-----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, KPmTfnKGDWexv09pn5JZOEkxsAdiO0kEJdaQK7bzyr5gb2zeQV7fMZu6ZUtbAAb1 4/Ov57N9eJRmbccH1xUqoA== 0000950131-95-000644.txt : 19950615 0000950131-95-000644.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950131-95-000644 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950320 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08520 FILM NUMBER: 95521804 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 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 Commission file number: 1-8520 TERRA INDUSTRIES INC. (Exact name of registrant as specified in its charter) MARYLAND (State or other jurisdiction of incorporation or organization) 52-1145429 (I.R.S. Employer Identification No.) TERRA CENTRE 600 FOURTH STREET P. O. BOX 6000 SIOUX CITY, IOWA (Address of principal executive offices) 51102-6000 (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (712) 277-1340 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered ------------------- ----------------------- COMMON SHARES, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE TORONTO STOCK EXCHANGE 10 3/4% SENIOR NOTES DUE 2003 N/A SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ______________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of Registrant's voting stock held by non- affiliates of Registrant, at January 31, 1995, was approximately $432,220,000. On January 31, 1995, Registrant's outstanding voting stock consisted of 80,980,502 Common Shares, without par value. ================================================================================ DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Stockholders of Registrant for the fiscal year ended December 31, 1994. Certain information therein is incorporated by reference into Part I, Part II and Part IV hereof. Proxy Statement for the Annual Meeting of Stockholders of Registrant to be held on May 2, 1995. Certain information therein is incorporated by reference into Part III hereof. TABLE OF CONTENTS PART I ------
ITEMS 1 AND 2. BUSINESS AND PROPERTIES................................... 1 ITEM 3. LEGAL PROCEEDINGS......................................... 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 10 EXECUTIVE OFFICERS OF THE COMPANY......................... 10 PART II ------- ITEM 5. MARKET FOR TERRA INDUSTRIES' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................................... 12 ITEM 6. SELECTED FINANCIAL DATA................................... 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................... 12 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............ 12 ITEM 11. EXECUTIVE COMPENSATION..................................... 12 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 13 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 13 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................................... 13 SIGNATURES................................................................. 19 INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS............... S-1
PART I ------ ITEMS 1 AND 2. BUSINESS AND PROPERTIES. Terra Industries Inc., a Maryland corporation ("Terra" or the "Company"), conducts its ongoing operations in North America primarily through its subsidiaries. The Company's principal operating subsidiaries include Terra International, Inc., an indirect wholly owned subsidiary ("Terra International"), Terra International (Canada) Inc., a wholly owned subsidiary of Terra International ("Terra Canada"), Beaumont Methanol, Limited Partnership, an indirect wholly owned subsidiary ("BMLP"), Terra Nitrogen Corporation, an indirect wholly owned subsidiary ("TNC"), and Terra Nitrogen, Limited Partnership ("TNLP"). TNC is TNLP's sole general partner and owns, directly or indirectly, approximately 60% of TNLP. Approximately 40% of TNLP is indirectly owned by other limited partners in the form of publicly traded Senior Preference Units of Terra Nitrogen Company, L.P. ("TNCLP"). 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. The principal corporate office of the Company is located at Terra Centre, 600 Fourth Street, Sioux City, Iowa 51102-6000 and its telephone number is 712-277-1340. GENERAL The Company is a leading producer of nitrogen fertilizer and marketer of fertilizer, crop protection products, seed and services for agricultural, turf, ornamental and other growers. The Company also produces nitrogen products and methanol for industrial customers. 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. After giving effect to the acquisition of Agricultural Minerals and Chemicals Inc., a Delaware corporation ("AMCI"), in October 1994, the Company became the third largest producer of anhydrous ammonia and one of the two largest producers of nitrogen solutions in the United States and Canada. The Company also substantially increased its participation in the methanol production industry with the acquisition of AMCI. The Company's distribution network serves the United States and eastern region of Canada and has grown over the last several years to include approximately: . 355 farm service centers; . 100 fertilizer storage facilities, most of which are leased and approximately half of which are operated by TNLP; and . 770 affiliated dealer locations. The Company's production facilities are comprised of: . three nitrogen fertilizer plants, which are located in Oklahoma (the "Woodward Facility"), Iowa (the "Port Neal Facility") and Ontario, Canada (the "Courtright Facility"); . two TNLP nitrogen fertilizer plants, which are located in Oklahoma (the "Verdigris Facility") and Arkansas (the "Blytheville Facility"); . a methanol production plant, which is located in Texas (the "Beaumont Facility") (the Woodward Facility also includes some methanol production capacity); 1 . 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 suffered a major explosion on December 13, 1994. The Company has decided to rebuild the facility, but does not expect it to be fully operational again until 1996. For certain financial information regarding the Company's industry segments (Distribution, Nitrogen Products and Methanol), see Note 20 to the Company's Consolidated Financial Statements incorporated herein. 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 products represented approximately 15% of the Company's total crop protection product sales in 1994. The Riverside line includes approximately 130 products, of which 23 were added in 1994, and consists of herbicides, insecticides, fungicides, adjuvants, seed treatments, plant growth regulators, defoliants and desiccants. The majority of Riverside products are formulated or packaged in facilities owned by the Company. The Riverside line includes several formulations produced exclusively by the Company, but does not include proprietary agricultural chemicals. Riverside 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 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 2 safety audits, business management and agronomic training courses, access to the Company's Ag Analytical Services laboratory, use of the CropMaster program and other services. There were approximately 510 MarketMaster dealer sites at December 31, 1994. 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 personnel generally work through the Company's farm service centers, using established delivery systems and product lines. The Company's distribution operations are organized into Northern and Southern Divisions, which include 14 separate 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 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 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 brand product line. The Company has developed several DF formulations 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. The Blytheville Formulation Facility is owned in fee. 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 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 urea ammonium nitrate solution ("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 fertilizers, 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. 3 Urea. Solid urea is produced for both the feed and fertilizer market by converting ammonia into liquid urea, which can then 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 for the years ended December 31, 1992, 1993 and 1994 (including TNLP on a pro forma basis) were approximately as follows (based on tons sold): 1992 1993 1994 ------------------ Ammonia 21% 23% 25% Urea 15% 16% 16% UAN 64% 61% 59% Plants. The Company's Woodward Facility, Port Neal Facility and Courtright Facility are integrated facilities for the production of ammonia, liquid urea and UAN and other nitrogen fertilizer solutions. In addition, the Port Neal Facility and the Courtright Facility produce solid urea. TNLP's Verdigris Facility and Blytheville Facility are also integrated facilities. The Verdigris Facility produces primarily ammonia and UAN and the Blytheville Facility produces ammonia, urea and UAN. The Woodward Facility and the Port Neal Facility are owned in fee. The Courtright Facility is operated under a lease financing agreement. The agreement expires in April 1997 and requires annual lease payments. The Company has a purchase option during the term of the lease and at expiration for approximately $47 million (Cdn). If, at the end of the lease term, the purchase option is not exercised, the Company must pay to the lessor approximately $40 million (Cdn), subject to reimbursement based on the proceeds realized upon the sale of the facility by the lessor. Located at the Verdigris Facility are two ammonia plants, two nitric acid plants and two UAN solution plants and the Port Terminal. The plants are owned in fee by TNLP, while the Port Terminal is leased from the Tulsa-Rogers County Port Authority. The leasehold interest is scheduled to expire in April 1999, and TNLP has the option to renew the lease for two additional, consecutive terms of five years each. The Blytheville Facility consists of an anhydrous ammonia plant, a granular urea plant and UAN solution plant. The UAN plant began production in late 1994. The ammonia plant at the Blytheville Facility is leased from the City of Blytheville at a nominal annual rental. The lease term is scheduled to expire in November 1999, and TNLP has the option to extend the lease for twelve successive terms of five years each at the same rental rate. TNLP has the unconditional right to purchase the plant for a nominal price at the end of the lease term (including any renewal term). The urea plant is also leased from the City of Blytheville. The lease is scheduled to expire in November 1999, and TNLP has the option to renew the lease for four successive periods of five years each at a nominal annual rental. TNLP also has an option to purchase the property for a nominal price. 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 Courtright Facility's liquid urea and granulation capacities are expected to increase as a result of a plant upgrade project, announced in February 1994. 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. The Port Neal Facility suffered a major explosion on December 13, 1994 and is not expected to be fully operational again until 1996. At the time of the explosion, the Port Neal Facility accounted for approximately 15% of the Company's 4 total nitrogen fertilizer production. The Company will recover insurance proceeds for substantially all its property damage, third-party liability claims and business interruption. The Company reserved $7 million during the 1994 fourth quarter to cover insurance deductibles and uninsured costs related to the explosion. 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 26% of the Company's total sales of its manufactured nitrogen products. Less than 15% of the Company's fertilizer production is sold through its farm service center locations to retail customers, while the rest is 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 BMLP Beaumont Facility. The Company has approximately 320 million gallons of annual methanol production capacity, representing approximately 20% 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 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 project cost approximately $15 million and gives the Company 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 are owned by BMLP and the land is leased from E.I. du Pont de Nemours and Company ("DuPont"), from which the methanol business associated with the Beaumont Facility originated, 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. 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., pursuant to a Marketing Services Agreement. 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, 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 5 Beaumont Facility's earnings and sales. The Marketing Services Agreement was terminated by BMLP effective as of February 2, 1995. Company employees have assumed all functions previously provided by Trammochem. 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 years' notice. Commencing in 1998, BMLP and DuPont will each have the unilateral right (exercisable one time only for the remaining term of the contract) to permanently reduce the contract quantity required to be delivered by BMLP to DuPont in any contract year by up to 54 million gallons. The price for the methanol delivered under the DuPont Contract is generally indexed to published sources. BMLP is a party to a methanol hedging agreement pursuant to which it received a $4 million lump sum payment in exchange for agreeing to make payments based on the market prices of methanol and natural gas through 1997. 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. For the year ended December 31, 1994, BMLP accrued certain amounts for purposes of potential payments under this agreement. 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 such agreement. As a result of making such payments, BMLP will not benefit fully from increases in the price of methanol during the term of the methanol hedging agreement. 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 expect, and has not experienced, significant bad debts in its grower finance program, the Company does not believe it has sufficient experience with the program to provide a meaningful evaluation of the associated credit risk. SEASONALITY AND VOLATILITY The agricultural products business is seasonal, based upon the planting, growing and harvesting cycles. Inventories must be accumulated 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 of crop inputs for the distribution portion of its business, 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) 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 inventories and prices, and the U.S. government's agricultural policy. Among the 6 governmental policies that influence the markets for fertilizer are those directly or indirectly influencing the number of acres planted, the level of grain inventories, the mix of crops planted and crop prices. As with any commodity chemical, the price of methanol is volatile. The industry has experienced cycles of oversupply resulting in depressed prices and idled capacity, followed by periods of shortage and rapidly rising prices. During 1994, increased world demand for methanol combined with a large number of plant shutdowns and turnarounds in the industry and the phase-in of federally mandated standards for oxygenated gasoline to create a tight market and dramatically increased prices over 1993 levels. There can be no assurances that such conditions will continue. In part, future demand for methanol will depend on the regulatory environment with respect to oxygenated gasoline. Most methanol sold in the U.S. is sold pursuant to long-term contracts based on market index pricing and a fixed volume. 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 general policy is to fix or cap the unit cost for 40% to 80% of its natural gas requirements for the upcoming 12 months using supply contracts and various forward pricing or hedging techniques. Under certain circumstances, the Company may fix or cap the unit cost for up to 25% of such requirements beyond one year. The settlement dates are scheduled to coincide with gas purchases during such future periods. 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 over 20 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- operated trucks and 20 Company-owned trucks 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 7 supplies outside the state. The Courtright 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 for more than two years. The Company transports methanol 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 product line and for basic chemical products at its Blytheville Formulation Facility. COMPETITION 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 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 is the Company. Some foreign competitors may have access to lower cost or government-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 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 primarily by providing a comprehensive line of products and by providing what the Company believes to be superior services to growers and dealers. 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. 8 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. Terra Canada's operations 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 and storage 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 cleanup by federal or state regulatory authorities, the Company may be among those responsible under CERCLA or analogous state laws for all or part of the costs of such cleanup. Terra International has been designated as a potentially responsible party ("PRP") under CERCLA or its state analogues with respect to various sites. Under CERCLA, all PRPs may be held jointly and severally liable for the costs of investigation and remediation of an environmentally damaged site. After consideration of such factors as the number and levels of financial responsibility of other PRPs, 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 acquisition from DuPont. The Company does not believe that any such environmental matters, 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 will retain responsibility for all claims based on exposure to hazardous materials, including asbestos, prior to an acquisition in 1991 from DuPont. Although no suits relating to asbestos exposure have 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 be 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. 9 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. ITEM 3. LEGAL PROCEEDINGS. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No items were submitted to a vote of security holders of the Company during the fourth quarter of 1994. EXECUTIVE OFFICERS OF THE COMPANY The following paragraphs set forth the name, age and offices of each present executive officer of Terra, the period during which each executive officer has served as such and each executive officer's business experience during the past five years:
Present positions and offices with the Company and principal occupations during the past five Name and age years ------------ ---------------------------------------------- Michael L. Bennett (41) Senior Vice President, Distribution of Terra since February 1995; Senior Vice President, Distribution of Terra International since October 1994; Vice President, Northern Division thereof from January 1992 to October 1994; Vice President, Wholesale Fertilizer Division thereof from January 1990 to January 1992. John S. Burchfield (54) Vice President, Human Resources of Terra since March 1992; Vice President, Human Resources of AON Corporation from January 1989 to November 1991; Vice President, Human Resources for Denny's International, National Education Corp. and American Hospital Supply Corp. prior thereto. Burton M. Joyce (53) President and Chief Executive Officer of Terra since May 1991; Executive Vice President and Chief Operating Officer thereof from February 1988 to May 1991. Francis G. Meyer (43) Vice President and Chief Financial Officer of Terra since November 1993; Controller thereof from August 1991 to November 1993; Vice President, Controller of Terra International from June 1986 to August 1991. Paula C. Norton (49) Vice President, Corporate and Investor Relations of Terra since February 1995; Director, Corporate Relations of Terra from January 1993 to February 1995; Director, Corporate Communication of Universal Foods Corp. prior thereto.
10
Present positions and offices with the Company and principal occupations during the past five Name and age years ------------ ---------------------------------------------- Reuben F. Richards (65) Chairman of the Board of Terra since December 1982; Chief Executive Officer thereof from December 1982 to May 1991 and President thereof from July 1983 to May 1991; Director of Engelhard Corporation since prior to 1990 and Chairman of the Board thereof from May 1985 to December 1994; Chairman of the Board of Minorco USA since May 1990 and Chief Executive Officer and President thereof since February 1994. W. Mark Rosenbury (47) President of Terra Nitrogen Corporation since November 1994; Executive Vice President of Terra since November 1993; Chief Operating Officer thereof from November 1993 to November 1994; Vice President and Chief Financial Officer thereof from August 1991 to November 1993; Vice President and Corporate Controller thereof from January 1987 to August 1991. Robert E. Thompson (43) Vice President, Controller of Terra since February 1995, after joining Terra in November 1994; 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; Controller of Ameritech Applied Technologies prior thereto. George H. Valentine (46) Vice President, General Counsel and Corporate Secretary of Terra since November 1993; Assistant General Counsel of Household International, Inc. from February 1986 to November 1993.
There are no family relationships among the executive officers and directors of Terra or arrangements or understandings between any executive officer and any other person pursuant to which any executive officer was selected as such. Officers of Terra are elected annually to serve until their respective successors are elected and qualified. 11 PART II ------- ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information with respect to the market for the Company's common equity and related stockholder matters contained in Terra's 1994 Annual Report to Stockholders under the captions "Quarterly Financial and Stock Market Data (Unaudited)" and "Stockholders and Dividends" is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Information with respect to selected financial data contained in Terra's 1994 Annual Report to Stockholders under the caption "Financial Summary" is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Information with respect to management's discussion and analysis of financial condition and results of operations contained in Terra's 1994 Annual Report to Stockholders under the caption "Financial Review" is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements, together with the notes thereto and the report of independent auditors thereon, and the information set forth under the caption "Quarterly Financial and Stock Market Data (Unaudited)" contained in Terra's 1994 Annual Report to Stockholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. Information with respect to directors of the Company under the caption "Election of Directors" in the Proxy Statement for the Annual Meeting of Stockholders of Terra to be held on May 2, 1995, is incorporated herein by reference. Information with respect to executive officers who are not also directors of the Company appears under the caption "Executive Officers of the Company" in Part I hereof and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information with respect to executive compensation under the caption "Executive Compensation and Other Information" in the Proxy Statement for the Annual Meeting of Stockholders of Terra to be held on May 2, 1995, is incorporated herein by reference. 12 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to security ownership of certain beneficial owners and management under the caption "Equity Security Ownership" in the Proxy Statement for the Annual Meeting of Stockholders of Terra to be held on May 2, 1995, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to certain relationships and related transactions under the caption "Certain Relationships and Related Transactions" in the Proxy Statement for the Annual Meeting of Stockholders of Terra to be held on May 2, 1995, is incorporated herein by reference. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES 1. Consolidated Financial Statements of Terra and its subsidiaries (incorporated herein by reference to Terra's 1994 Annual Report to Stockholders). Consolidated Statements of Financial Position at December 31, 1994 and 1993. Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992. Notes to the Consolidated Financial Statements. Independent Auditors' Report. Quarterly Production Data (Unaudited). Quarterly Financial and Stock Market Data (Unaudited). Revenues. Stockholders and Dividends. Financial Summary. 2. Index to Financial Statement Schedules See Index to Financial Statement Schedules of Terra and its subsidiaries at page S-1. 13 3. Other Financial Statements Individual financial statements of Terra's subsidiaries are omitted because all such subsidiaries are included in the consolidated financial statements being filed. Individual financial statements of 50% or less owned persons accounted for on the equity method have been omitted because such 50% or less owned persons considered in the aggregate, as a single subsidiary, would not constitute a significant subsidiary. (B) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 1. Amended and Restated Deferred Compensation Agreement made as of May 1, 1991, by and between Terra Industries and R. F. Richards filed as Exhibit 10 to Terra Industries' Form 8-K dated September 30, 1991. 2. Resolution adopted by the Personnel Committee of the Board of Directors of Terra Industries with respect to supplemental retirement benefits for certain senior executive officers of Terra Industries, filed as Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal quarter ended March 31, 1991. 3. 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6 to Terra Industries' Form 10-K for the year ended December 31, 1992. 4. Form of Restricted Stock Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form 10-K for the year ended December 31, 1992. 5. Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.8 to Terra Industries' Form 10-K for the year ended December 31, 1992. 6. Form of Nonqualified Stock Incentive Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1992. 7. 1993 Incentive Award Program for Officers and Key Executives of Terra Industries filed as Exhibit 10.1.10 to Terra Industries' Form 10-K for the year ended December 31, 1992. 8. Excess Benefit Plan of Terra Industries as amended effective as of January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form 10-K for the year ended December 31, 1992. 9. Restricted Stock Agreement of Burton M. Joyce dated May 1, 1991, filed as Exhibit 10.1.14 to Terra Industries' Form 10-K for the year ended December 31, 1992. 10. Terra Industries Inc. Supplemental Deferred Compensation Plan effective as of December 20, 1993, filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1993. 11. Retirement/Consulting Agreement, dated as of May 13, 1993 by and between Paul D. Foster and Terra International, filed as Exhibit 10.1.2 to Terra Industries' Form 10-K for the year ended December 31, 1993. 12. Consulting Agreement dated as of December 30, 1993, by and between Paul D. Foster and Terra International, filed as Exhibit 10.1.13 to Terra Industries' Form 10-K for the year ended December 31, 1993. 13. 1994 Incentive Award Program for Officers and Key Executives of Terra Industries filed as Exhibit 10.1.14 to Terra Industries' Form 10-K for the year ended December 31, 1993. 14 14. 1995 Incentive Award Program for Officers and Key Executives of Terra Industries filed as Exhibit 10.1.14 to Terra Industries' Formal 10-K for the year ended December 31, 1994. (C) REPORTS ON FORM 8-K The following reports on Form 8-K were filed during the fourth quarter of 1994: Form 8-K/A dated November 3, 1994, Items 2 and 7 including financial information incorporated therein. Form 8-K dated December 19, 1994, Items 2 and 5. (D) EXHIBITS 3.1.1 Articles of Restatement of Terra Industries filed with the State of Maryland on September 11, 1990, filed as Exhibit 3.1 to Terra Industries' Form 10-K for the year ended December 31, 1990, is incorporated herein by reference. 3.1.2 Articles of Amendment of Terra Industries filed with the State of Maryland on May 6, 1992, filed as Exhibit 3.1.2 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 3.1.3 Articles Supplementary of Terra Industries filed with the State of Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra Industries' Form 8-K/A dated November 3, 1994, is incorporated herein by reference. 3.2 By-Laws of Terra Industries, as amended through August 7, 1991, filed as Exhibit 3 to Terra Industries' Form 8-K dated September 30, 1991, is incorporated herein by reference. 4.1 Indenture dated as of May 31, 1987, from Terra Industries to Mellon Bank, N.A., as Trustee, including form of Debenture, filed as Exhibit 4 to Amendment No. 2 to the Registration Statement on Form S-3 (Registration No. 33-14171) filed by Terra Industries on June 11, 1987, is incorporated herein by reference. 4.2 Revolving Credit Agreement dated as of November 24, 1992, among Terra International, Inc., CitiCorp USA, Inc., Mellon Bank, N.A., Continental Bank N.A., First Bank National Association, NationsBank of Texas, N.A. and Rabobank Nederland, filed as Exhibit 4.1.2 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 4.3 First Amendment Agreement, dated as of March 26, 1993, by and between Terra International, Inc., the Lenders listed on the signature page thereto, and CitiCorp USA, Inc., as agent to Lenders, filed as Exhibit 4.1.3 to Terra Industries' Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 4.4 Second Amendment Agreement, dated as of December 30, 1993, by and between Terra International, Inc., the Lenders listed on the signature page thereto, and CitiCorp USA, Inc., as agent for the Lenders, filed as Exhibit 4.1.4 to Terra Industries' Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 4.5 Indenture dated as of October 15, 1993 among Terra Industries (as successor by merger to Agricultural Minerals and Chemicals Inc.) and Society National Bank, including form of Senior Note (the "Senior Notes Indenture"), filed as Exhibit 99.2 to Terra Industries' Registration Statement on Form S-3, as amended, (File No. 33-52493), is incorporated herein by reference. 15 4.6 Credit Agreement among Terra Industries Inc., Terra Capital, Inc., Agricultural Minerals, L.P., Certain Guarantors, Certain Lenders, Certain Issuing Banks and Citibank, N.A. without exhibits or schedules (the "October 1994 Credit Agreement"), form of which previously filed as Exhibit 99.5 to Terra Industries' Registration Statement on Form S-3, as amended (File No. 33-52493). 4.7 Amendment No. 1 to the October 1994 Credit Agreement dated as of December 28, 1994. 4.8 Amendment No. 2 to the October 1994 Credit Agreement dated as of December 28, 1994, without exhibits. 4.9 Amendment No. 3 to the October 1994 Credit Agreement dated as of February 1, 1995. Other instruments defining the rights of holders of long-term debt of Terra Industries and its subsidiaries are not being filed because the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of Terra Industries and its subsidiaries on a consolidated basis. Terra Industries agrees to furnish a copy of any instrument to the Securities and Exchange Commission upon request. 10.1.1 Amended and Restated Deferred Compensation Agreement made as of May 1, 1991, by and between Terra Industries and R. F. Richards filed as Exhibit 10 to Terra Industries' Form 8-K dated September 30, 1991, is incorporated herein by reference. 10.1.2 Resolution adopted by the Personnel Committee of the Board of Directors of Terra Industries with respect to supplemental retirement benefits for certain senior executive officers of Terra Industries, filed as Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal quarter ended March 31, 1991, is incorporated herein by reference. 10.1.3 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.4 Form of Restricted Stock Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.5 Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.6 Form of Nonqualified Stock Incentive Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.7 1993 Incentive Award Program for Officers and Key Executives of Terra Industries, filed as Exhibit 10.1.10 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.8 Terra Industries Inc. Supplemental Deferred Compensation Plan effective as of December 20, 1993 filed as Exhibit 10.1.9 to Terra Industries' Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 16 10.1.9 Excess Benefit Plan of Terra Industries as amended effective as of January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.10 Restricted Stock Agreement of Burton M. Joyce dated May 1, 1991, filed as Exhibit 10.1.14 to Terra Industries' Form 10-K for the year ended December 31, 1992, is incorporated herein by reference. 10.1.11 Retirement/Consultant Agreement, dated as of May 13, 1993, by and between Paul D. Foster and Terra International, filed as Exhibit 10.1.12 to Terra Industries' Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 10.1.12 Consulting Agreement, dated as of December 30, 1993, by and between Paul D. Foster and Terra International, filed as Exhibit 10.1.13 to Terra Industries' Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 10.1.13 1994 Incentive Award Program for Officers and Key Executives of Terra Industries filed as Exhibit 10.1.14 to Terra Industries' Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 10.1.14 1995 Incentive Award Program for Officers and Key Executives of Terra Industries. 10.2 Asset Sale and Purchase Agreement among Inspiration Consolidated Copper Company and Cyprus Miami Mining Corporation and Cyprus Christmas Mine Corporation dated as of June 30, 1988, filed as Exhibit 10.19 to Terra Industries' Form 10-K for the year ended December 31, 1988, is incorporated herein by reference. 10.3.1 Stock Purchase Agreement, dated as of June 14, 1991, among Minorco, Kirkdale Investments Limited, Terra Industries and Hudson Holdings Corporation, filed as Exhibit 2 to Terra Industries' Form 8-K dated June 14, 1991, is incorporated herein by reference. 10.3.2 Amended and Restated Stock Purchase Agreement, dated as of July 31, 1991, among Minorco, Kirkdale Investments Limited, Terra Industries and Hudson Holdings Corporation, filed as Exhibit 1 to Terra Industries Form 8-K dated July 31, 1991, is incorporated herein by reference. 10.3.3 Option Agreement, dated as of June 14, 1991, among Kirkdale Investments Limited and Terra Industries, filed as Exhibit 3 to Terra Industries' Form 8-K dated June 14, 1991, is incorporated herein by reference. 10.3.4 Amendment to Stock Option Agreement, dated July 31, 1991, among Minorco, Kirkdale Investments Limited and Terra Industries, filed as Exhibit 2 to Terra Industries' Form 8-K dated July 31, 1991, is incorporated herein by reference. 10.4 Asset and Sale Purchase Agreement, dated as of April 8, 1993, by and between Terra International, Inc., Terra International (Canada) Inc. and ICI Canada Inc., filed as Exhibit A to Terra Industries' Form 8-K dated April 8, 1993, is incorporated herein by reference. 10.5 Asset Purchase Agreement, dated as of December 30, 1993, by and between Terra International, Inc., The Upjohn Company and Asgrow Florida Company, filed as Exhibit A to Terra Industries' Form 8-K dated December 31, 1993, is incorporated herein by reference. 10.6 Lease, dated as of April 8, 1993, between W. Patrick Moroney and Terra International (Canada) Inc., filed as Exhibit 10.6 to Terra Industries' Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 17 10.7 Merger Agreement dated as of August 8, 1994 among Terra Industries Inc., AMCI Acquisition Corp. and Agricultural Minerals and Chemicals Inc. without exhibits or schedules, filed as Exhibit 2 to Terra Industries' Registration Statement on Form S-3, as amended, (File No. 33-52493), is incorporated herein by reference. 10.8 Methanol Hedging Agreement among BMLP (as successor by merger to Beaumont Methanol Corporation) and The Morgan Stanley Leveraged Equity Fund II, L.P. as Counterparty, form of which filed as Exhibit 99.1 to Terra Industries' Registration Statement on Form S-3, as amended, (File No. 33- 52493), is incorporated herein by reference. 10.9 Agreement of Limited Partnership of TNCLP (formerly known as Agricultural Minerals Company, L.P.) dated as of December 4, 1991, filed as Exhibit 99.3 to Terra Industries' Registration Statement on Form S-3, as amended, (File No. 33-52493), is incorporated herein by reference. 10.10 Agreement of Limited Partnership of TNLP (formerly known as Agricultural Minerals, Limited Partnership) dated as of December 4, 1991, filed as Exhibit 99.4 to Terra Industries' Registration Statement on Form S-3, as amended, (File No. 33-52493), is incorporated herein by reference. 13 Financial Review and Consolidated Financial Statements as contained in the Annual Report to Stockholders of Terra Industries for the fiscal year ended December 31, 1994. 18 Deloitte & Touche LLP letter regarding changes in accounting principles dated February 1, 1995. 21 Subsidiaries of Terra Industries. 24 Powers of Attorney. 27 Financial Data Schedule. [EDGAR filing only] 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TERRA INDUSTRIES INC. By: /S/George H. Valentine ------------------------------------- George H. Valentine Vice President, General Counsel and Corporate Secretary Date: March 15, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- * Chairman of the Board March 15, 1995 - ------------------ Reuben F. Richards * Chief Executive Officer, President March 15, 1995 - ------------------ and Director Burton M. Joyce (Principal Executive Officer) * Vice President and Chief Financial Officer March 15, 1995 - ------------------ (Principal Financial Officer) Francis G. Meyer * Vice President, Controller March 15, 1995 - ------------------ (Principal Accounting Officer) Robert E. Thompson * Director March 15, 1995 - ------------------ Edward G. Beimfohr * Director March 15, 1995 - ------------------ Carol L. Brookins * Director March 15, 1995 - ------------------ Edward M. Carson * Director March 15, 1995 - ------------------ David E. Fisher
19
* Director March 15, 1995 - ------------------ Basil T.A. Hone * Director March 15, 1995 - ------------------ Anthony W. Lea * Director March 15, 1995 - ------------------ John R. Norton III * Director March 15, 1995 - ------------------ Henry R. Slack *By: /S/Francis G. Meyer ------------------------------- Francis G. Meyer Attorney-in-Fact
20 INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS ------------------------------------------------------------
PAGE ---- Report of Deloitte & Touche LLP on Financial Statement Schedules.. S-2 Consent of Deloitte & Touche LLP.................................. S-2 Schedule No. - ------------ I Condensed Financial Information of Registrant........ S-3 II Valuation and Qualifying Accounts: Years Ended December 31, 1994, 1993 and 1992......... S-8
Financial statement schedules not included in this report have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. S-1 INDEPENDENT AUDITORS' REPORT ON ------------------------------- FINANCIAL STATEMENT SCHEDULES ----------------------------- To the Board of Directors and Stockholders of Terra Industries Inc.: We have audited the consolidated financial statements of Terra Industries Inc. as of December 31, 1994 and 1993 and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated February 1, 1995; such financial statements and report are included in the 1994 Annual Report to Stockholders of Terra Industries Inc. and are incorporated herein by reference. Our audits also included the Financial Statement Schedules of Terra Industries Inc. listed in Item 14(a) of this Form 10-K. These Financial Statement Schedules are the responsibility of the management of Terra Industries Inc. Our responsibility is to express an opinion based on our audits. In our opinion, such Financial Statement Schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Omaha, Nebraska February 1, 1995 INDEPENDENT AUDITORS' CONSENT ----------------------------- We consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Registration Nos. 33-46735, 33-46734, 33-30058 and 33-4939) and Registration Statements on Form S-3 (Registration Nos. 2-90808, 2-84876 and 2-84669) of Terra Industries Inc. of our report dated February 1, 1995, included in the 1994 Annual Report to Stockholders of Terra Industries Inc. which is incorporated by reference in this Form 10-K. We also consent to the incorporation by reference in such Prospectuses of our report on the Financial Statement Schedules, appearing above. DELOITTE & TOUCHE LLP Omaha, Nebraska February 1, 1995 S-2 SCHEDULE I TERRA INDUSTRIES INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT ---------------------------------------------
STATEMENTS OF FINANCIAL POSITION - ---------------------------------------------------------------------------------------- (in thousands) December 31, - ---------------------------------------------------------------------------------------- 1994 1993 - ---------------------------------------------------------------------------------------- ASSETS Cash and short-term investments $ 10,511 $ 24,249 Accounts receivable, net 3,069 1,016 Deferred tax asset - current 43,992 26,011 Other current assets 4,516 4,337 - ---------------------------------------------------------------------------------------- Total current assets 62,088 55,613 Investment in and advances to Terra Capital, Inc. 530,327 259,961 Deferred tax asset - non-current --- 24,742 Investment in and advances to discontinued subsidiaries --- 3,488 Other assets 13,769 9,226 - ---------------------------------------------------------------------------------------- Total assets $ 606,184 $ 353,030 ======================================================================================== LIABILITIES Income taxes payable $ 1,914 $ 12,912 Accrued and other liabilities 12,901 8,466 - ---------------------------------------------------------------------------------------- Total current liabilities 14,815 21,378 Long-term debt 158,755 72,057 Deferred income taxes 6,235 --- Other liabilities 6,691 16,127 - ---------------------------------------------------------------------------------------- Total liabilities 186,496 109,562 - ---------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Capital stock 133,770 122,257 Paid-in capital 630,111 516,128 Accumulated deficit (344,193) (394,917) - ---------------------------------------------------------------------------------------- Total stockholders' equity 419,688 243,468 - ---------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 606,184 $ 353,030 ========================================================================================
See accompanying Notes to the Condensed Financial Statements. S-3 TERRA INDUSTRIES INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT ---------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT - --------------------------------------------------------------------------------------------------- (in thousands, except per-share amounts) For the Year Ended December 31, - --------------------------------------------------------------------------------------------------- 1994 1993 1992 - --------------------------------------------------------------------------------------------------- INCOME Equity in earnings of Terra Capital, Inc. $ 64,065 $ 26,691 $ 10,029 Interest and other income (49) 140 2,808 - --------------------------------------------------------------------------------------------------- Total income 64,016 26,831 12,837 - --------------------------------------------------------------------------------------------------- EXPENSES Selling, general and administrative expense 3,788 5,929 4,813 Interest expense 6,382 5,853 5,760 Income tax benefit (5,329) (7,796) (2,430) - --------------------------------------------------------------------------------------------------- Total expenses 4,841 3,986 8,143 - --------------------------------------------------------------------------------------------------- Income from continuing operations 59,175 22,845 4,694 Discontinued operations: Equity in operations of discontinued subsidiaries, net of taxes --- --- (4,025) Gain (loss) on disposition, net of taxes --- --- 2,360 - --------------------------------------------------------------------------------------------------- Income before extraordinary items and cumulative effect of accounting changes 59,175 22,845 3,029 Extraordinary loss on early retirement of debt (2,614) --- --- Cumulative effect of accounting changes --- --- 28,000 - --------------------------------------------------------------------------------------------------- Net income 56,561 22,845 31,029 Cash dividends paid to common stockholders (5,837) (1,386) --- Accumulated deficit - beginning of year (394,917) (416,376) (447,405) - --------------------------------------------------------------------------------------------------- ACCUMULATED DEFICIT - END OF YEAR $(344,193) $(394,917) $(416,376) =================================================================================================== INCOME (LOSS) PER COMMON SHARE: Continuing operations $ 0.81 $ 0.33 $ 0.06 Discontinued operations --- --- (0.02) - --------------------------------------------------------------------------------------------------- Income before extraordinary items 0.81 0.33 0.04 Extraordinary loss on early retirement of debt (0.03) --- --- Cumulative effect of accounting changes --- --- 0.41 - --------------------------------------------------------------------------------------------------- NET INCOME $ 0.78 $ 0.33 $ 0.45 ===================================================================================================
See accompanying Notes to the Condensed Financial Statements. S-4 TERRA INDUSTRIES INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT ---------------------------------------------
STATEMENTS OF CASH FLOWS - ----------------------------------------------------------------------------------------------------- (in thousands) For the Year Ended December 31, - ----------------------------------------------------------------------------------------------------- 1994 1993 1992 - ----------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 56,561 $ 22,845 $ 31,029 Adjustments to reconcile net income to net cash used by operations: Equity in earnings of subsidiaries (64,065) (26,691) (10,029) Loss from discontinued operations --- --- 1,665 Gain on early retirement of debentures 2,614 --- --- Cumulative effect of accounting change --- --- (28,000) Deferred income taxes 15,291 (4,494) (19,643) Other non-cash items 48 81 81 Change in working capital components (9,538) (4,062) 7,995 Other 344 (7,256) 1,164 - ----------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,255 (19,577) (15,738) - ----------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from asset sales and discontinued operations 541 40,205 30,425 Capital contributions to subsidiaries (113,000) (30,000) --- Proceeds from investments 500 --- 30 - ----------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY INVESTING ACTIVITIES (111,959) 10,205 30,455 - ----------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net short-term debt decrease (82,395) --- --- Loss on early retirement of debt (2,533) --- --- Debt issuance costs (2,873) --- --- Issuance of common shares 113,000 --- --- Dividend paid to common stockholders (5,837) (1,386) --- Stock issuance/repurchase - net 4,666 513 --- Advances from (to) subsidiaries - net 72,938 (50,001) 4,207 - ----------------------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 96,966 (50,874) 4,207 - ----------------------------------------------------------------------------------------------------- (DECREASE) INCREASE IN CASH (13,738) (60,246) 18,924 CASH AND INVESTMENTS AT BEGINNING OF YEAR 24,249 84,495 65,571 - ----------------------------------------------------------------------------------------------------- CASH AND INVESTMENTS AT END OF YEAR $ 10,511 $ 24,249 $ 84,495 ===================================================================================================== INTEREST PAID $ 6,285 $ 6,229 $ 6,208 ===================================================================================================== TAXES PAID $ 16,065 $ 3,320 $ 4,208 =====================================================================================================
See accompanying Notes to the Condensed Financial Statements. S-5 TERRA INDUSTRIES INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT --------------------------------------------- NOTES TO THE CONDENSED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The Condensed Financial Statements include the Registrant only and reflect the equity method of accounting for its beneficially owned subsidiaries, Terra Capital, Inc., Terra International, Inc. (TII), Terra Nitrogen Corporation (TNC) and Beaumont Methanol Limited Partnership (BMLP). Equity in TII's, 1994 earnings includes a net credit of $3.4 million for the cumulative effect of accounting changes to recognize costs of major maintenance turnarounds on a deferral rather than accrual method and to recognize a liability for the estimated cost of benefits provided to TII's disabled employees. Equity in TII's 1992 earnings includes the deduction of $5.7 million for the cumulative effect of accounting changes to recognize the prior service cost of providing post-retirement medical benefits to TII's employees. Equity in the financial results of the base metals, coal, leasing and other discontinued businesses have been included in discontinued operations. 2. LONG-TERM DEBT Long-term debt at December 31, 1994 consists of $158.8 million of unsecured 10.75% Senior Notes due in full September 30, 2003 which were assumed in conjunction with the October 1994 acquisition of American Minerals and Chemicals Inc. (AMCI). Following the Registrant's acquisition of AMCI, $16.2 million of Senior Notes were redeemed. The 10.75% Senior Notes are redeemable at the option of the Registrant, in whole or part, at any time on or after September 30, 1998, as more fully detailed in Note 10 to the Consolidated Financial Statements. Long-term debt at December 31, 1993 consisted of 8.5% Convertible Subordinated Debentures (Debentures) of $72,057,000 that was due 2012. The Debentures were convertible into Common Shares any time prior to maturity, unless previously redeemed, 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 Registrant. During March 1994, the Registrant gave notice to holders of its intent to redeem 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 Registrant. The Registrant issued 730,768 Common Shares and paid cash for fractional shares. 3. COMMITMENTS AND CONTINGENCIES The Registrant is committed to a non-cancelable office lease expiring in 1998. Total minimum rental payments are: 1995, $3.1 million; 1996, $3.2 million; 1997, $3.3 million and 1998, $1.7 million. These amounts are not reduced by sublease rentals, which in 1994 were $2.0 million. The Registrant 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 Registrant 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 Registrant may have to pay such amount. The Registrant 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 Registrant would be required to assume this liability, mineral reserves associated with the sold coal subsidiary would revert to the Registrant. The Registrant had letters of credit outstanding totaling $9.7 million at December 31, 1994 and $13.0 million at December 31, 1993, guaranteeing various insurance and financing activities. Short-term investments of $9.6 million at December 31, 1994 and $13.0 million at December 31, 1993 are restricted to collateralize certain of the letters of credit. S-6 4. INCOME TAXES The Registrant files a consolidated U.S. federal tax return. Certain operating subsidiaries provide for federal income taxes according to tax sharing agreements which allocate the benefits of operating losses and differences between financial reporting and income tax basis results to the Registrant. The subsidiaries acquired in connection with the October 1994 acquisition of AMCI provide for federal taxes according to a separate return basis with any additional benefits of the Registrant's operating loss utilization allocated to the Registrant. S-7 SCHEDULE II TERRA INDUSTRIES INC. VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1994, 1993, and 1992 --------------------------------------------- (in thousands)
Additions Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions of Period - ---------------------------------------------------------------------------------------------- Year Ended December 31, 1994: - ----------------------------- Allowance for Doubtful Accounts $ 5,788 $ 2,231 (a) $ 205 (b) $ 8,224 Year Ended December 31, 1993: - ----------------------------- Allowance for Doubtful Accounts $ 6,427 $ 1,758 $ (2,397) (b) $ 5,788 Year Ended December 31, 1992: - ----------------------------- Allowance for Doubtful Accounts $ 6,296 $ 4,026 $ (3,895) (b) $ 6,427
(a) Includes $100 as a result of AMCI acquisition. (b) Write-offs, net of recoveries. S-8 EXHIBIT INDEX 4.6 Credit Agreement among Terra Industries Inc., Terra Capital, Inc., Agricultural Minerals, L.P., Certain Guarantors, Certain Lenders, Certain Issuing Banks and Citibank, N.A. without exhibits or schedules (the "October 1994 Credit Agreement"), form of which previously filed as Exhibit 99.5 to Terra Industries' Registration Statement on Form S-3, as amended (File No. 33-52493). 4.7 Amendment No. 1 to the October 1994 Credit Agreement dated as of December 28, 1994. 4.8 Amendment No. 2 to the October 1994 Credit Agreement dated as of December 28, 1994, without exhibits. 4.9 Amendment No. 3 to the October 1994 Credit Agreement dated as of February 1, 1995. 10.1.14 1995 Incentive Award Program for Officers and Key Executives of Terra Industries. 13 Financial Review and Consolidated Financial Statements as contained in the Annual Report to Stockholders of Terra Industries for the fiscal year ended December 31, 1994. 18 Deloitte & Touche LLP letter regarding changes in accounting principles dated February 1, 1995. 21 Subsidiaries of Terra Industries. 24 Powers of Attorney. 27 Financial Data Schedule. [EDGAR filing only] EX-4.6 2 CREDIT AGREEMENT EXHIBIT 4.6 [EXECUTION COUNTERPART] ================================================================================ CREDIT AGREEMENT dated as of October 20, 1994 among TERRA INDUSTRIES INC., TERRA CAPITAL, INC. and AGRICULTURAL MINERALS, LIMITED PARTNERSHIP (the name of which will hereafter be changed to 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..................... 3 Section 1.02. Computation of Time Periods............... 38 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....................... 43 Section 2.03. Repayment................................. 45 Section 2.04. Termination or Reduction of the Commitments............................. 48 Section 2.05. Prepayments............................... 49 Section 2.06. Interest.................................. 53 Section 2.07. Fees...................................... 54 Section 2.08. Conversion and Continuation of Advances... 55 Section 2.09. Increased Costs, Illegality, Etc.......... 56 Section 2.10. Payments and Computations................. 58 Section 2.11. Taxes..................................... 60 Section 2.12. Sharing of Payments, Etc.................. 63 Section 2.13. Letters of Credit......................... 64 Section 2.14. Assumption................................ 69 Section 2.15. Replacement of Lender..................... 69 Page ---- ARTICLE III CONDITIONS OF LENDING Section 3.01. Documentary Conditions Precedent to Initial Borrowing....................... 71 Section 3.02. Additional Conditions Precedent to Initial Borrowing....................... 76 Section 3.03. Conditions Precedent to Initial AMLP Borrowing............................... 76 Section 3.04. Conditions Precedent to Initial Terra Facility C Borrowing.................... 77 Section 3.05. Conditions Precedent to Each Borrowing and Issuance............................ 77 Section 3.06. Determinations Under Sections 3.01 and 3.02.................................... 77 ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Company................................. 78 ARTICLE V COVENANTS OF TERRA Section 5.01. Affirmative Covenants..................... 85 Section 5.02. Negative Covenants........................ 91 Section 5.03. Reporting Requirements.................... 99 Section 5.04. Financial Covenants....................... 104 ARTICLE VI EVENTS OF DEFAULT Section 6.01. Events of Default......................... 105 Section 6.02. Actions in Respect of the Letters of Credit Upon Default..................... 109 (ii) Page ---- ARTICLE VII THE AGENT Section 7.01. Authorization and Action.................. 110 Section 7.02. Agent's Reliance, Etc..................... 110 Section 7.03. Citibank and Affiliates................... 111 Section 7.04. Lender Credit Decision.................... 111 Section 7.05. Indemnification........................... 112 Section 7.06. Collateral Duties......................... 112 Section 7.07. Successor Agent........................... 113 ARTICLE VIII THE GUARANTEE Section 8.01. The Guarantee............................. 114 Section 8.02. Obligations Unconditional................. 115 Section 8.03. Reinstatement............................. 116 Section 8.04. Subrogation............................... 116 Section 8.05. Remedies.................................. 117 Section 8.06. Instrument for the Payment of Money....... 117 Section 8.07. Continuing Guarantee...................... 117 Section 8.09. General Limitation on Guarantee Obligations............................. 118 ARTICLE IX MISCELLANEOUS Section 9.01. Amendments, Consents, Etc................. 119 Section 9.02. Notices, Etc.............................. 120 Section 9.03. No Waiver; Remedies....................... 121 Section 9.04. Costs, Expenses and Indemnification....... 121 Section 9.05. Right of Setoff........................... 123 Section 9.06. Governing Law; Submission to Jurisdiction............................ 124 Section 9.07. Assignments and Participations............ 124 Section 9.08. Execution in Counterparts................. 128 Section 9.09. No Liability of the Issuing Banks......... 128 Section 9.10. Confidentiality........................... 129 Section 9.11. WAIVER OF JURY TRIAL...................... 129 (iii) Page ---- Section 9.12. Survival.................................. 129 Section 9.13. Captions.................................. 130 Section 9.14. Successors and Assigns.................... 130 (iv) SCHEDULES --------- SCHEDULE 2.01 List of Commitments and Lending Offices SCHEDULE 3.01(d) Terminated Facilities SCHEDULE 3.01(g)(iv) List of Good Standing Jurisdictions 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 5.02(a)(iii) Existing Liens SCHEDULE 5.02(f) Existing Investments SCHEDULE 5.03(j) UCC Filings EXHIBITS -------- EXHIBIT A-1 Form of Terra Facilities Note EXHIBIT A-2 Form of Terra Facility B Note EXHIBIT A-3 Form of AMLP Facilities 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 AMLP Pledge and Security Agreement EXHIBIT C Form of Notice of Borrowing EXHIBIT D Form of Opinion of Special Counsel for the Obligors EXHIBIT E Form of Loan Purchase Agreement EXHIBIT F Form of Assignment and Acceptance EXHIBIT G Provisions Relating to Certain Investments (v) CREDIT AGREEMENT CREDIT AGREEMENT dated as of October 20, 1994 among: (1) TERRA INDUSTRIES INC., a Maryland corporation ("Terra"); (2) TERRA CAPITAL, INC., a Delaware corporation and wholly owned subsidiary of Terra Capital Holdings ("Terra Capital"); (3) AGRICULTURAL MINERALS, LIMITED PARTNERSHIP, a Delaware limited partnership and indirect subsidiary of AMC, the name of which will hereafter be changed to Terra Nitrogen, Limited Partnership ("AMLP"); (4) each of the corporations listed on the signature pages hereof under the caption "TERRA AND AMLP GUARANTORS"; (5) each of the lenders (the "Initial Lenders") listed on the signature pages hereof; and (6) 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) Terra, AMCI Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Terra ("Acquisition Corp."), and Agricultural Minerals and Chemicals Inc., a Delaware corporation ("AMCI"), are parties to the Merger Agreement dated as of August 8, 1994 (as from time to time amended, the "Merger Agreement") providing, on the terms and conditions set forth therein, for the merger of Acquisition Corp. with and into AMCI (the "Initial Merger"), with AMCI being the corporation surviving the Initial Merger. (2) Immediately after the consummation of the Initial Merger, (a) Terra will contribute to AMCI all of the issued and Credit Agreement ---------------- -2- outstanding capital stock of Terra International, Inc., a Delaware corporation ("TI"); (b) AMCI will merge (the "Second Merger" and, collectively with the Initial Merger, the "Merger") with and into Terra, with Terra being the corporation surviving the Second Merger; (c) Terra will have formed Terra Capital Holdings, Inc. as a Delaware corporation and a wholly owned Subsidiary of Terra ("Terra Capital Holdings"); (d) Terra Capital Holdings will have formed Terra Capital as a Delaware corporation and a wholly owned Subsidiary of Terra Capital Holdings; and (e) Terra will contribute to Terra Capital Holdings, and Terra Capital Holdings will thereupon contribute to Terra Capital, all of the issued and outstanding capital stock of Agricultural Minerals Corporation, a Delaware corporation, the name of which will hereafter be changed to Terra Nitrogen Corporation ("AMC"), BMC Holdings Inc., a Delaware corporation ("BMCH"), and TI (the Merger and the other transactions referred to above being herein collectively called the "Transactions"). (3) Terra has asked the Lenders to make available credit to finance the consummation of the Initial Merger, to pay fees and expenses in connection with the Transactions, to repurchase or refinance certain outstanding indebtedness and to provide for the ongoing working capital needs of Terra Capital and certain subsidiaries, all on the terms and conditions provided herein, and AMLP has asked the Lenders to make available credit to refinance certain outstanding indebtedness and to provide for its ongoing working capital needs, all on the terms and conditions provided herein. (4) The Obligors, the Lenders, the Issuing Banks and the Agent have entered into this Agreement pursuant to which (a) the Lenders propose to make advances to, and the Issuing Banks propose to issue letters of credit for account of, Terra and Terra Capital and certain subsidiaries thereof, (b) the Lenders propose to make advances to, and the Issuing Banks propose to issue letters of credit for account of, AMLP and certain of its subsidiaries, (c) each Terra Guarantor will guarantee the credit so extended to Terra Capital, (d) each AMLP Guarantor will guarantee the credit so extended to AMLP and (e) certain Obligors will agree to execute and deliver pledge agreements and security agreements providing for security Credit Agreement ---------------- -3- interests and liens to be granted by such Obligors on certain of their respective properties as collateral security for the obligations of such Obligors to the Lenders, the Issuing Banks and the Agent hereunder, all on and subject to the terms and conditions of this Agreement. (5) Each of the Obligors expects to derive benefit, directly or indirectly, from the credit so extended, both in its separate capacity and as a member of the Consolidated Group, since the successful operation of each of such Obligors is dependent on the continued successful performance of the functions of the Consolidated Group as a whole. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree 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. "Acquisition Corp." has the meaning specified in the Preliminary Statements. "Advance" means any Terra Advance or AMLP 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", Credit Agreement ---------------- -4- "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: Robert Alto, 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. "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 Credit Agreement ---------------- -5- 1997 $25,000,000 1998 and each fiscal year thereafter $30,000,000 "AMC" has the meaning specified in the Preliminary Statements. "AMCI" has the meaning specified in the Preliminary Statements. "AMCI Change of Control Redemption" means the redemption by Terra of the AMCI Senior Notes pursuant to Section 4.11 of the AMCI Senior Note Indenture. "AMCI Senior Note Indenture" means the Indenture dated as of October 15, 1993 between 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 AMCI due 2003 issued pursuant to the AMCI Senior Note Indenture. "AMLP" has the meaning specified in the recital of parties to this Agreement. "AMLP Advance" means an AMLP Facility A Advance or an AMLP Facility B Advance, "AMLP Borrowing" means an AMLP Facility A Borrowing or an AMLP Facility B Borrowing, "AMLP Commitment" means an AMLP Facility A Commitment or an AMLP Facility B Commitment, "AMLP Facility" means AMLP Facility A or AMLP Facility B, and "AMLP Note" means an AMLP Facilities Note. "AMLP Facilities Note" means a promissory note of AMLP payable to the order of a Lender, in substantially the form of Exhibit A-3, as from time to time amended. "AMLP Facility A" means the term credit facility provided hereunder in respect of the AMLP Facility A Credit Agreement ---------------- -6- Commitments, "AMLP Facility A Advance" means an Advance pursuant to Section 2.01(f), "AMLP Facility A Borrowing" means a borrowing consisting of simultaneous AMLP Facility A Advances of the same Type, and "AMLP Facility A Commitment" has the meaning specified in Section 2.01(f). "AMLP Facility A Principal Payment Date" means the Quarterly Date occurring in October, 1999. "AMLP Facility B" means the revolving credit facility provided hereunder in respect of the AMLP Facility B Commitments, "AMLP Facility B Advance" means an Advance pursuant to Section 2.01(g), "AMLP Facility B Borrowing" means a borrowing consisting of simultaneous AMLP Facility B Advances of the same Type, and "AMLP Facility B Commitment" has the meaning specified in Section 2.01(g). "AMLP Facility B Commitment Termination Date" means the earlier of (a) the date five years after the Closing Date (provided, that if such day is not a Business Day, the AMLP Facility B Commitment Termination Date shall be the immediately preceding Business Day), and (b) the termination or cancellation of the AMLP Facility B Commitments pursuant to the terms of this Agreement. "AMLP Guaranteed Obligations" has the meaning specified in Section 8.01(b). "AMLP Guarantors" means Terra, Terra Capital Holdings, Terra Capital, AMC, BMCH and BMC. "AMLP L/C Cash Collateral Account" means the "AMLP L/C Cash Collateral Account" under the AMLP Pledge and Security Agreement. "AMLP Letter of Credit" means a letter of credit issued by an Issuing Bank for account of AMLP or any of its Subsidiaries pursuant to Section 2.13(a). "AMLP Letter of Credit Commitment" means, with respect to any Issuing Bank at any time, the amount set forth Credit Agreement ---------------- -7- opposite such Issuing Bank's name on Schedule 2.01 under the caption "AMLP Letter of Credit Commitment", as such amount may be reduced pursuant to Section 2.04. "AMLP Letter of Credit Liability" means, as of any date, all of the liabilities of AMLP to the Issuing Banks in respect of AMLP Letters of Credit, whether such liability is contingent or fixed, and shall consist of the sum of (a) the aggregate Available Amount of all AMLP 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 AMLP Letters of Credit. "AMLP Letter of Credit Sublimit" means $15,000,000. "AMLP Obligors" mean AMLP and the AMLP Guarantors. "AMLP Pledge and Security Agreement" means a Pledge and Security Agreement in substantially the form of Exhibit B-4 between AMLP and the Agent, as from time to time amended. "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 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 Credit Agreement ---------------- -8- 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 if the principal of and interest on the Terra Facility D Advances shall be paid in full prior to the first anniversary of the Closing Date, 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 date of such payment in full, until the first anniversary of the Closing Date, 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 reduced 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 ---------------- -9- 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. "Assumption Time" has the meaning set forth in Section 2.14. "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 Credit Agreement ---------------- -10- 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 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). "BMC" means Beaumont Methanol Corporation, a Delaware corporation and a wholly owned Subsidiary of BMCH. Credit Agreement ---------------- -11- "BMCH" has the meaning specified in the Preliminary Statements. "Borrower" means each of the Company and AMLP; 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 Terra Facility, to the Company, and (b) in the case of any AMLP Facility, to AMLP. "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 AMLP, the account of AMLP 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. "Borrowing" means a Terra Borrowing or an AMLP Borrowing. "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 Credit Agreement ---------------- -12- 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 (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. Credit Agreement ---------------- -13- "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 the date of the initial Advances hereunder. "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. "Commitment" means a Terra Commitment or an AMLP Commitment. "Company" means (a) prior to the Assumption Time, Terra and (b) from and after the Assumption Time, Terra Capital. "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). Credit Agreement ---------------- -14- "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "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. "Credit Parties" means Terra, Terra Capital Holdings, Terra Capital, AMCI, AMC, AMLP, BMCH, BMC and TI; provided, that after the Assumption Time, any reference herein to AMCI as a "Credit Party" shall be a reference to Terra as the successor thereto. "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. Credit Agreement ---------------- -15- "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 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 Credit Agreement ---------------- -16- 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. "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. Credit Agreement ---------------- -17- "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 Terra Capital 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, Terra Capital 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 Terra Capital. "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, 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 Credit Agreement ---------------- -18- 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 Credit Agreement ---------------- -19- Materials, including, without limitation, CERCLA, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic 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 Credit Agreement ---------------- -20- 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) 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 Credit Agreement ---------------- -21- 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. 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 Credit Agreement ---------------- -22- 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, 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 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 Credit Agreement ---------------- -23- (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. "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. "Facility" means a Terra Facility or an AMLP Facility. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day 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 August 25, 1994 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 Advances outstanding under Terra Facility E and AMLP Facility B, plus (c) the aggregate Credit Agreement ---------------- -24- 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). "Grower Notes Receivable" means notes receivable that arise from the sale of chemicals, fertilizers or similar products or services to dealers or growers, and, in the case of growers, receivables that arise from advances to pay expenses of such growers incurred in the production of crops. "Guaranteed Obligations" means the Terra Guaranteed Obligations and the AMLP Guaranteed Obligations. "Guarantors" means the Terra Guarantors and the AMLP 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 (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 Credit Agreement ---------------- -25- 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 substantially 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. "Initial Merger" has the meaning specified in the Preliminary Statements. "Initial Merger Date" means the date of consummation of the Initial Merger. "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 Credit Agreement ---------------- -26- 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 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) a Borrower may not select any Interest Period that ends after any Principal Payment Date for a Facility relating to such Borrower 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 Commitment Termination Date for the relevant Facility; (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 Credit Agreement ---------------- -27- 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 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. "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 AMLP L/C Cash Collateral Account. "L/C Related Documents" has the meaning specified in Section 2.13(e). Credit Agreement ---------------- -28- "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 a Commitment or that has outstanding Advances under such Facility. "Letter of Credit Commitment" means the Terra Letter of Credit Commitment or the AMLP Letter of Credit Commitment, "Letter of Credit Liability" means a Terra Letter of Credit Liability or an AMLP Letter of Credit Liability, and "Letter of Credit Sublimit" means the Terra Letter of Credit Sublimit or the AMLP 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. "Loan Documents" means, collectively, this Agreement, the Notes, the Security Documents and the Loan Purchase Agreement. "Loan Purchase Agreement" means an agreement between the Agent and Terra in substantially the form of Exhibit E, 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. Credit Agreement ---------------- -29- "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; (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 Credit Agreement ---------------- -30- 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" has the meaning specified in the Preliminary Statements. "Merger Agreement" has the meaning specified in the Preliminary Statements. "Methanol Hedging Agreement" means the Methanol Hedging Agreement dated as of the Closing Date between BMC and Morgan Stanley Leveraged Equity Fund II, as Agent, as from time to time amended. "Minorco" means Minorco, a Luxembourg corporation, and its successors. "Minorco USA" means Minorco (U.S.A.) Inc., a Colorado corporation, and its successors. Credit Agreement ---------------- -31- "Minorco USA Put Option Agreement" means the Put Option Agreement dated as of August 8, 1994 between Terra and Minorco USA, as from time to time amended. "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 Indebtedness 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 Credit Agreement ---------------- -32- (C) amounts promptly applied or set aside to the repair or replacement of the property suffering such Casualty Event; provided, that 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; (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, the aggregate amount of all cash received by Terra and its Subsidiaries in respect thereof net of reasonable 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 Credit Agreement ---------------- -33- 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). "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 to prepay Terra Facility D Advances pursuant to Section 2.05(b). "New Terra Debt" means any Debt incurred by Terra or any of its Subsidiaries under Section 5.02(b)(vi). "Note" means a Terra Note or an AMLP 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, Credit Agreement ---------------- -34- 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 AMLP Obligors. "OECD" means the Organization for Economic Cooperation and Development. "Other Taxes" has the meaning specified in Section 2.11(b). "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 Credit Agreement ---------------- -35- 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, (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, Credit Agreement ----------------- -36- (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 TI 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, provided, that the principal amount under such replacement or refinancing shall not exceed the principal amount under the facility so replaced or refinanced; and (b) an additional facility entered into by TI (which may be effected by an amendment to the facility referred to in clause (a) of this definition) providing for the sale by TI of Receivables, provided, that (i) no amounts may be outstanding thereunder unless the then aggregate principal amount of Grower Notes Receivable exceeds $50,000,000, (ii) the aggregate amount outstanding thereunder may not at any time exceed $50,000,000 plus reasonable reserves, and (iii) no amount shall be outstanding thereunder for more than 90 days during any calendar year, nor for more than two periods during any calendar year, nor for any single period in excess of 60 days during any calendar year. "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. Credit Agreement ---------------- -37- "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, the Terra Facility B Principal Payment Dates, the Terra Facility C Principal Payment Dates, the Terra Facility D Principal Payment Dates and the AMLP Facility A Principal Payment Date. "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, prior to the Commitment Termination Date for such Facility, the amount of such Lender's Commitment thereunder), and the denominator of which is the aggregate Advances or 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 Terra Capital 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 (provided, that advances by Terra Capital to Terra (indirectly through Terra Capital Holdings) of the proceeds of (i) the Terra Facility C Advances to the extent required to finance the AMCI Change of Control Redemption and (ii) other Advances to the extent such proceeds are used by Terra to prepay an existing loan in the amount of $40,000,000 shall not be included in computing such sum). Credit Agreement ---------------- -38- "Quarterly Dates" shall mean January 20, April 20, July 20 and October 20 in each year, the first of which shall be the first such day after the date of this Agreement, 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 Grower 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 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 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, the Minorco USA Put Option 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 Commitments under all the Facilities, and Credit Agreement ---------------- -39- 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. "Rolling Period" means any period of four consecutive fiscal quarters of Terra. "Second Merger" has the meaning specified in the Preliminary Statements. "Security Documents" means the Holdings Pledge Agreement, the Terra Capital Pledge Agreement, the Subsidiary Pledge and Security Agreement, the AMLP 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 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. "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 Credit Agreement ---------------- -40- 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 Payments" means, for any fiscal year of Terra, (a) all interest due and payable on the AMCI Senior Notes during such fiscal year, (b) all dividends paid on shares of common stock of Terra during such fiscal year in an aggregate amount 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. "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 Credit Agreement ---------------- -41- 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 AMC, BMCH and BMC. "Subsidiary Pledge and Security Agreement" means a Pledge and Security Agreement in substantially the form of Exhibit B-3 hereto between certain of the Terra Guarantors and the Agent, as from time to time amended. "Term Advances" means each of the Terra Facility A Advances, the Terra Facility B Advances, the Terra Facility C Advances, the Terra Facility D Advances and the AMLP Facility A Advances, "Term Commitment" means each of the Terra Facility A Commitments, the Terra Facility B Commitments, the Terra Facility C Commitments, the Terra Facility D Commitments and the AMLP Facility A Commitments, and "Term Facility" means each of Terra Facility A, Terra Facility B, Terra Facility C, Terra Facility D and AMLP Facility A. "Term Facility Commitment Termination Date" means the earlier of (a) November 15, 1994 and (b) the termination or cancellation of the Term Commitments pursuant to this Agreement. "Terminated Facilities" means, collectively, the credit facilities identified in Schedule 3.01(d) hereto. "Terra" has the meaning specified in the recital of parties to this Agreement. "Terra Advance" means an Advance under any Terra Facility, "Terra Borrowing" means a Borrowing under any Terra Facility, "Terra Commitment" means a Commitment under any Terra Facility, and "Terra Facility" means Terra Credit Agreement ---------------- -42- Facility A, Terra Facility B, Terra Facility C, Terra Facility D or Terra Facility E. "Terra Capital" has the meaning specified in the recital of parties to this Agreement. "Terra Capital Holdings" has the meaning specified in the Preliminary Statements. "Terra Capital Pledge Agreement" means a Pledge Agreement in substantially the form of Exhibit B-2 hereto between Terra Capital and the Agent, as from time to time amended. "Terra Facilities 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" means the term credit facility provided hereunder in respect of the Terra Facility A Commitments, "Terra Facility A Advance" means an Advance pursuant to Section 2.01(a), "Terra Facility A Borrowing" means a borrowing consisting of simultaneous Terra Facility A Advances of the same Type, and "Terra Facility A Commitment" has the meaning specified in Section 2.01(a). "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 April 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 Commitments, "Terra Facility B Advance" means an Advance pursuant to Section 2.01(b), "Terra Facility B Borrowing" means a borrowing consisting of simultaneous Terra Facility B Advances of the same Type, and "Terra Facility B Commitment" has the meaning specified in Section 2.01(b). "Terra Facility B Note" means a promissory note of the Company payable to the order of a Lender, in substantially Credit Agreement ---------------- -43- 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 April 20, 1995 through and including October 20, 2001. "Terra Facility C" means the term credit facility provided hereunder in respect of the Terra Facility C Commitments, "Terra Facility C Advance" means an Advance pursuant to Section 2.01(c), "Terra Facility C Borrowing" means a borrowing consisting of simultaneous Terra Facility C Advances of the same Type, and "Terra Facility C Commitment" has the meaning specified in Section 2.01(c). "Terra Facility C Commitment Termination Date" means the earlier of (a) 106 days after the Closing Date (provided, that if such day is not a Business Day, the Terra Facility C Commitment Termination Date shall be the next succeeding Business Day) and (b) the termination or cancellation of the Terra Facility C Commitments pursuant to this Agreement. "Terra Facility C Principal Payment Dates" mean the first anniversary of the date of the AMCI Change of Control Redemption and each semi-annual anniversary thereof to and including the first such date in 2001, and the Quarterly Date falling nearest to October 20, 2001. "Terra Facility D" means the term credit facility provided hereunder in respect of the Terra Facility D Commitments, "Terra Facility D Advance" means an Advance pursuant to Section 2.01(d), "Terra Facility D Borrowing" means a borrowing consisting of simultaneous Terra Facility D Advances of the same Type, and "Terra Facility D Commitment" has the meaning specified in Section 2.01(d). "Terra Facility D Principal Payment Dates" mean the Quarterly Dates falling on or nearest to April 20 and Credit Agreement ---------------- -44- October 20 of each year, commencing with April 20, 1995 through and including October 20, 2001. "Terra Facility E" means the revolving credit facility provided hereunder in respect of the Terra Facility E Commitments, "Terra Facility E Advance" means an Advance pursuant to Section 2.01(e), "Terra Facility E Borrowing" means a borrowing consisting of simultaneous Terra Facility E Advances of the same Type, and "Terra Facility E Commitment" has the meaning specified in Section 2.01(e). "Terra Facility E Commitment Termination Date" means the earlier of (a) the date five years after the Closing Date (provided, that if such day is not a Business Day, the Terra Facility E Commitment Termination Date shall be the immediately preceding Business Day), and (b) the termination or cancellation of the Terra Facility E Commitments pursuant to the terms of this Agreement. "Terra Guaranteed Obligations" has the meaning specified in Section 8.01(a). "Terra Guarantors" means, from and after the Assumption Time, Terra Capital Holdings, AMC, BMCH, BMC and Terra. "Terra L/C Cash Collateral Account" means 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 Terra Capital or any of its Subsidiaries (other than AMLP 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. Credit Agreement ---------------- -45- "Terra Letter of Credit Liability" means, as of any date of determination, all of the liabilities of Terra Capital 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 $30,000,000. "Terra Note" means a Terra Facilities Note or a Terra Facility B Note. "Terra Obligors" means the Terra Guarantors and the Company. "TI" has the meaning specified in the Preliminary Statements. "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. "Total Commitment" means, with respect to each Lender, the aggregate of such Lender's Terra Commitments and AMLP Commitments. "Transactions" has the meaning specified in the Preliminary Statements. "Trigger Date" means the earliest date as of which each of the following is true: (a) the principal of and interest on the Terra Facility C Advances and the Terra Facility D Advances have been paid in full; Credit Agreement ---------------- -46- (b) the aggregate outstanding principal amount of the Terra Facility A Advances and the Terra Facility B Advances does not exceed $100,000,000; and (c) the Debt to Cash Flow Ratio for the most recently completed four fiscal quarters of Terra ending on or most recently ended prior to the date of determination does not exceed 2.50 to 1. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "Unused AMLP Working Capital Commitment" means, with respect to any Lender at any time, (a) such Lender's AMLP Facility B Commitment at such time minus (without duplication) (b) the sum of (i) the aggregate outstanding principal amount of all AMLP Facility B Advances made by such Lender and (ii) such Lender's Pro Rata Share of the aggregate Available Amount of all AMLP Letters of Credit outstanding at such time and of all unreimbursed drawings thereunder. "Unused Terra Working Capital Commitment" means, with respect to any Terra Facility E Lender at any time, (a) such Lender's Terra Facility E Commitment at such time minus (without duplication) (b) the sum of (i) the aggregate outstanding principal amount of all Terra Facility E Advances made by such Lender and (ii) such Lender's Pro Rata Share of the aggregate Available Amount of all Terra Letters of Credit outstanding at such time and of all unreimbursed drawings thereunder. "U.S. Dollars" and "$" means lawful money of the United States of America. "Working Capital Advance" means a Terra Facility E Advance or an AMLP Facility B Advance, "Working Capital Borrowing" means a Terra Facility E Borrowing or an AMLP Facility B Borrowing, "Working Capital Commitment" means a Terra Facility E Commitment or AMLP Facility B Commitment, "Working Capital Commitment Termination Date" means the Terra Facility E Commitment Termination Date or the AMLP Credit Agreement ---------------- -47- Facility B Commitment Termination Date, and "Working Capital Facility" means Terra Facility E or AMLP Facility B. 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". 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) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "Terra Facility A Advance") to Terra on the Initial Merger Date in an amount not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 hereof under the caption "Terra Facility A 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 Facility A Commitment" (such amount being such Lender's "Terra Facility A Commitment"), and, as to all Lenders, in an aggregate amount not to exceed $150,000,000. (ii) The Terra Facility A Advances shall be made by the Lenders ratably according to their respective Terra Facility A Commitments. (iii) Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. Credit Agreement ---------------- -48- (iv) The proceeds of the Terra Facility A Advances shall be used by Terra solely to make a capital contribution to Acquisition Corp. on the Initial Merger Date in order to assist in financing the consummation of the Merger and to pay fees and expenses in connection therewith. (b) Terra Facility B. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "Terra Facility B Advance") to Terra on the Initial Merger Date in an amount not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 hereof under the caption "Terra Facility B 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 Facility B Commitment" (such amount being such Lender's "Terra Facility B Commitment"), and, as to all Lenders, in an aggregate amount not to exceed $80,000,000. (ii) The Terra Facility B Advances shall be made by the Lenders ratably according to their respective Terra Facility B Commitments. (iii) Amounts borrowed under this Section 2.01(b) and repaid or prepaid may not be reborrowed. (iv) The proceeds of the Terra Facility B Advances shall be used by Terra solely to make a capital contribution to Acquisition Corp. on the Initial Merger Date in order to assist in financing the consummation of the Merger and to pay fees and expenses in connection therewith. (c) Terra Facility C. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "Terra Facility C Advance") to the Company on the date of the AMCI Change of Control Redemption, if any, but in any event before the Terra Facility C Commitment Termination Date, in an amount not to exceed the amount set forth Credit Agreement ---------------- -49- opposite such Lender's name on Schedule 2.01 hereof under the caption "Terra Facility C 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 Facility C Commitment" (such amount being such Lender's "Terra Facility C Commitment"), and, as to all Lenders, in an aggregate amount not to exceed $177,000,000. (ii) The Terra Facility C Advances shall be made by the Lenders ratably according to their respective Terra Facility C Commitments. (iii) Amounts borrowed under this Section 2.01(c) and repaid or prepaid may not be reborrowed. (iv) The proceeds of the Terra Facility C Advances shall be used by the Company solely to finance payments, if any, required to be made as a result of any AMCI Change of Control Redemption. (d) Terra Facility D. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "Terra Facility D Advance") to Terra on the Initial Merger Date in an amount not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 hereof under the caption "Terra Facility D 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 Facility D Commitment" (such amount being such Lender's "Terra Facility D Commitment"), and, as to all Lenders, in an aggregate amount not to exceed $80,000,000. (ii) The Terra Facility D Advances shall be made by the Lenders ratably according to their respective Terra Facility D Commitments. (iii) Amounts borrowed under this Section 2.01(d) and repaid or prepaid may not be reborrowed. Credit Agreement ---------------- -50- (iv) The proceeds of the Terra Facility D Advances shall be used by Terra solely to make a capital contribution to Acquisition Corp. on the Initial Merger Date in order to assist in financing the consummation of the Merger and to pay fees and expenses in connection therewith, and to refinance certain indebtedness of Terra. (e) Terra Facility E. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances ("Terra Facility E Advances") to the Company from time to time on any Business Day during the period from the Assumption Time until the Terra Facility E 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 Facility E 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 Facility E Commitment" (such amount being such Lender's "Terra Facility E Commitment"), and, as to all Lenders, in an aggregate amount at any one time outstanding not to exceed $175,000,000. (ii) The Terra Facility E Advances shall be made by the Lenders ratably according to their respective Terra Facility E Commitments. (iii) Within the limits of each Lender's Terra Facility E Commitment in effect from time to time, the Company may borrow under this Section 2.01(e) 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(e); provided, that the aggregate outstanding principal amount of Terra Facility E Advances when added to the aggregate Terra Letter of Credit Liability may not at any time exceed the aggregate amount of the Terra Facility E Commitments at such time. Credit Agreement ---------------- -51- (iv) The proceeds of the Terra Facility E Advances shall be used solely to finance the ongoing working capital needs of the Company, TI and BMC. (v) Notwithstanding the foregoing provisions of Section 2.01(e), 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 Facility E Borrowing or the last day of the previous such 12-month period and ending one year thereafter, no Terra Facility E Borrowings may be made or outstanding under this Section 2.01(e); provided, that this Section 2.01(e)(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 Facility E Advances in respect thereof pursuant to Section 2.13(c), which Terra Facility E Advances (subject to the other terms and conditions of this Agreement) may remain outstanding during such period. (f) AMLP Facility A. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (an "AMLP Facility A Advance") to AMLP on the Initial Merger Date in an amount not to exceed the amount set forth opposite such Lender's name on Schedule 2.01 under the caption "AMLP Facility A 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 "AMLP Facility A Commitment" (such amount being such Lender's "AMLP Facility A Commitment"), and, as to all Lenders, in an aggregate amount not to exceed $35,000,000. (ii) The AMLP Facility A Advances shall made by the Lenders ratably according to their respective AMLP Facility A Commitments. (iii) Amounts borrowed under this Section 2.01(f) and repaid or prepaid may not be reborrowed. Credit Agreement ---------------- -52- (iv) The proceeds of the AMLP Facility A Advances shall be used solely to refinance outstanding indebtedness of AMLP. (g) AMLP Facility B. (i) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances ("AMLP Facility B Advances") to AMLP from time to time on any Business Day during the period from the Assumption Time until the AMLP Facility B 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 "AMLP Facility B 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 "AMLP Facility B Commitment" (such amount being such Lender's "AMLP Facility B Commitment"), and, as to all Lenders, in an aggregate amount at any one time outstanding not to exceed $50,000,000. (ii) The AMLP Facility B Advances shall be made by the Lenders ratably according to their respective AMLP Facility B Commitments. (iii) Within the limits of each Lender's AMLP Facility B Commitment in effect from time to time, AMLP may borrow under this Section 2.01(g) 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(g); provided, that the aggregate outstanding principal amount of AMLP Facility B Advances when added to the aggregate AMLP Letter of Credit Liability may not at any time exceed the aggregate amount of the AMLP Facility B Commitments at such time. (iv) The proceeds of the AMLP Facility B Advances shall be used solely for the ongoing working capital needs of AMLP. Credit Agreement ---------------- -53- (v) Notwithstanding the foregoing provisions of Section 2.01(g), AMLP agrees that, for a period of 30 consecutive days during each period of 12 consecutive months commencing on the date of the initial AMLP Facility B Borrowing or the last day of the previous such 12-month period and ending one year thereafter, no AMLP Facility B Borrowings may be made or outstanding under this Section 2.01(g); provided, that this Section 2.01(g)(v) shall not prevent AMLP from requesting the issuance of AMLP Letters of Credit during such period pursuant to Section 2.13, or the Lenders from making AMLP Facility B Advances in respect thereof pursuant to Section 2.13(c), which AMLP Facility B Advances (subject to the other terms and conditions of this Agreement) may remain outstanding during such period. (h) 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. (i) 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 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 Credit Agreement ---------------- -54- Borrowing (subject to clause (ii) below), (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) The Terra Facility A Advances, Terra Facility B Advances and Terra Facility D Advances and the AMLP Facility A Advances shall initially be made as Base Rate Advances. (iii) 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). (iv) Each Lender shall, before 1:00 P.M. (New York City time) on the date of each Borrowing, 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 Facility E 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 AMLP Facility B Borrowing, the Agent shall first make a portion of such funds equal to any unreimbursed drawing under any AMLP 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) no 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 Credit Agreement ---------------- -55- 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 any 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 Borrowing under a Facility under which such Lender has a Commitment 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 such time under Section 2.06 Credit Agreement ---------------- -56- 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 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) Terra 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 for Terra as follows: (i) in the case of the Terra Facility A Advances, in 10 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 ---------------------- ------ April 20, 1995 $15,000,000 October 20, 1995 15,000,000 April 20, 1996 15,000,000 October 20, 1996 15,000,000 April 20, 1997 15,000,000 October 20, 1997 15,000,000 April 20, 1998 15,000,000 October 20, 1998 15,000,000 Credit Agreement ---------------- -57- April 20, 1999 15,000,000 October 20, 1999 15,000,000 (ii) in the case of the Terra Facility B Advances, in 14 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: Terra Facility B Principal Payment Date Falling on or Nearest To Amount ---------------------- ------ April 20, 1995 $ 500,000 October 20, 1995 500,000 April 20, 1996 500,000 October 20, 1996 500,000 April 20, 1997 500,000 October 20, 1997 500,000 April 20, 1998 500,000 October 20, 1998 500,000 April 20, 1999 500,000 October 20, 1999 15,100,000 April 20, 2000 15,100,000 October 20, 2000 15,100,000 April 20, 2001 15,100,000 October 20, 2001 15,100,000 (iii) in the case of the Terra Facility C Advances, in 13 consecutive semi-annual installments, one such installment to be payable on each Terra Facility C Principal Payment Date set forth below in a principal amount equal to the amount set forth below opposite such Terra Facility C Principal Payment Date: Credit Agreement ---------------- -58- Terra Facility C Principal Payment Date Amount ---------------------- ------ First such Date $13,615,384.62 Second such Date 13,615,384.62 Third such Date 13,615,384.62 Fourth such Date 13,615,384.62 Fifth such Date 13,615,384.62 Sixth such Date 13,615,384.62 Seventh such Date 13,615,384.62 Eighth such Date 13,615,384.62 Ninth such Date 13,615,384.62 Tenth such Date 13,615,384.62 Eleventh such Date 13,615,384.62 Twelfth such Date 13,615,384.62 Thirteenth such Date 13,615,384.56 (iv) in the case of the Terra Facility D Advances, in 14 consecutive semi-annual installments, one such installment to be payable on each Terra Facility D Principal Payment Date set forth below in a principal amount equal to the amount set forth below opposite such Terra Facility D Principal Payment Date: Terra Facility D Principal Payment Date Falling on or Nearest To Amount ---------------------- ------ April 20, 1995 $5,714,285.72 October 20, 1995 5,714,285.72 April 20, 1996 5,714,285.72 October 20, 1996 5,714,285.72 April 20, 1997 5,714,285.72 October 20, 1997 5,714,285.72 April 20, 1998 5,714,285.72 October 20, 1998 5,714,285.72 April 20, 1999 5,714,285.72 October 20, 1999 5,714,285.72 April 20, 2000 5,714,285.72 October 20, 2000 5,714,285.72 Credit Agreement ---------------- -59- April 20, 2001 5,714,285.72 October 20, 2001 5,714,285.64 (b) Terra Facility E Advances. The Company hereby promises to pay to the Agent for the account of each Lender the full outstanding principal amount of the Terra Facility E Advances of such Lender on the Terra Facility E Commitment Termination Date. (c) AMLP Facility A Advances. AMLP hereby promises to pay to the Agent for the account of each Lender the full outstanding principal amount of the AMLP Facility A Advances of such Lender on the AMLP Facility A Principal Payment Date. (d) AMLP Facility B Advances. AMLP hereby promises to pay to the Agent for the account of each Lender the full outstanding principal amount of the AMLP Facility B Advances of such Lender on the AMLP Facility B Commitment Termination Date. (e) 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. (iii) If the amount of the Borrowing under any Term Facility is less than the aggregate amount of the initial Commitments under such Facility, the shortfall shall be applied to reduce ratably the installments of such Facility payable under Section 2.03(a). Section 2.04. Termination or Reduction of the Commitments. Credit Agreement ---------------- -60- (a) Optional. The Borrowers may, upon not less than two Business Days' notice to the Agent, terminate in whole or reduce in part the Commitments of the Lenders as follows: (i) The Company shall have the right at any time or from time to time (x) at any time prior to the Closing Date to terminate in full the Terra Commitments, (y) at any time to terminate in full or reduce the Terra Facility C Commitments, and (z) at any time to terminate in full or reduce the aggregate unused amount of the Terra Facility E Commitments; and (ii) AMLP shall have the right at any time or from time to time (x) prior to the first borrowing under this Agreement by AMLP, to terminate in full the AMLP Commitments, and (y) at any time to terminate in full or reduce the aggregate unused amount of the AMLP Facility B Commitments; provided, that (i) each partial reduction of the Commitments under any Facility shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and (ii) the aggregate amount of the Commitments under any Working Capital Facility shall not be reduced below the Letter of Credit Commitment for such Facility. (b) Mandatory. (i) Each Term Commitment other than the Terra Facility C Commitments shall be automatically and permanently reduced to zero on the Term Facility Commitment Termination Date, and any portion of such Term Commitments not used on the Initial Merger Date shall be automatically and permanently terminated at the close of business (New York City time) on the Initial Merger Date. The Terra Facility C Commitments shall be automatically and permanently reduced to zero on the Terra Facility C Commitment Termination Date, and any portion thereof not used on the date of the AMCI Change of Control Redemption shall be automatically and permanently terminated at the close of business (New York City time) on said date. Credit Agreement ---------------- -61- (ii) The Terra Facility E Commitments shall be automatically and permanently reduced to zero on the Terra Facility E Commitment Termination Date. (iii) The AMLP Facility B Commitments shall be automatically and permanently reduced to zero on the AMLP Facility B Commitment Termination Date. (iv) Commitments once terminated or reduced may not be reinstated. (c) Reductions Pro Rata. Each reduction of the Commitments under any Facility shall be applied to the respective Commitments of the Lenders according to their respective Pro Rata Shares of such Facility. 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 the 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 Credit Agreement ---------------- -62- 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 principal amount of the Advances then outstanding under such 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 (and, after the prepayment in full of the principal of and interest on the Term Advances under the Terra Facilities, AMLP) shall prepay the Advances in an aggregate amount equal to 75% of Excess Cash Flow for such fiscal year; 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%. (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 (and, after the prepayment in full of the principal of and interest on the Term Advances under the Terra Facilities, AMLP) 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 TI of Receivables under a Permitted TI Receivables Facility shall not be deemed to be a Disposition for purposes of this clause (ii); and (z) upon the payment in full of the principal of and interest on the Terra Facility C Advances and the Terra Facility D Advances, Credit Agreement ---------------- -63- the figure 100% set forth above shall automatically be deemed to be reduced to 75%. (iii) Equity Issuance. Upon the making of any Equity Issuance or any other public issuance of securities (including without limitation the New Terra Equity), the Company (and, after the prepayment in full of the principal of and interest on the Term Advances under the Terra Facilities, AMLP) shall prepay the Advances in an aggregate amount equal to 100% of the Net Available Proceeds thereof; provided, that this clause (iii) shall cease to apply upon the payment in full of the principal of and interest on the Terra Facility C Advances and the Terra Facility D Advances. (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 Borrowers 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; provided, that upon the payment in full of the principal of and interest on the Terra Facility C Advances and the Terra Facility D Advances, 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) 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-Consummation of Merger. If on the Closing Date the Transactions are not consummated, Terra hereby promises Credit Agreeement ----------------- -64- to pay on demand to the Agent for account of the Lenders the full outstanding principal amount of the Advances. (c) Application. (i) Prepayments described in Section 2.05(b) shall (except as provided in clauses (ii), (iii) and (iv) below) be applied as follows: (w) first, to the prepayment of the Terra Facility A Advances and the Terra Facility B Advances ratably according to the respective aggregate outstanding principal amounts thereof and to the respective installments thereof ratably; (x) second, after the payment in full of the Terra Facility A Advances and the Terra Facility B Advances, to the prepayment of the Terra Facility C Advances and the Terra Facility D Advances ratably according to the respective aggregate outstanding principal amounts thereof and to the respective installments thereof ratably; and (y) third, after the payment in full of the Terra Facility C Advances and the Terra Facility D Advances, to the prepayment of the AMLP Facility A Advances and to the installments thereof ratably. (ii) Prepayments hereunder in respect of any issuance of New Terra Equity under Section 2.05(b) shall be applied as follows: (x) first, to the prepayment of the Terra Facility D Advances and to the installments thereof in the inverse order of their maturities; and (y) second, to the prepayment of the Terra Facility C Advances and to the installments thereof in the inverse order of their maturities. Credit Agreement ---------------- -65- (iii) Prepayments hereunder in respect of the public issuance of securities other than the New Terra Equity shall be applied first to the prepayment of the Terra Facility C Advances and to the installments thereof in the inverse order of their maturities and, thereafter, if such securities are debt securities, in accordance with clause (c)(i) above. (iv) Prepayments hereunder in respect of any Disposition of, or Casualty Event in respect of, any property of AMLP or any of its Subsidiaries shall be applied to the prepayment of the AMLP Facility A Advances. (d) Cover for Letter of Credit Liabilities. In the event that a Borrower shall be required pursuant to Section 6.02 to cash collateralize Letters of Credit or otherwise provide cover for Letter of Credit Liabilities, such Borrower shall effect the same by paying to the Agent immediately available funds in an amount equal to the required amount, which funds shall be retained by the Agent in the L/C Collateral Account for the relevant Facility (as provided therein as collateral security for the Letter of Credit Liabilities under such Facility) until such time as the Letters of Credit under such Facility shall have been terminated and all of such Letter of Credit Liabilities paid in full. (e) 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. 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 AMLP shall pay interest on the unpaid principal amount of each AMLP 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: Credit Agreement ---------------- -66- (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 portion of such Lender's Commitment under each Terra Facility and Credit Agreement ---------------- -67- (ii) in the case of AMLP, on the average daily unused portion of such Lender's Commitment under each AMLP Facility, in each case for the period from the date specified in the Fee Letter (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 Commitment Termination Date for such Facility at the Applicable Commitment Fee Rate, payable in arrears (x) on the Closing Date, (y) quarterly thereafter on each Quarterly Date (in the case of a Working Capital Facility) and (z) on the Commitment Termination Date for such Facility. (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 Facility E Commitment Termination Date and calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day. (ii) AMLP 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 AMLP 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 AMLP 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 AMLP Facility B Commitment Termination Date and Credit Agreement ---------------- -68- 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, 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 Closing 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 Credit Agreement ---------------- -69- 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 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 Credit Agreement ---------------- -70- 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 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 Credit Agreement ---------------- -71- 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 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 Credit Agreement ---------------- -72- 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 under each Facility under which such Lender has a Commitment 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 Credit Agreement ---------------- -73- 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 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 Credit Agreement ---------------- -74- 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 (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 Credit Agreement ---------------- -75- 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 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 Credit Agreement ---------------- -76- 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 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 Credit Agreement ---------------- -77- 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. Credit Agreement ---------------- -78- (f) For any period with respect to which a Lender has failed to provide the Borrowers and the Agent with the 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 Credit Agreement ---------------- -79- 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. Section 2.13. Letters of Credit. (a) Issuance of Letters of Credit. 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 Terra Facility E being herein called "Terra Letters of Credit" and letters of credit so issued under AMLP Facility B being herein called "AMLP Letters of Credit"; the Terra Letters of Credit and the AMLP 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 Commitment Termination Date for the relevant Facility; provided, that: (i) the Terra Facility E Commitments shall be utilized under this Section 2.13 solely for the issuance of Terra Letters of Credit for the account of Terra Capital and, to the extent specified by Terra Capital, any of its Subsidiaries (other than AMLP or any of its Subsidiaries); (ii) the AMLP Facility B Commitments shall be utilized under this Section 2.13 solely for the issuance of AMLP Letters of Credit for the account of AMLP and, to the extent specified by AMLP, any of its Subsidiaries; Credit Agreement ---------------- -80- (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 Commitment Termination Date for the relevant Facility. On each day during the period commencing with the issuance by an Issuing Bank of any Terra Letter of Credit and until such Letter of Credit shall have been drawn in full or expired or been terminated, the Terra Facility E 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 AMLP Letter of Credit and until such Letter of Credit shall have been drawn in full or expired or been terminated, the AMLP Facility B 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 Credit Agreement ---------------- -81- 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 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. Credit Agreement ---------------- -82- (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 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 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 Credit Agreement ---------------- -83- 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 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. Credit Agreement ---------------- -84- (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 the 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; Credit Agreement ---------------- -85- (iv) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, 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. Assumption. (a) The Lenders, the Issuing Banks, the Agent and Terra hereby agree that, upon the execution and delivery of this Agreement by each of them, this Agreement shall be effective and binding on them, notwithstanding the fact that Terra Capital Holdings, Terra Capital, AMC, AMLP, BMCH and BMC shall not have then executed and delivered this Agreement. (b) Each of Terra and Terra Capital agrees that until the consummation of the Initial Merger it shall hold the proceeds of the initial Borrowing in trust for the Lenders, and shall cause them to be immediately paid to the Agent for application in accordance with Section 2.05(b)(v) if the Initial Merger does not occur on the Closing Date. Credit Agreement ---------------- -86- (c) Terra unconditionally agrees that immediately upon the consummation of the Initial Merger it will cause each of the other Transactions to occur, and that immediately upon the consummation of the Transactions (the time of such consummation being herein called the "Assumption Time"), it will cause Terra Capital Holdings, Terra Capital, AMC, AMLP, BMCH and BMC to execute and deliver this Agreement. (d) Terra Capital hereby agrees that, effective at the Assumption Time, Terra Capital shall be the "Company" for all purposes hereof and shall be bound by, and shall assume, all of the obligations of Terra hereunder, without prejudice, however, to the obligations of Terra under Article VIII. (e) Each Credit Party agrees to take such actions and execute such other documents as may be reasonably requested by the Agent or any Lender to effectuate the purposes of this Section 2.14. Section 2.15. 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 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 Credit Agreement ---------------- -87- 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 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)(vii) with respect to such assignment; or (ii) (x) terminate the 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 Credit Agreement ---------------- -88- "Substitute Lender") to assume Commitments hereunder and to make Advances hereunder in an amount equal to the respective 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)(vii) with respect to such assignment, and (z) in the case of a Substitute Lender that will assume a Terra Facility B Commitment or 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 relevant 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 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 2.15: (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 Commitments that shall have been terminated pursuant to said clause (b) (including the Commitments then proposed to be terminated) shall exceed 30% of the aggregate amount of the Commitments in effect on the Closing Date. ARTICLE III Credit Agreement ---------------- -89- CONDITIONS OF LENDING Section 3.01. Documentary Conditions Precedent to Initial Borrowing. The obligation of each Lender to make an Advance on the occasion of the initial Borrowing is subject to the conditions precedent that the Agent shall have received the following, each in form and substance satisfactory to it (provided, that the documents hereinafter referred to as being executed and delivered by Terra Capital Holdings, Terra Capital, AMC, AMLP, BMCH and BMC shall be deemed to be delivered at the Assumption Time): (a) The Notes, duly executed by each Borrower. (b) Evidence that all conditions precedent to the consummation of the Merger set forth in the Merger Agreement have been satisfied or, with the prior written approval of the Agent, modified or waived. For the purposes of this Section 3.01(b), any such condition precedent required in the Merger Agreement to be satisfactory to, or subject to the discretion of, Terra or Acquisition Corp. shall be required to be reasonably satisfactory to, or subject to the reasonable discretion of, the Agent. (c) Evidence that Terra has received a cash equity contribution from Minorco USA pursuant to the Minorco USA Put Option Agreement, or cash proceeds of a public offering of stock, in an amount not less than $100,000,000 and that Terra has contributed the full amount thereof to Acquisition Corp. (d) Evidence of the cancellation of all commitments and letters of credit under, of the payment in full of all amounts owing under, and of the termination of all security interests securing indebtedness under, the Terminated Facilities. (e) Evidence of receipt of all governmental and third party consents and approvals necessary in connection with the Transactions, this Agreement and the related grants of security interest (without the imposition of any conditions Credit Agreement ---------------- -90- except those that are acceptable to the Lenders) and that the same remain in effect, and that all applicable waiting periods have expired without any action being taken by any competent authority and that no law or regulation exists, in the judgment of the Lenders, that restrains, prevents or imposes adverse conditions upon the Transactions, this Agreement or the other transactions contemplated by this Agreement. (f) 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 Borrower at least one Business Day prior to the date of the initial Borrowing). (g) The following documents, each dated such day (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) certified copies of the resolutions of the Board of Directors of each Obligor approving the Transactions, this Agreement, the Notes, each other Loan Document and each Related Document to which such Obligor is or is to be a party, and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Transactions, this Agreement, the Notes, each other Loan Document and each Related Document; (ii) a copy of the charter or articles of incorporation or articles of limited partnership, as the case may be, of each Obligor and each amendment thereto, certified (as of a date reasonably near the date of the initial Borrowing) by the Secretary of State of the state of its incorporation or organization as being a true and correct copy thereof; Credit Agreement ---------------- -91- (iii) a copy of a certificate of the Secretary of State of the state of each Obligor's incorporation or organization, dated a date reasonably near the date of the initial Borrowing, specifying the date of incorporation or organization of each Obligor, stating that such Obligor has filed all annual reports and paid all fees with respect to such reports and stating that such Obligor has legal existence and is in good standing with the office of said Secretary of State; (iv) for each Obligor, a copy of a certificate of the Secretary of State of each state set forth on Schedule 3.01(g)(iv) opposite the name of such Obligor, each dated a date reasonably near the date of the initial Borrowing, confirming that such Obligor is duly qualified to conduct business and in good standing as a foreign corporation in such state; (v) 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 date of the initial Borrowing (the statements made in which certificate shall be true on and as of the date of the initial Borrowing), 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 date of the Secretary of State's certificate referred to in Section 3.01(g)(iii), (B) a true and correct copy of the bylaws of such Obligor as in effect on the date of the initial Borrowing, 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; (vi) a certificate of Terra, signed on its behalf by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the initial Borrowing (the statements made in which Credit Agreement ---------------- -92- certificate shall be true on and as of the date of the initial Borrowing), certifying as to (A) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the initial Borrowing (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 (B) the absence of any event occurring and continuing, or resulting from the initial Borrowing, that constitutes a Default or Event of Default; and (vii) a certificate of the Secretary or an Assistant Secretary of each Obligor certifying the names and true signatures of the officers of such Obligor authorized to sign this Agreement, the Notes (if applicable), each other Loan Document and each Related Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder. (h) The Holdings Pledge Agreement, the Terra Capital Pledge Agreement, the Subsidiary Pledge and Security Agreement and the AMLP Pledge and Security Agreement, in each case duly executed by each of the intended parties thereto, together with: (i) instruments evidencing the Pledged Stock referred to therein indorsed in blank, (ii) such appropriately completed and duly executed copies of Uniform Commercial Code financing statements as the Agent shall have requested in order to perfect and protect the Liens created by such Security Documents and covering the Collateral described therein, (iii) 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 perfect and protect the Liens created thereby, and Credit Agreement ---------------- -93- (iv) evidence that all other action that the Agent may deem necessary or desirable in order to perfect and protect the Liens created by such Security Documents has been or will be taken, including, but not limited to, (x) evidence of the termination of any and all Liens against the property of the respective Obligors in respect of existing Debt terminated or satisfied and extinguished in accordance with Section 3.01(d) and (y) evidence of the termination of any and all existing Permitted Liens (except such Permitted Liens, if any, that the Lenders will permit to survive the Closing Date, as set forth on Part II of Schedule 5.02(a)(iii)). (i) The Loan Purchase Agreement, duly executed by Terra and the Agent. (j) Financial projections and a budget for Terra and its Subsidiaries after giving effect to the Transactions, for each fiscal year of Terra from and including the current fiscal year to and including the fiscal year in which the final Principal Payment Date is scheduled to occur. (k) Certified copies of each of the Related Documents, duly executed by the parties thereto and in form and substance satisfactory to the Agent, the Lenders and each Issuing Bank, together with copies of all agreements, instruments and other documents delivered in connection therewith. (l) Letters and certificates, in form and substance satisfactory to the Lenders, attesting to the Solvency of (1) Terra, after giving effect to the Transactions and the other transactions contemplated hereby, (2) AMCI, after giving effect to the Initial Merger, and (3) Terra Capital, after giving effect to the Transactions and the other transactions contemplated hereby, from Valuation Research Corporation and from the Senior Financial Officer, respectively. Credit Agreement ---------------- -94- (m) Evidence of insurance naming the Agent as loss payee in respect of tangible Collateral with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is satisfactory to the Agent. (n) 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. (o) A favorable opinion of Milbank, Tweed, Hadley & McCloy, special New York counsel for the Agent, in form and substance satisfactory to the Agent. (p) 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. Section 3.02. Additional Conditions Precedent to Initial Borrowing. The obligation of each Lender to make an Advance on the occasion of the initial Borrowing is also subject to the conditions precedent that (a) the initial Borrowing shall occur no later than the Term Facility Commitment Termination Date; (b) there shall not have occurred since March 31, 1994 any material adverse change in the business, assets, operations, properties or financial condition of Terra and its Subsidiaries taken as a whole, AMCI and its Subsidiaries taken as a whole or TI and its Subsidiaries taken as a whole (or in the contingent liabilities of the relevant Person and its Subsidiaries, taken as a whole, 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 Terra or AMCI and their respective Subsidiaries; (c) the Agent shall be satisfied with the sources and uses of the financing for the Merger and the aggregate amount of unused Commitments immediately after giving effect thereto; (d) the Lenders shall be satisfied with the final terms and conditions of the Transactions (including, without limitation, the Merger Agreement and the Credit Agreement ---------------- -95- legal structure and capitalization of each Obligors); and (e) there shall exist no action, suit, investigation, litigation or proceeding affecting any Obligor pending or threatened before any court, governmental agency or arbitration that could reasonably be expected to have a Material Adverse Effect or purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Note, any other Loan Document, any Related Document, the Transactions or the consummation of the transactions contemplated hereby. Section 3.03. Conditions Precedent to Initial AMLP Borrowing. The obligation of each Lender to make an Advance on the occasion of the initial AMLP Borrowing, and the right of AMLP to request the issuance of any AMLP Letter of Credit, is subject to the conditions precedent that (a) the Terra Facility A Advances, the Terra Facility B Advances and the Terra Facility D Advances shall have been made, (b) each of Terra Capital Holdings, Terra Capital, AMLP, AMC, BMC and BMCH shall have executed and delivered this Agreement and each other Loan Document to which it is intended to be a party, and (iii) the Transactions shall have been consummated. Section 3.04. Conditions Precedent to Initial Terra Facility C Borrowing. The obligation of each Lender to make its Terra Facility C Advance is subject to the conditions precedent that the conditions precedent set forth in Sections 3.02(b), 3.02(e) and 3.03 shall be satisfied with respect to and as of the date of such Terra Facility C Advance and that Terra shall certify to the Agent that such Advances are required to finance payments by Terra in respect of the AMCI Change of Control Redemption. Section 3.05. Conditions Precedent to Each Borrowing and Issuance. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including, without limitation, the initial Borrowing, but excluding 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 any 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 Credit Agreement ---------------- -96- 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 3.06. Determinations Under Sections 3.01 and 3.02. For purposes of determining compliance with the conditions specified in Sections 3.01 and 3.02, 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 initial Borrowing specifying its objection thereto and such Lender shall not have made available to the Agent such Lender's ratable portion of such Borrowing. Credit Agreement ---------------- -97- ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of the Company. The Company represents and warrants as follows (provided, that until the consummation of the Merger, each representation and warranty herein with respect to AMC, AMCI, AMLP, BMCH or BMC or any of their respective Subsidiaries shall be to the best knowledge of the Company): (a) Each Obligor (i) is a corporation (or, in the case of AMLP, 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 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) hereto is a complete and accurate list of all Material Subsidiaries of each Obligor as of the date of the initial Borrowing, both before and after giving effect to the Transactions, 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 Credit Agreement ---------------- -98- 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 AMLP, 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, each other Loan Document and each Related Document to which it is or is intended to be a party, and the consummation of the Transactions and the other transactions contemplated hereby, are within such Obligor's powers (corporate or other), have been (or will, prior to the initial Borrowing, be) duly authorized by all necessary corporate action, and do not (i) contravene such Obligor's charter, by-laws or in the case of AMLP, its agreement of limited partnership, (ii) violate any 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 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 Credit Agreement ---------------- -99- 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, any other Loan Document or any Related Document to which it is or is to be a party, or for the consummation of the Transactions or the other transactions 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(h)) 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. On the date of initial Borrowing, all applicable waiting periods in connection with the Transactions and the other transactions contemplated hereby have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse Credit Agreement ---------------- -100- conditions upon the Transactions or the rights of the Obligors or their Subsidiaries. (e) This Agreement has been, and each of the Notes, each other Loan Document and each Related 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, each other Loan Document and each Related 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, 1993 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 June 30, 1994, and the related statements of income and cash flows of Terra for the six 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 June 30, 1994, and said statements of income and cash flows for the six 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 March 31, 1994, there has been no Material Adverse Change with respect to Terra. (g) (A) No written information, exhibit or report (as at the date of the initial Borrowing) 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 Credit Agreement ---------------- -101- 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 date of the initial Borrowing could reasonably be expected to affect the legality, validity or enforceability of this Agreement, any Note, any other Loan Document, any Related Document, the Transactions 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, and 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. (j) Set forth on Schedule 4.01(j) hereto is a complete and accurate list, as of the date of the initial Borrowing, 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 Credit Agreement ---------------- -102- 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 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 Closing 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 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 Credit Agreement ---------------- -103- 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 any properties described in the Mortgages 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 date of the initial Borrowing 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. (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 date of the initial Borrowing 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 Credit Agreement ---------------- -104- 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) hereto 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 date of the initial Borrowing, 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 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 Credit Agreement ---------------- -105- of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (x) Each of Terra and Terra Capital (both individually and collectively with their respective Subsidiaries) (i) is Solvent, and (ii) will be Solvent after giving effect to the Transactions. (y) Set forth on Part I of Schedule 4.01(y) hereto is a complete and accurate list, as of the date of the initial Borrowing, of all existing Debt of each Obligor, after giving effect to the cancellations and payments contemplated by Section 3.01(d), showing as of the date of the initial Borrowing (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. 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 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 ---------------- -106- (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. Credit Agreement ---------------- -107- (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 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 Merger and the other Transactions, 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 Credit Agreement ---------------- -108- 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 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. Credit Agreement ---------------- -109- (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 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 Credit Agreement ---------------- -110- 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; and (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. (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 or Issuing Bank through the Agent may reasonably require Credit Agreement ---------------- -111- 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. Within 90 days after the Closing Date, cause Terra Capital to enter into, and thereafter 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. (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 (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; (ii) Terra Credit Agreement ---------------- -112- 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 Terra Capital, and will own no other property (other than cash and other property incidental to its business as a holding company); (iii) Terra Capital will at all times own, beneficially and of record, all of the issued and outstanding capital stock (other than directors' qualifying shares) of TI, AMC and BMCH, and will own no other property (other than cash and other property incidental to its business as a holding company); (iv) BMCH will at all times own, beneficially and of record, all of the issued and outstanding capital stock (other than directors' qualifying shares) of BMC, and will own no other property (other than cash and other property incidental to its business as a holding company); (v) AMC will own no property other than ownership interests of Agricultural and Minerals Company, L.P., a Delaware limited partnership, the name of which will hereafter be changed to Terra Nitrogen Company, L.P. ("AMCLP") and a general partnership interest in AMLP (other than cash and other property incidental to its business as a holding company); and (vi) AMCLP will own no property other than ownership interests of AMLP (other than cash 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 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, in the event that AMLP shall at any time convert to a corporate form, Terra shall, and shall cause each of its Subsidiaries owning shares of such corporation to, subject always to compliance with Regulation U and other applicable laws and governing documents, (i) pledge all such shares owned by Terra or such Subsidiary, as the case may be, to the Agent pursuant to a written instrument in form and substance satisfactory to the Agent, (ii) deliver to the Agent all certificates representing such shares of stock, accompanied by undated Credit Agreement ---------------- -113- stock powers executed in blank, and (iii) deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by each Obligor pursuant to Section 3.01 hereof upon the Closing Date or as any Lender or Issuing Bank or the Agent shall have requested. 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 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; (iii) the existing Liens 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 Credit Agreement ---------------- -114- Obligations in respect of letters of credit permitted under Section 5.02(b)(iv); (v) Liens on Receivables of TI to secure TI's Obligations under the Permitted TI 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 payment in full of the principal of and interest on the Terra Facility C Advances and the Terra Facility D Advances, the figure 80% set forth above shall automatically be deemed to be increased to 90%); (vii) Any Lien arising after the date of this Agreement 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 Credit Agreement ---------------- -115- 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 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 date hereof, 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; Credit Agreement ---------------- -116- (xiv) additional Liens upon property created after the date hereof, provided, that the aggregate Debt secured thereby and incurred on and after the date hereof 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. (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; Credit Agreement ---------------- -117- (v) Obligations of TI under the Permitted TI 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 proceeds of which are used first to repay the Terra Facility C Advances and, after the repayment in full of the Terra Facility C Advances, to repay Advances in the manner specified in Section 2.05(c)(i); (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; (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 date hereof 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 Credit Agreement ---------------- -118- above shall be deemed to be increased to $50,000,000); and (xii) renewals, refinancings and replacements of the Debt permitted under clauses (vi), (vii) and (ix) 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 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 Terra Capital may be merged or consolidated with or into Terra Capital (provided, that Terra Capital shall be the continuing or surviving corporation) or any other wholly owned Subsidiary of Terra Capital and (y) Terra Capital 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 Terra Capital, Terra Capital is the continuing or surviving corporation, and (2) in any other case, the continuing or surviving corporation is a wholly owned Subsidiary of Terra Capital; and (ii) nothing herein shall be deemed to prohibit any of the Transactions. Credit Agreement ---------------- -119- (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 Obligor to another and by an Obligor to one of its or 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 (iii), (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; and Credit Agreement ---------------- -120- (iv) nothing in this Section 5.02(e) shall prohibit TI from selling Receivables of TI under any Permitted TI Receivables Facility (subject to the restrictions specified in the definition of said term). (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 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)) 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 Credit Agreement ---------------- -121- 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; and (x) Investments made pursuant to Terra's Supplemental Deferred Compensation Plan as in effect on the date hereof. (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 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). (h) Capital Expenditures. Make Capital Expenditures in any fiscal year in an aggregate amount, for Terra and its Subsidiaries on a Consolidated basis, exceeding the sum of (i) $40,000,000 plus (ii) 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 Credit Agreement ---------------- -122- Expenditures made 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. (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 (after giving effect to the Transactions) as carried on at the date hereof. (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 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) through (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 Credit Agreement ---------------- -123- 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. (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. Credit Agreement ---------------- -124- 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 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 each of Terra, Terra Capital and AMLP, Terra will furnish to the Agent, with sufficient copies for each Lender and each Issuing Bank, Consolidated balance sheets of Terra, Terra Capital and AMLP and their respective 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, Terra Capital and AMLP and their respective 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 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, Terra Capital or AMLP (as the case may be) has taken and proposes to take with respect thereto, (B) stating that since March 31, 1994, there has been no Material Adverse Change with respect to Terra and (C) providing a comparison Credit Agreement ---------------- -125- 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 3.01(j) or Section 5.03(m) 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 each of Terra, Terra Capital and AMLP, 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, Terra Capital and AMLP and their respective Subsidiaries, including therein a Consolidated balance sheet of Terra, Terra Capital and AMLP and their respective 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, Terra Capital and AMLP and their respective 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, Terra Capital and AMLP and their respective 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, Terra Capital and AMLP and their respective 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 Credit Agreement ---------------- -126- 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 Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action that Terra, Terra Capital or AMLP, as the case may be, has taken and proposes to take with respect thereto, (B) stating that since March 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 3.01(j) or Section 5.03(m). (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 Credit Agreement ---------------- -127- 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). (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 Credit Agreement ---------------- -128- under any Environmental Law that could reasonably be expected to have Material Adverse Effect. (j) Delivery of Acknowledgment Copies and Search Reports. Terra shall: (i) on or before the 30th day after the Closing Date, deliver, or cause to be delivered, to the Agent acknowledgment copies or stamped receipt copies of the UCC financing statements and other filings required to be filed thereunder as set forth on Schedule 5.03(k), including, to the extent applicable, filings required to be made with the United States Patent and Trademark Office as promptly as practicable following the delivery thereof to Terra by the United States Patent and Trademark Office, and (ii) on or before the 30th day after the Closing Date, deliver to the Agent completed requests for information, dated on or before such day, listing the financing statements referred to in clause (i) above and all other effective financing statements that name an Obligor as debtor, together with copies of such other financing statements, together with all such other evidence that the Agent may reasonably request in respect of the foregoing. (k) 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, Terra Capital or AMLP shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange. (l) 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 AMLP generally or to holders of Subordinated Indebtedness or New Credit Agreement ---------------- -129- Terra Debt generally, copies of all financial statements and proxy statements so mailed. (m) 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 3.01(j). (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 Commitment hereunder, Terra will: (a) Debt to Cash Flow Ratio. Until the payment in full of the Facility C Advances and the Facility D Advances, 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: Credit Agreement ---------------- -130- 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 payment in full of the principal of and interest on the Facility C Advances and the Facility D Advances, 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: Period Ratio ------ ----- From the Closing Date 0.65 to 1.00 to September 30, 1995 From October 1, 1995 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: Credit Agreement ---------------- -131- 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: 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. Credit Agreement ---------------- -132- 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 Section 2.14 or clause (e), (o) or (p) of Section 5.01, or clause (a), (b), (c), (d), (e), (g) or (i) 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 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, Credit Agreement ---------------- -133- 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 ---------------- -134- 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 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 payment in full of the principal of and interest on the Facility C Advances and the Facility D Advances, 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 payment in full of the principal of and interest on the Facility C Advances and the Facility D Advances, (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 Credit Agreement ---------------- -135- 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 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 Credit Agreement ---------------- -136- (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 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 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 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 Borrower. 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 Credit Agreement ---------------- -137- 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. 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 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 Credit Agreement ---------------- -138- 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 ---------------- -139- 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 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 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 Credit Agreement ---------------- -140- 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 Pledge Agreement, under the Subsidiary Pledge and Security Agreement, and under the AMLP 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 Credit Agreement ---------------- -141- 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 Company, 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 Company, 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 Credit Agreement ---------------- -142- 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 or otherwise) in accordance with the terms of such extension or renewal. (b) The AMLP 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 Credit Agreement ---------------- -143- otherwise) of the principal of and interest on the AMLP Advances made by the Lenders to, and the Notes held by each Lender of, AMLP and all other amounts from time to time owing to the Lenders, each Issuing Bank or the Agent by AMLP under this Agreement and under the Notes and by any AMLP 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 "AMLP Guaranteed Obligations"). The AMLP Guarantors hereby further jointly and severally agree that if AMLP shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the AMLP Guaranteed Obligations, the AMLP 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 AMLP 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 AMLP 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 AMLP under this Agreement, Credit Agreement ---------------- -144- 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 AMLP 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 AMLP 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. Credit Agreement ---------------- -145- 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 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). Credit Agreement ---------------- -146- 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. 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 Credit Agreement ---------------- -147- 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 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 Credit Agreement ---------------- -148- 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 or 3.02 or, in the case of the initial Borrowing or the Terra Facility C Borrowing, Section 3.03, (2) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number or Credit Agreement ---------------- -149- 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 consent shall, unless in writing and signed by the Required Lenders and each Lender that has a Commitment under the Facility affected by such amendment, waiver or consent, (1) increase the Commitments 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 Commitments under all the Facilities, 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 Credit Agreement ---------------- -150- 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 Company, 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; (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: Robert Alto, 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. Credit Agreement ---------------- -151- 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, 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, Credit Agreement ---------------- -152- 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 Transactions or any part thereof (including, without limitation, the Initial Merger, the Second Merger and any of the other transactions contemplated hereby) or (ii) 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 Transactions or the other transactions 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 Credit Agreement ---------------- -153- 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 any of the Transactions 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 Credit Agreement ---------------- -154- 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 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 Commitment, the Advances owing to it and the Note or Notes held by it); provided, that: Credit Agreement ---------------- -155- (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 Commitment 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 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 Company, 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, Note or Commitment under any Facility shall be made in such manner so that the same portion of its Advances, Note and Commitment under such Facility is assigned to the respective assignee, (v) each such assignment by a Lender of its Advances, Note or Commitment under any of the Terra Facilities (other than Terra Facility B) shall be made in such manner so that the same portion of its Advances, Note and Commitment under all such Facilities is assigned to the respective assignee, (vi) each such assignment by a Lender of its Advances, Note or Commitment under the AMLP Facilities shall be made in such manner so that the same portion of its Advances, Note and Commitment under the AMLP Facilities is assigned to the respective assignee, Credit Agreement ---------------- -156- (vii) 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, and (viii) each such assignment that is to be effected by a Lender on or prior to January 1, 1995 shall be effective only if arranged by or through Citicorp Securities, Inc. for the purpose of effecting a pooled sell-down of Advances and Commitments. 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 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 Credit Agreement ---------------- -157- 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 Commitment under each Facility 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 Credit Agreement ---------------- -158- 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 Borrower. Within five Business Days after its receipt of such notice, the relevant Borrower, at its own expense, shall 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 Commitments assumed by it under the relevant Facilities pursuant to such Assignment and Acceptance and, if the assigning Lender has retained Commitments under such Facilities, a new Note or Notes to the order of the assigning Lender in an amount equal to the Commitments 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 or A-3, 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 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 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 Credit Agreement ---------------- -159- 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, but not less than all, of its rights and obligations under this Agreement to a successor Issuing Bank 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 successor Issuing Bank shall succeed to such rights and obligations and such assigning Issuing Bank shall be discharged from its duties and obligations under this Agreement, including, without limitation, its Letter of Credit Commitment. (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. Credit Agreement ---------------- -160- (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 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 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 relevant 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 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 Credit Agreement ---------------- -161- 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 BORROWERS, 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 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 Commitments. In addition, Credit Agreement ---------------- -162- 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 ---------------- -163- 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. TERRA INDUSTRIES INC. By____________________________ Title: TERRA CAPITAL, INC. By____________________________ Title: AGRICULTURAL MINERALS, LIMITED PARTNERSHIP (the name of which will hereafter be changed to Terra Nitrogen, Limited Partnership) By Agricultural Minerals Corporation (the name of which will hereafter be changed to Terra Nitrogen Corporation), its General Partner By_______________________ Title: TERRA AND AMLP GUARANTORS ------------------------- Credit Agreement ---------------- -164- AGRICULTURAL MINERALS CORPORATION (the name of which will hereafter be changed to Terra Nitrogen Corporation) By____________________________ Title: BEAUMONT METHANOL CORPORATION By____________________________ Title: BMC HOLDINGS, INC. By____________________________ Title: TERRA CAPITAL HOLDINGS By____________________________ Title: THE AGENT --------- CITIBANK, N.A. By____________________________ Title: CO-ARRANGER ----------- CHEMICAL BANK Credit Agreement ---------------- -165- By____________________________ Title: THE ISSUING BANKS ----------------- CITIBANK, N.A. By____________________________ Title: THE LENDERS ----------- CITIBANK, N.A. By____________________________ Title: CHEMICAL BANK By____________________________ Title: BANK OF AMERICA ILLINOIS By____________________________ Title: THE BANK OF NOVA SCOTIA By____________________________ Title: Credit Agreement ---------------- -166- NATIONSBANK OF TEXAS, N.A. By____________________________ Title: COOPERATIVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By____________________________ Title: By____________________________ Title: CAISSE NATIONAL DE CREDIT AGRICOLE By____________________________ Title: ARAB BANKING CORPORATION By____________________________ Title: FIRST BANK NATIONAL ASSOCIATION By____________________________ Title: Credit Agreement ---------------- -167- THE FUJI BANK, LIMITED By____________________________ Title: DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES By____________________________ Title: By____________________________ Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By____________________________ Title: PROTECTIVE LIFE INSURANCE COMPANY By____________________________ Title: Credit Agreement ---------------- EX-4.7 3 AMENDMENT #1 CITIBANK AGREEMENT EXHIBIT 4.7 [EXECUTION COUNTERPART] AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of December 28, 1994, among TERRA INDUSTRIES INC., a Maryland corporation ("Terra"); TERRA CAPITAL, INC., a Delaware corporation ("Terra Capital"); TERRA NITROGEN, LIMITED PARTNERSHIP, a Delaware limited partnership formerly known as Agricultural Minerals, Limited Partnership ("AMLP"); each of the corporations listed on the signature pages hereof under the caption "TERRA AND AMLP GUARANTORS" (each such corporation, and each of Terra, Terra Capital and AMLP, an "Obligor" and, collectively, the "Obligors"); each of the lenders (the "Lenders") listed on the signature pages hereof; and CITIBANK, N.A., as agent for the Lenders and the "Issuing Banks" under the Credit Agreement referred to below (in such capacity, the "Agent"). PRELIMINARY STATEMENTS: Terra, Terra Capital, AMLP, the other Obligors, the Lenders, certain "Issuing Banks" and the Agent are parties to a Credit Agreement dated as of October 20, 1994 (as heretofore amended, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) to be made by said Lenders and Issuing Banks to (1) the Company (as defined in the Credit Agreement) in an aggregate principal or face amount not exceeding $662,000,000, and (2) AMLP in an aggregate principal or face amount not exceeding $85,000,000. The Obligors and the Lenders wish to amend the Credit Agreement in certain respects, all on the terms and conditions herein. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 1, terms defined in the Credit Agreement are used herein as defined therein. Amendment No. 1 --------------- - 2 - Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: A. General. References in the Credit Agreement and the other Loan Documents (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. B. Definitions. Section 1.01 of the Credit Agreement shall be amended: (1) by inserting the following new definition in its appropriate alphabetical location: "Management Agreements" means one or more management agreements entered into after December 15, 1994 between Terra Capital and certain of its Affiliates providing for the performance by Terra Capital of certain treasury, purchasing, legal and/or other services for such Affiliates, as such agreements are in effect from time to time. (2) by deleting the period at the end of clause (vii) in paragraph (b) of the definition of "Excess Cash Flow" therein and substituting "plus" therefor, and by adding in said definition new clauses (b)(viii) and (b)(ix) reading in their entirety as follows: "(viii) the aggregate amount of all optional prepayments of Term Advances made pursuant to Section 2.05(a) during such fiscal year, provided, that each such optional prepayment (other than the optional prepayments of Terra Facility C Advances contemplated in clause (ix) below) is applied to the Advances in the manner specified in Section 2.05(c)(i), 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 Amendment No. 1 --------------- - 3 - Terra Facility C Advances made pursuant to Section 2.05(a) during the fiscal year ending December 31, 1994 or the fiscal year ending December 31, 1995." (3) by amending clause (b) in the definition of "Specified Payments" therein to read in its entirety as follows: "(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 dividends and payments, not exceeding the Allowance for Projected Common Dividends for such fiscal year,". C. Terra Facility E. Section 2.01(e) of the Credit Agreement shall be amended by amending clause (iv) therein to read in its entirety as follows: "(iv) The proceeds of the Terra Facility E Advances shall be used solely to finance the ongoing working capital needs of the Company, TI and BMC, and may also be used to prepay Terra Facility C Advances pursuant to Section 2.05(a)." D. Ownership of the Obligors. Section 5.01(p) of the Credit Agreement shall be amended by amending clause (iii) therein to read in its entirety as follows: "(iii) Terra Capital will at all times own, beneficially and of record, all of the issued and outstanding capital stock (other than directors' qualifying shares) of TI, AMC and BMCH, and will own no other property (other than cash and other property incidental to its business as a holding company and other property used solely in connection with its performance of services pursuant to the terms of the Management Agreements);" Amendment No. 1 --------------- - 4 - E. Delivery of Management Agreements. Section 5.01 of the Credit Agreement shall be amended by adding the following new paragraph (q) therein reading in its entirety as follows: "(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." F. Amendments to Management Agreements. Section 5.02 of the Credit Agreement shall be amended by adding the following new paragraph (p) therein reading in its entirety as follows: "(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." G. Investments. Section 5.02(f) of the Credit Agreement shall be amended: (1) by deleting "and" at the end of clause (ix) therein; (2) by amending clause (x) therein to read in its entirety as follows: "(x) Investments made pursuant to Terra's Supplemental Deferred Compensation Plan, and its Excess Benefit Plan, each as in effect on the date hereof; and"; and Amendment No. 1 --------------- - 5 - (3) by adding a new clause (xi) therein reading in its entirety as follows: "(xi) Investments by Terra consisting of the purchase, redemption, retirement or other acquisition of shares of common stock of Terra." Section 3. Representations and Warranties. The Company hereby represents and warrants to the Lenders, the Issuing Banks and the Agent that: A. the representations and warranties contained in each Loan Document (after giving effect to the amendments thereto contemplated hereby) are correct on and as of the date hereof as if made on and as of such date (or, if any such representation and warranty is expressly stated to be made as of a specific date, as of such specific date) and as if each reference in said representations and warranties to "this Agreement" or "the Credit Agreement" included reference to this Amendment No. 1; and B. no event has occurred and is continuing that constitutes a Default or an Event of Default. Section 4. Conditions Precedent. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the satisfaction of the condition precedent that the Agent shall have received this Amendment No. 1, duly executed by Terra, Terra Capital, AMLP, each of the other Obligors, each Lender and the Agent. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 1 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 1 by signing any such counterpart. This Amendment No. 1 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 1 --------------- - 6 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be executed by their respective officers thereunto duly authorized, as of the date first above written. TERRA INDUSTRIES INC. By____________________________ Title: TERRA CAPITAL, INC. By____________________________ Title: TERRA NITROGEN, LIMITED PARTNERSHIP (formerly known as Agricultural Minerals, Limited Partnership) By Terra Nitrogen Corporation (formerly known as Agricultural Minerals Corporation), its General Partner By_______________________ Title: Amendment No. 1 --------------- - 7 - TERRA AND AMLP GUARANTORS ------------------------- TERRA NITROGEN CORPORATION (formerly known as Agricultural Minerals Corporation) By____________________________ Title: BEAUMONT METHANOL CORPORATION By____________________________ Title: BMC HOLDINGS, INC. By____________________________ Title: TERRA CAPITAL HOLDINGS, INC. By____________________________ Title: THE AGENT --------- CITIBANK, N.A. Amendment No. 1 --------------- - 8 - By____________________________ Title: THE LENDERS ----------- CITIBANK, N.A. By____________________________ Title: CHEMICAL BANK By____________________________ Title: BANK OF AMERICA ILLINOIS By____________________________ Title: THE BANK OF NOVA SCOTIA By____________________________ Title: Amendment No. 1 --------------- - 9 - NATIONSBANK OF TEXAS, N.A. By____________________________ Title: COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By____________________________ Title: By____________________________ Title: CAISSE NATIONAL DE CREDIT AGRICOLE By____________________________ Title: ARAB BANKING CORPORATION By____________________________ Title: Amendment No. 1 --------------- - 10 - FIRST BANK NATIONAL ASSOCIATION By____________________________ Title: THE FUJI BANK, LIMITED By____________________________ Title: DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES By____________________________ Title: By____________________________ Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By____________________________ Title: Amendment No. 1 --------------- - 11 - PROTECTIVE LIFE INSURANCE COMPANY By____________________________ Title: MERRILL LYNCH PRIME RATE PORTFOLIO By____________________________ Title: RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By____________________________ Title: STICHTING RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS 2 (ROSA2) By____________________________ Title: Amendment No. 1 --------------- EX-4.8 4 AMENDMENT #2 CITIBANK AGREEMENT EXHIBIT 4.8 [EXECUTION COUNTERPART] AMENDMENT NO. 2 AMENDMENT NO. 2 dated as of December 28, 1994, among TERRA INDUSTRIES INC., a Maryland corporation ("Terra"); TERRA CAPITAL, INC., a Delaware corporation ("Terra Capital"); TERRA NITROGEN, LIMITED PARTNERSHIP, a Delaware limited partnership formerly known as Agricultural Minerals, Limited Partnership ("AMLP"); each of the corporations listed on the signature pages hereof under the caption "TERRA AND AMLP GUARANTORS" (each such corporation, and each of Terra, Terra Capital and AMLP, an "Obligor" and, collectively, the "Obligors"); each of the lenders (the "Lenders") listed on the signature pages hereof; and CITIBANK, N.A., as agent for the Lenders and the "Issuing Banks" under the Credit Agreement referred to below (in such capacity, the "Agent"). PRELIMINARY STATEMENTS: Terra, Terra Capital, AMLP, the other Obligors, the Lenders, certain "Issuing Banks" and the Agent are parties to a Credit Agreement dated as of October 20, 1994 (as heretofore amended, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) to be made by said Lenders and Issuing Banks to (1) the Company (as defined in the Credit Agreement) in an aggregate principal or face amount not exceeding $662,000,000, and (2) AMLP in an aggregate principal or face amount not exceeding $85,000,000. The Obligors wish to amend the Credit Agreement and certain of the Security Documents in order to permit the conversion of BMC (as defined in the Credit Agreement) from a Delaware corporation to a Delaware limited partnership, and to amend the Credit Agreement in certain other respects, all on the terms and conditions herein. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 2, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date hereof, the Credit Agreement shall be amended as follows: A. General. References in the Credit Agreement and the other Loan Documents (including references to the Credit Agreement as amended hereby) to "this Amendment No. 2 --------------- -2- Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. B. Definitions. Section 1.01 of the Credit Agreement shall be amended: (1) by inserting the following new definitions in their respective alphabetical locations: "Amendment No. 2" means Amendment No. 2 hereto, dated as of December 28, 1994. "BMLP" means Beaumont Methanol, Limited Partnership, a Delaware limited partnership and indirect Subsidiary of Terra Capital. "BMLP Transaction" means, collectively: (a) the formation of TMC by Terra Capital; (b) the formation of BMLP by TMC and BMCH (with TMC holding a 1% general partnership interest in BMLP and BMCH holding a 99% limited partnership interest in BMLP); and (c) the merger (which shall be substantially contemporaneous with, but not prior to, the BMLP Transaction Time) of BMC with and into BMLP, with BMLP being the survivor. "BMLP Transaction Time" means the time as of which each of the conditions set forth in Exhibit H have been satisfied. "TMC" means Terra Methanol Corporation, a Delaware corporation and wholly owned Subsidiary of Terra Capital. (2) by amending the definitions of "AMLP Guarantors", "Credit Parties", "Subsidiary Guarantor" and "Terra Guarantors" therein to read in their entirety as follows: "AMLP Guarantors" means Terra, Terra Capital Holdings, Terra Capital, AMC, BMCH, BMC and (from and after the BMLP Transaction Time) TMC and BMLP. "Credit Parties" means Terra, Terra Capital Holdings, Terra Capital, AMCI, AMC, AMLP, BMCH, BMC, TI and (from and after the BMLP Transaction Time) TMC and BMLP; provided, that (a) after the Assumption Amendment No. 2 --------------- -3- Time, any reference herein to AMCI as a "Credit Party" shall be a reference to Terra as the successor thereto, and (b) after the BMLP Transaction Time, any reference herein to BMC as a "Credit Party" shall be a reference to BMLP as the successor thereto. "Subsidiary Guarantor" means AMC, BMCH, BMC and (from and after the BMLP Transaction Time) TMC and BMLP. "Terra Guarantors" means, from and after the Assumption Time, Terra Capital Holdings, AMC, BMCH, BMC, Terra and (from and after the BMLP Transaction Time) TMC and BMLP. C. Terra Facility E. Section 2.01(e) of the Credit Agreement shall be amended by amending clause (iv) therein to read in its entirety as follows: "(iv) The proceeds of the Terra Facility E Advances shall be used solely to finance the ongoing working capital needs of the Company, TI, BMC and (from and after the BMLP Transaction Time) BMLP, and may also be used to prepay Terra Facility C Advances pursuant to Section 2.05(a)." D. Representations and Warranties. Section 4.01 of the Credit Agreement shall be amended: (1) by amending clause (i) in paragraph (a) thereof to read in its entirety as follows: "(i) is a corporation (or, in the case of AMLP or BMLP, a limited partnership) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization,"; (2) by amending clause (i) in the third sentence of paragraph (b) thereof to read in its entirety as follows: "(i) is a corporation (or, in the case of AMLP or BMLP, a limited partnership) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization,"; and Amendment No. 2 --------------- -4- (3) by amending clause (i) in paragraph (c) thereof to read in its entirety as follows: "(i) contravene such Obligor's charter, by-laws or in the case of AMLP or BMLP, its agreement of limited partnership,". E. Ownership of the Obligors. Section 5.01(p) of the Credit Agreement shall be amended: (1) by amending clauses (iii) and (iv) therein to read in their entirety as follows: "(iii) Terra Capital will at all times own, beneficially and of record, all of the issued and outstanding capital stock (other than directors' qualifying shares) of TI, AMC, BMCH and (from and after the formation of TMC) TMC, and will own no other property (other than cash and other property incidental to its business as a holding company and other property used solely in connection with its performance of services pursuant to the terms of the Management Agreements); (iv) BMCH will own, beneficially and of record, (x) at all times prior to the BMLP Transaction Time, all of the issued and outstanding capital stock (other than directors' qualifying shares) of BMC, and (y) at all times from and after the formation of BMLP, 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);" and (2) by deleting the "and" at the end of clause (v) therein, by deleting the period at the end of clause (vi) therein and substituting a semicolon therefor, and by adding new clauses (vii) and (viii) therein reading in their entirety as follows: "(vii) TMC will own no property other than ownership interests of BMLP (other than cash and other property incidental to its business as a holding company); and (viii) prior to the BMLP Transaction Time, BMLP will own no property (other than its initial, nominal capitalization) and will have no operations." F. Exhibit H. The Credit Agreement shall be amended by adding a new Exhibit H thereto in the form attached as Exhibit H to this Amendment No. 2. Amendment No. 2 --------------- -5- G. Schedule 5.02(f). Schedule 5.02(f) to the Credit Agreement shall be amended by adding, at the end thereof, the following items 18 and 19: "18. Terra Methanol Corporation 19. Beaumont Methanol, Limited Partnership". Section 3. Representations and Warranties. The Company hereby represents and warrants to the Lenders, the Issuing Banks and the Agent that: A. the representations and warranties contained in each Loan Document (after giving effect to the amendments thereto contemplated hereby) are correct on and as of the date hereof as if made on and as of such date (or, if any such representation and warranty is expressly stated to be made as of a specific date, as of such specific date) and as if each reference in said representations and warranties to "this Agreement" or "the Credit Agreement" included reference to this Amendment No. 2; B. no event has occurred and is continuing that constitutes a Default or an Event of Default; and C. the BMLP Transaction will comply with all applicable laws and regulations. Section 4. Conditions Precedent. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the satisfaction of the condition precedent that the Agent shall have received this Amendment No. 2, duly executed by Terra, Terra Capital, AMLP, each of the other Obligors, the Required Lenders and the Agent. Section 5. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 2 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 2 by signing any such counterpart. This Amendment No. 2 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 2 --------------- -6- IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be executed by their respective officers thereunto duly authorized, as of the date first above written. TERRA INDUSTRIES INC. By____________________________ Title: TERRA CAPITAL, INC. By____________________________ Title: TERRA NITROGEN, LIMITED PARTNERSHIP (formerly known as Agricultural Minerals, Limited Partnership) By Terra Nitrogen Corporation (formerly known as Agricultural Minerals Corporation), its General Partner By_______________________ Title: Amendment No. 2 --------------- -7- TERRA AND AMLP GUARANTORS ------------------------- TERRA NITROGEN CORPORATION (formerly known as Agricultural Minerals Corporation) By____________________________ Title: BEAUMONT METHANOL CORPORATION By____________________________ Title: BMC HOLDINGS, INC. By____________________________ Title: TERRA CAPITAL HOLDINGS, INC. By____________________________ Title: THE AGENT --------- CITIBANK, N.A. By____________________________ Title: Amendment No. 2 --------------- -8- THE LENDERS ----------- CITIBANK, N.A. By____________________________ Title: CHEMICAL BANK By____________________________ Title: BANK OF AMERICA ILLINOIS By____________________________ Title: THE BANK OF NOVA SCOTIA By____________________________ Title: NATIONSBANK OF TEXAS, N.A. By____________________________ Title: Amendment No. 2 --------------- -9- COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By____________________________ Title: By____________________________ Title: CAISSE NATIONAL DE CREDIT AGRICOLE By____________________________ Title: ARAB BANKING CORPORATION By____________________________ Title: FIRST BANK NATIONAL ASSOCIATION By____________________________ Title: THE FUJI BANK, LIMITED By____________________________ Title: Amendment No. 2 --------------- -10- DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES By____________________________ Title: By____________________________ Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By____________________________ Title: PROTECTIVE LIFE INSURANCE COMPANY By____________________________ Title: MERRILL LYNCH PRIME RATE PORTFOLIO By____________________________ Title: RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By____________________________ Title: Amendment No. 2 --------------- -11- STICHTING RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS 2 (ROSA2) By____________________________ Title: Amendment No. 2 --------------- EXHIBIT H Conditions Precedent to BMLP Transaction Time --------------------------------------------- 1. Definitions. Terms used herein and not otherwise defined have the meanings given to them in the Credit Agreement (the "Credit Agreement") to which this Exhibit H is attached. 2. Conditions Precedent. The occurrence of the BMLP Transaction Time is subject to the condition precedent that the Agent shall have received, no later than the date five Business Days after the Company shall have notified the Agent of the formation of TMC (but in any event no later than February 1, 1995 or such later date as the Required Lenders may agree in writing), the following, each in form and substance satisfactory to the Agent: (1) Charter Documents, Etc. The following documents, each dated a date reasonably near the date of delivery thereof (unless otherwise specified) and in sufficient copies for the Agent and each Lender: (i) certified copies of the resolutions of the Board of Directors of Terra Capital, BMCH and BMC approving the BMLP Transaction; of each of TMC and BMLP (each, a "New Obligor") approving the BMLP Transaction, the Credit Agreement and each other Loan Document to which it is or is to be a party; and of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to such matters; (ii) a copy of the charter or articles of incorporation or articles of limited partnership, as the case may be, of each New Obligor and each amendment thereto, certified by the Secretary of State of the state of its incorporation or organization as being a true and correct copy thereof; (iii) a copy of a certificate of the Secretary of State of the state of each New Obligor's incorporation or organization specifying the date of incorporation or organization of each New Obligor, stating that such New Obligor has legal existence and is in good standing with the office of said Secretary of State; (iv) for each New Obligor, a copy of a certificate of the Secretary of State of each state reasonably requested by the Agent confirming that such New Obligor is duly qualified to conduct business and in good standing as a foreign corporation in such state; Amendment No. 2 --------------- -2- (v) a certificate of each New Obligor, signed on its behalf by its President or a Vice President and its Secretary or any Assistant Secretary, 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 New Obligor since the date of the Secretary of State's certificate referred to in clause (ii) above, (B) a true and correct copy of the bylaws of such New Obligor as in effect on such date, and (C) the due incorporation or organization and good standing of such New 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 New Obligor; and (vi) a certificate of the Secretary or an Assistant Secretary of each New Obligor certifying the names and true signatures of the officers of such New Obligor authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered under the Credit Agreement and the other Loan Documents. (2) Security Documents. The following documents: (i) an amendment to the Terra Capital Pledge Agreement, duly executed by Terra Capital and the Agent, pursuant to which, inter alia, TMC shall be added as an "Issuer" thereunder, together with instruments representing the shares of capital stock of TMC indorsed in blank; (ii) an amendment to the Subsidiary Pledge and Security Agreement, duly executed by BMCH, BMC, TMC, BMLP and the Agent, pursuant to which, inter alia, TMC and BMLP will become "Grantors" thereunder, BMC will, effective at the BMLP Transaction Time, cease to be an "Issuer" thereunder, and BMCH will pledge its ownership interests in BMLP to the Agent for the benefit of the "Secured Parties" thereunder; (iii) such appropriately completed and duly executed copies of Uniform Commercial Code financing statements as the Agent shall have requested in order to perfect and protect the Liens created by the Security Documents referred to in clauses (i) and (ii) above and covering the Collateral described therein; Amendment No. 2 --------------- -3- (iv) such executed and delivered documents for recordation and filing of or with respect to the Security Documents referred to in clauses (i) and (ii) above that the Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby; and (v) evidence that all other action that the Agent may deem necessary or desirable in order to perfect and protect the Liens created by the Security Documents referred to in clauses (i) and (ii) above has been or will be taken. (3) Opinion of Special Counsel to the Obligors. A favorable opinion of Kirkland & Ellis, special counsel for the Obligors and the New Obligors, covering Amendment No. 2 (and the Credit Agreement as amended by Amendment No. 2), the Security Documents and other matters referred to in clause (2) above (and the Terra Capital Pledge Agreement and the Subsidiary Pledge and Security Agreement as so amended), and such other matters with respect to Amendment No. 2, the BMLP Transaction and the other transactions contemplated thereby as the Agent may reasonably request. (4) Opinion of Special Counsel to the Agent. A favorable opinion of Milbank, Tweed, Hadley & McCloy, special New York counsel for the Agent, in form and substance satisfactory to the Agent. (5) Assumption. An instrument pursuant to which each New Obligor shall, effective as at the BMLP Transaction Time, become a "Subsidiary Guarantor", a "Terra Guarantor" and an "AMLP Guarantor" (and, thereby a "Guarantor", a "Terra Obligor", an "AMLP Obligor" and an "Obligor") under the Credit Agreement and the other Loan Documents, and shall be bound by, and shall assume all of the obligations of a "Subsidiary Guarantor", a "Terra Guarantor" and an "AMLP Guarantor" (and, thereby, all of the obligations of a "Guarantor", a "Terra Obligor", an "AMLP Obligor" and an "Obligor") under, the Credit Agreement and the other Loan Documents. (6) Miscellaneous. Such other approvals, opinions and documents relating to the BMLP Transaction and the other transactions contemplated thereby as any Lender may, through the Agent, reasonably request. Amendment No. 2 --------------- EX-4.9 5 AMENDMENT #3 CITIBANK AGREEMENT EXHIBIT 4.9 [EXECUTION COUNTERPART] AMENDMENT NO. 3 AMENDMENT NO. 3 dated as of February 1, 1995, among TERRA INDUSTRIES INC., a Maryland corporation ("Terra"); TERRA CAPITAL, INC., a Delaware corporation ("Terra Capital"); TERRA NITROGEN, LIMITED PARTNERSHIP, a Delaware limited partnership formerly known as Agricultural Minerals, Limited Partnership ("AMLP"); each of the corporations listed on the signature pages hereof under the caption "TERRA AND AMLP GUARANTORS" (each such corporation, and each of Terra, Terra Capital and AMLP, an "Obligor" and, collectively, the "Obligors"); each of the lenders (the "Lenders") listed on the signature pages hereof; and CITIBANK, N.A., as agent for the Lenders and the "Issuing Banks" under the Credit Agreement referred to below (in such capacity, the "Agent"). The Obligors, the Lenders, certain "Issuing Banks" and the Agent are parties to a Credit Agreement dated as of October 20, 1994 (as heretofore amended, the "Credit Agreement"). The Obligors wish to amend the Credit Agreement in certain respects, all on the terms and conditions herein. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions. Except as otherwise defined in this Amendment No. 3, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 3 below, but effective as of the Closing Date, the Credit Agreement shall be amended as follows: A. General. References in the Credit Agreement and the other Loan Documents (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be references to the Credit Agreement as amended hereby. Amendment No. 3 --------------- - 2 - B. Definitions. Section 1.01 of the Credit Agreement shall be amended by adding, at the end of the definition of "Investment" therein, the following: "; provided, that the purchase of equipment, fixed assets, real property and improvements from such Person do not constitute Investments to the extent the same constitute Capital Expenditures." Section 3. Conditions Precedent. As provided in Section 2 above, the amendments to the Credit Agreement set forth in said Section 2 shall become effective, as of the date hereof, upon the satisfaction of the condition precedent that the Agent shall have received this Amendment No. 3, duly executed by each of the Obligors, the Required Lenders and the Agent. Section 4. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 3 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 3 by signing any such counterpart. This Amendment No. 3 shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to be executed by their respective officers thereunto duly authorized, as of the date first above written. TERRA INDUSTRIES INC. By____________________________ Title: Amendment No. 3 --------------- - 3 - TERRA CAPITAL, INC. By____________________________ Title: TERRA NITROGEN, LIMITED PARTNERSHIP By Terra Nitrogen Corporation, its General Partner By_______________________ Title: TERRA AND AMLP GUARANTORS ------------------------- TERRA NITROGEN CORPORATION By____________________________ Title: Amendment No. 3 --------------- - 4 - BEAUMONT METHANOL, LIMITED PARTNERSHIP By Terra Methanol Corporation, its General Partner By_______________________ Title: TERRA METHANOL CORPORATION By____________________________ Title: BMC HOLDINGS, INC. By____________________________ Title: TERRA CAPITAL HOLDINGS, INC. By____________________________ Title: THE AGENT --------- CITIBANK, N.A. By____________________________ Title: Amendment No. 3 --------------- - 5 - THE LENDERS ----------- CITIBANK, N.A. By____________________________ Title: CHEMICAL BANK By____________________________ Title: ARAB BANKING CORPORATION By____________________________ Title: BANK OF AMERICA ILLINOIS By____________________________ Title: THE BANK OF NOVA SCOTIA By____________________________ Title: CAISSE NATIONAL DE CREDIT AGRICOLE By____________________________ Title: Amendment No. 3 --------------- - 6 - COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK, B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By____________________________ Title: By____________________________ Title: CREDIT LYONNAIS CHICAGO BRANCH and CREDIT LYONNAIS CAYMAN ISLAND BRANCH By____________________________ Title: DRESDNER BANK AG, CHICAGO AND GRAND CAYMAN BRANCHES By____________________________ Title: FIRST BANK NATIONAL ASSOCIATION By____________________________ Title: Amendment No. 3 --------------- - 7 - THE FUJI BANK, LIMITED By____________________________ Title: By____________________________ Title: MELLON BANK, N.A. By____________________________ Title: MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as investment advisor By_______________________ Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By____________________________ Title: Amendment No. 3 --------------- - 8 - NATIONSBANK OF TEXAS, N.A. By____________________________ Title: PROTECTIVE LIFE INSURANCE COMPANY By____________________________ Title: RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By Chancellor Senior Secured Management, Inc., its Portfolio Advisor By_______________________ Title: STICHTING RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS 2 (ROSA2) By Chancellor Senior Secured Management, Inc., its Portfolio Advisor By_______________________ Title: Amendment No. 3 --------------- - 9 - UNION BANK OF SWITZERLAND, CHICAGO BRANCH By____________________________ Title: By____________________________ Title: Amendment No. 3 --------------- EX-10.1.14 6 INCENTIVE AWARD PROGRAM EXHIBIT 10.1.14 TERRA INDUSTRIES INC. INCENTIVE AWARD PROGRAM OFFICER & KEY EXECUTIVE 1995 ---- I. Purpose of the Plan ------------------- The purpose of this Incentive Award Program is to motivate officers and key executives of the company toward achievement of planned annual goals and improved results. II. Eligibility in the Plan ----------------------- Participation in this Incentive Award Program is limited to officers and key executives of Terra Industries Inc., Terra Distribution and Terra Nitrogen where participation is expected to contribute directly to the company's performance and success in accomplishment of its planned goals. III. Special Provisions and Considerations ------------------------------------- Terra's incentive plan year coincides with the company's fiscal year. The Chief Executive Officer will establish the corporate financial goals, which are approved by the Board of Directors, which will be used to establish the 1995 incentive pool. Each officer and key executive participating in this plan will be assigned an index which establishes their target incentive as a percentage of year-end base salary. Each officer and key executive participating in this plan will also establish a set of individual goals or objectives, the importance of each is reflected in their weight which sums to one- hundred percent (100%). The Chief Executive Officer is responsible for approving each plan participant's individual goals or objectives and will reach mutual agreement with each participant on the full set of incentive goals as soon as possible in the 1995 fiscal year. Each plan participant must execute and periodically report on a goal document approved and signed by the Chief Executive Officer. -2- IV. Funding the Officer and Key Executive Incentive Award Program ------------------------------------------------------------- The funding for the officer and key executive incentive award pool is based on the accomplishment of Terra Industries Inc. approved income and return-on-equity objectives, which will fund the incentive pool. The income goal will receive fifty percent (50%) weight and the return-on-equity goal will receive fifty percent (50%) weight. The pool starts to fund at seventy-five percent (75%) when the company's composite performance reaches seventy-five percent (75%) and increases on a percentage basis where one-hundred percent (100%) of composite performance equals a one-hundred percent (100%) funding of the pool. Over-achievement is calculated in the same manner with the pool capped at two-hundred percent (200%) of plan attainment. The pool may be increased by up to twenty percent (20%) at the Chief Executive Officer's discretion. V. Basis of the Incentive Award ---------------------------- The starting point in determining each participant's individual incentive award is the evaluation of the individual objectives. The participant's individual raw award is calculated by taking each participant's year-end salary, times their individual index and then adjusted by their individual performance.* This adjusted raw pool is then compared with the sum of the plan participant's year-end salary, times their index which is then adjusted by the corporation's composite performance. This adjusted raw pool is adjusted up or down to match the incentive pool. All participant incentives are paid from the incentive pool. The Chief Executive Officer has the discretion to adjust any individual's participation up or down to reflect unusual or unplanned events and may increase the incentive pool by an additional twenty percent (20%) to award outstanding/exceptional individual contributions to company performance. The Chief Executive Officer may also choose to award less than the full amount of the pool. *Example: - --------- Year-end Salary ($) X Individual Index (%) X Individual Goal Achievement (%) = Adjusted Raw Award ($) -3- VI. Review, Revision and Modification of the Goals ---------------------------------------------- Under normal business conditions, the corporate goals or individual objectives will not be altered or revised once established for the year. Unexpected and unforeseen developments during the course of the incentive award year may prompt re-examination of an officer's or key executive's established goals. It is the responsibility of each officer and key executive to note the conditions of change which would prompt such a review and take timely action. Such action would include review with the President for need of revision of an established goal as soon as possible after the detected change. The change(s) is subject to final approval of the President. VII. Payment of Award ---------------- The incentive award will be paid each officer and key executive in cash as soon as possible after the close of the fiscal year and after approval of the President's recommendations by the Personnel Committee of the Board of Directors. To be eligible for full payment, the officer or key executive must have been in the employ of Terra Industries Inc. or one (1) of its subsidiaries January 1 of the incentive plan year and must be actively employed by the corporation on the date the incentive award is paid. VIII. Special Provision ----------------- A newly elected officer or key executive will participate in the officer's and key executive's incentive program in proportion to the number of full months worked as an officer or key executive during the incentive program year. An officer or key executive who retires, becomes permanently disabled or dies shall cease to participate in the officer's and key executive's incentive program as of the end of the month coincident with retirement, disability or death. The proportionate incentive award will be paid as soon as possible after the close of the fiscal year. While it is the intent of the company to make awards under this plan and to continue the plan from year to year, it reserves the right to amend or terminate the plan entirely at its discretion. EX-13 7 FINANCIAL REVIEW CONFIDENTIAL 1 FINANCIAL REVIEW CONSOLIDATED RESULTS From an earnings perspective, 1994 was the most successful year in the Corporation's history. 1994 net income increased to $56.6 million from $22.8 million in 1993 and $31.0 million in 1992 with per share earnings of $0.78, $0.33 and $0.45, respectively. Revenues increased to $1.67 billion in 1994 from $1.24 billion in 1993 and $1.08 billion in 1992. 1994 net income included a non-recurring pretax charge of $7.0 million, or $0.06 per share, for the estimated costs associated with an explosion at the Corporation's Port Neal manufacturing plant and an extraordinary loss of $3.1 million, or $0.04 per share, for the early retirement of debt. Additionally, 1994 net income included a net gain of $3.4 million, or $0.05 per share, 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." 1992 net income included a credit of $22.3 million or $0.32 per share to recognize the combined effects 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. FINANCIAL COMPARABILITY AND OVERVIEW The Corporation has expanded its operations over the last two years by increasing its manufacturing capability, expanding its distribution business and increasing the volume of higher margin value-added products. On October 20, 1994, the Corporation acquired the stock of Agricultural Minerals and Chemicals Inc. (AMCI), for $400 million in cash plus working capital adjustments approximating $100 million. Through the AMCI acquisition, the Corporation is the general partner and has acquired a 60% ownership interest in ammonia production and upgrading facilities located in Verdigris, Oklahoma and Blytheville, Arkansas and has acquired a methanol production facility located in Beaumont, Texas. On September 15, 1994, the Corporation acquired a 34% interest in Royster-Clark, Inc. for $12 million in cash. Royster-Clark is a 100 location distributor of crop input and protection products in the mid-Atlantic region. CONFIDENTIAL 2 On December 31, 1993, the Corporation purchased the assets and business of Asgrow Florida, Inc. (Terra Asgrow Florida), a distributor of crop input and protection products, for $39 million. Terra Asgrow Florida operates 12 distribution centers and is a supplier to the vegetable and ornamental plant markets, primarily in Florida. On March 31, 1993, for $19.9 million in cash plus an operating lease, the Corporation acquired the rights to an ammonia production and upgrading facility near Sarnia, Ontario 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. FACTORS THAT AFFECT OPERATING RESULTS Factors that may affect the Corporation's future operating results include: the relative balance of 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 Corporation'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 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, methyl tertiary butyl ether (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 CONFIDENTIAL 3 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 demand for reformulated gasolines in areas where it is not required. Additionally, future demand will be impacted by the availability and use of alternative oxygenates, principally ethyl tertiary butyl ether (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, which for all practical purposes is ethanol. Although there is a current market 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. With the acquisition of AMCI, the Corporation has raised its annual production capacity for methanol from 40 million to 320 million gallons. Approximately 45% of the Corporation's production capacity is subject to a methanol hedge agreement (see Note 12 to the Consolidated Financial Statements) which will affect margins on this portion of the Corporation's methanol production through December 31, 1997 should average methanol prices exceed average natural gas prices by certain amounts. 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 Corporation'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, resulting in a high level of crop carryovers into 1995. The Corporation expects planted corn acreage to decrease from 79.2 million acres in 1994 to about 77 million acres in 1995. Planted cotton acreage is expected to increase to 15.8 million acres in 1995 from 14.1 million acres in 1994. 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 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 CONFIDENTIAL 4 Corporation. During 1994, favorable conditions prevailed during most of the spring and fall allowing 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 Corporation's business. The Corporation's sources for fertilizer, agricultural chemicals and seed are typically manufacturers without the capability to distribute products to the North American grower. The Corporation has entered into purchase agreements which should ensure 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. The Corporation 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. At December 31, 1994, the Corporation had fixed prices for approximately 60% of its 1995 natural gas requirements using supply contracts or financial derivatives. Liquidation of these financial derivatives based on December 31, 1994 market prices would have resulted in a loss of $21.3 million. Realized losses of $4.5 million relating to future periods have been deferred. The Corporation'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 Corporation builds inventories during the first quarter of the year in order to ensure timely product availability during the peak sales season. The Corporation'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 Corporation requires lines of credit to fund inventory increases as well as to support customer credit terms. The Corporation believes that its credit facilities are adequate for expected 1995 sales levels. The Corporation'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 Corporation currently maintains insurance (including business interruption insurance) and expects that it will continue to do CONFIDENTIAL 5 so in an amount which it believes is sufficient to allow the Corporation to withstand major damage to any of its facilities. DERIVATIVE FINANCIAL INSTRUMENTS The Corporation 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 Consolidated Financial Statements for information on the use of derivative financial instruments. RESULTS OF CONTINUING OPERATIONS 1994 COMPARED WITH 1993 CONSOLIDATED RESULTS The Corporation reported income from continuing operations of $56.2 million, or $0.77 per share, on revenues of $1.67 billion in 1994 compared with income from continuing operations of $22.8 million or $0.33 per share on revenues of $1.24 billion in 1993. 1994 results include the operations of Terra Asgrow Florida subsequent to its acquisition on December 31, 1993 and AMCI subsequent to its acquisition on October 20, 1994. These acquisitions added approximately $190 million to revenue and $21 million to income from continuing operations. Excluding the impact of these acquisitions, revenues increased 19% over 1993 and income from continuing operations increased 46%. With the acquisition of AMCI, the Corporation 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 Corporation, and resold by the Corporation. Distribution revenues are derived primarily from grower and dealer customers through sales of chemicals, fertilizers, seed and related services. The Nitrogen Products category represents only those operations directly related to the wholesale sales of nitrogen products from the Corporation's ammonia manufacturing and upgrading facilities. The Methanol category represents only wholesale sales of methanol from the Corporation's two methanol manufacturing facilities. CONFIDENTIAL 6 Total revenues and operating income from continuing operations for the years ended December 31, 1994 and 1993 were as follows:
Pro Forma 1994 (in thousands) (unaudited - see below) 1994 1993 - --------------------------------------------------------------------------------------------- REVENUES: Distribution $1,318,416 $1,318,416 $1,019,438 Nitrogen Products 539,152 296,557 228,910 Methanol 246,404 70,274 --- Other - net (19,145) (19,300) (10,347) - --------------------------------------------------------------------------------------------- $2,084,827 $1,665,947 $1,238,001 ============================================================================================= OPERATING INCOME: Distribution $ 33,784 $ 33,784 $ 16,903 Nitrogen Products 111,961 48,369 28,654 Methanol 129,888 42,679 --- Other expense - net (9,466) (9,537) (3,729) - --------------------------------------------------------------------------------------------- 266,167 115,295 41,828 Interest expense -net (49,367) (16,541) (9,683) Minority interest (34,916) (8,809) --- - --------------------------------------------------------------------------------------------- Total from continuing operations $ 181,884 $ 89,945 $ 32,145 =============================================================================================
The unaudited, pro forma results of operations have been prepared to give effect to the Corporation's (i) acquisition of AMCI, (ii) issuance of 9.7 million Common Shares, and (iii) borrowing under a new credit agreement entered into in connection with the acquisition, assuming that all such transactions had occurred on January 1, 1994. The pro forma financial data are presented for informational purposes only and are not necessarily indicative of the results that actually would have been obtained if the transactions had occurred on January 1, 1994. In addition, the pro forma results are not intended to be a projection of future operating results or trends. DISTRIBUTION Distribution revenues of $1.32 billion in 1994, increased $298 million, or 29%, over 1993 results. Approximately $198 million of the growth relates to a 30% increase in chemical sales resulting principally from the acquisition of Terra Asgrow Florida, which added approximately $80 million, expansion into new locations and higher planted acreage. Growth in the Corporation's own brand of Riverside 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. CONFIDENTIAL 7 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. Through the acquisition and merger with AMCI on October 20, 1994, the Corporation acquired a 60.2% partnership interest in, and operates as the general partner, two ammonia production facilities located in Blytheville, Arkansas and Verdigris, Oklahoma. The Blytheville and Verdigris plants, which increased the Corporation's annual production capacity from 1.3 million to 2.7 million tons of ammonia (including the Port Neal plant), accounted for $60.4 million of revenue growth. Excluding the impact of the 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 Corporation's Woodward, Oklahoma plant from ammonia 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 million non-recurring charge described below, operating earnings increased $7.8 million due to price increases of $15.3 million, partially offset by higher natural gas costs and the conversion of ammonia capacity to methanol. On December 13, 1994, the Corporation's Port Neal facility in Iowa was extensively damaged as a result of an explosion. In addition, there were four employee fatalities plus injuries or damages to other people and property. The Port Neal facility had an annual production capacity of 350,000 tons of ammonia. 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 charge against 1994 earnings to cover its aggregate expected unrecoverable costs associated with the incident, including deductibles and other uninsured costs. CONFIDENTIAL 8 METHANOL In April 1994, about 30% of the production capacity of the Woodward, Oklahoma plant was converted from the production of ammonia to methanol. Additionally, on October 20, 1994, through the acquisition and merger with AMCI, the Corporation acquired a methanol production facility in Beaumont, Texas. The annual methanol production capacity of the Woodward facility is 40 million gallons and the methanol production capacity of the Beaumont facility is 280 million gallons. The Corporation had no methanol operations in 1993. Methanol revenues were $70.3 million and operating income for the Methanol business was $42.7 million in 1994. Gross profit on methanol was $44.8 million and selling and general and administrative expenses were $2.1 million. The market price for methanol increased significantly in the second half of 1994 as a result of sharply higher production of MTBE, an oxygen and octane enhancer used in reformulated gasoline. The Corporation's expansion of its methanol business resulting from the acquisition of AMCI and the increased market price for methanol have had a significant positive impact on the Corporation's earnings. Future demand for methanol and market prices are subject to a variety of factors (see Factors That Affect Operating Results) and management cannot predict with any certainty what 1995 methanol market prices will be. In October 1994, Terra Methanol Corporation (TMC), a wholly owned subsidiary of the Corporation, entered into a methanol hedging agreement. TMC received $4 million in cash in exchange for a commitment to make payments should the market price of methanol increase in relation to the cost of natural gas for defined quantities of production. Due to the increase in methanol prices relative to natural gas subsequent to the agreement, $15.9 million has been recorded as payable under the methanol hedge agreement as of December 31, 1994 (see Note 12 to Consolidated Financial Statements). OTHER OPERATING EXPENSE - NET Other operating expense was $9.5 million in 1994 compared with $3.7 million in 1993. Other operating expense includes corporate level expenses not directly related to individual business segments, including certain insurance coverages, corporate finance fees and other costs. 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. CONFIDENTIAL 9 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 $175 million of long-term debt and the issuance 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. LIQUIDITY AND CAPITAL RESOURCES The Corporation's primary uses for cash will be to fund its working capital needs, make payments on its indebtedness and other obligations, make quarterly distributions on TNCLP's Senior Preference Units and make capital expenditures. Its principal sources of funds will be cash flow from operations and borrowings under its current bank facility. The Corporation 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. During 1994, the Corporation utilized cash from operations, proceeds from a stock issuance and cash available under a new bank facility 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. The Corporation assumed from AMCI $175 million of 10-3/4% Senior Notes. The issuance of 9.7 million Common Shares raised $113 million which was used for the AMCI acquisition. The bank facility 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% Senior Notes. At December 31, 1994, borrowings under the bank facility totaled $359 million. The facility allows for additional borrowings of $211 million. Interest charged under the facility is based on LIBOR. The Corporation 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 million. The amount of debt principal subject to the interest rate collar declines over a three-year period of borrowing. CONFIDENTIAL 10 As a result of financing the AMCI acquisition, the Corporation's debt, including current maturities, as a percentage of total capital was 57% at December 31, 1994 compared with 35% at December 31, 1993. The Corporation plans to pay down debt during 1995 and, in addition to scheduled maturities, the Corporation is required under its new bank facility to use 50-75% of excess annual cash flows, as defined, to repay the bank facility. In addition to the AMCI acquisition, the Corporation funded $16.3 million of farm service center acquisitions from available cash. In 1993, the Corporation acquired the rights to a Canadian ammonia production facility and interests in 32 farm service centers through an operating lease and payment of $19.9 million cash. Additionally, Terra Asgrow Florida was purchased 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 Corporation's Woodward, Oklahoma plant from ammonia to methanol production. The Corporation expects 1995 capital expenditures to be approximately $40 million consisting of the expansion of service centers, routine replacement of equipment and efficiency improvements at manufacturing facilities. Asset sales in 1993 generated $24.4 million including $18.5 million from the sale of the Corporation'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 by $34.3 million due, in part, to $53.8 million of receivables added through acquisitions. Excluding the impact of acquisitions, accounts receivable declined due to the sale of $50 million of a designated pool of outstanding receivables which more than offset the effect of increased fourth quarter sales. Inventories increased $88.0 million including $28.6 million related to acquisitions. The remaining CONFIDENTIAL 11 increase is the result of off-season purchasing to obtain discounts and to meet anticipated product demand. Accounts payable have also increased as a result of the year-end purchases. 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. In July 1993, the Board of Directors authorized a share repurchase program for up to 2.0 million shares. No shares were repurchased in 1994. During 1993, 106,900 shares were repurchased for $0.5 million. Quarterly dividends of $0.02 per share have been declared during 1994 representing a cash outlay of $5.8 million. Cash generated from operations during 1995 is expected to be adequate to meet normal business requirements and pay down debt. Cash balances at December 31, 1994 were $158.4 million of which $9.6 million is used to collateralize letters of credit supporting recorded liabilities. The Corporation's bank facility contains certain restrictions, which are described in Notes 8 and 10. Additionally, in connection with the acquisition of AMCI, the holders of TNCLP's Senior Preference Units representing a 39.8% interest in the Corporation's Blytheville, Arkansas and Verdigris, Oklahoma ammonia plants are entitled to receive a minimum quarterly distribution of $0.605 per unit, or $4.6 million, plus arrearages before any distribution to the Corporation as limited partner. At December 31, 1994 there were no distributions in arrears. RESULTS OF CONTINUING OPERATIONS 1993 COMPARED WITH 1992 CONSOLIDATED RESULTS The Corporation reported income from continuing operations of $22.8 million, or $0.33 per share, on revenues of $1.24 billion in 1993, compared with income from continuing operations of $10.4 million, or $0.15 per share, on revenues of $1.08 billion in 1992. The 1993 results include nine months of operation of the Canadian acquisition which added $98.3 million to revenues and $8.9 million to income from continuing operations. CONFIDENTIAL 12 Total revenues and pretax income from continuing operations for the years ended December 31, 1993 and 1992 by major operating category were as follows:
(in thousands) 1993 1992 - --------------------------------------------------------------- REVENUES: Distribution $1,019,438 $ 958,725 Nitrogen Products 228,910 125,659 Other - net (10,347) (2,193) - --------------------------------------------------------------- $1,238,001 $1,082,191 =============================================================== OPERATING INCOME: Distribution $ 16,903 $ 16,568 Nitrogen Products 28,654 14,841 Other expense - net (3,729) (5,690) - --------------------------------------------------------------- 41,828 25,719 Interest expense - net (9,683) (7,533) - --------------------------------------------------------------- Total from continuing operations $ 32,145 $ 18,186 ===============================================================
DISTRIBUTION Distribution revenues of $1.02 billion in 1993 increased $60.7 million from 1992 sales or 6.3%. Approximately $17.7 million of the sales increase reflected a 3% increase in chemical sales, while the acquisition of the Canadian business 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 business added $4.0 million to Distribution operating income. Domestic 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 Corporation's increased distribution of its Riverside 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 CONFIDENTIAL 13 increased number of locations and excessively wet field conditions. Advertising and promotional expenditures increased $1.3 million from 1992. NITROGEN PRODUCTS Domestic Nitrogen Products revenues increased 20% to $150.7 million in 1993 from $125.7 million in 1992. In addition, the acquisition of the Canadian plant added $78.2 million of manufactured nitrogen sales. Increased domestic sales volumes added 15% to revenues and higher selling prices for nitrogen fertilizer and feed products increased 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 plant contributed $9.5 million to the increase in 1993 operating income. Additional higher domestic 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 million reduction was primarily the result of reversing $4.2 million of product liability reserves expensed in 1989, reflecting the settlement of litigation with 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 Corporation'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. CONFIDENTIAL 14 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 Corporation 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. CONFIDENTIAL 15 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
====================================================================================================== (in thousands) At December 31, - ------------------------------------------------------------------------------------------------------ 1994 1993 - ------------------------------------------------------------------------------------------------------ ASSETS Cash and short-term investments $ 158,384 $ 65,102 Accounts receivable, less allowance for doubtful accounts of $8,224 and $5,788 157,026 122,774 Inventories 332,952 244,995 Deferred tax asset -- current 43,992 26,011 Other current assets 31,069 10,586 - ------------------------------------------------------------------------------------------------------ Total current assets 723,423 469,468 - ------------------------------------------------------------------------------------------------------ Equity and other investments 14,181 2,218 Property, plant and equipment, net 552,843 110,670 Deferred tax asset -- non-current --- 24,742 Excess of cost over net assets of acquired businesses 320,559 12,353 Partnership distribution reserve fund 18,480 --- Net assets of discontinued operations --- 3,488 Other assets 58,484 11,543 - ------------------------------------------------------------------------------------------------------ Total assets $1,687,970 $ 634,482 ====================================================================================================== LIABILITIES Debt due within one year $ 67,658 $ 9,636 Accounts payable 181,050 99,886 Accrued and other liabilities 200,774 128,659 - ------------------------------------------------------------------------------------------------------ Total current liabilities 449,482 238,181 - ------------------------------------------------------------------------------------------------------ Long-term debt 511,706 119,061 Deferred income taxes 84,246 451 Other liabilities 53,477 33,809 Minority interest 170,630 --- Commitments and contingencies (Note 11) --- --- - ------------------------------------------------------------------------------------------------------ Total liabilities 1,269,541 391,502 - ------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY Capital stock Common Shares, authorized 133,500 shares; 80,965 and 69,455 shares outstanding 133,770 122,257 Paid-in capital 630,111 516,128 Cumulative translation adjustment (1,259) (488) Accumulated deficit (344,193) (394,917) - ------------------------------------------------------------------------------------------------------- Total stockholders' equity 418,429 242,980 - ------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,687,970 $ 634,482 =======================================================================================================
See accompanying Notes to the Consolidated Financial Statements. CONFIDENTIAL 16 CONSOLIDATED STATEMENTS OF INCOME
=============================================================================================== (in thousands, except per-share amounts) Year ended December 31, - ----------------------------------------------------------------------------------------------- 1994 1993 1992 - ----------------------------------------------------------------------------------------------- REVENUES Net sales $1,633,499 $1,212,510 $1,062,045 Other income, net 32,448 25,491 20,146 - ----------------------------------------------------------------------------------------------- 1,665,947 1,238,001 1,082,191 - ----------------------------------------------------------------------------------------------- COST AND EXPENSES Cost of sales 1,330,202 1,021,187 904,246 Depreciation and amortization 27,218 15,470 14,994 Selling, general and administrative expense 193,975 161,791 137,232 Equity in earnings of unconsolidated affiliates (743) (2,275) --- - ----------------------------------------------------------------------------------------------- 1,550,652 1,196,173 1,056,472 - ----------------------------------------------------------------------------------------------- Income from operations 115,295 41,828 25,719 Interest income 5,541 3,261 3,084 Interest expense (22,082) (12,944) (10,617) Minority interest (8,809) --- --- - ----------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 89,945 32,145 18,186 Income tax provision 33,700 9,300 7,757 - ----------------------------------------------------------------------------------------------- Income from continuing operations 56,245 22,845 10,429 Loss from discontinued operations: Loss from operations, net of taxes --- --- (4,025) Gain on disposition, net of taxes --- --- 2,360 - ----------------------------------------------------------------------------------------------- Income before extraordinary items and cumulative effect of accounting changes 56,245 22,845 8,764 Extraordinary loss on early retirement of debt (3,060) --- --- Cumulative effect of accounting changes 3,376 --- 22,265 - ----------------------------------------------------------------------------------------------- NET INCOME $ 56,561 $ 22,845 $ 31,029 =============================================================================================== Weighted average number of shares outstanding 72,870 69,064 69,103 =============================================================================================== INCOME PER SHARE: Continuing operations $ 0.77 $ 0.33 $ 0.15 Discontinued operations --- --- (0.02) - ----------------------------------------------------------------------------------------------- Income before extraordinary items 0.77 0.33 0.13 Extraordinary loss on early retirement of debt (0.04) --- --- Cumulative effect of accounting changes 0.05 --- 0.32 - ----------------------------------------------------------------------------------------------- NET INCOME $ 0.78 $ 0.33 $ 0.45 ===============================================================================================
See accompanying Notes to the Consolidated Financial Statements. CONFIDENTIAL 17 CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================================== (in thousands) Year ended December 31, - -------------------------------------------------------------------------------------------------- 1994 1993 1992 - -------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 56,561 $ 22,845 $ 31,029 Adjustments to reconcile income from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 27,218 15,470 14,994 Income taxes 20,956 5,500 6,313 Cumulative effect of accounting changes (3,376) -- (22,265) Minority interest in earnings 8,809 -- -- Other non-cash items 10,923 (839) 2,826 Change in current assets and liabilities, excluding working capital purchased/sold: Accounts receivable 19,615 (24,540) (1,764) Inventories (59,303) (6,718) (32,136) Other current assets (13,056) (2,893) (875) Accounts payable 60,478 (9,945) (2,071) Accrued and other liabilities 39,405 2,452 38 Other 212 (2,354) 684 - -------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 168,442 (1,022) (3,227) - -------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Acquisitions, net of cash acquired (373,722) (58,260) -- Purchase of property, plant and equipment (31,213) (21,620) (17,620) Proceeds from asset sales -- 24,391 23,065 Discontinued operations (2,138) 5,630 (5,504) Proceeds from investments 690 537 -- - -------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (406,383) (49,322) (59) - -------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Net short-term borrowings 13,795 7,313 -- Proceeds from issuance of long-term debt 326,407 250 30,000 Principal payments on long-term debt (101,416) (12,545) (5,842) Debt issuance costs (13,581) -- -- Stock issuance/repurchase -- net 117,666 513 -- Distribution to minority interests (5,040) -- -- Dividends (5,837) (1,386) -- - -------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 331,994 (5,855) 24,158 - -------------------------------------------------------------------------------------------------- Foreign Exchange Effect on Cash and Short-Term Investments (771) (488) -- - -------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 93,282 (56,687) 20,872 - -------------------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR 65,102 121,789 100,917 - -------------------------------------------------------------------------------------------------- CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 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. CONFIDENTIAL 18 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
====================================================================================================================== Cumulative Common Trust Paid-In Translation Accumulated (in thousands) 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 ======================================================================================================================
See accompanying Notes to the Consolidated Financial Statements. CONFIDENTIAL 19 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. CONFIDENTIAL 20 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 a 34% interest in Royster-Clark, Inc. for $12 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 million. Terra Asgrow Florida operates 12 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 results of CONFIDENTIAL 21 operations as if the acquisitions of AMCI, Terra Asgrow Florida and Terra Canada had occurred at the beginning of 1993:
(in thousands, except per-share data) Year ended December 31 - ------------------------------------------------------------------------------- 1994 1993 - ------------------------------------------------------------------------------- Revenues $2,084,800 $1,716,300 Income before extraordinary items and cumulative effect of accounting changes $ 110,370 $ 14,060 Net income $ 110,680 $ 11,510 Income per share before extraordinary items $ 1.37 $ 0.18 Net income per share $ 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 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 CONFIDENTIAL 22 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:
(in millions) 1992 - --------------------------------------------------------------- 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 are made on an ongoing basis. 6. INVENTORIES Inventories consisted of the following at December 31:
(in thousands) 1994 1993 - ----------------------------------------- Raw materials $ 38,988 $ 22,983 Finished goods 293,964 222,012 - ----------------------------------------- Total $332,952 $244,995 =========================================
CONFIDENTIAL 23 7. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consisted of the following at December 31:
(in thousands) 1994 1993 - ---------------------------------------------------------------------------- Land and buildings $ 89,154 $ 66,343 Plant and equipment 605,900 179,095 Finance leases 7,471 --- - ---------------------------------------------------------------------------- 702,525 245,438 Less accumulated depreciation and amortization (149,682) (134,768) - ---------------------------------------------------------------------------- Total $ 552,843 $ 110,670 ============================================================================
8. DEBT DUE WITHIN ONE YEAR Debt due within one year consisted of the following at December 31:
(in thousands) 1994 1993 - ---------------------------------------------------------------- Short-term borrowings $21,108 $ 7,313 Current maturities of long-term debt 46,550 2,323 - ---------------------------------------------------------------- Total $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. CONFIDENTIAL 24 9. ACCRUED AND OTHER LIABILITIES Accrued and other liabilities consisted of the following at December 31:
(in thousands) 1994 1993 - ---------------------------------------------------- Customer deposits $ 66,470 $ 50,714 Payroll and benefit costs 45,630 17,072 Income taxes 8,727 17,025 Other 79,947 43,848 - ---------------------------------------------------- Total $200,774 $128,659 ====================================================
10. LONG-TERM DEBT Long-term debt consisted of the following at December 31:
(in thousands) 1994 1993 - -------------------------------------------------------------------------------------------- Unsecured Senior Notes, 10.75%, due 2003 $158,755 $ --- Bank term loans, floating rate, due in installments through 2001 310,000 --- Bank term loan, floating rate, due 1999 35,000 --- 8.5% Convertible Subordinated Debentures --- 72,057 Unsecured Senior Notes, 8.48%, due 2005 30,000 30,000 Industrial Development Revenue Bonds bearing interest at an average 6.8% with increasing payments from 1995 to 2011 9,210 9,355 Unsecured Notes, 8.75% to 9.63%, due 1996 to 1998 6,500 8,500 Other 8,791 1,472 - -------------------------------------------------------------------------------------------- 558,256 121,384 Less current maturities (46,550) (2,323) - -------------------------------------------------------------------------------------------- Total $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, 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 CONFIDENTIAL 25 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 ==============================================================================
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 CONFIDENTIAL 26 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 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, the proceeds of the uncollected balance of receivables sold totaled $50 million. The Corporation retains collection and administrative responsibility on the participating interests sold. 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 or financial position of the Corporation. 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 CONFIDENTIAL 27 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:
(in thousands) 1994 1993 - -------------------------------------------------------------------------------- Contract Unrealized Contract Unrealized MMBtu Gain (Loss) MMBtu Gain (Loss) - -------------------------------------------------------------------------------- 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% ================================================================================
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. CONFIDENTIAL 28 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. 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 expires March 31, 1995. METHANOL PRICES - TMC entered into a methanol hedging agreement (the Methanol Hedging Agreement) effective October 1994. Pursuant to the agreement, TMC 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 for each of these periods are 155.5 million, 140 million and 130 million gallons, respectively. TMC's methanol production facilities have a production capacity of 320 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 TMC would expect to pay at December 31, 1994 to liquidate the agreement for its remaining term, is approximately $41 million, based on an appraisal. CONFIDENTIAL 29 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 (in millions) Amount Value Amount Value - --------------------------------------------------------------------------- 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. 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. CONFIDENTIAL 30 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. A summary of changes in the Corporation's outstanding capital stock follows:
Common Trust Total (in thousands) Shares Shares Shares - ---------------------------------------------------------------------------- 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 CONFIDENTIAL 31 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 (in thousands) Under Option Per Share - ------------------------------------------------------------------- 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 ===================================================================
The number of options exercisable at December 31 for each of the past three years follows:
Price Range (in thousands) Options Per Share - ------------------------------------------------------------------- 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:
(in thousands) 1994 1993 1992 - -------------------------------------------------------------------------------- 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. CONFIDENTIAL 32 The following table reconciles the plans' funded status to amounts included in the Consolidated Statements of Financial Position at December 31:
(in thousands) 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 - ----------------------------------------------------------------------------------------------------------------------- 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) =======================================================================================================================
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. CONFIDENTIAL 33 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:
(in thousands) 1994 1993 - ------------------------------------------------------------------------------- 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:
(in thousands) 1994 1993 1992 - ------------------------------------------------------------------------------- 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 ===============================================================================
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:
(in thousands) 1994 1993 1992 - ------------------------------------------------------------------------------- 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 ===============================================================================
CONFIDENTIAL 34 19. INCOME TAXES Components of the income tax provision (benefit) applicable to continuing operations are as follows:
(in thousands) 1994 1993 1992 - ----------------------------------------------------------------------------- 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 ============================================================================= The income tax provision differs from the federal statutory provision for the following reasons: (in thousands) 1994 1993 1992 - ----------------------------------------------------------------------------- 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 CONFIDENTIAL 35 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:
(in thousands) 1994 1993 - ------------------------------------------------------------------------------- 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 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:
(in thousands) 1994 1993 1992 - ------------------------------------------------------------------------------- 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. 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 CONFIDENTIAL 36 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 (in thousands) Distribution Products Methanol Other Total - -------------------------------------------------------------------------------------------------- 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. 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 CONFIDENTIAL 37 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. CONFIDENTIAL 38 RESPONSIBILITY FOR FINANCIAL STATEMENTS The accompanying Consolidated Financial Statements of Terra Industries Inc. and its subsidiaries have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances. The integrity and objectivity of data in these financial statements and supplemental data, including estimates and judgments related to matters not concluded by year end, are the responsibility of management. The Corporation has a system of internal accounting controls that provides management with reasonable assurance that transactions are recorded and executed in accordance with its authorizations, that assets are properly safeguarded and accounted for, and that financial records are maintained to permit preparation of financial statements in accordance with generally accepted accounting principles. This system includes written policies and procedures, and organizational structure that segregates duties, and a comprehensive program of periodic audits by the internal auditors. The Corporation also has instituted policies and guidelines that require employees to maintain the highest level of ethical standards. The Audit Committee of the Board of Directors is responsible for the review and oversight of the internal audit function, the financial statements and reporting practices of the Corporation. The Audit Committee meets periodically with management, internal auditors and the independent accountants. The independent accountants and internal auditors have access to the Audit Committee and, without management present, have the opportunity to discuss the adequacy of internal accounting controls and to review the quality of financial reporting. The Consolidated Financial Statements contained in this Annual Report have been audited by our independent accountants. Their audits included a review of internal accounting controls to establish a basis for reliance thereon in determining the nature, extent and timing of audit tests applied in their examinations of the Consolidated Financial Statements. Burton M. Joyce Francis G. Meyer Robert E. Thompson President and Chief Financial Officer Chief Accounting Officer Chief Executive Officer CONFIDENTIAL 39 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 CONFIDENTIAL 40 QUARTERLY PRODUCTION DATA (unaudited) - -------------------------------------------------------------------------------
Quarter Quarter Quarter Quarter Year Ended Ended Ended Ended Ended March 31 June 30 Sept. 30 Dec. 31 Dec. 31 - ------------------------------------------------------------------------------- 1994 Net Production (tons): Anhydrous ammonia 205,426 184,397 137,503 253,286 780,612 Nitrogen solutions 243,628 221,039 211,012 619,512 1,295,191 Urea 55,268 50,493 42,487 149,628 297,876 Methanol (million gallons) --- 6.4 5.6 69.2 81.2 1993 Net Production (tons): Anhydrous ammonia 122,772 192,962 170,344 200,011 686,089 Nitrogen solutions 230,219 238,332 256,659 262,123 987,333 Urea 43,290 64,441 49,763 65,105 222,599 ===============================================================================
QUARTERLY FINANCIAL AND STOCK MARKET DATA (unaudited)
- ---------------------------------------------------------------------------------------------------- (in thousands, except per-share data and stock prices) March 31, June 30, Sept. 30, Dec. 31, - ---------------------------------------------------------------------------------------------------- 1994 Total revenues $ 259,504 $ 818,252 $ 287,905 $ 300,286 Gross profit $ 33,074 $ 137,937 $ 43,590 $ 93,926 Income (loss) before extraordinary items $ (6,285) $ 47,902 $ 699 $ 13,929 Net income (loss) $ (5,523) $ 47,902 $ 699 $ 13,483 Per Share: Income (loss) before extraordinary items $ (0.09) $ 0.68 $ 0.01 $ 0.18 Net income (loss) $ (0.08) $ 0.68 $ 0.01 $ 0.17 Dividends $ 0.02 $ 0.02 $ 0.02 $ 0.02 Common Share price: High $ 8.75 $ 8.25 $ 13.13 $ 13.00 Low $ 6.25 $ 6.63 $ 5.88 $ 8.75 ==================================================================================================== 1993 Total revenues $ 167,110 $ 653,231 $ 250,464 $ 167,196 Gross profit $ 23,026 $ 107,947 $ 35,376 $ 34,995 Income (loss) before extraordinary items $ (8,736) $ 39,573 $ (2,466) $ (5,526) Net income (loss) $ (8,736) $ 39,573 $ (2,466) $ (5,526) Per Share: Income (loss) before extraordinary items $ (0.13) $ 0.57 $ (0.04) $ (0.08) Net income (loss) $ (0.13) $ 0.57 $ (0.04) $ (0.08) Dividends $ --- $ --- $ --- $ 0.02 Common Share price: High $ 4.88 $ 4.25 $ 5.00 $ 7.88 Low $ 3.88 $ 3.50 $ 3.63 $ 4.50 ====================================================================================================
CONFIDENTIAL 41 REVENUES
=============================================================================== (in thousands) 1994 1993 1992 - ------------------------------------------------------------------------------- Manufactured nitrogen products $ 296,557 $ 228,910 $ 125,590 Methanol 70,274 --- --- Resale fertilizer 307,400 257,585 229,136 Crop protection products 859,151 660,616 641,021 Seed 71,355 50,599 51,059 Other 61,210 40,291 35,385 - ------------------------------------------------------------------------------- Total $1,665,947 $1,238,001 $1,082,191 ===============================================================================
STOCKHOLDERS AND DIVIDENDS - ------------------------------------------------------------------------------- The Corporation's Common Shares are traded principally on the New York Stock Exchange. At January 31, 1995, 81.0 million Common Shares were outstanding and held by 5,575 stockholders. During 1989, the Corporation instituted a regular quarterly dividend of $0.03 per share. Dividends paid amounted to $0.12 and $0.09 per share during 1990 and 1989, respectively. The Corporation suspended dividends in 1991 and resumed its quarterly dividend, at $0.02 per share, in the fourth quarter of 1993. CONFIDENTIAL 42 FINANCIAL SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------- (in thousands, except per-share and employee data) 1994 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital $ 273,941 $ 231,287 $ 215,817 $ 156,587 $ 135,374 $ 158,329 Total assets $ 1,687,970 $ 634,482 $ 580,192 $ 517,162 $ 805,279 $ 915,068 Long-term debt $ 558,256 $ 121,384 $ 133,679 $ 114,805 $ 184,324 $ 153,212 Stockholders' equity $ 418,429 $ 242,980 $ 221,476 $ 190,296 $ 321,961 $ 439,056 RESULTS OF OPERATIONS Revenues $ 1,665,947 $ 1,238,001 $ 1,082,191 $ 1,022,597 $ 962,202 $ 949,458 Costs and expenses (1,550,652) (1,196,173) (1,056,472) (996,928) (960,084) (937,277) Interest income 5,541 3,261 3,084 1,789 573 509 Interest expense (22,082) (12,944) (10,617) (14,352) (17,629) (17,643) Minority interest (8,809) --- --- --- --- --- Income tax (provision) benefit (33,700) (9,300) (7,757) (1,073) 816 316 - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 56,245 22,845 10,429 12,033 (14,122) (4,637) Discontinued operations --- --- (1,665) (168,808) (94,379) 29,808 Extraordinary items (3,060) --- --- 5,115 --- --- Cumulative effect of accounting changes 3,376 --- 22,265 --- --- --- - ----------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 56,561 $ 22,845 $ 31,029 $ (151,660) $ (108,501) $ 25,171 ============================================================================================================================= EARNINGS (LOSS) PER SHARE: Continuing operations $ 0.77 $ 0.33 $ 0.15 $ 0.18 $ (0.21) $ (0.07) Discontinued operations --- --- (0.02) (2.51) (1.43) 0.45 Extraordinary (loss) gain on early retirement of debt (0.04) --- --- 0.07 --- --- Cumulative effect of accounting changes 0.05 --- 0.32 --- --- --- - ----------------------------------------------------------------------------------------------------------------------------- Total $ 0.78 $ 0.33 $ 0.45 $ (2.26) $ (1.64) $ 0.38 ============================================================================================================================= DIVIDENDS PER SHARE $ 0.08 $ 0.02 $ --- $ --- $ 0.12 $ 0.09 ============================================================================================================================= CAPITAL EXPENDITURES Continuing operations $ 31,213 $ 21,620 $ 17,620 $ 12,728 $ 10,689 $ 13,568 Discontinued operations --- --- 2,231 8,432 55,139 74,274 - ----------------------------------------------------------------------------------------------------------------------------- Total $ 31,213 $ 21,620 $ 19,851 $ 21,160 $ 65,828 $ 87,842 ============================================================================================================================= Permanent employees at end of period 3,210 2,570 2,020 2,000 1,910 1,800 =============================================================================================================================
Amounts have been restated as appropriate to reflect continuing operations. EX-18 8 LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLES February 1, 1995 Terra Industries Inc. Sioux City, Iowa We have audited the consolidated financial statements of Terra Industries Inc. as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, included in your Annual Report, which is incorporated by reference in your Form 10-K to the Securities and Exchange Commission and have issued our report thereon dated February 1, 1995. Note 3 to such consolidated financial statements contains a description of your change in accounting during the year ended December 31, 1994, for major maintenance turnarounds at manufacturing facilities from accruing such costs prior to the turnarounds to capitalizing such costs and amortizing them ratably over the period until the next scheduled turnaround. In our judgment, such change is to an alternative accounting principle that is preferable under the circumstances. Deloitte & Touche LLP EX-21 9 SUBSIDIARIES OF TERRA INDUSTRIES TERRA INDUSTRIES INC. LIST OF SUBSIDIARIES March 1, 1995
Percentage Percentage Name of Company Held by TRA Held by Sub Jurisdiction - --------------- ----------- ----------- ------------ I. El Rancho Rock & Sand, Inc. 100.0 California II. Hudson Holdings Corporation 100.0 Delaware III. Hudson Bay Gold Inc. 100.0 Canada IV. Inspiration Coal Inc. 100.0 Delaware V. Inspiration Coal Development Company 100.0 Delaware which owns A. Ashland Mining Corporation 100.0 W. Virginia B. Briarwood Mining Inc. 100.0 Virginia C. Plateau Fuels, Inc. 100.0 Kentucky D. Southern Floyd Coal, Inc. 100.0 Kentucky VI. Inspiration Consolidated Copper Company 100.0 Maine which owns A. Black Pine Mining Company 100.0 Montana B. Inspiration Development Company 100.0 Delaware VII. Inspiration Gold Incorporated 100.0 Delaware VIII. Terra Capital Holdings, Inc. 100.0 Delaware which owns A. Terra Capital, Inc. 100.0 Delaware which owns 1. Terra Methanol Corporation 100.0 Delaware 2. Terra International, Inc. 100.0 Delaware which owns a. Farmbelt Chemicals, Inc. 100.0 Delaware b. Farmers Agricultural Credit Corporation 100.0 Iowa c. Northern Agricultural Credit Corporation 100.0 Minnesota d. Riverside/Terra Corporation 100.0 Delaware e. Terra International (Oklahoma) Inc. 100.0 Delaware
TERRA INDUSTRIES INC. LIST OF SUBSIDIARIES MARCH 1, 1995
PERCENTAGE PERCENTAGE NAME OF COMPANY HELD BY TRA HELD BY SUB JURISDICTION - --------------- ----------- ----------- ------------ A. Terra Capital, Inc. (continued) ------------------------------------- 2. Terra International, Inc. (continued) ------------------------------------------- f. Terra Real Estate Corporation 100.0 Iowa g. Terra Real Estate Development Corporation 100.0 Iowa h. Terra Express, Inc. 100.0 Delaware i. Terra Express of Oklahoma, Inc. 100.0 Oklahoma j. Terra International (Canada) Inc. 100.0 Ontario, Canada which owns ---------- 1. Belmont Farm Supply Inc. 50.0 Federal 2. Bluewater Agromart Limited 50.0 Ontario 3. Brussels Agromart Ltd. 50.0 Ontario 4. Cardinal Farm Supply Limited 50.0 Ontario 5. Fingal Farm Supply Limited 50.0 Ontario 6. Grand Falls Agromart Ltd. 50.0 Federal 7. Hartland Agromart Ltd. 50.0 Federal 8. Harvex Agromart Inc. 50.0 Ontario 9. Hoegy's Farm Supply Limited 50.0 Ontario 10. Lakeside Grain & Feed Limited 50.0 Ontario 11. Macroblend Limited 50.0 Ontario 12. Maple Farm Supply Limited 50.0 Ontario 13. Max Underhill's Farm Supply Limited 50.0 Ontario 14. Munro Agromart Ltd. 50.0 Ontario 15. Oakwood Agromart Ltd. 50.0 Ontario 16. Oxford Agropro Ltd. 50.0 Ontario 17. Scotland Agromart Ltd. 50.0 Ontario 18. Setterington's Fertilizer Service Limited 50.0 Ontario 19. Sprucedale Agromart Limited 50.0 Ontario 20. Tri-County Agromart Ltd. 50.0 Ontario
TERRA INDUSTRIES INC. LIST OF SUBSIDIARIES MARCH 1, 1995
PERCENTAGE PERCENTAGE NAME OF COMPANY HELD BY TRA HELD BY SUB JURISDICTION - --------------- ----------- ----------- ------------ A. Terra Capital, Inc. (continued) ------------------------------------- 2. Terra International, Inc. (continued) ------------------------------------------- k. ILI Lone Star, Inc. 100.0 Delaware l. Royster-Clark, Inc. 34.14 Delaware 3. BMC Holdings, Inc. 100.0 Delaware which owns ---------- a. Beaumont Methanol, Limited Partnership/1/ 99.0 Delaware 4. Terra Nitrogen Corporation 100.0 Delaware which owns ---------- a. Terra Nitrogen Company, L.P./2/ 60.2 Delaware which owns ---------- 1. Terra Nitrogen, Limited Partnership/3/ 99.0 Delaware
- ------------------------- /1/Terra Methanol Corporation is 1% General Partner. /2/Terra Nitrogen Corporation's interest includes 1.0101% as General Partner. /3/Terra Nitrogen Corporation is 1% General Partner. EX-24 10 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, EDWARD G. BEIMFOHR hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 11th day of February, 1995. /s/ Edward G. Beimfohr ----------------------------------- EDWARD G. BEIMFOHR POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, CAROL L. BROOKINS hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 14th day of February, 1995. /s/ Carol L. Brookins ---------------------------------------- CAROL L. BROOKINS POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, EDWARD M. CARSON hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 16th day of February, 1995. /s/ Edward M. Carson --------------------------------------- EDWARD M. CARSON POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, DAVID E. FISHER hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 13th day of February, 1995. /s/ David E. Fisher --------------------------------------- DAVID E. FISHER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, BASIL T.A. HONE hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 14th day of February, 1995. /s/ Basil T.A. Hone --------------------------------------- BASIL T.A. HONE POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, BURTON M. JOYCE hereby constitute and appoint George H. Valentine, Francis G. Meyer and W. Mark Rosenbury, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 2nd day of February, 1995. /s/ Burton M. Joyce -------------------------------------- BURTON M. JOYCE POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, ANTHONY W. LEA hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 13th day of February, 1995. /s/ Anthony W. Lea -------------------------------------- ANTHONY W. LEA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, JOHN R. NORTON III hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 16th day of February, 1995. /s/ John R. Norton III --------------------------------------- JOHN R. NORTON III POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, REUBEN F. RICHARDS hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 13th day of February, 1995. /s/ Reuben F. Richards --------------------------------------- REUBEN F. RICHARDS POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, HENRY R. SLACK hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 15th day of February, 1995. /s/ Henry R. Slack --------------------------------------- HENRY R. SLACK POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, FRANCIS G. MEYER hereby constitute and appoint George H. Valentine, W. Mark Rosenbury and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as Vice President and Chief Financial Officer of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 10th day of February, 1995. /s/ Francis G. Meyer --------------------------------------- FRANCIS G. MEYER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, That I, ROBERT E. THOMPSON hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton M. Joyce, or each of them, with full power of substitution and resubstitution, my true and lawful attorney, for me and in my name, place and stead, to sign my name as a director of Terra Industries Inc. (the "Company") to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and any amendments or supplements thereto, and to file said Annual Report and any amendment or supplement thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. I hereby ratify and confirm all that said attorneys, or each of them, or his substitute or substitutes, have done or shall lawfully do by virtue of this Power of Attorney. WITNESS my hand this 21st day of February, 1995. /s/ Robert E. Thompson --------------------------------------- ROBERT E. THOMPSON EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION OF TERRA INDUSTRIES INC. AS OF DECEMBER 31, 1994 AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 88,114 70,270 165,250 8,224 332,952 723,423 712,432 159,589 1,687,970 449,482 511,706 133,770 0 0 284,659 1,687,970 1,633,499 1,665,947 1,339,240 1,346,904 204,491 2,131 22,082 89,945 33,700 56,245 0 (3,060) 3,376 56,561 0.78 0.00
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