitments) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Obligors, the Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Obligor therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral. (f) Any Issuing Bank may (subject to the prior written consent of Terra, such consent not to be unreasonably withheld) assign all or any portion of its rights and obligations under this Agreement to one or more successor Issuing Banks that is a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $1,000,000,000 and, upon the acceptance of such assignment, the respective successor Issuing Banks shall succeed to such portion of such rights and obligations and such assigning Issuing Bank shall be discharged from its duties and obligations under this Agreement to such extent, including, without limitation, such portion of its Letter of Credit Commitment. Credit Agreement ---------------- -122- (g) Any Issuing Bank and any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing to preserve the confidentiality of any Confidential Information received by it from such Issuing Bank or Lender. (h) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (i) Anything in this Section 9.07 to the contrary notwithstanding, each Terra Facility B Lender shall be permitted to pledge all or any part of its right, title and interest in, to and under the Advances and Notes held by it to any trustee for the benefit of the holders of such Lender's securities. (j) Anything in this Section 9.07 to the contrary notwithstanding, neither Terra nor any of its Subsidiaries or Affiliates may acquire (whether by assignment, participation or otherwise), and no Lender or Issuing Bank shall assign or participate to Terra or any of its Subsidiaries or Affiliates, any interest in any Working Capital Commitment, Advance or other amount owing hereunder without the prior consent of each Lender; provided, that the Lenders and the Issuing Banks may assign all of their interests in the Working Capital Commitments, Advances and such other amounts pursuant to the Loan Purchase Agreement. Section 9.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. Section 9.09. No Liability of the Issuing Banks. Each Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the relevant Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee Credit Agreement ---------------- -123- in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the relevant Borrower shall have a claim against such Issuing Bank, and such Issuing Bank shall be liable to such Borrower, to the extent of any direct, but not consequential, damages suffered by such Borrower that such Borrower proves were caused by (i) such Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) such Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, such Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. Section 9.10. Confidentiality. Neither the Agent, any Issuing Bank nor any Lender shall disclose any Confidential Information to any Person without the prior consent of the Company, other than (a) to the Agent's, such Issuing Bank's or such Lender's Affiliates and their officers, directors, employees, agents and advisors (including independent auditors and counsel) and to actual or prospective assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, federal or foreign authority or examiner regulating or having authority over Lenders or the Lenders' respective activities and (d) in connection with credit inquiries from suppliers of the Borrowers and/or their Subsidiaries and other Persons who, from time to time, inquire as to the creditworthiness of the Borrowers. Section 9.11. WAIVER OF JURY TRIAL. EACH OF THE OBLIGORS, THE AGENT, THE LENDERS AND THE ISSUING BANKS HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE ADVANCES, THE LETTERS OF CREDIT OR THE ACTIONS OF THE AGENT, ANY LENDER OR ANY ISSUING BANK IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. Section 9.12. Survival. The obligations of the Borrowers under Sections 2.09, 2.11 and 9.04, the obligations of Credit Agreement ---------------- -124- each Guarantor under Section 8.03, and the obligations of the Lenders under Section 7.05, shall survive the repayment of the Advances and the termination of the Working Capital Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of credit (whether by means of an Advance or a Letter of Credit), herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender or Issuing Bank shall be deemed to have waived, by reason of making any extension of credit hereunder (whether by means of an Advance or a Letter of Credit), any Default or Event of Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender, such Issuing Bank or the Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. Section 9.13. Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 9.14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, provided, that no Obligor may assign any of its rights or obligations hereunder or under the other Loan Documents without the prior consent of all of the Lenders, the Issuing Banks and the Agent. Credit Agreement ---------------- -125- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWERS ------------- TERRA CAPITAL, INC. By /s/ Robert E. Thompson --------------------------- Title: Vice President TERRA NITROGEN, LIMITED PARTNERSHIP By Terra Nitrogen Corporation, its General Partner By /s/ Vaughn M. Klopfenstein --------------------------- Title: Vice President GUARANTORS ---------- TERRA INDUSTRIES INC. By /s/ Robert E. Thompson --------------------------- Title: Vice President TERRA NITROGEN CORPORATION By /s/ Vaughn M. Klopfenstein --------------------------- Title: Vice President BEAUMONT METHANOL, LIMITED PARTNERSHIP By Terra Methanol Corporation, its General Partner By /s/ George H. Valentine --------------------------- Title: Vice President TERRA METHANOL CORPORATION By /s/ George H. Valentine --------------------------- Title: Vice President Credit Agreement ---------------- -126- BMC HOLDINGS, INC. By /s/ George H. Valentine --------------------------- Title: Vice President TERRA CAPITAL HOLDINGS, INC. By /s/ George H. Valentine --------------------------- Title: Vice President THE AGENT --------- CITIBANK, N.A. By /s/ Judith C. Fishlow --------------------------- Title: Attorney-in-fact CO-ARRANGER ----------- CHEMICAL BANK By /s/ Judith C. Fishlow --------------------------- Title: Attorney-in-fact THE ISSUING BANKS ----------------- CITIBANK, N.A. By /s/ Ronald Potter --------------------------- Title: Managing Director THE LENDERS ----------- CITIBANK, N.A. By /s/ Judith C. Fishlow --------------------------- Title: Attorney-in-fact CHEMICAL BANK By /s/ Ronald Potter --------------------------- Title: Managing Director Credit Agreement ---------------- -127- ARAB BANKING CORPORATION By /s/ Grant E. McDonald --------------------------- Title: Vice President BANK OF AMERICA ILLINOIS By /s/ M.H. Claggett --------------------------- Title: Vice President THE BANK OF NOVA SCOTIA By /s/ F.C.H. Ashby --------------------------- Title: Senior Manager Loan Operations CAISSE NATIONAL DE CREDIT AGRICOLE By /s/ W. Leroy Startz ------------------------------- Title: First Vice President COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By /s/ Lawrence W. Sidwell ------------------------------- Title: Vice President By /s/ Ian Reece ------------------------------- Title: Vice President & Manager CREDIT LYONNAIS CHICAGO BRANCH By /s/ Sandra E. Horwitz ------------------------------- Title: Vice President CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Sandra E. Horwitz ------------------------------- Title: Authorized Signatory Credit Agreement ---------------- -128- DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES By /s/ John Schaus/Graham Lewis --------------------------------- Title: FVP/AVP FIRST BANK NATIONAL ASSOCIATION By /s/ Jeffrey R. Torrison --------------------------------- Title: Vice President THE FUJI BANK, LIMITED By /s/ Hidehiko Ide --------------------------------- Title: General Manager By N/A --------------------------------- Title: MELLON BANK, N.A. By /s/ George B. Davis --------------------------------- Title: Vice President MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as investment advisor By /s/ John W. Fraser --------------------------- Title: Authorized Signatory MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By /s/ John W. Fraser ---------------------------- Title: Authorized Signatory NATIONSBANK OF TEXAS, N.A. By /s/ Perry B. Stephenson ---------------------------- Title: Senior Vice President Credit Agreement ---------------- -129- PROTECTIVE LIFE INSURANCE COMPANY By /s/ Mark K. Okada ---------------------------- Title: Principal Protective Asset Management Co. RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By Chancellor Senior Secured Management, Inc., its Portfolio Advisor By /s/ Gregory L. Smith ----------------------- Title: Vice President STICHTING RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS 2 (ROSA2) By Chancellor Senior Secured Management, Inc., its Portfolio Advisor By /s/ Gregory L. Smith ----------------------- Title: Vice President UNION BANK OF SWITZERLAND, CHICAGO BRANCH By /s/ J. Timothy Shortly ---------------------------- Title: Managing Director and Branch Manager By /s/ Denis J. Campbell IV ---------------------------- Title: Vice President Credit Agreement ---------------- EX-12 5 COMPUTATION OF RATIOS EXHIBIT 12 TERRA INDUSTRIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (AMOUNTS IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, -------------------------------------------------------- --------------------------------- PRO FORMA PRO FORMA FOR AMCI FOR AMCI ACQUISITION ACQUISITION 1990 1991 1992 1993 1994 1994 1994 1994 1995 -------- ------- ------- ------- -------- ----------- --------- ---------------------- (A) Earnings: Income from continuing operations before income taxes, extraordinary items and cumulative effect of accounting changes. $(14,938) $13,106 $18,186 $32,145 $ 89,945 $181,884 $ (9,865) $ (3,879) $ 53,883 Add: (a) Fixed charges per Item (B) below........ 24,297 20,701 17,237 22,483 36,562 73,461 5,866 17,469 18,082 (b) Dividends of unconsolidated affiliates............ -- -- -- 537 190 190 73 73 246 Deduct: (a) Undistributed income from unconsolidated affiliates............ -- -- -- (2,275) (743) (743) 554 554 1,197 -------- ------- ------- ------- -------- -------- --------- --------- --------- $ 9,359 $33,807 $35,423 $52,890 $125,954 $254,792 $ (3,372) $ 14,217 $ 73,408 ======== ======= ======= ======= ======== ======== ========= ========= ========= (B) Fixed charges: Interest on indebtedness, expensed or capitalized........ $ 17,629 $14,352 $10,617 $12,944 $ 22,082 $ 57,922 $ 2,935 $ 14,102 $ 14,007 Amortization of debt discount and expense and premium on indebtedness, expense or capitalized........ 40 40 47 250 316 316 79 79 79 Portion or rents representative of the interest factor....... 6,628 6,309 6,573 9,289 14,164 15,223 2,852 3,288 3,996 -------- ------- ------- ------- -------- -------- --------- --------- --------- Fixed charges, for computation purposes.. $ 24,297 $20,701 $17,237 $22,483 $ 36,562 $ 73,461 $ 5,866 $ 17,469 $ 18,082 ======== ======= ======= ======= ======== ======== ========= ========= ========= Ratios of earnings to fixed charges(1)(2).... -- 1.63 2.06 2.35 3.45 3.47 -- -- 4.06 ======== ======= ======= ======= ======== ======== ========= ========= =========
- -------- (1) Earnings available for fixed charges were insufficient to cover fixed charges by $14.9 million for the year ended December 31, 1990, and $9.2 million and $3.3 million for the historical and pro forma three-month periods ended March 31, 1994, respectively. As a result, the financial ratios for such periods are not meaningful and, therefore, not included. (2) Assuming the 10 1/2% Senior Notes due 2005 were issued at the beginning of 1994, fixed charges would have been increased to $79,847 for pro forma 1994, and $19,065 and $19,228 for the pro forma three-month periods ended March 31, 1994 and 1995, respectively. As a result, the ratio of pro forma earnings to pro forma fixed charges would be 3.19 for 1994 and 3.82 for the three-month period ended March 31, 1995. Pro forma earnings available for fixed charges would have been insufficient to cover pro forma fixed charges by $4.8 million for the three-month period ended March 31, 1994. EX-23.2 6 CONSENT OF DELOITTE & TOUCHE EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Terra Industries Inc. on Form S-4 of our reports dated February 1, 1995 (which reports express an unqualified opinion and include an explanatory paragraph referring to the Company's change in its method of accounting for major maintenance turnarounds and post-employment benefits effective January 1, 1994) appearing in and incorporated by reference in the Annual Report on Form 10-K of Terra Industries Inc. for the year ended December 31, 1994, and to the use of our report dated February 1, 1995, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP ------------------------------------- Deloitte & Touche LLP Omaha, Nebraska June 29, 1995 EX-24 7 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Burton M. Joyce, Francis G. Meyer and George H. Valentine and each of them, his or her true and lawful attorneys-in- fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities (including his or her capacity as a director and/or officer of Terra Industries Inc.), to sign a registration statement on Form S-4 for an exchange offer in connection with the company's 10-1/2% Senior Notes due 2005 and any or all amendments (including post-effective amendments) to such registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this power of attorney has been signed on the date or dates indicated, by the following persons in the capacities indicated: Signature Title Date(s) /s/ Reuben F. Richards Chairman of the Board June 20, 1995 - ------------------------ Reuben F. Richards /s/ Burton M. Joyce Chief Executive Officer, June 20, 1995 - ------------------------ President and Director Burton M. Joyce (Principal Executive Officer) /s/ Francis G. Meyer Vice President,Chief June 22, 1995 - ------------------------ Financial Officer (Principal Francis G. Meyer Financial Officer and Principal Accounting Officer) /s/ Edward G. Beimfohr Director June 22, 1995 - ------------------------ Edward G. Beimfohr /s/ Carol L. Brookins Director June 20, 1995 - ------------------------ Carol L. Brookins /s/ Edward M. Carson Director June 20, 1995 - ------------------------ Edward M. Carson /s/ David E. Fisher Director June 26, 1995 - ------------------------ David E. Fisher /s/ Basil T.A. Hone Director June 20, 1995 - ------------------------ Basil T.A. Hone /s/ Anthony W. Lea Director June 21, 1995 - ------------------------ Anthony W. Lea /s/ John R. Norton III Director June 20, 1995 - ------------------------ John R. Norton III /s/ Henry R. Slack Director June 22, 1995 - ------------------------ Henry R. Slack EX-25 8 ELIGIBILITY OF TRUSTEE Exhibit 25 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM T-1 Statement of Eligibility Under the Trust Indenture Act of 1939 of a Corporation Designated to Act as Trustee FIRST TRUST NATIONAL ASSOCIATION (Exact name of Trustee as specified in its charter) United States 41-0257700 (State of Incorporation) (I.R.S. Employer Identification No.) First Trust Center 180 East Fifth Street St. Paul, Minnesota 55101 (Address of Principal Executive Offices) (Zip Code) TERRA INDUSTRIES INC. (Exact name of Registrant as specified in its charter) Maryland 52-1145429 (State of Incorporation) (I.R.S. Employer Identification No.) 600 Fourth Street P.O. Box 6000 Souix City, Iowa 51102-6000 (Address of Principal Executive Offices) (Zip Code) 10 1/2% Senior Notes due 2005 (Title of the Indenture Securities) GENERAL ------- 1. General Information Furnish the following information as to the Trustee. (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes 2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any underwriter for the obligor is an affiliate of the Trustee, describe each such affiliation. None See Note following Item 16. Item 3-15 are not applicable because to the best of the Trustee's knowledge the obligor is not in default under any Indenture for which the Trustee acts as Trustee. 16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement of eligibility and qualification. Each of the exhibits listed below is incorporated by reference from a previous registration numbered 33-60253. 1. Copy of Articles of Association. 2. Copy of Certificate of Authority to Commence Business. 3. Authorization of the Trustee to exercise corporate trust powers (included in Exhibits 1 and 2; no separate instrument). 4. Copy of existing By-Laws. 5. Copy of each Indenture referred to in Item 4. N/A. 6. The consents of the Trustee required by Section 321(b) of the act. 7. Copy of the latest report of condition of the Trustee published pursuant to law or the requirements of its supervising or examining authority. NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, First Trust National Association, an Association organized and existing under the laws of the United States, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the City of Saint Paul and State of Minnesota on the 23rd day of June, 1995. FIRST TRUST NATIONAL ASSOCIATION [SEAL] /s/ Richard H. Prokosch ----------------------------------- Richard H. Prokosch Vice President /s/ Mark E. LeMay - --------------------- Mark E. LeMay Assistant Secretary EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: June 23, 1995 FIRST TRUST NATIONAL ASSOCIATION /s/ Richard H. Prokosch ----------------------------------- Richard H. Prokosch Vice President EX-99.1 9 LETTER OF TRANSMITTAL Exhibit 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 10 1/2% SENIOR NOTES DUE 2005, SERIES A OF TERRA INDUSTRIES INC. PURSUANT TO THE PROSPECTUS DATED , 1995 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1995, UNLESS EXTENDED. To: First Trust National Association, the Exchange Agent By Registered or Certified Mail, Overnight Courier or Hand: First Trust National Association 180 East Fifth Street St. Paul, Minnesota 55101 Attention: Theresa Shackett, Specialized Finance or Confirm by Telephone: By Facsimile: (612) 244-1196 (612) 244-1145 Attention: Theresa Shackett, Specialized Finance For general information contact the Exchange Agent's Bondholder Relations Department at (612) 244-0444. DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS INSTRUMENT VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The undersigned acknowledges receipt of the Prospectus dated , 1995 (the "Prospectus") of Terra Industries Inc. (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together describe the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 10 1/2% Senior Notes due 2005, Series B (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement, for each $1,000 principal amount of its outstanding 10 1/2% Senior Notes due 2005, Series A (the "Notes"), of which $200,000,000 principal amount is outstanding. The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1995, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term shall mean the latest date and time to which the Exchange Offer is extended. The term "Holder" with respect to the Exchange Offer means any person in whose name Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. Capitalized terms used but not defined herein have the respective meanings set forth in the Prospectus. This Letter of Transmittal is to be used by holders of Notes if (i) certificates representing the Notes are to be physically delivered to the Exchange Agent herewith, (ii) tender of the Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in the Prospectus under the caption "Exchange Offer-- Procedures for Tendering" by any financial institution that is a participant in the Book-Entry Transfer Facility and whose name appears on a security position listing as the owner of Notes (such participants acting on behalf of holders are referred to herein, together with such holders, as "Authorized Holders") or (iii) tender of the Notes is to be made according to the guaranteed delivery procedures described in the Prospectus under the caption "Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Notes must complete this Letter of Transmittal in its entirety. [_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ______________________________________________ Account Number: _____________________________________________________________ Transaction Code Number: ____________________________________________________ Principal Amount of Tendered Notes: _________________________________________ If Holders desire to tender Notes pursuant to the Exchange Offer and (i) time will not permit this Letter of Transmittal, certificates representing Notes or other required documents to reach the Exchange Agent prior to the Expiration Date, or (ii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of such Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under the caption "Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 below. [_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING (See Instruction 2): Name of Registered Holder(s): _______________________________________________ Window Ticket No. (if any): _________________________________________________ Date of Execution of Notice of Guaranteed Delivery: _________________________ Name of Eligible Institution that Guaranteed Delivery: ___________________________________________________ If Delivered by Book Entry Transfer, the Account Number: _________________________________________________________ Transaction Code Number: ____________________________________________________ [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: _______________________________________________________________________ Address: ____________________________________________________________________ ---------------------------------------------------------------------- Attention: __________________________________________________________________ Listed below are the Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of Notes should be listed on a separate signed schedule affixed hereto. 2 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES BOX 1 DESCRIPTION OF 10 1/2% SENIOR NOTES DUE 2005, SERIES A* - ---------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL AMOUNT NAME(S) AND ADDRESS(ES) OF PRINCIPAL TENDERED (MUST BE REGISTERED HOLDER(S) CERTIFICATE AMOUNT REPRESENTED AN INTEGRAL MULTIPLE (PLEASE FILL IN, IF BLANK) NUMBER(S) BY CERTIFICATE(S) OF $1,000)** - --------------------------------------------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- TOTAL - ---------------------------------------------------------------------------------------
*Need not be completed by Holders tendering by book-entry transfer. **Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of 10 1/2% Senior Notes due 2005, Series A will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount of 10 1/2% Senior Notes due 2005, Series A. All tenders must be in integral multiples of $1,000. BOX 2 BOX 3 SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE (SEE INSTRUCTIONS 4, 5 AND 6) INSTRUCTIONS 4, 5 AND 6) To be completed ONLY if To be completed ONLY if certificates for Notes in a certificates for Notes in a principal amount not tendered, or principal amount not tendered, or Exchange Notes issued in exchange Exchange Notes issued in exchange for Notes accepted for exchange, for Notes accepted for exchange, are to be issued in the name of are to be sent to someone other someone other than the than the undersigned, or to the undersigned. undersigned at an address other than that shown above. Issue certificate(s) to: Deliver certificate(s) to: Name: _____________________________ (Please Print) Name: _____________________________ (Please Print) Address: __________________________ Address: __________________________ ----------------------------------- ----------------------------------- (Include Zip Code) (Include Zip Code) ----------------------------------- ----------------------------------- (Tax Indemnification or Social (Tax Indemnification or Social Security Number) Security Number) 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to Terra Industries Inc., a Maryland corporation (the "Company"), the principal amount of Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Notes with the full power of substitution to (i) present such Notes and all evidences of transfer and authenticity to, or transfer ownership of, such Notes on the account books maintained by the Book-Entry Transfer Facility to, or upon, the order of, the Company, (ii) deliver certificates for such Notes to the Company and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company and (iii) present such Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Notes, all in accordance with the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Notes tendered hereby and that the Company will acquire good, valid and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims, when the same are acquired by the Company. The undersigned hereby further represents that any Exchange Notes acquired in exchange for Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the undersigned, that neither the undersigned nor any other such person has any arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of such Exchange Notes and that neither the undersigned nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act of the Company nor a broker-dealer tendering notes acquired directly from the Company for its own account. In addition, the undersigned and any such person acknowledge that (a) any person participating the Exchange Offer for the purpose of distributing the Exchange Notes must, in the absence of an exemption therefrom, comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the Exchange Notes and cannot rely on the position of the staff of the Commission enunciated in no-action letters and (b) failure to comply with such requirements in such instance could result in the undersigned or such person incurring liability under the Securities Act for which the undersigned or such person is not indemnified by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Notes tendered hereby. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. If any Notes tendered herewith are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Notes will be returned, without expense, to the undersigned at the address shown below or to a different address as may be indicated herein in Box 3 under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. 4 All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representative, successors and assigns. The undersigned understands that tenders of Notes pursuant to the procedures described under the caption "Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "Exchange Offer-- Withdrawal of Tenders." Unless otherwise indicated in Box 2 under "Special Registration Instructions," please issue the certificates (or electronic transfers) representing the Exchange Notes issued in exchange for the Notes accepted for exchange and any certificates (or electronic transfers) for Notes not tendered or not exchanged, in the name(s) of the undersigned. Similarly, unless otherwise indicated in Box 3 under "Special Delivery Instructions," please send the certificates, if any, representing the Exchange Notes issued in exchange for the Notes accepted for exchange and any certificates for Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below in the undersigned's signature(s). In the event that both "Special Registration Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Notes accepted for exchange in the name(s) of, and return any certificates for Notes not tendered or not exchanged to, the person(s) so indicated. The undersigned understands that the Company has no obligation pursuant to the "Special Registration Instructions" and "Special Delivery Instructions" to transfer any Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Notes so tendered. Holders who wish to tender their Notes and (i) whose Notes are not immediately available or (ii) who cannot deliver the Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date, may tender their Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2 regarding the completion of this Letter of Transmittal printed below. 5 PLEASE SIGN HERE WHETHER OR NOT NOTES ARE BEING PHYSICALLY TENDERED HEREBY X - --------------------------------------------------------------- -------------- Date X - --------------------------------------------------------------- -------------- Date Area Code and Telephone Number: _______________________________ The above lines must be signed by the registered holder(s) exactly as their name(s) appear(s) on the Notes or by a participant in the Book-Entry Transfer Facility, exactly as such participant's name appears on a security position listing as the owner of the Notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Notes to which this Letter of Transmittal relate are held of record by two or more joint holders, then all such holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) submit evidence satisfactory to the Company of such person's authority so to act. See Instruction 5 regarding the completion of this Letter of Transmittal printed below. Name(s): _______________________________________________________________________ (Please Print) Capacity: ______________________________________________________________________ Address: _______________________________________________________________________ (Include Zip Code) - -------------------------------------------------------------------------------- SIGNATURE GUARANTEE (If required by Instruction 5) Certain Signatures must be Guaranteed by an Eligible Institution Signature(s) Guaranteed by an Eligible Institution: ____________________________ (Authorized Signature) - -------------------------------------------------------------------------------- (Title) - -------------------------------------------------------------------------------- (Name of Firm) - -------------------------------------------------------------------------------- (Address, Include Zip Code) - -------------------------------------------------------------------------------- (Area Code and Telephone Number) Dated: _________________________________________________________________________ 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR NOTES OR BOOK- ENTRY CONFIRMATIONS. Certificates representing the tendered Notes (or a confirmation of book-entry transfer into the Exchange Agent's account with the Book-Entry Transfer Facility for tendered Notes transferred electronically), as well as a properly completed and duly executed copy of this Letter of Transmittal (or facsimile thereof), a Substitute Form W-9 (or facsimile thereof) and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of certificates for Notes and all other required documents is at the election and sole risk of the tendering holder and delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holder may wish to use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. Neither the Company nor the Exchange Agent is under an obligation to notify any tendering holder of the Company's acceptance of tendered Notes prior to the consummation of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes but whose Notes are not immediately available and who cannot deliver their certificates for Notes (or comply with the procedures for book-entry transfer prior to the Expiration Date), the Letter of Transmittal and any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth below. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail, or hand delivery) setting forth the name and address of the holder, the certificate number or numbers of the tendered Notes, and the principal amount of tendered Notes and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the tendered Notes (or a confirmation of book-entry transfer into the Exchange Agent's account with the Book-Entry Transfer Facility for Notes transferred electronically) and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal and certificates representing the tendered Notes in proper form for transfer (or a confirmation of book-entry transfer into the Exchange Agent's account with the Book-Entry Transfer Facility for Notes transferred electronically) must be received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Any holder who wishes to tender Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery relating to such Notes prior to the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by a Holder who attempted to use the guaranteed delivery person. 3. TENDER BY HOLDER. Only a holder of Notes may tender such Notes in the Exchange Offer. Any beneficial owner of Notes who is not the registered holder and who wishes to tender should arrange with 7 such holder to execute and deliver this Letter of Transmittal on such owner's behalf or must, prior to completing and executing this Letter of Transmittal and delivering such Notes, either make appropriate arrangements to register ownership of the Notes in such owner's name or obtain a properly completed bond power from the registered holder. 4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Notes is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Aggregate Principal Amount Tendered" of the box entitled "Description of 10 1/2% Senior Notes due 2005, Series A" (Box 1) above. The entire principal amount of Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of Notes is not tendered, Notes for the principal amount of Notes not tendered and Exchange Notes exchanged for any Notes tendered will be sent to the holder at his or her registered address (or transferred to the account of the Book-Entry Facility designated above), unless a different address (or account) is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Notes tendered herewith, the signatures must correspond with the name(s) as written on the face of the tendered Notes without alteration, enlargement, or any change whatsoever. If this Letter of Transmittal is signed by a participant in the Book-Entry Transfer Facility, the signature must correspond with the name as it appears on the security position listing as the owner of the Notes. If any of the tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Notes are held in different names on several Notes, it will be necessary to complete, sign, and submit as many separate copies of the Letter of Transmittal documents as there are names in which tendered Notes are held. If this Letter of Transmittal is signed by the registered holder, and Exchange Notes are to be issued and any untendered or unaccepted principal amount of Notes are to be reissued or returned to the registered holder, then the registered holder need not and should not endorse any tendered Notes nor provide a separate bond power. In any other case the registered holder must either properly endorse the Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal (in either case, executed exactly as the name(s) of the registered holder(s) appear(s) on such Notes, and, with respect to a participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Notes, exactly as the name(s) of the participant(s) appear(s) on such security position listings), with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution unless such certificates or bond powers are signed by an Eligible Institution. If this Letter of Transmittal or any Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. No signature guarantee is required if (i) this Letter of Transmittal is signed by the registered holder(s) of the Notes tendered herewith (or by a participant in the Book-Entry Transfer Facility whose appears on a security position listing as the owner of the Tendered Notes) and the issuance of Exchange Notes (and any Notes not tendered or not accepted) are to be issued directly to such registered holder(s) (or, if signed by a participant in the Book-Entry Transfer Facility, any Exchange Notes or Notes not tendered or not accepted are to be deposited to such participant's account at such Book-Entry Transfer Facility) and neither the "Special Delivery Instructions" (Box 3) nor the "Special Registration Instructions" (Box 2) has been completed, or (ii) such Notes are tendered for the account of an Eligible Institution. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. 8 6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box, the name and address (or account at the Book- Entry Transfer Facility) in which the Exchange Notes and/or substitute Notes for principal amounts not tendered or not accepted for exchange are to be sent (or deposited), if different from the name and address or account of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification number or social security number of the person named must also be indicated and the indicated and the tendering holders should complete the applicable box. If no such instructions are given, the Exchange Notes (and any Notes not tendered or not accepted) will be issued in the name of and sent to the holder of the Notes or deposited at such holders' account at the Book-Entry Transfer Facility. 7. TRANSFER TAXES. Transfer taxes, if any, applicable to the sale and transfer of Notes pursuant to the Exchange Offer will be payable by the tendering holder. 8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder of any Notes which are accepted for exchange must provide the Company (as payor) with its correct taxpayer identification number "TIN"), which, in the case of a holder who is an individual is his or her social security number. If the Company is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each tendering holder must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Notes are registered in more than one name or are not in the name of the actual owner, see the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligation regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of tendered Notes will be determined by the Company, in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all Notes not validly tendered or any Notes, the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Notes as to any ineligibility of any holder who seeks to tender Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Notes, but shall not incur any liability for failure to give such notification. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive, or modify specified conditions in the Exchange Offer in the case of any tendered Notes. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of Notes on transmittal of this Letter of Transmittal will be accepted. 9 12. MUTILATED, LOST, STOLEN, OR DESTROYED NOTES. Any tendering holder whose Notes have been mutilated, lost, stolen, or destroyed should contact the Exchange Agent at the address indicated above for further instruction. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Notes when, as and if the Company has given written and oral notice thereof to the Exchange Agent. If any tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Notes will be returned, without expense, to the undersigned at the address shown above (or credited to the undersigned's account at the Book-Entry Transfer Facility designated above) or at a different address as may be indicated under "Special Delivery Instructions." 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption "Exchange Offer--Withdrawal of Tenders." PAYOR'S NAME: TERRA INDUSTRIES INC. - -------------------------------------------------------------------------------- Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part 1 below. See instructions if your name has changed.) SUBSTITUTE -------------------------------------------------------- FORM W-9 Address -------------------------------------------------------- DEPARTMENT OF THE TREASURY City, State and Zip Code INTERNAL REVENUE SERVICE -------------------------------------------------------- PAYER'S REQUEST FOR -------------------------------------------------------- PART 2--Check the box if you are NOT subject to backup withholding under the provisions of section 3408(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest of dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. [_] TAXPAYER List account number(s) here (optional) IDENTIFICATION -------------------------------------------------------- NUMBER (TIN) PART 1--PLEASE PROVIDE Social Security Number or YOUR TAXPAYER TIN IDENTIFICATION NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW -------------------------------------------------------- CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. PART 3-- Awaiting TIN [_] SIGNATURE ___________DATE ____________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 10 EX-99.2 10 NOT OF GUARRANTEED DLVY Exhibit 99.2 NOTICE OF GUARANTEED DELIVERY WITH RESPECT TO 10 1/2% SENIOR NOTES DUE 2005, SERIES A OF TERRA INDUSTRIES INC. This form must be used by a holder of 10 1/2% Senior Notes due 2005, Series A (the "Notes") of Terra Industries Inc. (the "Company") who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in the "Exchange Offer--Guaranteed Delivery Procedures" of the Prospectus dated , 1995 (the "Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). FIRST TRUST NATIONAL ASSOCIATION (THE "EXCHANGE AGENT") By Registered or Certified Mail, Overnight Courier or Hand Delivery: First Trust National Association By Facsimile: 180 East Fifth Street (612) 244-1145 St. Paul, Minnesota 55101 Attention: Theresa Shackett, Attention: Theresa Shackett, Specialized Finance Specialized Finance Confirm by Telephone: For general information contact the (612) 244-1196 Exchange Agent's Bondholder Relations Department at (612) 244-0444. DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Notes listed below:
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR ACCOUNT NUMBER AT THE BOOK-ENTRY AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL FACILITY AMOUNT REPRESENTED AMOUNT TENDERED - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE Signatures of Registered Holder(s) Date: ________________________, 1995 or Address: ___________________________ Authorized Signature: ______________ ------------------------------------ ------------------------------------ ------------------------------------ Area Code and Telephone No. ________ Name(s) of Registered Holder(s): ___ ------------------------------------ ------------------------------------ ------------------------------------ This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for Notes or on a security position listing as the owner of Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): _____________________________________________________________________ ----------------------------------------------------------------------------- Capacity: ____________________________________________________________________ Address(es): _________________________________________________________________ ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Notes tendered hereby in proper form for transfer (or confirmation of the book- entry transfer of such Notes into the Exchange Agent's account at the Book- Entry Transfer Facility described in the Prospectus under the caption "Exchange Offer--Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any other required documents, all by 5:00 p.m., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. Name of Firm: ______________________ ------------------------------------ Authorized Signature Address: ___________________________ Name: ______________________________ ------------------------------------ Title: _____________________________ Area Code and Telephone No.: _______ Date: ________________________, 1995 DO NOT SEND NOTES WITH THIS FORM, ACTUAL SURRENDER OF NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. 2 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Notes referred to herein, the signature must correspond with the name(s) written on the face of the Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Notes, the signature must correspond with the name shown on the security position listing as the owner of the Notes. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Notes listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate bond powers, signed as the name of the registered holder(s) appears on the Notes or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 3 EX-99.3 11 INST. TO REGISTERED HOLD Exhibit 99.3 INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER OF TERRA INDUSTRIES INC. 10 1/2% SENIOR NOTES DUE 2005, SERIES A To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus dated , 1995 (the "Prospectus") of Terra Industries Inc., a Maryland corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the 10 1/2% Senior Notes due 2005, Series A (the "Notes") held by you for the account of the undersigned. The aggregate face amount of the Notes held by you for the account of the undersigned is (fill in amount): $ of the 10 1/2% Senior Notes due 2005, Series A. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [_] TO TENDER the following Notes held by you for the account of the undersigned (insert principal amount of Notes to be tendered if any): $ [_] NOT TO TENDER any Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representation and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to, the representations that (i) the undersigned is acquiring the Exchange Notes in the ordinary course of business of the undersigned, (ii) the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iii) the undersigned acknowledges that any person participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the "Act"), in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission set forth in no action letters that are discussed in the section of the Prospectus entitled "Exchange Offer--Resales of the Exchange Notes" and (iv) the undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the Company or a broker- dealer tendering Notes acquired directly from the Company for its own account; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Notes. SIGN HERE Name of beneficial owner(s): ________________________________________________ Signature(s): _______________________________________________________________ Name (please print): ________________________________________________________ Address: ____________________________________________________________________ ---------------------------------------------------------------------- ---------------------------------------------------------------------- Telephone Number: ___________________________________________________________ Taxpayer Identification or Social Security Number: __________________________ Date: _______________________________________________________________________ -----END PRIVACY-ENHANCED MESSAGE-----