As filed with the Securities and Exchange Commission on January 16, 2002.
Registration No. 333-73198
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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TERRA CAPITAL, INC.*
(Exact name of registrant as specified in its charter)
Delaware 2870 42-1431650
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
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Terra Centre
600 Fourth Street, P.O. Box 600
Sioux City, Iowa 51102
Telephone: (712) 277-1340
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
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Copies to:
Francis G. Meyer Carter W. Emerson, Esq.
Terra Centre Kirkland & Ellis
600 Fourth Street, P.O. Box 600 200 E. Randolph Drive
Sioux City, Iowa 51102 Chicago, Illinois 60601
Telephone: (712) 277-1340 Telephone: (312) 861-2000
( Name, address, including zip code, and telephone number, including area code, of agent for service)
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* The companies listed on the next page are also included in this Form S-4
Registration Statement as additional Registrants.
Approximate date of commencement of proposed sale of the securities to the
public: The exchange will commence as soon as practicable after the effective
date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Jurisdiction I.R.S. Employer
Exact Name of Additional Registrants* of Formation Identification No.
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Beaumont Ammonia Inc................ Delaware 39-1917518
Beaumont Holdings Corporation....... Delaware 42-1490799
BMC Holdings Inc.................... Delaware 73-1394219
Port Neal Corporation............... Delaware 42-1443999
Terra (UK) Holdings Inc............. Delaware 39-1917519
Terra Capital Holdings, Inc......... Delaware 42-1431905
Terra Industries Inc................ Maryland 52-1145429
Terra International (Oklahoma) Inc.. Delaware 42-1321108
Terra International Inc............. Delaware 36-2537046
Terra Methanol Corporation.......... Delaware 42-1431904
Terra Nitrogen Corporation.......... Delaware 72-1159610
Terra Real Estate Corp.............. Iowa 42-1178622
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* The address for each of the additional Registrants is c/o Terra Industries
Inc., Terra Centre, 600 Fourth Street, P.O. Box 600, Sioux City, Iowa 51102,
telephone: (712) 277-1340. The primary standard industrial classification
number for each of the additional Registrants is 2870.
This information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the SEC
is effective. This prospectus is not an offer to sell nor is it an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 16, 2002
PROSPECTUS
[LOGO]
TERRA CAPITAL, INC.
Exchange Offer for
$200,000,000 12.875% Senior Secured Notes due 2008
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We are offering to exchange:
up to $200,000,000 of our new 12.875% Senior Secured Notes due 2008
for
a like amount of our outstanding 12.875% Senior Secured Notes due 2008.
Material Terms of Exchange Offer
. The terms of the notes to be issued in the exchange offer
are substantially identical to the outstanding notes,
except that the transfer restrictions and registration rights
relating to the outstanding notes will not apply to the
exchange notes.
. There is no existing public market for the outstanding
notes or the exchange notes. We do not intend to list the
exchange notes on any securities exchange or seek
approval for quotation through any automated trading
system.
. Expires 5:00 p.m., New York City time, , 2001,
unless extended.
. The exchange of notes will not be a taxable event for
U.S. federal income tax purposes.
. The terms of the notes to be issued in the exchange offer . Not subject to any condition other than that the
are substantially identical to the outstanding notes, exchange offer not violate applicable law or any
except that the transfer restrictions and registration rights applicable interpretation of the Staff of the SEC.
relating to the outstanding notes will not apply to the
exchange notes. . We will not receive any proceeds from the exchange
offer.
. There is no existing public market for the outstanding
notes or the exchange notes. We do not intend to list the . The notes to be issued in the exchange offer will be
exchange notes on any securities exchange or seek fully and unconditionally guaranteed, on a joint and
approval for quotation through any automated trading several basis, by Terra Industries Inc., our parent
system. company, and its wholly-owned U.S. subsidiaries. The
notes and guarantees will be secured by a first priority
. Expires 5:00 p.m., New York City time, , 2001, security interest in our ownership and leasehold
unless extended. interest in substantially all of the real property,
machinery and equipment owned or leased by Terra
. The exchange of notes will not be a taxable event for Capital and the guarantors and specified other assets.
U.S. federal income tax purposes.
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For a discussion of certain factors that you should consider before
participating in this exchange offer, see "Risk Factors" beginning on page 9 of
this prospectus.
Neither the SEC nor any state securities commission has approved the notes
to be distributed in the exchange offer, nor have any of these organizations
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
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, 2002
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of exchange
notes received in exchange for outstanding notes where such outstanding notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. We have agreed that, starting on the expiration date
and ending on the close of business 180 days after the expiration date of the
exchange offer, we will make this prospectus available, as amended or
supplemented, to any broker-dealer for use in connection with any such resale.
See "Plan of Distribution."
You should rely only on the information contained, or incorporated by
reference, in this prospectus. We have not authorized anyone to provide you
with different information. We are not making an offer of these securities in
any jurisdiction where the offer is not permitted. You should not assume that
the information contained in this prospectus is accurate as of any date other
than the date on the front cover of this prospectus.
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TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY....................................................... 1
RISK FACTORS............................................................. 9
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS.......................... 17
USE OF PROCEEDS.......................................................... 17
SELECTED HISTORICAL FINANCIAL DATA....................................... 18
THE EXCHANGE OFFER....................................................... 20
DESCRIPTION OF NOTES..................................................... 28
BOOK-ENTRY; DELIVERY AND FORM............................................ 78
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............................ 82
PLAN OF DISTRIBUTION..................................................... 86
VALIDITY OF THE NEW SECURITIES........................................... 86
EXPERTS.................................................................. 87
WHERE YOU CAN FIND MORE INFORMATION...................................... 87
DOCUMENTS INCORPORATED BY REFERENCE...................................... 87
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THIS PROSPECTUS INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT US WHICH IS NOT INCLUDED IN OR DELIVERED WITH THIS
PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION" AND "DOCUMENTS
INCORPORATED BY REFERENCE." THIS INFORMATION, EXCLUDING EXHIBITS TO THE
INFORMATION UNLESS THE EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION, IS AVAILABLE WITHOUT CHARGE TO ANY HOLDER OR BENEFICIAL OWNER
OF OUTSTANDING NOTES UPON WRITTEN OR ORAL REQUEST TO MARK A. KALAFUT, VICE
PRESIDENT AND GENERAL COUNSEL, TERRA INDUSTRIES INC., 600 FOURTH STREET, P.O
BOX 6000, SIOUX CITY, IOWA 51102-6000, TELEPHONE NUMBER (712) 277-1340. TO
OBTAIN TIMELY DELIVERY OF THIS INFORMATION, YOU MUST REQUEST THIS INFORMATION
NO LATER THAN FIVE BUSINESS DAYS BEFORE THE EXPIRATION OF THE EXCHANGE OFFER.
THEREFORE, YOU MUST REQUEST INFORMATION ON OR BEFORE , 2002.
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ADDITIONAL INFORMATION
In this prospectus, unless the context requires otherwise, "Terra
Industries," the "company," "we," "us" and "our" each refers to Terra
Industries Inc. and its subsidiaries, including Terra Capital, Inc. "Terra
Capital" refers to Terra Capital, Inc., the issuer of the notes. Substantially
all the consolidated assets of Terra Industries are held by Terra Capital and
its subsidiaries.
ii
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated information appearing elsewhere in or
incorporated by reference into this prospectus.
The Company
We are a leading North American and U.K. producer and marketer of nitrogen
products serving both agricultural and industrial end use markets. We are one
of the largest North American producers of ammonia, the basic building block of
nitrogen fertilizers. We upgrade a significant portion of the ammonia we
produce into higher value products, which are easier for agricultural end-users
to transport, store and apply to crops than ammonia. In addition, we are the
largest U.S. producer of methanol. We own eight manufacturing facilities in
North America and the U.K. that produce nitrogen products, two of which also
produce methanol.
Our principal products are the following:
. Anhydrous ammonia (often referred to simply as "ammonia"), the simplest
and least expensive form of nitrogen fertilizer. Ammonia is the primary
feedstock used in the production of most other nitrogen fertilizers,
including UAN, AN and urea.
. Urea, which is produced by reacting ammonia and carbon dioxide. We produce
both a granulated form of solid urea, generally for the fertilizer market,
and urea liquor (liquid) for animal feed supplements and industrial
applications.
. Ammonium nitrate ("AN"), a solid fertilizer product most commonly used by
British farmers. AN is produced by combining nitric acid and ammonia into
a liquid form which is then converted to a solid granular form.
. Urea ammonium nitrate ("UAN"), a liquid fertilizer produced by combining
liquid urea, liquid ammonium nitrate and water. UAN, unlike ammonia, is
odorless and does not require refrigeration or pressurization for
transportation and storage.
. Methanol, a liquid made primarily from natural gas. Methanol is used
primarily as a feedstock in the production of other chemical products such
as formaldehyde, acetic acid, methyl tertiary butyl ether ("MTBE"), an
oxygenate and octane enhancer currently used as an additive in
reformulated gasolines, and other chemical intermediates.
Our principal executive offices are located at Terra Centre, 600 Fourth
Street, P.O. Box 6000, Sioux City, Iowa 51102-6000 and our telephone number is
(712) 277-1340.
Purpose of the Exchange Offer
On October 10, 2001, we sold through a private placement exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), $200,000,000 of our 12.875% Senior Secured Notes Due 2008
(the "outstanding notes"). We used the net proceeds from the sale of the notes,
as well as initial borrowings under our revolving credit facilities entered
into concurrently with the closing of the offering of the notes (the "revolving
credit facilities"), to repay our senior secured term loan facilities, to repay
our 10.75% senior notes due September 30, 2003, and to pay related fees and
expenses.
Simultaneously with the private placement, we entered into a registration
rights agreement for the notes, referred to as the "Registration Rights
Agreement." Under the Registration Rights Agreement, we are required to use our
reasonable best efforts to cause a registration statement for substantially
identical notes, which will be issued in exchange for the notes, to become
effective on or before March 9, 2002. We refer to the notes to be
1
registered under this exchange offer registration statement as "new notes" in
this prospectus. You may exchange your outstanding notes for new notes in this
exchange offer. You should read the discussion under the headings "--Summary of
the Exchange Offer," and "The Exchange Offer" and "Description of Notes" for
further information regarding the new notes.
We did not register the outstanding notes under the Securities Act or any
state securities laws, nor do we intend to after the exchange offer. As a
result, the outstanding notes may only be transferred in limited circumstances
under the securities laws. If the holders of the outstanding notes do not
exchange their notes in the exchange offer, they lose their right to have the
outstanding notes registered under the Securities Act, subject to certain
limitations. Anyone who still holds outstanding notes after the exchange offer
may be unable to resell their outstanding notes.
2
Summary of the Exchange Offer
The Initial Offering of
Outstanding Notes......... We sold the outstanding notes on October 10, 2001
to Salomon Smith Barney and Credit Suisse First
Boston. We collectively refer to those parties in
this prospectus as the "initial purchasers." The
initial purchasers subsequently resold the
outstanding notes to qualified institutional
buyers pursuant to Rule 144A under the Securities
Act and to non-U.S. persons pursuant to
Regulation S.
Registration Rights Agreement Simultaneously with the initial sale of the
outstanding notes, we entered into a Registration
Rights Agreement for the exchange offer. In the
Registration Rights Agreement, we agreed, among
other things, to use our reasonable best efforts
to file a registration statement with the SEC and
to have this exchange offer become effective
within 150 days of issuing the outstanding notes.
The exchange offer is intended to satisfy your
rights under the Registration Rights Agreement.
After the exchange offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your
outstanding notes.
If we do not comply with, among other things, our
obligation to use our reasonable best efforts to
have this exchange offer become effective within
150 days of issuing the outstanding notes, we
will pay liquidated damages in cash in an amount
equal to 0.25% per annum of the aggregate
principal amount of outstanding notes during the
first 90 days, increasing by 0.25% per annum for
each subsequent 90-day period, up to a maximum of
1.00% per annum, until we are in compliance. For
more details, see "The Exchange Offer--Exchange
Offer; Registration Rights."
The Exchange Offer.......... We are offering to exchange the exchange notes,
which have been registered under the Securities
Act, for your outstanding notes, which were
issued on October 10, 2001 in the initial
offering. In order to be exchanged, an
outstanding note must be properly tendered and
accepted. All outstanding notes that are validly
tendered and not validly withdrawn will be
exchanged. We will issue exchange notes promptly
after the expiration of the exchange offer.
Resales..................... We believe that the exchange notes issued in the
exchange offer may be offered for resale, resold
and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act
provided that:
. the exchange notes are being acquired in the
ordinary course of your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the exchange notes
issued to you in the exchange offer; and
. you are not an affiliate of ours.
3
If any of these conditions are not satisfied and
you transfer any exchange notes issued to you in
the exchange offer without delivering a
prospectus meeting the requirements of the
Securities Act or without an exemption from
registration of your exchange notes from these
requirements, you may incur liability under the
Securities Act. We will not assume, nor will we
indemnify you against, any such liability.
Each broker-dealer that is issued exchange notes
in the exchange offer for its own account in
exchange for outstanding notes that were acquired
by that broker-dealer as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the exchange notes.
A broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of
the exchange notes issued to it in the exchange
offer.
Record Date................. We mailed this prospectus and the related
exchange offer documents to registered holders of
outstanding notes on , 2002.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, 2002, unless we decide to extend
the expiration date.
Conditions to the Exchange
Offer..................... The exchange offer will expire is not subject to
any condition other than that the exchange offer
not violate applicable law or any applicable
interpretation of the staff of the SEC.
Procedures for Tendering
Outstanding Notes......... We issued the outstanding notes as global
securities. When the outstanding notes were
issued, we deposited the global notes
representing the outstanding notes with U.S. Bank
Trust National Association, as book-entry
depositary. U.S. Bank Trust National Association
issued a certificateless depositary interest in
each global note we deposited with it, which
represents a 100% interest in the notes, to The
Depository Trust Company, known as DTC.
Beneficial interests in the outstanding notes,
which are held by direct or indirect participants
in DTC through the certificateless depositary
interest, are shown on records maintained in
book-entry form by DTC
You may tender your outstanding notes through
book-entry transfer in accordance with DTC's
Automated Tender Offer Program, known as ATOP. To
tender your outstanding notes by a means other
than book-entry transfer, a letter of transmittal
must be completed and signed according to the
instructions contained in the letter. The letter
of transmittal and any other documents required
by the letter of transmittal must be delivered to
the exchange agent by mail, facsimile, hand
delivery or overnight carrier. In addition, you
must deliver the outstanding notes to the
exchange agent or comply with
the procedures for guaranteed delivery. See "The
Exchange Offer--Procedures for Tendering
Outstanding Notes" for more information.
4
Do not send letters of transmittal and
certificates representing outstanding notes to
us. Send these documents only to the exchange
agent. See "The Exchange Offer--Exchange Agent"
for more information.
Special Procedures for
Beneficial Owners......... If you are the beneficial owner of book-entry
interests and your name does not appear on a
security position listing of DTC as the holder of
the book-entry interests or if you are a
beneficial owner of outstanding notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender the book-entry interest or
outstanding notes in the exchange offer, you
should contact the person in whose name your
book-entry interests or outstanding notes are
registered promptly and instruct that person to
tender on your behalf.
Withdrawal Rights........... You may withdraw the tender of your outstanding
notes at any time prior to 5:00 p.m., New York
City time on , 2002.
Federal Income Tax
Considerations............ The exchange of outstanding notes will not be a
taxable event for United States federal income
tax purposes.
Use of Proceeds............. We will not receive any proceeds from the
issuance of exchange notes pursuant to the
exchange offer. We will pay all of our expenses
incident to the exchange offer.
Exchange Agent.............. U.S. Bank Trust National Association is serving
as the exchange agent in connection with the
exchange offer.
Regulatory Issues........... We are not aware of any federal or state
regulatory requirements or approvals other than
the effectiveness of this Registration Statement
that must be complied with or obtained in
connection with the exchange offer.
5
Summary of Terms of the Exchange Notes
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes, except that the exchange notes will be registered
under the Securities Act. As a result, the exchange notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damage provisions contained in the outstanding notes. The exchange
notes represent the same debt as the outstanding notes. Both the outstanding
notes and the exchange notes are governed by the same indentures. We use the
term "notes" in this prospectus to collectively refer to the outstanding notes
and the exchange notes.
Issuer...................... Terra Capital, Inc., a Delaware corporation
Securities.................. $200.0 million in principal amount of 12.875%
Senior Secured Notes due 2008
Maturity.................... October 15, 2008
Interest.................... Annual rate: 12.875%. Payment frequency: every
six months on April 15 and October 15. First
payment: April 15, 2002.
Ranking..................... The exchange notes will be entitled to be paid
first out of the proceeds of the collateral
securing the notes and the guarantees.
Our revolving credit facility is secured by
substantially all of the assets of Terra
Industries and its subsidiaries (other than real
property, machinery and equipment and other
assets constituting collateral for the notes),
including:
. inventory, accounts receivable and cash and
cash equivalents;
. equity interests in our subsidiaries, other
than the limited partnership interests in Terra
Nitrogen Company, L.P., which secure the notes,
and the general partnership interests in Terra
Nitrogen Company, L.P. and Terra Nitrogen,
Limited Partnership; and
. certain intercompany notes issued to Terra
Capital by Terra Nitrogen, Limited Partnership
and Terra Nitrogen (U.K.) Ltd., secured by
substantially all of the assets of Terra
Nitrogen, Limited Partnership, Terra Nitrogen
Company, L.P., Terra Nitrogen (U.K.) Ltd. and
Terra International (Canada) Inc. (other than
real property, machinery and equipment and
other assets constituting collateral for the
intercompany notes pledged to secure the notes).
The lenders under our revolving credit facility
are entitled to be paid first out of the proceeds
of the collateral securing the revolving credit
facility. At June 30, 2001, after giving effect
to the sale of the outstanding notes and related
transactions as described in "Use of Proceeds,"
we would have had $70.5 million outstanding under
our revolving credit facility and the borrowers
under our credit facility would have been able to
borrow up to an additional $86.9 million in the
aggregate, subject to our borrowing base
limitation.
6
The notes and the guarantees rank equally with
existing and future unsubordinated obligations of
Terra Capital and the guarantors with respect to
any assets that have not been pledged to any
creditor. The notes and the guarantees are
effectively subordinated to the debt and other
obligations of any of our subsidiaries that are
not guarantors, except to the extent that assets
of such subsidiary secure the intercompany notes
referred to above under "--Collateral." If Terra
Capital or a guarantor incurs any debt in the
future that expressly provides that it is
subordinated to the notes or the guarantee of
that guarantor, the notes or that guarantee, as
applicable, will rank senior to that debt.
Guarantees.................. The notes are guaranteed by Terra Industries Inc.
and its wholly owned U.S. subsidiaries (other
than Terra Capital). Terra Nitrogen, Limited
Partnership, Terra Nitrogen Company, L.P. and our
foreign subsidiaries do not guarantee the notes.
Collateral.................. The notes and the guarantees are secured by a
first priority security interest in the following:
. our ownership or leasehold interest in
substantially all real property, machinery and
equipment owned or leased by Terra Capital and
the guarantors;
. limited partnership interests in Terra Nitrogen
Company, L.P. owned by Terra Capital or any
guarantor; and
. certain intercompany notes issued to Terra
Capital by Terra Nitrogen, Limited Partnership
and Terra Nitrogen (U.K.) Ltd., secured by
substantially all interests of Terra Nitrogen,
Limited Partnership, Terra Nitrogen Company,
L.P., Terra Nitrogen (U.K.) Ltd. and Terra
International (Canada) Inc. in real property,
machinery and equipment.
Optional Redemption......... We have the option to redeem the notes at any
time at a price equal to 100% of the principal
amount, plus any accrued interest to the date of
redemption, plus a "make-whole" premium. The
"make-whole" premium is based on a discount rate
equal to the yield on a comparable U.S. Treasury
security plus 50 basis points.
Mandatory Offer to Repurchase If we experience specific kinds of changes in
control, holders of the notes have the right to
require us to purchase their notes, in whole or
in part, at a price equal to 101% of the
principal amount, plus any accrued interest to
the date of purchase.
Covenants................... The indenture governing the notes contains
certain covenants that limit, among other things,
our ability and the ability of our restricted
subsidiaries to:
. incur additional debt;
. pay dividends on common stock of Terra
Industries Inc. or repurchase shares of such
common stock;
. make investments (other than in Terra Capital
or any guarantor);
7
. use assets as security in other transactions;
. sell any of our principal production facilities
or sell other assets outside the ordinary
course of business;
. enter into transactions with affiliates;
. limit dividends or other payments by our
restricted subsidiaries to us;
. enter into sale and leaseback transactions;
. engage in other businesses; or
. sell all or substantially all of our assets or
merge with or into other companies
These covenants are subject to a number of
important exceptions and qualifications. For more
details, see "Description of the Notes--Certain
Covenants."
You should refer to the section entitled "Risk Factors" for an explanation
of certain risks of participating in the exchange offer.
8
RISK FACTORS
You should carefully consider the following factors and the other
information contained in, or incorporated by reference into, this prospectus.
Risks Associated with the Exchange Offer
Because there is no public market for the notes, you may not be able to
resell your notes.
The exchange notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and if
a liquid trading market in the exchange notes does not develop, then your
ability to sell, and the price at which you will be able to sell, your notes
may be impaired.
If a trading market were to develop, the exchange notes might trade at higher
or lower prices than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar
debentures and our financial performance.
We understand that the initial purchasers presently intend to make a market
in the notes. However, they are not obligated to do so, and any market-making
activity with respect to the notes may be discontinued at any time without
notice. In addition, any market-making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act of 1934 (the
"Exchange Act"), and may be limited during the exchange offer or the pendency
of an applicable shelf registration statement. If an active trading market for
the notes does not develop or is illiquid, you may not be able to resell your
notes.
In addition, any outstanding note holder who tenders in the exchange offer
for the purpose of participating in a distribution of the exchange notes may be
deemed to have received restricted securities, and if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. For a description of
these requirements, see "Exchange Offer; Registration Rights."
Your outstanding notes will not be accepted for exchange if you fail to
follow the exchange offer procedures.
We will issue new notes pursuant to this exchange offer only after a timely
receipt of your outstanding notes, a properly completed and duly executed
letter of transmittal and all other required documents. Delivery of outstanding
notes may also be made by book-entry transfer in accordance with ATOP.
Therefore, if you want to tender your outstanding notes, please allow
sufficient time to ensure timely delivery. If we do not receive your
outstanding notes, letter of transmittal and other required documents by the
expiration date of the exchange offer, we will not accept your outstanding
notes for exchange. We are under no duty to give notification of defects or
irregularities with respect to the tenders of outstanding notes for exchange.
If there are defects or irregularities with respect to your tender of
outstanding notes, we will not accept your outstanding notes for exchange.
If you do not exchange your outstanding notes, your outstanding notes will
continue to be subject to the existing transfer restrictions and you may be
unable to sell your outstanding notes.
We did not register the outstanding notes, nor do we intend to do so
following the exchange offer. Outstanding notes that are not tendered will
therefore continue to be subject to the existing transfer restrictions and may
be transferred only in limited circumstances under the securities laws. If you
do not exchange your outstanding notes, you will not have any further right to
have your outstanding notes registered under the federal
9
securities laws. As a result if you hold outstanding notes after the exchange
offer, you may be unable to sell your outstanding notes.
Risks Relating to the Notes
Our substantial indebtedness could impair our financial health and prevent us
from fulfilling our obligations under the notes.
We have a significant amount of debt. The following chart shows important
credit statistics and is presented assuming we had completed the sale of the
outstanding notes and the related transactions as described in "Use of
Proceeds" on September 30, 2001 and applied the proceeds as described herein:
Pro Forma at
September 30, 2001
----------------------------
Terra Capital Terra Industries
Consolidated Consolidated
------------- ----------------
(dollars in millions)
Total debt............................................ $270.3 $470.3
Stockholder's/Stockholders' equity.................... $402.8 $539.8
Total debt to stockholder's/stockholders' equity ratio 0.67x 0.87x
On a pro forma basis, Terra Capital's ratio of earnings to fixed charges for
the year ended December 31, 2000 would have been 1.20x. On a pro forma basis,
Terra Industries' earnings for the year ended December 31, 2000 would have been
insufficient to cover fixed charges by $14.3 million. On a pro forma basis,
Terra Capital's and Terra Industries' earnings for the nine months ended
September 30, 2001 would have been insufficient to cover fixed charges by $62.5
million and $80.0 million, respectively.
Our high level of debt and our debt service obligations could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. reduce the amount of money available to finance our operations, capital
expenditures and other activities;
. increase our vulnerability to economic downturns and industry conditions;
. limit our flexibility in responding to changing business and economic
conditions, including increased competition and demand for new products
and services;
. place us at a disadvantage when compared to our competitors that have less
debt; and
. limit our ability to borrow additional funds.
We may incur substantial additional debt in the future, and we may do so in
order to finance future acquisitions and investments. The terms of the
indenture governing the notes permit us and our subsidiaries to incur such
debt. Adding more debt to our current debt levels could intensify risks related
to leverage that we now face. The indenture also permits us to incur certain
additional debt that may be secured by our assets to the extent such assets do
not constitute collateral for the notes.
The ability of the trustee to foreclose on secured property may be limited.
Bankruptcy law could prevent the trustee from possessing and disposing of
the collateral upon the occurrence of an event of default under the indenture
governing the notes if a bankruptcy proceeding is commenced by or against us or
the guarantors before the trustee possesses and disposes of the collateral.
Under bankruptcy law, secured creditors such as the holders of the notes are
prohibited from possessing their security from a debtor in a bankruptcy case,
or from disposing of security possessed from such debtor, without bankruptcy
court approval. Moreover, bankruptcy law permits the debtor to continue to
retain and to use the collateral (and the proceeds, products, rents or profits
of such collateral) so long as the secured creditor is given
10
"adequate protection." The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the collateral. The court may find
"adequate protection" if the debtor pays cash or grants additional security for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral during the pendency of
the bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict how long payments under the notes could be delayed
following commencement of a bankruptcy case, whether or when the trustee could
repossess or dispose of the collateral or whether or to what extent holders of
the notes would be compensated for any delay in payment or loss of value of the
collateral through the requirement of "adequate protection."
In addition, the trustee may need to evaluate the impact of potential
liabilities before determining to foreclose on secured property because lenders
that hold a security interest in real property may be held liable under
environmental laws for the costs of remediating or preventing releases or
threatened releases of hazardous substances at the secured property. In this
regard, the trustee may decline to foreclose on secured property or exercise
remedies available if it does not receive indemnification to its satisfaction
from the holders of the notes.
Finally, the trustee's ability to foreclose on the collateral on your behalf
may be subject to perfection issues, the consent of third parties, prior liens
and practical problems associated with the realization of the trustee's
security interest in the collateral.
Proceeds from any sale of the collateral upon foreclosure may be insufficient
to repay the notes in full.
Our obligation to make payments on the notes is secured only by the
collateral described in this prospectus. The net proceeds from a sale of the
collateral securing the notes may not be sufficient to repay all of the notes
following a foreclosure upon such collateral or a liquidation of our assets. If
the net proceeds received from the sale of the collateral (after payment of any
expenses relating to the sale thereof) were insufficient to pay all amounts due
with respect to the notes, you would, to the extent of such insufficiency, have
only an unsecured claim against our remaining assets.
Federal and state statutes allow courts, under specific circumstances, to
void subsidiary guarantees of the notes.
The issuance of the subsidiary guarantees of the notes may be subject to
review under U.S. federal bankruptcy law and comparable provisions of state or
foreign fraudulent conveyance laws if a bankruptcy or reorganization case or
lawsuit is commenced by or on behalf of a subsidiary guarantor's unpaid
creditors. Generally speaking and depending upon the specific law applicable to
the situation, if a court were to find in such a bankruptcy or reorganization
case or lawsuit that, at the time the subsidiary guarantor issued the guarantee
of the notes:
. it issued the guarantee to delay, hinder or defraud present or future
creditors; or
. it received less than reasonably equivalent value or fair consideration
for issuing the guarantee and at the time it issued the guarantee:
--it was insolvent or rendered insolvent by reason of issuing the guarantee,
or
--it was engaged, or about to engage, in a business or transaction for which
its assets, after giving effect to its potential liability under the
guarantee, constituted unreasonably small capital to carry on its
business, or
--it intended to incur, or believed that it would incur, debts beyond its
ability to pay as they mature,
then the court could void the obligations under the guarantee of the notes,
subordinate the guarantee of the notes to that subsidiary guarantor's other
obligations or take other action detrimental to holders of the notes. If that
occurs, the notes could become structurally subordinated to other obligations
of the subsidiary guarantor.
11
The measures of insolvency for purposes of fraudulent conveyance laws vary
depending upon the law of the jurisdiction that is being applied in any
proceeding to determine whether a fraudulent conveyance had occurred.
Generally, however, a person would be considered insolvent if, at the time it
incurred the debt:
. the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
. it could not pay its debts as they become due.
We cannot be certain what standard a court would use to determine whether a
subsidiary guarantor was solvent at the relevant time, or, regardless of the
standard that the court uses, that the issuance of the guarantee of the notes
would not be voided or the guarantee of the notes would not be subordinated to
a subsidiary guarantor's other debt. If such a case were to occur, a guarantee
could also be subject to the claim that, since the guarantee was incurred for
our benefit, and only indirectly for the benefit of the subsidiary guarantor,
the guarantee was incurred for less than fair consideration.
A significant change in ownership may not trigger an offer to purchase
requirement under the change of control provisions of the indenture, and even
if it did, we may not be able to effect such purchase.
Under the indenture governing the notes, a change of control is deemed to
have occurred when, among other things, a person or group becomes the
beneficial owner of 50% or more of the common stock of Terra Industries. Our
principal stockholder, Anglo American plc, currently owns 49.5% of the common
stock of Terra Industries, but has publicly announced its intention to dispose
of its interest. Such disposition, even to a single person or group, would not
by itself trigger the change of control provisions of the indenture.
If we do undergo a change of control as defined in the indenture, we will be
required to offer to purchase the notes for a price equal to 101% of their
principal amount, plus accrued interest to the purchase date. In addition, a
change of control as defined in the Indenture would constitute an event of
default under our revolving credit facility, giving rise to a right of
acceleration by the lenders thereunder. Our revolving credit facility and any
future debt that we incur may also contain restrictions on repurchases in the
event of a change of control or similar event. For example,under our current
revolving credit facility, we are not permitted to 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 the notes except for
regularly scheduled payments of principal and interest in respect thereof
required pursuant to the Indenture. If a change of control were to occur, we
may not have sufficient funds to pay our senior creditors and the purchase
price of the outstanding notes tendered, and we expect that we would require
third-party financing to do so. However, we may not be able to obtain such
financing on favorable terms, or at all.
The change of control provisions may not protect you in a transaction in
which we incur a large amount of debt, including a reorganization,
restructuring, merger or other similar transaction, if the transaction does not
involve a shift in voting power or beneficial ownership large enough to trigger
a change of control as defined in the indenture governing the notes. See
"Description of the Notes--Change of Control."
An active liquid trading market for the notes may not develop.
Prior to the offering, there has been no public market for the notes. The
notes are a new class of securities which have never been traded. Each initial
purchaser has informed us that it intends to make a market in the notes.
However, no initial purchaser is obligated to do so, and may discontinue such
market making at any time without notice. Moreover, the initial purchasers'
market making activities will be subject to limits imposed by the Securities
Act or the Exchange Act during the pendency of any exchange offer described
under "Exchange Offer; Registration Rights." If an active trading market for
the notes does not develop or is not sustained, you may not be able to sell
your notes.
12
Historically, the market for non-investment grade debt has been highly
volatile in terms of price. It is possible that the market for the notes and
the exchange notes will also be volatile. This volatility in price may affect
your ability to resell your notes or exchange notes or the timing of their sale.
Risks Relating to Our Business
A substantial portion of our operating expense is related to the cost of
natural gas, and an increase in such cost, that is either unexpected or not
accompanied by increases in selling prices of our products, could result in
reduced profit margins and lower production of our products.
The principal raw material used to produce nitrogen products and methanol is
natural gas. Natural gas costs in 2000 comprised about 49% of total costs and
expenses for our North American nitrogen products business, 23% of total costs
and expenses for our U.K. nitrogen products business and 66% of total costs and
expenses for our methanol business. A significant increase in the price of
natural gas that is not hedged or recovered through an increase in the price of
our related nitrogen and methanol products could result in reduced profit
margins and lower production of our products. In particular, price volatility
in North American natural gas markets prompted industry-wide curtailment of
both nitrogen fertilizer and methanol production in 2000. During 2000, we
produced only 89% and 76% of our total ammonia and methanol capacity,
respectively, because of plant shutdowns due to high natural gas costs.
Declines in the prices of our products may reduce our profit margins.
Prices for nitrogen products are influenced by the global supply and demand
conditions for ammonia and other nitrogen-based products. Long-term demand is
affected by population growth and rising living standards that determine food
consumption. Short-term demand is affected by world economic conditions and
international trade decisions. Supply is affected by increasing worldwide
capacity and the increasing availability of nitrogen product exports from major
producing regions such as the former Soviet Union, Canada, the Middle East,
Trinidad and Venezuela. A substantial amount of new ammonia capacity is
expected to be added abroad in the foreseeable future. If industry oversupply
occurs, as is common in commodity businesses, the price at which we sell our
nitrogen products may decline, which could result in reduced profit margins and
lower production of our products. For example, as a result of adverse price and
cost conditions, we suspended production of ammonia and urea at our
Blytheville, Arkansas facility in June 2001. We reopened our Blytheville,
Arkansas facility on September 28, 2001, and resumed full production on
September 30, 2001. In addition, in early January 2001, due to unprecedented
natural gas prices of nearly $10.00/MMBtu, we idled most of our North American
production for most of that month. Also in response to natural gas costs, we
idled our Blytheville, Arkansas and Beaumont, Texas plants and parts of our
Verdigris, Oklahoma plant for the month of December 2000 and our Blytheville,
Arkansas plant from June through mid-August 2000. In response to low methanol
prices, we idled our Beaumont, Texas facility for two months during the first
quarter of 1999.
Fluctuations in the selling price and production cost of methanol may reduce
our profit margins.
Methanol is used as a raw material in the production of formaldehyde, MTBE,
acetic acid and numerous other chemical derivatives. The price of methanol is
influenced by the supply and demand for each of these products. Environmental
initiatives to ban or reduce the use of MTBE as a fuel additive, such as those
currently underway in California, could significantly affect demand for
methanol. If demand for methanol decreases, our revenues derived from methanol
sales may decrease, which could have a material adverse effect on our business,
financial condition and results of operations. Recent reductions to methanol
production in North America due to increasing natural gas costs, have resulted
in higher methanol prices, but those price increases have not always covered
and may not in the future cover the costs of production (including the cost of
natural gas). Methanol prices may be adversely affected by two new significant
plants--one in Equatorial Guinea, which has recently started production, and
one in Argentina, which is expected to begin production before the end of 2002.
Our products are subject to price volatility resulting from periodic
imbalances of supply and demand, which may cause the results of our
operations to fluctuate.
Historically, prices for our products have reflected frequent changes in
supply and demand conditions. Changes in supply result from capacity additions
or reductions and from changes in inventory levels. Demand for
13
these products is dependent, in part, on demand for crop nutrients by the
global agricultural industry. Periods of high demand, high capacity utilization
and increasing operating margins tend to result in new plant investment and
increased production until supply exceeds demand, followed by periods of
declining prices and declining capacity utilization until the cycle is
repeated. In addition, markets for our products are affected by general
economic conditions. As a result of periodic imbalances of supply and demand,
product prices have been volatile, with significant price changes from one
growing season to the next. Fertilizer products are global commodities and can
be subject to intense price competition from both domestic and foreign sources.
During periods of oversupply, the price at which we sell our products may be
depressed and this could have a material adverse effect on our business,
financial condition and results of operations.
Our products are global commodities and we face intense competition from
other fertilizer producers.
Fertilizers are global commodities, and customers, including end-users,
dealers and other crop nutrients producers and distributors, base their
purchasing decisions principally on the delivered price and availability of the
product. We compete with a number of U.S. producers and producers in other
countries, including state-owned and government-subsidized entities. In
particular, supply from the former Soviet Union countries tends to be
lower-priced than our products, creating downward pressure on prices. Some of
our principal competitors may have greater total resources and may be less
dependent on earnings from fertilizer sales than we are. Our inability to
compete successfully could result in the loss of customers, which could
adversely affect our sales and profitability.
Our business is subject to risks related to weather conditions.
Adverse weather conditions may have a significant effect on demand for our
nitrogen products. Weather conditions that delay or intermittently disrupt
field work during the planting and growing season may cause agricultural
customers to use different forms of nitrogen fertilizer, which may adversely
affect demand for the forms that we sell. Weather 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 our products.
Due to the seasonality of our nitrogen business, our inability to accurately
predict future demand could result in lower sales revenue relating to under
supply of inventory or higher costs and lower sales prices relating to excess
inventory.
The nitrogen business is seasonal, with more nitrogen products used during
the second quarter in conjunction with spring planting activity than in any
other quarter. Due to the seasonality of the business and the relatively brief
periods during which products can be used by customers, we and/or our customers
generally build inventories during the second half of the year in order to
ensure timely product availability during the peak sales season. This increases
our working capital needs during this period as we fund these inventory
increases and support customer credit terms. If we underestimate future demand,
our profitability will be negatively impacted and our customers may acquire
products from our competitors. If we overestimate future demand, we will be
left with excess inventory that will have to be stored (and our results of
operations will be negatively impacted by any related storage costs) and/or we
may liquidate such additional inventory and/or products at sales prices below
our costs.
We are substantially dependent on our manufacturing facilities and any
disruption in their operation could result in a reduction of our production
capacity and could cause us to incur substantial expenditures.
Our manufacturing operations may be subject to significant interruption if
one or more of our facilities were to experience a major accident or were
damaged by severe weather or other natural disaster. An explosion at our Port
Neal, Iowa facility in 1994 required us to completely rebuild that facility.
Also, a mechanical outage at our Courtright, Ontario facility in April 2001
required us to shut down that facility for approximately two months.
14
We may be adversely affected by environmental regulations to which we are
subject.
Our 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. Our operations in
Canada are subject to various federal and provincial regulations regarding such
matters, including the Canadian Environmental Protection Act administered by
Environment Canada, and the Ontario Environmental Protection Act administered
by the Ontario Ministry of the Environment. Our U.K. operations are subject to
similar regulations under a variety of acts governing hazardous chemicals,
transportation and worker health and safety. We are also involved in the
manufacture, handling, transportation, storage and disposal of materials that
are or may be classified as hazardous or toxic by federal, state, provincial or
other regulatory agencies. If such materials have been or are disposed of at
sites that are targeted for investigation and/or remediation by regulatory
agencies, we may be responsible under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") or analogous laws for all or
part of the costs of such investigation and/or remediation, and damages to
natural resources.
We have received notices from regulatory agencies that we are a potentially
responsible party at certain sites under CERCLA or other environmental cleanup
laws. We have also been subject to related claims by private parties alleging
property damage and possible personal injury arising from contamination
relating to discontinued operations. We may receive such notices or claims in
the future. Some of these sites may require us to expend significant amounts
for investigation and/or cleanup or other costs.
We 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 our facilities in order to maintain
compliance with applicable environmental requirements.
Continued government and public emphasis on environmental issues can be
expected to result in increased future investments for environmental controls
at ongoing operations, which will be charged against income from future
operations. Present and future environmental laws and regulations applicable to
our operations, more vigorous enforcement policies and discovery of unknown
conditions may require substantial expenditures.
Government regulation and agricultural policy may reduce the demand for our
products.
Existing and future government regulations and laws may greatly influence
the demand for our products. Existing and future agricultural and/or
environmental laws and regulations may impact the amounts and locations of
fertilizer application and may lead to decreases in the quantity of fertilizer
applied to crops. Any such decrease in the demand for fertilizer products could
result in lower unit sales and lower selling prices for our fertilizer
products. U.S. governmental policies affecting the number of acres planted, the
level of grain inventories, the mix of crops planted and crop prices could also
affect the demand and selling prices of our products.
We are subject to risks associated with our international operations.
During 2000, we derived approximately 30% of our net sales from outside of
the United States. In particular, revenues from the United Kingdom accounted
for more than 85% of our international sales. International sales are subject
to numerous risks and uncertainties, including: difficulties and costs
associated with complying with a wide variety of complex laws, treaties and
regulations; unexpected changes in regulatory environments; currency
fluctuations; tax rates that may exceed those in the U.S. and earnings that may
be subject to withholding requirements; and the imposition of tariffs, exchange
controls or other restrictions. Our success will be dependent, in part, on our
ability to anticipate and effectively manage these and other risks that we face.
15
Because a stockholder owns 49.5% of our common stock, it or its transferee
may be able to determine the outcome of actions by Terra Industries that are
risky to noteholders.
Anglo American plc currently owns 49.5% of the common stock of Terra
Industries. It has publicly announced its intent to dispose of its interest.
Anglo American, or a transferee of all or a substantial portion of its
interest, may have the ability to determine the outcome of actions requiring
the approval of the stockholders of Terra Industries, including the election of
directors. The interests of Anglo American, or any such transferee, as an
equityholder, may be in conflict with your interests as a noteholder. In
addition, Anglo American, or such transferee, may have an interest in pursuing
acquisitions, divestitures or other transactions that it believes enhances the
value of its equity investment, although such transactions may involve risks to
you as a holder of notes.
16
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
You should carefully review the information contained in this prospectus. In
this prospectus, we state our beliefs of future events and of our future
financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the following risks
discussed elsewhere in this prospectus:
. the cost of natural gas;
. other factors outside of our control that determine the cost and price of
our products;
. risks associated with weather and seasonality;
. the competitive and cyclical nature of our business;
. environmental and other government regulation;
. risks associated with international operations;
. political and macroeconomic risks; and
. the possibility of goodwill write-offs.
These and other factors may cause our actual results to differ materially
from any of our forward-looking statements. All forward-looking statements
attributable to us or a person acting on our behalf are expressly qualified in
their entirety by this cautionary statement.
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations under
the Registration Rights Agreement. We will not receive any cash proceeds from
the issuance of the new notes. In consideration for issuing the new notes
contemplated in this prospectus, we will receive outstanding notes in like
principal amount, the form and terms of which are the same as the form and
terms of the new notes, except as otherwise described in this prospectus. The
outstanding notes surrendered in exchange for new notes will be retired and
canceled. Accordingly, no additional debt will result from the exchange. We
have agreed to bear the expenses of the exchange offer.
The net proceeds from the sale of the outstanding notes, before deducting
estimated expenses and the initial purchaser's discount were approximately
$198.9. We used the net proceeds, as well as initial borrowings under our
revolving credit facility and existing cash balances, to repay $99.4 million on
our secured term loan facilities due January 2, 2003, to repay $158.8 million
on Terra Industries' 10.75% senior notes due September 30, 2003, and to pay
$11.0 million for related fees and expenses.
Concurrent with issuance of the outstanding notes, we amended our revolving
credit facility to, among other things, increase the facility to $175 million
and extend its term to June 30, 2005. The amended revolving credit facility
requires us to generate operating cash flows (as defined) for the most recent
twelve month period of $40 million at December 31, 2001 and March 31, 2002; $60
million due at June 30, 2002; $75 million at September 30, 2002 and $90 million
at December 31, 2002 and at each quarter end thereafter. The amended revolving
credit facility also allows us to prepay our senior notes due 2005, or purchase
outstanding minority interests in Terra Nitrogen Company, L.P., subject to
liquidity restrictions and minimum earnings levels. The liquidity restrictions
require us to have an available borrowing base under the revolving credit
facility of $125 million following any such prepayment or purchase. Minimum
earnings levels require that twelve month cash flows (as defined in the credit
agreement) at the most recent quarter end exceed $125 million when the
prepayment or purchase occurs.
Annual prepayments or purchases are limited to the amount our average available
borrowing base exceeds $125
million from June 15 through July 15 of each year, or $75 million, whichever is
less. No prepayment or
purchases are permitted until after July 15, 2002. At September 30, 2001, our
available borrowing base was approximately $60 million, adjusted for the
effects of the issuance of the outstanding notes and the amended revolving
credit facility.
17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following consolidated selected financial and operating data should be
read in conjunction with the consolidated financial statements and related
notes of Terra Industries included elsewhere in this prospectus and/or
incorporated herein by reference. The consolidated selected financial data as
of December 31, 1996, 1997, 1998, 1999 and 2000 and for the years then ended
were derived from the audited consolidated financial statements and notes
thereto of Terra Industries. The consolidated selected financial data as of and
for each of the nine months ended September 30, 2001 and 2000 were derived from
the unaudited condensed consolidated financial statements of Terra Industries,
which contain all adjustments necessary, in the opinion of management, to
summarize the financial position and results of operations for the periods
presented. You should not regard the results of operations for the nine months
ended September 30, 2001 to be indicative of the results that may be expected
for the full year.
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------ --------------------
1996 1997 1998 1999(1) 2000 2000 2001
--------- --------- --------- --------- ---------- --------- ---------
(dollars in thousands except per share amounts)
Consolidated Statement of Operations Data:
Revenues:
Nitrogen products............................. $ 714,839 $ 686,553 $ 816,014 $ 745,901 $ 916,959 $ 688,174 $ 661,065
Methanol...................................... 132,533 180,646 96,547 85,178 136,781 96,995 141,011
Other......................................... (5,568) (4,409) (2,593) 2,364 9,270 5,960 1,001
--------- --------- --------- --------- ---------- --------- ---------
Total revenues............................. 841,804 862,790 909,968 833,443 1,063,010 791,129 803,077
Costs and expenses:
Cost of sales:
Nitrogen...................................... 432,603 514,792 744,474 752,960 846,725 636,401 659,266
Methanol...................................... 110,247 113,384 101,681 96,629 119,486 85,174 144,384
Other......................................... (9,460) (13,216) (9,369) (8,528) 5,502 5,562 (586)
--------- --------- --------- --------- ---------- --------- ---------
533,390 614,960 836,786 841,061 971,713 727,137 803,064
Selling, general and administrative expenses(2):
Nitrogen...................................... 26,973 21,491 32,211 36,850 41,595 32,455 22,952
Methanol...................................... 3,766 3,600 2,757 3,759 4,900 2,260 2,709
Other......................................... 23,860 25,964 28,000 14,815 1,995 (392) 593
--------- --------- --------- --------- ---------- --------- ---------
54,599 51,055 62,968 55,424 48,490 34,323 26,254
Product claim costs(3)........................ -- -- -- -- -- -- 14,023
--------- --------- --------- --------- ---------- --------- ---------
Total costs and expenses................... 587,989 666,015 899,754 896,485 1,020,203 761,460 843,341
Income (loss) from operations:
Nitrogen products, net(4)..................... 255,263 150,270 39,329 (43,909) 28,639 19,318 (35,176)
Methanol...................................... 18,520 63,662 (7,891) (15,210) 12,395 9,561 (6,082)
Other......................................... (19,968) (17,157) (21,224) (3,923) 1,773 790 994
--------- --------- --------- --------- ---------- --------- ---------
Total income (loss) from operations........ 253,815 196,775 10,214 (63,042) 42,807 29,669 (40,264)
Income (loss) from continuing operations......... 113,022 179,515 (43,331) (70,098) (10,182) (14,251) (50,961)
Basic earnings (loss) per share from continuing
operations...................................... $ 1.47 $ 2.43 $ (0.58) $ (0.94) $ (0.14) $ (0.19) $ (0.68)
Diluted earnings (loss) per share from continuing
operations...................................... 1.45 2.39 (0.58) (0.94) (0.14) (0.19) (0.68)
Dividends per share.............................. .15 .18 .20 .07 -- -- --
Selected Financial Data:
EBITDA(5):
Nitrogen...................................... $258,468 $178,138 $ 111,629 $ 32,261 $ 113,121 $ 72,157 $ 25,721
Methanol...................................... 31,386 76,689 (12,947) (11,938) 25,352 19,547 3,387
Other......................................... (15,439) (13,371) (14,925) 9,882 13,856 18,752 31,989
--------- --------- --------- --------- ---------- --------- ---------
Total...................................... 274,415 241,456 83,757 30,205 152,329 110,456 61,097
Depreciation and amortization.................... 65,085 72,314 101,053 101,588 114,901 86,187 84,870
Capital expenditures............................. 158,339 48,417 55,327 51,899 12,219 11,019 11,136
Ratio of earnings to fixed charges(6)............ 2.5x 4.1x (5) (5) (5) (5) (5)
18
December 31, September 30,
------------------------------------------------------ ----------------------
1996 1997 1998 1999(1) 2000 2000 2001
---------- ---------- ---------- ---------- ---------- ----------- ----------
(dollars in thousands)
Condensed Balance Sheet Data:
Cash and short-term investments... $ 100,742 $ 180,062 $ 141,643 $ 9,790 $ 101,425 $ 101,916 $ 44,132
Working capital(7)................ 187,157 302,724 262,283 152,959 199,008 185,072 165,835
Property, plant and equipment, net 740,622 1,032,958 1,017,885 997,801 902,801 919,258 849,188
Excess of cost over net assets of
acquired businesses(8)........... 277,815 284,197 272,553 253,162 231,372 235,924 211,098
Total assets...................... 1,740,547 2,177,157 2,037,768 1,601,445 1,512,552 1,547,616 1,398,365
Long term debt.................... 407,312 506,568 497,030 480,461 473,354 475,069 459,029
Total debt........................ 523,644 506,568 497,030 486,461 473,354 475,069 459,029
Total stockholders' equity........ 606,092 790,329 747,852 657,002 610,797 605,840 541,560
- --------
(1) On June 30, 1999, we sold our distribution business segment for $485
million. Net sales proceeds were used to redeem outstanding minority
interests in one of our subsidiaries, fund termination of our accounts
receivable securitization program and repay outstanding borrowings under
our revolving credit facility.
(2) Selling, general and administrative expenses are allocated to business
segments based on an approach that assigns expenses directly to a segment
whenever possible. Most expenses, however, are assigned based on individual
cost causative factors or on a general allocation formula that is based
equally on sales volumes, headcount and asset values for each segment.
General overhead expenses that had been assigned to our Distribution
business segment prior to its sale in June 1999, are included as a
component of selling, general and administrative expenses assigned to the
other business segment.
(3) Product claim costs relate to a $14.0 million pretax charge in the second
quarter of 2001 to reflect the estimated value of claims, plus interest and
attorneys' fees, associated with recalls of beverages containing carbon
dioxide tainted with benzene. See ''Management's Discussion and Analysis of
Financial Condition and Results of Operations.''
(4) The nine months ended September 30, 2001, reflects $14.0 million of product
claim costs.
(5) EBITDA is defined as net income (loss) from continuing operations before
extraordinary items, excluding interest expense and income, income tax
benefit or expense, depreciation, amortization, insurance settlement gains
and costs and product claim costs. Insurance settlements relate to $6.0
million of legal and other professional fees we incurred in 2000, and a
recovery of $163.4 million we received in 1997, in connection with
insurance proceeds and a lawsuit to recover costs from the 1994 explosion
at our Port Neal, Iowa facility. EBITDA is not a measure of performance
under generally accepted accounting principles and should not be used in
isolation or as a substitute for net income, cash flows from operating
activities or other income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure of
profitability or liquidity. EBITDA information is included because we
believe that certain investors may use it as supplemental information to
evaluate a company's ability to service debt. The definition of EBITDA used
in this offering memorandum may not be comparable to the definition of
EBITDA used by other companies.
(6) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income (loss) from continuing operations before
income taxes, minority interest in consolidated subsidiaries and income or
loss from equity investments plus fixed charges and distributed income of
equity investments, less preference security dividends of Terra Nitrogen
Company, L.P. to minority interests. Fixed charges mean interest expense
plus amortization of debt expense, one-third of rental expense on operating
leases (representing that portion of rental expense deemed to be attributed
to interest) and preference security dividends of Terra Nitrogen Company,
L.P. to minority interests. Earnings were insufficient to cover fixed
charges by $57.8 million, $107.6 million, $12.0 million, $13.0 million and
$77.8 million for the years ended December 31, 1998, 1999 and 2000, and the
nine months ended September 30, 2000 and 2001, respectively.
(7) Current assets minus current liabilities.
(8) Statement of Financial Accounting Statements No. 142, ''Goodwill and Other
Intangible Assets,'' requires that goodwill and other intangible assets
with indefinite lives not be amortized but rather be tested for impairment
on an annual basis. We will adopt SFAS No. 142 in the first quarter of
2002. The historical impact of SFAS No. 142 would have been to decrease net
loss for the nine months ended September 30, 2001 and 2000 by $9.9 million
and $11.6 million. We have not quantified the impact that the adoption of
the standard will have for our future reporting periods. Such adoption
could result in the write-off in the first quarter of 2002 of a substantial
portion of the goodwill on our balance sheet, currently classified as
''Excess of cost over net assets of acquired businesses.''
19
THE EXCHANGE OFFER
Exchange Offer; Registration Rights
We entered into the Registration Rights Agreement pursuant to which we
agreed, for the benefit of the holders of the notes:
(1) to file with the SEC, within 60 days following the time of delivery
of the outstanding notes (the "Closing"), a registration statement (the
"Exchange Offer Registration Statement") under the Securities Act relating
to an exchange offer (the "exchange offer") pursuant to which notes
substantially identical to the notes (except that such notes will not
contain terms with respect to liquidated damages described below or transfer
restrictions), the exchange notes, would be offered in exchange for the then
outstanding notes tendered at the option of the holders thereof;
(2) to use our reasonable best efforts to cause the exchange offer
Registration Statement to become effective within 120 days following the
Closing; and
(3) to use our reasonable best efforts to effect the exchange offer
within 150 days after the Closing.
We further agreed to commence the exchange offer promptly after the Exchange
Offer Registration Statement has become effective, hold the offer open for at
least 20 business days, and exchange the exchange notes for all outstanding
notes validly tendered and not withdrawn before the expiration of the offer.
Under existing SEC interpretations, the exchange notes would in general be
freely transferable after the exchange offer without further registration under
the Securities Act, except that broker-dealers ("Participating Broker-Dealers")
receiving exchange notes in the exchange offer will be subject to a prospectus
delivery requirement with respect to resales of those exchange notes. The SEC
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the exchange notes (other than
a resale of an unsold allotment from the original sale of the notes) by
delivery of the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, we are required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
exchange notes. The Exchange Offer Registration Statement will be kept
effective as long as necessary after the exchange offer has been consummated in
order to permit resales of exchange notes acquired by broker-dealers in
after-market transactions. Each holder of outstanding notes that wishes to
exchange such notes for exchange notes in the exchange offer will be required
to represent that any exchange notes to be received by it will be acquired in
the ordinary course of its business, that at the time of the commencement of
the exchange offer it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange notes
and that it is not us or an affiliate of ours.
However, if:
(1) the existing SEC interpretations are changed such that we cannot
effect the exchange offer or the exchange offer is not for any reasons
consummated within 150 days following the Closing; or
(2) an initial purchaser so requests under certain circumstances; or
(3) the exchange offer is not available to any holder of the notes; or
(4) an initial purchaser does not receive freely tradeable exchange notes
in exchange for notes that are part of an unsold allotment,
we will, in lieu of (or, in the case of clause (2), in addition to) effecting
registration of exchange notes, use our reasonable best efforts to cause a
registration statement under the Securities Act relating to a shelf
registration of the notes for resale by holders or, in the case of clause (2),
of the notes held by such initial purchaser for resale by such initial
purchaser (the "Resale Registration") to become effective and to remain
effective until two years following the effective date of such registration
statement or such shorter period that will terminate when all the securities
covered by the shelf registration statement have been sold pursuant to the
shelf registration statement.
20
We will, in the event of the Resale Registration, provide to the holder or
holders of the applicable notes copies of the prospectus that is a part of the
registration statement filed in connection with the Resale Registration, notify
such holder or holders when the Resale Registration for the applicable notes
has become effective and take certain other actions as are required to permit
unrestricted resales of the applicable notes. A holder of notes that sells such
notes pursuant to the Resale Registration generally would be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement that are
applicable to such a holder (including certain indemnification obligations).
Although we intend to file the registration statement previously described,
we cannot assure you that the registration statement will be filed or, if
filed, that it will become effective.
In the event that:
(1) we have not filed the registration statement relating to the exchange
offer (or, if applicable, the Resale Registration) within 60 days following
the Closing; or
(2) such registration statement has not become effective within 120 days
following the Closing; or
(3) the exchange offer has not been consummated within 150 days after the
Closing; or
(4) any registration statement required by the Registration Rights
Agreement is filed and declared effective but shall thereafter cease to be
effective (except as specifically permitted therein) without being succeeded
immediately by an additional registration statement filed and declared
effective (any such event referred to in clauses (1) through (4), the
"Registration Default"),
then we will pay liquidated damages in cash in an amount equal to 0.25% per
annum of the aggregate principal amount of notes for the period from the
occurrence of the Registration Default until such time as no Registration
Default is in effect, which rate shall increase by 0.25% per annum for each
subsequent 90-day period during which such Registration Default continues up to
a maximum of 1.00% per annum ("Liquidated Damages").
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to all the provisions
of the Registration Rights Agreement, a copy of which will be available upon
request to us.
The outstanding notes and the exchange notes are considered collectively to
be a single class for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions and Offers to Purchase, and for
purposes of the provisions described under the caption "Description of the
Notes" all references therein to "notes" shall be deemed to refer collectively
to outstanding notes and any exchange notes, unless the context otherwise
requires.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. We will issue $1,000 principal
amount of exchange notes in exchange for each $1,000 principal amount of
outstanding notes accepted in the exchange offer. Any holder may tender some or
all of its outstanding notes pursuant to the exchange offer. However,
outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that:
(1) the exchange notes bear a Series B designation and a different CUSIP
Number from the outstanding notes;
21
(2) the exchange notes have been registered under the Securities Act and
hence will not bear legends restricting the transfer thereof; and
(3) the holders of the exchange notes will not be entitled to certain rights
under the Registration Rights Agreement, including the provisions
providing for an increase in the interest rate on the outstanding notes
in certain circumstances relating to the timing of the exchange offer,
all of which rights will terminate when the exchange offer is terminated.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture.
As of the date of this prospectus, $200,000,000 aggregate principal amount
of the outstanding notes were outstanding. We have fixed the close of business
on , 2002 as the record date for the exchange offer for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
Holders of outstanding notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware, or the indenture relating to the
notes in connection with the exchange offer. We intend to conduct the exchange
offer in accordance with the applicable requirements of the Exchange Act and
the rules and regulations of the SEC thereunder.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders for the purpose
of receiving the exchange notes from us.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of specified other events set forth in this
prospectus or otherwise, the certificates for any unaccepted outstanding notes
will be returned, without expense, to the tendering holder thereof promptly
after the expiration date of the exchange offer.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the exchange offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" will mean 5:00 p.m., New York City time, on ,
2002, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" will mean the latest date and time to which the
exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will mail to the registered holders
an announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion, (1) to delay accepting any
outstanding notes, to extend the exchange offer or to terminate the exchange
offer if any of the conditions set forth below under "--Conditions" have not
been satisfied, by giving oral or written notice of any delay, extension or
termination to the exchange agent or (2) to amend the terms of the exchange
offer in any manner. Any delay in acceptance, extension, termination or
amendment will be followed promptly by oral or written notice thereof to the
registered holders.
Interest on the Exchange Notes
The exchange notes will bear interest from their date of issuance. Holders
of outstanding notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of
22
the exchange notes. Such interest will be paid with the first interest payment
on the exchange notes on April 15, 2002. Interest on the outstanding notes
accepted for exchange will cease to accrue upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each April 15 and
October 15, commencing on April 15, 2002.
Procedures for Tendering
Only a holder of outstanding notes may tender outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the letter of transmittal or transmit an
agent's message in connection with a book-entry transfer, and mail or otherwise
deliver the letter of transmittal or the facsimile, together with the
outstanding notes and any other required documents, to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date. To be tendered
effectively, the outstanding notes, letter of transmittal or an agent's message
and other required documents must be completed and received by the exchange
agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m.,
New York City time, on the expiration date. Delivery of the outstanding notes
may be made by book-entry transfer in accordance with the procedures described
below. Confirmation of the book-entry transfer must be received by the exchange
agent prior to the expiration date.
The term "agent's message" means a message, transmitted by a book-entry
transfer facility to, and received by, the exchange agent forming a part of a
confirmation of a book entry, which states that the book-entry transfer
facility has received an express acknowledgment from the participant in the
book-entry transfer facility tendering the outstanding notes that the
participant has received and agrees: (1) to participate in ATOP; (2) to be
bound by the terms of the letter of transmittal; and (3) that we may enforce
the agreement against the participant.
By executing the letter of transmittal or sending an agent's message, each
holder will make to us the representations set forth above in the third
paragraph under the heading "--Exchange Offer; Registration Rights."
The tender by a holder and our acceptance thereof will constitute agreement
between the holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal or
agent's message.
The method of delivery of outstanding notes and the letter of transmittal or
agent's message and all other required documents to the exchange agent is at
the election and sole risk of the holder. As an alternative to delivery by
mail, holders may wish to consider overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. No letter of transmittal or old Notes should
be sent to us. Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for them.
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member of the Medallion System unless the
outstanding notes tendered pursuant to the letter of transmittal are tendered
(1) by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the letter of
transmittal or (2) for the account of a member firm of the Medallion System. In
the event that signatures on a letter of transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, the guarantee must be by a
member firm of the Medallion System.
23
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed in this prospectus, the outstanding
notes must be endorsed or accompanied by a properly completed bond power,
signed by the registered holder as the registered holder's name appears on the
outstanding notes with the signature thereon guaranteed by a member firm of the
Medallion System.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations or others acting in a fiduciary or representative
capacity, the person signing should so indicate when signing, and evidence
satisfactory to us of its authority to so act must be submitted with the letter
of transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the outstanding
notes at DTC for the purpose of facilitating the exchange offer, and subject to
the establishment thereof, any financial institution that is a participant in
DTC's system may make book-entry delivery of outstanding notes by causing DTC
to transfer the outstanding notes into the exchange agent's account with
respect to the outstanding notes in accordance with DTC's procedures for the
transfer. Although delivery of the outstanding notes may be effected through
book-entry transfer into the exchange agent's account at DTC, unless an agent's
message is received by the exchange agent in compliance with ATOP, an
appropriate letter of transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the exchange agent at its
address set forth below on or prior to the expiration date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under the procedures. Delivery of documents to DTC does
not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to
reject any and all outstanding notes not properly tendered or any outstanding
notes our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right in our sole discretion to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of outstanding notes must be cured within the time we
determine. Although we intend to notify holders of defects or irregularities
with respect to tenders of outstanding notes, neither we, the exchange agent
nor any other person will incur any liability for failure to give the
notification. Tenders of outstanding notes will not be deemed to have been made
until the defects or irregularities have been cured or waived. Any outstanding
notes received by the exchange agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, promptly following the expiration date.
Guaranteed Delivery Procedures
Holders who wish to tender their outstanding notes and (1) whose outstanding
notes are not immediately available, (2) who cannot deliver their outstanding
notes, the letter of transmittal or any other required documents to the
exchange agent or (3) who cannot complete the procedures for book-entry
transfer, prior to the expiration date, may effect a tender if:
(A) the tender is made through a member firm of the Medallion System;
(B) prior to the expiration date, the exchange agent receives from a member
firm of the Medallion System a properly completed and duly executed
Notice of Guaranteed Delivery by facsimile transmission, mail or hand
delivery setting forth the name and address of the holder, the
certificate number(s) of the outstanding notes and the principal amount
of outstanding notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after
24
the expiration date, the letter of transmittal or facsimile thereof
together with the certificate(s) representing the outstanding notes or a
confirmation of book-entry transfer of the outstanding notes into the
exchange agent's account at DTC, and any other documents required by the
letter of transmittal will be deposited by the member firm of the
Medallion System with the exchange agent; and
(C) the properly completed and executed letter of transmittal of facsimile
thereof, as well as the certificate(s) representing all tendered
outstanding notes in proper form for transfer or a confirmation of
book-entry transfer of the outstanding notes into the exchange agent's
account at DTC, and all other documents required by the letter of
transmittal are received by the exchange agent within five New York
Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
To withdraw a tender of outstanding notes in the exchange offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received
by the exchange agent at its address set forth in this prospectus prior to 5:00
p.m., New York City time, on the expiration date of the exchange offer. Any
notice of withdrawal must:
(1) specify the name of the person having deposited the outstanding notes to
be withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
certificate number(s) and principal amount of the outstanding notes, or,
in the case of outstanding notes transferred by book-entry transfer, the
name and number of the account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
outstanding notes register the transfer of the outstanding notes into
the name of the person withdrawing the tender; and
(4) specify the name in which any outstanding notes are to be registered, if
different from that of the person depositing the outstanding notes to be
withdrawn.
All questions as to the validity, form and eligibility, including time of
receipt, of the notices will be determined by us, whose determination will be
final and binding on all parties. Any outstanding notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no exchange notes will be issued with respect thereto unless the outstanding
notes so withdrawn are validly retendered. Any outstanding notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to the holder promptly after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn outstanding
notes may be retendered by following one of the procedures described above
under "--Procedures for Tendering" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange notes for, any outstanding notes,
and may terminate or amend the exchange offer as provided in this prospectus
before the expiration date, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair
25
our ability to proceed with the exchange offer or any material adverse
development has occurred in any existing action or proceeding with
respect to us or any of our subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the Staff of the
SEC is proposed, adopted or enacted, which, in our reasonable judgment,
might materially impair our ability to proceed with the exchange offer
or materially impair the contemplated benefits of the exchange offer to
us; or
(3) any governmental approval has not been obtained, which approval we will,
in our reasonable discretion, deem necessary for the consummation of the
exchange offer as contemplated by this prospectus.
If we determine in our reasonable discretion that any of the conditions are
not satisfied prior to the expiration date, we may (1) refuse to accept any
outstanding notes and return all tendered outstanding notes to the tendering
holders, (2) extend the exchange offer and retain all outstanding notes
tendered prior to the expiration of the exchange offer, subject, however, to
the rights of holders to withdraw the outstanding notes (see "--Withdrawal of
Tenders") or (3) waive the unsatisfied conditions with respect to the exchange
offer and accept all properly tendered outstanding notes which have not been
withdrawn.
Exchange Agent
U.S. Bank Trust National Association has been appointed as exchange agent
for the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
By Registered or Certified Mail: Overnight Courier and By Hand Delivery after 4:30
p.m., New York City time, on the expiration date:
U.S. Bank Trust National Association U.S. Bank Trust National Association
180 East Fifth Street 180 East Fifth Street
St. Paul, MN 55101 St. Paul, MN 55101
Attention: Specialized Finance Department--4th Floor Attention: Specialized Finance Department--4th Floor
By Hand Prior to 4:30 p.m., New York City time: Facsimile Transmission:
U.S. Bank Trust National Association (651) 244-1537
180 East Fifth Street Attention: Specialized Finance Department
St. Paul, MN 55101
Attention: Specialized Finance Department--4th Floor
For Information Telephone:
(800) 934-6802
Delivery to an address other than set forth above will not constitute a
valid delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person by our and our affiliates' officers
and regular employees.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses incurred in connection with these services.
26
We will pay the cash expenses to be incurred in connection with the exchange
offer. Such expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
outstanding notes as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes as a result of the exchange offer. The expenses of the exchange offer
will be deferred and charged to expense over the term of the exchange notes.
Consequences of Failure to Exchange
The outstanding notes that are not exchanged for exchange notes pursuant to
the exchange offer will remain restricted securities. Accordingly, the
outstanding notes may be resold only:
(1) to us upon redemption thereof or otherwise;
(2) so long as the outstanding notes are eligible for resale pursuant to
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A under the Securities Act in a transaction meeting
the requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act, which other exemption is based upon
an opinion of counsel reasonably acceptable to us;
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws of
any state of the United States.
Resale of the Exchange Notes
With respect to resales of exchange notes, based on interpretations by the
Staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder or other person who receives exchange notes, whether or
not the person is the holder, other than a person that is our affiliate within
the meaning of Rule 405 under the Securities Act, in exchange for outstanding
notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the exchange notes, will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the exchange notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, the holder cannot rely on the position of the Staff of the SEC expressed
in the no-action letters or any similar interpretive letters, and must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction, unless an exemption from
registration is otherwise available. Further, each broker-dealer that receives
exchange notes for its own account in exchange for outstanding notes, where the
outstanding notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
27
DESCRIPTION OF THE NOTES
General
The 12.875% Senior Secured Notes due 2008 (the "Notes") were issued under an
indenture dated as of October 10, 2001 (the "Indenture"), among Terra Capital,
Inc., as issuer ("Issuer"), Terra Industries Inc., as parent guarantor
("Parent"), certain subsidiaries of Parent as additional guarantors and U.S.
Bank Trust National Association, as trustee (the "Trustee"). As used below in
this "Description of the Notes" section, "Issuer" refers to Terra Capital, Inc.
only.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Security Documents referred to under
the caption "--Collateral" define the terms of the security interests that
secure the Notes.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture and the Security Documents in
their entirety. We urge you to read the Indenture and the Security Documents
because they, and not this description, define your rights as holders of the
Notes. Copies of the Indenture and the Security Documents are available upon
written request to Issuer as described below under "Where You Can Find More
Information." Definitions of certain terms are set forth under "--Certain
Definitions."
Principal of the Notes is payable, and the Notes may be exchanged or
transferred, at the office or agency of Issuer in the Borough of Manhattan,
City of New York, which, unless otherwise provided by Issuer, will be the
offices of the Trustee. Payment of interest will be made by check mailed to the
addresses of the noteholders as such addresses appear in the Note register or,
at the election of any noteholder in the manner prescribed by the Indenture, by
wire transfer of immediately available funds.
The Notes have been issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000.
Terms of the Notes
The Notes are limited to $200.0 million aggregate principal amount and
mature on October 15, 2008. The Notes bear interest at the rate per annum shown
on the cover page of this prospectus from the Issue Date, or from the most
recent date to which interest has been paid or provided for, payable
semi-annually on April 15 and October 15 of each year, commencing April 15,
2002, to holders of record at the close of business on the immediately
preceding April 1 and October 1, respectively. Interest shall be computed on
the basis of a 360-day year of twelve 30-day months.
Ranking
The Notes are senior secured obligations and are entitled to be paid first
out of the proceeds, if any, of the Collateral.
The lenders under the Credit Facility are entitled to be paid first out of
the proceeds, if any, of the collateral securing the Credit Facility. The
Credit Facility is secured by the following assets (the "Excluded Assets"), as
well as the Second Lien Collateral:
(1) all inventory, accounts and cash and cash equivalents (other than
cash and cash equivalents constituting Collateral) of Parent and its
Subsidiaries;
(2) an intercompany note issued to Issuer by TNLP under which
approximately $15.4 million was outstanding on the Issue Date, an
intercompany note issued to Issuer by Terra Canada under which
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approximately $40.0 million was outstanding on the Issue Date, and an
intercompany note issued to Issuer by Terra UK under which approximately
$35.0 million was outstanding on the Issue Date; and
(3) all other assets of Parent or any of its Subsidiaries other than
. the partnership interests in TNCLP and the general partnership
interest in TNLP, in each case, so long as TNCLP is not a Wholly Owned
Subsidiary;
. any item or type of asset constituting Collateral; and
. any Fixed Assets of Parent or any Restricted Subsidiary.
At June 30, 2001 after giving effect to the sale of the outstanding notes and
related transactions, there would have been $70.5 million outstanding under the
Credit Facility and the borrowers under the Credit Facility would have been
able to borrow up to an additional $86.9 million in the aggregate, subject to
the borrowing base limitation therein.
The Notes and the Guarantees rank equally with existing and future
unsubordinated obligations of Issuer and the Guarantors with respect to any
assets that have not been pledged to any creditor. The Notes and the Guarantees
are effectively subordinated to the obligations of any Subsidiary of Parent
that is not a Guarantor except to the extent that assets of such Subsidiary
secure a Fixed Asset Intercompany Note, as described below under
"--Collateral--Fixed Asset Intercompany Notes." If Issuer or a Guarantor incurs
any Indebtedness in the future that provides by its terms that it is
subordinated to the Notes or the Guarantee of that Guarantor, the Notes or that
Guarantee, as applicable, will rank senior to that Indebtedness.
Optional Redemption
The Notes are redeemable, in whole at any time or in part from time to time,
at the option of Issuer, upon not less than 30 nor more than 60 days' notice,
at a redemption price equal to the sum of:
. 100% of the principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the redemption date, plus
. the Make Whole Amount, if any.
If less than all the Notes issued under the Indenture are to be redeemed at
any time, selection of Notes for redemption will be made by the Trustee on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Guarantees
Parent and each of its Wholly Owned Subsidiaries that is a Domestic
Subsidiary delivered a Guarantee on the Issue Date. Pursuant to the Guarantees,
the Guarantors fully and unconditionally guarantee, on a senior secured basis,
all Obligations of Issuer under the Indenture and the Notes. Newly formed or
acquired Domestic Subsidiaries are required to become Guarantors, as described
under "--Certain Covenants--Additional Guarantees."
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Each Guarantee (other than the Guarantee by Parent and each other parent
company of Issuer) is limited to an amount not to exceed the maximum amount
that can be guaranteed by the applicable Guarantor without rendering such
Guarantee voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors
generally. Each Guarantor that makes a payment or distribution under a
Guarantee is entitled to a contribution from each other Guarantor in an amount
pro rata, based on the net assets of each Guarantor. See "Risk Factors--Federal
and state statutes allow courts, under specific circumstances, to void
subsidiary guarantees of the notes."
The following Subsidiaries of Parent are not Guarantors:
. Terra Canada and Terra UK, which are Foreign Subsidiaries, and
. TNCLP and TNLP, so long as TNCLP is not a Wholly Owned Subsidiary.
However, the Fixed Assets of these Subsidiaries has been pledged to secure
their respective obligations under the Terra UK Intercompany Note and the TNLP
Intercompany Note, which was assigned to the Trustee as Collateral, as
described below.
The Guarantee of any Restricted Subsidiary will be automatically and
unconditionally released and discharged upon either of the following:
. any sale, exchange or transfer by Parent or any Restricted Subsidiary to
any Person that is not an affiliate of Parent of all of the Capital Stock
of, or all or substantially all the assets of, such Restricted Subsidiary,
which sale, exchange or transfer is made in accordance with the provisions
of the Indenture; or
. the designation of such Restricted Subsidiary as an Unrestricted
Subsidiary in accordance with the provisions of the Indenture;
provided, in each such case, Parent has delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for in the Indenture relating to such transactions have been
complied with and that such release is authorized and permitted under the
Indenture.
Collateral
Description of Collateral
The Notes and the Guarantees are secured by a first priority Lien (subject
to exceptions specified in the applicable Security Documents or the Indenture)
on the following items or types of assets, in each case, whether now owned or
hereafter acquired:
(1) all right, title and interest (including, without limitation, fee and
leasehold estates) of Issuer or any Guarantor in and to any and all material
parcels of real property, together with all easements, hereditaments and
appurtenances relating thereto, and all other improvements, accessions,
alterations, replacements and repairs thereto and all leases and rents and
other income, issues or profits derived from the foregoing interests;
(2) all right, title and interest of Issuer or any Guarantor in and to
any and all equipment, machinery, furniture, furnishings and fixtures,
together with all additions, accessions, improvements, alterations,
replacements and repairs thereto;
(3) all intellectual property (including, without limitation, any
trademarks, service marks, patents, copyrights, trade secrets and other
proprietary information) material to the development, construction,
maintenance, ownership, use or operation of any or all of the foregoing;
(4) all general intangibles to the extent relating primarily to the
development, construction, maintenance, ownership, use or operation of any
or all of the foregoing, including, without limitation, all material
contract rights, agreements, licenses and permits entered into by, or
granted to, Issuer or any
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Guarantor in connection with the development, construction, maintenance,
ownership, use or operation of any or all of the foregoing;
(5) all of the limited partnership interests issued by TNCLP and owned by
Issuer or any Guarantor and all general intangibles to the extent relating
primarily to such interests;
(6) the Terra UK Intercompany Note and the guarantee thereof by Terra
Canada, the TNLP Intercompany Note and the guarantee thereof by TNCLP, all
other Fixed Asset Intercompany Notes issued and outstanding pursuant to the
first bullet under clause (8) of the definition of "Permitted Investments,"
all security interests securing any or all of the foregoing and all other
supporting obligations relating thereto, in each case, together with all
general intangibles to the extent relating primarily thereto;
(7) all instruments, documents, deposit accounts (including, without
limitation, the Collateral Account) and all cash and cash equivalents
deposited therein, investment property, letters of credit, letter-of-credit
rights and chattel paper, in each case, to the extent that (x) any amounts
payable under or in connection with any and all of the items or types of
assets described in clauses (1) through (6) of this paragraph are evidenced
by the items or types of assets described in this clause (7) or (y) the
items or types of assets described in this clause (7) constitute proceeds of
any and all of the items or types of assets described in clauses (1) through
(6) of this paragraph;
(8) all books and records to the extent relating primarily to any or all
of the foregoing; and
(9) all proceeds and products of any or all of the foregoing, including,
without limitation, proceeds of insurance, condemnation awards, tax refunds
and other similar property or claims with respect to any or all of the
foregoing.
In addition, the Notes and the Guarantees are secured by a second priority
Lien on the following items or types of assets, in each case, whether now owned
or hereafter acquired:
(1) all promissory notes issued pursuant to the second bullet under
clause (8) of the definition of "Permitted Investments," and all supporting
obligations relating thereto, in each case, together with all general
intangibles to the extent relating primarily thereto;
(2) all instruments, documents, deposit accounts and all cash and cash
equivalents deposited therein, investment property, letters of credit,
letter of credit rights and chattel paper, in each case, to the extent that
(x) any amounts payable under or in connection with any of the items or
types of assets described in clause (1) of this paragraph are evidenced by
the items or types of assets described in this clause (2) or (y) the items
or types of assets described in this clause (2) constitute proceeds of any
items or types of assets described in clause (1) of this paragraph;
(3) all books and records to the extent relating primarily to any and all
of the foregoing; and
(4) all proceeds and products of any or all of the foregoing.
The Collateral does not include the Excluded Assets.
Fixed Asset Intercompany Notes
Issuer, through a wholly owned U.S. subsidiary, has outstanding a $100.0
million loan to Terra UK. This intercompany loan is evidenced by the Terra UK
Intercompany Note and fully and unconditionally guaranteed, on a senior secured
basis, by Terra Canada. The Terra UK Intercompany Note and the guarantee
thereof are secured by the Fixed Assets of Terra UK and Terra Canada,
respectively.
Issuer used a portion of the proceeds of the sale of the outstanding notes
to fund an intercompany loan of $8.2 million to TNLP. Proceeds of the
intercompany loan were used to repay existing debt of TNLP. This intercompany
loan is evidenced by the TNLP Intercompany Note and fully and unconditionally
guaranteed, on a
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senior secured basis, by TNCLP. The TNLP Intercompany Note and the guarantee
thereof are secured by the Fixed Assets of TNLP and any Fixed Assets of TNCLP,
respectively.
As a result of the pledge of the Terra UK Intercompany Note and the related
guarantee described above, the Notes are indirectly secured by the Fixed Assets
of Terra UK and Terra Canada, but only to the extent of the amount of the Terra
UK Intercompany Note. After the Terra UK Intercompany Note and the related
guarantee are repaid, the Fixed Assets of Terra UK and Terra Canada will be
available to satisfy their other obligations, including their obligations under
the Credit Facility.
As a result of the pledge of the TNLP Intercompany Note and the related
guarantee described above, unless the circumstances described below under
"--TNCLP and TNLP" occur, the Notes are indirectly secured by the Fixed Assets
of TNLP and TNCLP, if any, but only to the extent of the amount of the TNLP
Intercompany Note. After the TNLP Intercompany Note and the related guarantee
are repaid, the Fixed Assets of TNLP and any Fixed Assets of TNCLP will be
available to satisfy their other obligations, including their obligations under
the Credit Facility.
In addition, any Subsidiary that is not a Guarantor may issue a Fixed Asset
Intercompany Note under the circumstances specified under the first bullet
under clause (8) of the definition of "Permitted Investments."
TNCLP and TNLP
If TNCLP becomes a Wholly Owned Subsidiary:
. the limited partnership interests of TNCLP will cease to constitute
Collateral under the Indenture, and will instead be pledged to the Bank
Collateral Agent under the Credit Facility;
. TNCLP and TNLP will become Guarantors and grant a first priority Lien on
all their Fixed Assets, which will become Collateral under the Indenture
and the applicable Security Documents; and
. the TNLP Intercompany Note may be repaid.
General
The Collateral and the Second Lien Collateral were pledged to the Trustee
for the benefit of the Trustee and the noteholders pursuant to the Security
Documents. If the Notes become due and payable prior to the Stated Maturity of
the Notes for any reason or are not paid in full at the Stated Maturity of the
Notes and after any applicable grace period has expired, the Trustee will have
the right to foreclose upon the Collateral in accordance with instructions from
the holders of a majority in aggregate principal amount of the Notes or, in the
absence of such instructions, in such manner as the Trustee deems appropriate
in its absolute discretion. Proceeds from the sale of Collateral will be
applied by the Trustee first to pay the expenses of any foreclosure and fees
and other amounts then payable to the Trustee under the Indenture and the
Security Documents and, thereafter, to pay all amounts owing to the holders
under the Indenture and the Notes (with any remaining proceeds to be payable to
Issuer or as may otherwise be required by law). The Trustee will not have the
right to foreclose upon the Second Lien Collateral and proceeds from the sale
thereof will be available to the Trustee only after all Obligations under the
Credit Facility have been paid in full.
There can be no assurance that the proceeds, if any, from the sale of the
Collateral and Second Lien Collateral would be sufficient to satisfy payments
due on the Notes. By its nature, some or all of the Collateral and Second Lien
Collateral will be illiquid and may have no readily ascertainable market value.
Accordingly, there can be no assurance that the Collateral or Second Lien
Collateral can be sold in a short period of time, if salable.
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The collateral release provisions of the Indenture and the Security
Documents may permit the release of certain of the Collateral without
substitution of collateral of equal value under certain circumstances. See
"--Possession, Use and Release of Collateral."
To the extent that third parties enjoy Liens permitted by the Security
Documents and the Indenture, such third parties will have rights and remedies
with respect to the asset subject to such Liens that, if exercised, could
adversely affect the value of the Collateral and the ability of the Trustee or
the noteholders to realize or foreclose on the Collateral. In addition, the
ability of the Holders to realize upon the Collateral may be subject to certain
bankruptcy law limitations in the event of a bankruptcy. See "--Certain
Bankruptcy Limitations."
Intercreditor Arrangements
The Trustee and the Bank Collateral Agent under the Credit Facility entered
into an access, use and intercreditor agreement (the "Intercreditor
Agreement"). The Intercreditor Agreement provides, among other things, that
(1) the Trustee and the Bank Collateral Agent under the Credit Facility
will provide notices to each other with respect to the occurrence of an
event of default under the Indenture or the Credit Facility, as the case may
be;
(2) for a period of up to 45 days following the date of receipt by the
Bank Collateral Agent under the Credit Facility of written notice from the
Trustee directing the removal by the Bank Collateral Agent of the collateral
securing the Credit Facility, the Bank Collateral Agent may enter and use
the properties on which the Trustee has Liens and the equipment located on
those properties constituting Collateral to the extent necessary to complete
the manufacture of inventory, collect accounts and repossess, remove, sell
or otherwise dispose of collateral securing the Credit Facility; and
(3) in general, the Trustee will have no rights with respect to the
Second Lien Collateral except to receive the proceeds therefrom after all
Obligations under the Credit Facility have been paid.
Certain Bankruptcy Limitations
Bankruptcy law could significantly impair the right of the Trustee to
repossess and dispose of, or otherwise exercise remedies in respect of, the
Collateral upon the occurrence of an Event of Default if a bankruptcy
proceeding is commenced by or against Issuer before the Trustee repossesses and
disposes of, or otherwise exercises remedies in respect of, the Collateral.
Under the Bankruptcy Code, a secured creditor such as the Trustee or
noteholders is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such debtor,
without bankruptcy court approval. Moreover, the Bankruptcy Code permits the
debtor to continue to retain and to use collateral even though the debtor is in
default under the applicable debt instruments, so long as the secured creditor
is given "adequate protection." The meaning of the term "adequate protection"
may vary according to circumstances. In view of the lack of a precise
definition of the term "adequate protection" and the broad discretionary powers
of a bankruptcy court, it is impossible to predict how long payments with
respect to the Notes could be delayed following commencement of a bankruptcy
case, whether or when the Trustee could repossess or dispose of the Collateral
or whether or to what extent holders of the Notes would be compensated for any
delay in payment or loss of value of the Collateral.
Change of Control
If a Change of Control occurs, each noteholder will have the right to
require Issuer to purchase all or a portion (equal to $1,000 or an integral
multiple thereof) of such holder's Notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on an interest payment date that is on or
prior to the date fixed for redemption), in accordance with the provisions of
the next paragraph.
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Within 30 days following any Change of Control, Issuer shall mail a notice
to each noteholder, with a copy to the Trustee, stating:
. that a Change of Control has occurred and that such noteholder has the
right to require Issuer to purchase such holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of purchase (subject to the right
of holders of record on the relevant record date to receive interest on an
interest payment date that is on or prior to the date fixed for purchase);
. the purchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and
. the instructions as determined by Issuer, consistent with the covenant
described hereunder, that a noteholder must follow in order to have its
Notes purchased.
Issuer shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the purchase of Notes pursuant to the Indenture. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of the Indenture, Issuer shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the covenant of the Indenture by virtue of this compliance.
The occurrence of a Change of Control would constitute a default under the
Credit Facility. In addition, Issuer's ability to purchase the Notes for cash
may be limited by Issuer's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
purchases required in connection with a Change of Control. Issuer's failure to
purchase the Notes in connection with a Change of Control would result in a
default under the Indenture, which would, in turn, constitute a default under
the Credit Facility.
The definition of Change of Control includes a phrase relating to the sale,
assignment, transfer, lease, conveyance or other disposition of "all or
substantially all" of the properties or assets of Terra Industries and certain
subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
noteholder to require us to repurchase its notes as a result of a sale,
assignment, transfer, lease, conveyance or other disposition of less than all
of the assets of Terra Industries and certain subsidiaries taken as a whole to
another person or group may be uncertain.
Certain Covenants
The Indenture contains certain covenants, including, among others, the
following:
Limitation on Incurrence of Indebtedness
Parent will not, and will not permit any Restricted Subsidiary to, incur,
directly or indirectly, any Indebtedness; provided that Issuer or any Guarantor
may incur Indebtedness if, immediately after giving effect to such incurrence,
the Consolidated Coverage Ratio is at least 2.0 to 1.0 (this proviso, the
"Coverage Ratio Exception").
The foregoing paragraph will not prohibit incurrence of the following
Indebtedness (collectively, "Permitted Indebtedness"):
(1) the Notes issued on the Issue Date and any Guarantees;
(2) Indebtedness of Parent or any Restricted Subsidiary to the extent
outstanding on the Issue Date (other than Indebtedness under the Credit
Facility);
(3) Indebtedness of Parent or any Restricted Subsidiary under the Credit
Facility in an aggregate amount at any time outstanding pursuant to this
clause (3) (including amounts outstanding on the date of the Indenture) not
to exceed the greater of
. $225.0 million; and
. the sum of (x) 70% of the net book value of the inventory of Parent
and the Restricted Subsidiaries and (y) 85% of the net book value of
the accounts receivable of Parent and the Restricted Subsidiaries, in
each case determined on a consolidated basis in accordance with GAAP;
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(4) Refinancing Indebtedness in respect of Indebtedness incurred pursuant
to the Coverage Ratio Exception, clause (1) of this paragraph (including the
Exchange Notes and any Guarantees thereof), clause (2) of this paragraph
(other than any Indebtedness owed to Parent or any of its Subsidiaries) or
this clause (4);
(5) Indebtedness owed by Parent or any Restricted Subsidiary to Parent or
any Restricted Subsidiary; provided that
. any such Indebtedness owed by Issuer shall be subordinated by its
terms to the prior payment in full in cash of all Obligations with
respect to the Notes, and any such Indebtedness owed by any Guarantor
(other than to Issuer or any other Guarantor) shall be subordinated by
its terms to the prior payment in full in cash of all Obligations with
respect to the Guarantee of such Guarantor; and
. if such Indebtedness is held by a Person other than Parent or any
Restricted Subsidiary, Parent or such Restricted Subsidiary shall be
deemed to have incurred Indebtedness not permitted by this clause (5);
(6) (x) the guarantee by Issuer or any Guarantor of Indebtedness of
Issuer or a Guarantor and (y) the guarantee by any Restricted Subsidiary
that is not a Guarantor of Indebtedness of any other Restricted Subsidiary
that is not a Guarantor; provided that, in each case, the Indebtedness being
guaranteed is incurred pursuant to the Coverage Ratio Exception or is
Permitted Indebtedness;
(7) Hedging Obligations;
(8) industrial revenue bonds or similar tax-exempt Indebtedness, Purchase
Money Indebtedness and Capital Lease Obligations of Parent or any Restricted
Subsidiary incurred to finance the acquisition, construction or improvement
of any assets (including capital expenditures of Parent or any Restricted
Subsidiary), and Refinancings thereof, in an aggregate amount not to exceed
$15.0 million at any time outstanding;
(9) Indebtedness of any Foreign Subsidiary in an aggregate amount not to
exceed $15.0 million at any time outstanding;
(10) Indebtedness represented by letters of credit in order to provide
security for workers' compensation claims, payment obligations in connection
with self-insurance or similar requirements of Parent or any Restricted
Subsidiary in the ordinary course of business;
(11) customary indemnification, adjustment of purchase price or similar
obligations, in each case, incurred in connection with the acquisition or
disposition of any assets of Parent or any Restricted Subsidiary (other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such assets for the purpose of financing such acquisition);
(12) obligations in respect of performance bonds and completion,
guarantee, surety and similar bonds in the ordinary course of business;
(13) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds; provided
that such Indebtedness is extinguished within five business days of
incurrence;
(14) Indebtedness arising in connection with endorsement of instruments
for deposit in the ordinary course of business;
(15) Indebtedness consisting of take-or-pay obligations contained in
supply agreements entered into in the ordinary course of business;
(16) Indebtedness the net proceeds of which are used solely to pay
Federal, state or local taxes arising as a result of any recharacterization
of TNCLP or TNLP as an association taxable as a corporation as a result of
changes after the Issue Date in law, regulation or the interpretation
thereof by governmental authorities;
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(17) guarantees by Terra UK of Terra UK Customer Debt; provided that
. the aggregate principal amount of the Indebtedness so guaranteed by
Terra UK with respect to any customer at any time shall not exceed 50%
of the aggregate principal amount of the Terra UK Customer Debt of
such customer outstanding at such time; and
. the aggregate principal amount of Terra UK Customer Debt guaranteed by
Terra UK at any time during any fiscal year shall not exceed (x)
(Pounds)15,000,000 minus (y) the aggregate amount of payments made by
Terra UK under all such guarantees during such fiscal year; and
(18) additional Indebtedness in an aggregate amount not to exceed $30.0
million at any time outstanding.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Indebtedness described in clauses (1) through (18) above or is
entitled to be incurred pursuant to the Coverage Ratio Exception, Issuer shall,
in its sole discretion, classify such item of Indebtedness and may divide and
classify such Indebtedness in more than one of the types of Indebtedness
described (except that Indebtedness outstanding under the Credit Facility on
the Issue Date shall be deemed to have been incurred under clause (3) above)
and may later reclassify such item into any one or more of the categories of
Permitted Indebtedness described in clauses (3) through (18) above (provided
that at the time of reclassification it meets the criteria in such category or
categories). The maximum amount of Indebtedness that Parent or any Restricted
Subsidiary may incur pursuant to this covenant will not be deemed to be
exceeded solely as the result of fluctuations in the exchange rates of
currencies. In determining the amount of Indebtedness outstanding under one of
the clauses above, the outstanding principal amount of any particular
Indebtedness of any Person shall be counted only once and any obligation of
such Person or any other Person arising under any guarantee, Lien, letter of
credit or similar instrument supporting such Indebtedness shall be disregarded
so long as it is permitted to be incurred by the Person or Persons incurring
such obligation.
Notwithstanding the foregoing, Parent will not, and will not permit Issuer
or any other Guarantor to, incur any Indebtedness that purports to be by its
terms (or by the terms of any agreement or instrument governing such
Indebtedness) subordinated to any other Indebtedness of Parent, Issuer or of
such other Guarantor, as the case may be, unless such Indebtedness is also by
its terms made subordinated to the Notes or the Guarantee of such Guarantor, as
applicable, to at least the same extent as such Indebtedness is subordinated to
such other Indebtedness of Issuer or such Guarantor, as the case may be.
Limitation on Restricted Payments
Parent will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, declare or make a Restricted Payment if
(1) a Default has occurred and is continuing or would result therefrom;
(2) Issuer could not incur at least $1.00 of additional Indebtedness
pursuant to the Coverage Ratio Exception; or
(3) the aggregate amount of such Restricted Payment together with all
other Restricted Payments (the amount of any Restricted Payments made in
assets other than cash to be valued at its Fair Market Value) declared or
made since the Issue Date (other than any Restricted Payment described in
clause (2), (3), (4), (5), (6) or (8) of the next paragraph) would exceed
the sum (the "Basket") of:
(a) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from October 1, 2001 to the end of
the most recent fiscal quarter prior to the date of such Restricted
Payment for which internal financial statements are available (or, in
case such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); plus
(b) the aggregate Net Cash Proceeds received by Parent from the
issuance and sale (other than to a Subsidiary of Parent) of Qualified
Stock subsequent to the Issue Date; plus
36
(c) the amount by which Indebtedness or Disqualified Stock incurred
or issued subsequent to the Issue Date is reduced on Parent's
consolidated balance sheet upon the conversion or exchange (other than
by a Subsidiary of Parent) into Qualified Stock (less the amount of any
cash, or the Fair Market Value of any other asset, distributed by Parent
or any Restricted Subsidiary upon such conversion or exchange); provided
that such amount shall not exceed the aggregate Net Cash Proceeds
received by Parent or any Restricted Subsidiary from the issuance and
sale (other than to a Subsidiary of Parent) of such Indebtedness or
Disqualified Stock; plus
(d) to the extent not included in the calculation of the Consolidated
Net Income referred to in (a), an amount equal to, without duplication:
. 100% of the aggregate net proceeds (including the Fair Market Value
of assets other than cash) received by Parent or any Restricted
Subsidiary upon the sale or other disposition of any Investment
(other than a Permitted Investment) made by Parent or any
Restricted Subsidiary since the Issue Date; plus
. the net reduction in Investments (other than Permitted Investments)
in any Person resulting from dividends, repayments of loans or
advances or other Transfers of assets subsequent to the Issue Date,
in each case to Parent or any Restricted Subsidiary from such
Person; plus
. to the extent that the Basket was reduced as the result of the
designation of an Unrestricted Subsidiary, the portion
(proportionate to Parent's equity interest in such Subsidiary) of
the Fair Market Value of the net assets of such Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is
redesignated, or liquidated or merged into, a Restricted Subsidiary;
provided that the foregoing shall not exceed, in the aggregate, the
amount of all Investments which previously reduced the Basket.
The provisions of the foregoing paragraph shall not prohibit the following:
(1) dividends paid within 90 days after the date of declaration thereof
if at such date of declaration such dividend would have been permitted under
the Indenture;
(2) any repurchase, redemption, retirement or other acquisition of
Capital Stock or Subordinated Obligations made in exchange for, or out of
the proceeds of the substantially concurrent issuance and sale (other than
to a Subsidiary of Parent) of, Qualified Stock or, with respect to any such
Subordinated Obligations, in exchange for or out of the proceeds of the
substantially concurrent incurrence and sale (other than to a Subsidiary of
Parent) of Refinancing Indebtedness thereof; provided that (x) no such
exchange or issuance and sale shall increase the Basket and (y) no Default
has occurred and is continuing or would occur as a consequence thereof;
(3) the purchase, redemption, acquisition, cancellation or other
retirement for a nominal value per right of any rights granted to all the
holders of Common Stock of Parent pursuant to any shareholders' rights plan
adopted for the purpose of protecting shareholders from unfair takeover
tactics; provided that any such purchase, redemption, acquisition,
cancellation or other retirement of such rights shall not be for the purpose
of evading the limitations of this covenant (all as determined in good faith
by the Board of Directors);
(4) payments by Parent or any Restricted Subsidiary in respect of
Indebtedness of Parent or any Restricted Subsidiary owed to Parent or
another Restricted Subsidiary;
(5) repurchases of Capital Stock deemed to occur upon the exercise of
stock options or warrants if such Capital Stock represents a portion of the
exercise price thereof and repurchases of Capital Stock deemed to occur upon
the withholding of a portion of the Capital Stock granted or awarded to an
employee to pay for the taxes payable by such employee upon such grant or
award;
(6) if no Default has occurred and is continuing or would occur as a
consequence thereof, the declaration and payment of dividends to holders of
any class or series of Designated Preferred Stock (other
37
than Disqualified Stock) issued after the Issue Date; provided that, at the
time of the issuance of such Designated Preferred Stock and after giving pro
forma effect thereto, Issuer could incur at least $1.00 of additional
Indebtedness pursuant to the Coverage Ratio Exception;
(7) purchases of the Capital Stock, or contributions to the equity, of
any Foreign Subsidiary to the extent that Investments in the form of
Indebtedness advanced to such Foreign Subsidiary would, or are likely to,
result in (x) any then existing Indebtedness owing by such Foreign
Subsidiary to Parent or any Restricted Subsidiary being characterized as
equity under the "thin capitalization" rules of the Code or under any other
applicable law or (y) any similar consequences; or
(8) Restricted Payments of up to $15.0 million in the aggregate since the
Issue Date.
Limitation on Liens
Parent will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, incur any Lien of any kind on any asset of Parent or any
Restricted Subsidiary (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except:
(1) in the case of any asset that does not constitute Collateral or a
Fixed Asset or Second Lien Collateral, Permitted Liens, unless the Notes and
the Guarantees are secured on an equal and ratable basis with the
obligations so secured until such time as such obligations are no longer
secured by a Lien;
(2) in the case of any asset that constitutes Collateral or a Fixed
Asset, Collateral Permitted Liens; and
(3) in the case of any asset that constitutes Second Lien Collateral,
Liens of the type permitted thereon to the extent and for so long as such
Liens secure or are permitted to be incurred under the Credit Facility.
In the case of clause (1), if the obligations so secured are subordinated by
their terms to the Notes or a Guarantee, the Lien securing such obligations
will also be so subordinated by its terms at least to the same extent.
Limitation on Transactions with Affiliates
Parent will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, in one transaction or series of related transactions, Transfer
any of its assets to, or purchase any assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any affiliate of Parent (an "Affiliate Transaction"), unless the terms
thereof are no less favorable to Parent or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person that is not such an affiliate.
The Board of Directors must approve each Affiliate Transaction that involves
aggregate payments or other assets or services with a Fair Market Value in
excess of $5.0 million. This approval must be evidenced by a board resolution
that states that such board has determined that the transaction complies with
the foregoing provisions.
If Parent or any Restricted Subsidiary enters into an Affiliate Transaction
that involves aggregate payments or other assets or services with a Fair Market
Value in excess of $15.0 million, then prior to the consummation of that
Affiliate Transaction, Parent must obtain a favorable opinion from an
Independent Financial Advisor that it has determined such Affiliate Transaction
to be fair, from a financial point of view, to the noteholders, and deliver
that opinion to the Trustee.
The provisions of the three foregoing paragraphs will not prohibit the
following:
(1) transactions exclusively between or among (a) Parent and one or more
Restricted Subsidiaries or (b) Restricted Subsidiaries; provided, in each
case, that no affiliate of Parent (other than another Restricted Subsidiary)
owns Capital Stock in any such Restricted Subsidiary;
38
(2) customary director, officer and employee compensation (including
bonuses) and other benefits (including retirement, health, stock option and
other benefit plans) and indemnification arrangements, in each case approved
by the Board of Directors;
(3) the entering into of a tax sharing agreement, or payments pursuant
thereto, between Parent and/or one or more Subsidiaries, on the one hand,
and any other Person with which Parent or such Subsidiaries are required or
permitted to file a consolidated tax return or with which Parent or such
Subsidiaries are part of a consolidated group for tax purposes, on the other
hand, which payments by Parent and the Restricted Subsidiaries are not in
excess of the tax liabilities that would have been payable by them on a
stand-alone basis;
(4) loans and advances permitted by clause (6) of the definition of
"Permitted Investments;"
(5) Restricted Payments of the type described in clause (1), (2) or (3)
of the definition of "Restricted Payment" and which are made in accordance
with the covenant described under "--Limitation on Restricted Payments;"
(6) any transaction with an affiliate where the only consideration paid
by Parent or any Restricted Subsidiary is Qualified Stock;
(7) the provision of management, financial and operational services by
Parent and its Subsidiaries to affiliates of Parent in which Parent or any
Restricted Subsidiary has an Investment and the payment of compensation for
such services; provided that the Board of Directors has determined that the
provision of such services is in the best interests of Parent and the
Restricted Subsidiaries;
(8) transactions between Parent or any Subsidiary and any Securitization
Entity in connection with a Qualified Securitization Transaction, in each
case provided that such transactions are not otherwise prohibited by the
Indenture;
(9) transactions with a Person that is an affiliate solely because Parent
or any Restricted Subsidiary owns Capital Stock in such Person; provided
that no affiliate of Parent (other than a Restricted Subsidiary) owns
Capital Stock in such Person; or
(10) purchases and sales of raw materials or inventory in the ordinary
course of business on market terms.
Limitation on Asset Sales
This covenant does not apply to the Sale of Principal Properties, which is
covered by the covenant described under "--Limitation on Sale of Principal
Properties."
Parent will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, consummate any Asset Sale unless:
(i) Parent or such Restricted Subsidiary receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the
assets included in such Asset Sale;
(ii) at least 85% of the total consideration received in such Asset Sale
consists of cash, Temporary Cash Investments, assets referred to in clause
(1) below (in the case of a Transfer of Collateral) or clause (2)(c) below
(in the case of a Transfer of assets other than Collateral), in each case,
valued at the Fair Market Value thereof, or a combination of the foregoing;
and
(iii) if such Asset Sale involves the Transfer of Collateral, (x) it
complies with the provisions described under "--Possession, Use and Release
of Collateral" and "--Asset Sale Release," (y) all consideration received in
the form of cash or Temporary Cash Investments is paid directly by the
purchaser of such Collateral to the Trustee for deposit into the Collateral
Account, and (z) all consideration received in any other form is made
subject to the Lien of the Indenture and the applicable Security Documents.
39
For purposes of clause (ii) above, the following shall be deemed to be cash:
. the amount (without duplication) of any Indebtedness (other than
Subordinated Obligations) of Parent or such Restricted Subsidiary that is
expressly assumed by the Transferee in such Asset Sale and with respect to
which Parent or such Restricted Subsidiary, as the case may be, is
unconditionally released by the holder of such Indebtedness; and
. the amount of any obligations received from such Transferee that are
within 60 days repaid, converted into or sold or otherwise disposed of for
cash or Temporary Cash Investments (to the extent of the cash or Temporary
Cash Investments actually so received).
If at any time any non-cash consideration received by Parent or any
Restricted Subsidiary in connection with any Asset Sale is repaid, converted
into or sold or otherwise disposed of for cash or Temporary Cash Investments
(other than interest received with respect to any such non-cash consideration),
then the date of such repayment, conversion, sale or other disposition shall be
deemed to constitute the date of an Asset Sale hereunder and the Net Available
Proceeds thereof shall be applied in accordance with this covenant.
If Parent or any Restricted Subsidiary engages in an Asset Sale, Parent or a
Restricted Subsidiary shall, no later than 365 days following the consummation
thereof, apply an amount equal to all or any of the Net Available Proceeds
therefrom as follows:
(1) in the case of any Transfer of Collateral:
(a) to make an investment in or expenditure for Fixed Assets that
replace the assets that were the subject of the Asset Sale or in Fixed
Assets that will be used in the Permitted Business, in each case, which
shall be made subject to the Lien of the Indenture and the applicable
Security Documents; and/or
(b) to make an investment in Capital Stock of any Person that owns
Fixed Assets that replace the assets that were the subject of the Asset
Sale or in Fixed Assets that will be used in the Permitted Business, in
each case, which Fixed Assets shall be made subject to the Lien of the
Indenture and the applicable Security Documents; provided that such
Person is or becomes a Guarantor and the Fair Market Value of the Fixed
Assets owned by such Person is at least equal to the Fair Market Value
of the Collateral Transferred; and
(2) in all other cases:
(a) to repay amounts owing under the Credit Facility in accordance
with the Credit Facility;
(b) to redeem, purchase or repay Parent's 10 1/2% senior notes due
2005 that are outstanding on the Issue Date; and/or
(c) to make an investment in or expenditure for assets (including
Capital Stock of any Person) that replace the assets that were the
subject of the Asset Sale or in assets (including Capital Stock of any
Person) that will be used in the Permitted Business.
The amount of Net Available Proceeds not applied or invested as provided in
this paragraph will constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds equals or exceeds $15.0
million, Issuer will be required to make an offer to purchase from all
noteholders an aggregate principal amount of Notes equal to the amount of such
Excess Proceeds (a "Net Proceeds Offer") in accordance with the procedures set
forth in the Indenture.
The offer price for the Notes will be payable in cash and will be equal to
100% of the principal amount of the Notes tendered pursuant to a Net Proceeds
Offer, plus accrued and unpaid interest thereon, if any, to the date such Net
Proceeds Offer is consummated (the "Offered Price"). If the aggregate Offered
Price of Notes validly tendered and not withdrawn by noteholders thereof
exceeds the amount of Excess Proceeds, Notes to be
40
purchased will be selected on a pro rata basis. Upon completion of such Net
Proceeds Offer in accordance with the foregoing provisions, the amount of
Excess Proceeds shall be reduced to zero.
To the extent that the aggregate Offered Price of Notes tendered pursuant to
a Net Proceeds Offer is less than the Excess Proceeds (such shortfall
constituting a "Net Proceeds Deficiency"), Issuer may use the Net Proceeds
Deficiency, or a portion thereof, for general corporate purposes; provided that
to the extent that all or a portion of the Net Proceeds Deficiency is comprised
of proceeds from the Transfer of Collateral, such proceeds shall remain subject
to the Lien of the Indenture and the applicable Security Documents.
In the event of the Transfer of substantially all (but not all) of the
assets of Parent and the Restricted Subsidiaries as an entirety to a Person in
a transaction covered by and effected in accordance with the covenant described
under "--Merger, Consolidation and Sale of Assets," the Transferee shall be
deemed to have sold for cash at Fair Market Value the assets of Parent and the
Restricted Subsidiaries not so Transferred for purposes of this covenant, and
shall comply with the provisions of this covenant with respect to such deemed
sale as if it were an Asset Sale (with such Fair Market Value being deemed to
be Net Available Proceeds for such purpose).
Issuer shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with any purchase of Notes pursuant to the Indenture. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of the Indenture, Issuer shall comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Indenture by virtue of this compliance.
Limitation on Sale of Principal Properties
Parent will not, and will not permit any Restricted Subsidiary (including
each Principal Property Subsidiary) to, directly or indirectly, Transfer any
Principal Property or any material part thereof or Transfer or issue any
Capital Stock of any Principal Property Subsidiary (each, a "Sale of a
Principal Property") unless:
(i) Parent or such Restricted Subsidiary receives consideration at the
time of such Sale of a Principal Property at least equal to the Fair Market
Value of the assets included in such Sale of a Principal Property;
(ii) all consideration received in the form of cash or Temporary Cash
Investments is paid directly by the purchaser of such Collateral to the
Trustee for deposit into the Collateral Account, and all consideration in
the form of Replacement Principal Property (as defined below) is made
subject to the Lien of the Indenture and the applicable Security Documents;
and
(iii) prior to consummating such transaction, either:
(a) Parent delivers to the Trustee an officers' certificate and an
opinion from a nationally recognized firm of independent accountants
that the Net Available Proceeds from such proposed transaction will be
sufficient at the proposed purchase date to purchase all of the
outstanding Notes at the Make Whole Amount plus accrued and unpaid
interest thereon to the proposed purchase date, using the Special
Adjusted Treasury Rate in effect on the business day prior to the date
of delivery of such certificate and opinion; or
(b) 100% of the total consideration received in such Sale of a
Principal Property consists of cash, Temporary Cash Investments,
Replacement Principal Property (valued at the Fair Market Value thereof)
or a combination of the foregoing, and Issuer delivers an opinion to the
Trustee from an Independent Financial Advisor that it has determined the
transaction to be fair, from a financial point of view, to the
noteholders.
For purposes of clause (iii) above, the following shall be deemed to be cash:
. the amount (without duplication) of any Indebtedness (other than
Subordinated Obligations) of Parent or such Restricted Subsidiary that is
expressly assumed by the Transferee in such Sale of a Principal
41
Property and with respect to which Parent or such Restricted Subsidiary,
as the case may be, is unconditionally released by the holder of such
Indebtedness; and
. the amount of any obligations received from such Transferee that are
within 60 days repaid, converted into or sold or otherwise disposed of for
cash or Temporary Cash Investments (to the extent of the cash or Temporary
Cash Investments actually so received).
The preceding paragraph shall not apply to any of the following:
(1) any such Transfer or issuance to Issuer or any Guarantor; provided
that
. all Principal Property so Transferred shall remain subject to the Lien
of the Indenture and the applicable Security Documents;
. the Issuer or the applicable Guarantor shall expressly assume,
pursuant to documentation in form and substance satisfactory to the
Trustee, the performance of every obligation under the applicable
Security Documents to be performed or observed by the applicable
Transferor; and
. the Issuer and applicable Guarantor shall cause such amendments,
supplements or other instruments to be executed, filed and/or recorded
in such jurisdictions as may be required by applicable law to preserve
and protect the Lien of the Security Documents on the Collateral owned
by or Transferred to such Person, together with such financing
statements as may be required to perfect any security interests in
such Collateral which may be perfected by the filing of a financing
statement under the UCC;
(2) any such Transfer or issuance by a Foreign Subsidiary to a Foreign
Subsidiary; provided that
. all Principal Property so Transferred shall remain subject to the Lien
of the security documents securing the applicable Fixed Asset
Intercompany Notes;
. the applicable Foreign Subsidiary shall expressly assume, pursuant to
documentation satisfactory to the Trustee, the performance of every
obligation under the applicable Fixed Asset Intercompany Note or the
guarantee thereof, as the case may be, and the security documents and
other supporting documents to be performed or observed by the
applicable Transferor; and
. such Foreign Subsidiaries shall cause such amendments, supplements or
other instruments to be filed, executed and/or recorded in such
jurisdictions as may be required by applicable law to preserve and
protect the Lien of the security documents on the collateral owned by
or Transferred to such Person, together with such financing statements
as may be required to perfect any security interests in such
collateral; or
(3) any such Transfer of Capital Stock of any Foreign Subsidiary to a
Foreign Subsidiary.
If at any time any non-cash consideration received by Parent or any
Restricted Subsidiary in connection with any Sale of a Principal Property is
repaid, converted into or sold or otherwise disposed of for cash or Temporary
Cash Investments (other than interest received with respect to any such
non-cash consideration), then the date of such repayment, conversion, sale or
other disposition shall be deemed to constitute the date of a Sale of a
Principal Property hereunder and the Net Available Proceeds thereof shall be
applied in accordance with this covenant.
If Parent or any Restricted Subsidiary engages in a Sale of a Principal
Property, Parent or a Restricted Subsidiary shall, no later than 365 days
following the consummation thereof, apply an amount equal to all of the Net
Available Proceeds therefrom as follows:
(1) to purchase or otherwise acquire a facility of the general nature and
type as the Principal Properties in existence on the Issue Date, which shall
be made subject to the Lien of the Indenture and the applicable Security
Documents as a "Principal Property" (a "Replacement Principal Property");
and/or
42
(2) to make an offer to purchase Notes from all holders with the amount
of the Net Available Proceeds not used to purchase or otherwise acquire
Replacement Principal Property.
The offer price for the Notes will be payable in cash and will be equal to
100% of the principal amount of the Notes tendered pursuant to the offer, plus
accrued and unpaid interest thereon, if any, to the date such offer is
consummated, plus the Make Whole Amount, if any. If the aggregate price of
Notes validly tendered and not withdrawn by holders thereof exceeds the amount
of Net Available Proceeds not used to purchase or otherwise acquire Replacement
Principal Property, Notes to be purchased will be selected on a pro rata basis.
Parent or any Restricted Subsidiary may Transfer any part of a Principal
Property (1) which is damaged, worn-out or obsolete or (2) no longer used or
useful in the business of Parent and its Subsidiaries, which shall not
constitute a Sale of Principal Property; provided that (x) in each case, such
Transfer is consistent with past practice and does not significantly reduce the
value or usefulness of any Principal Property and (y) in the case of clause (2)
only, such Transfer shall be subject to compliance with the covenant described
under "--Limitation on Asset Sales."
With respect to any Sale of a Principal Property, an amount equal to any Net
Available Proceeds from such Sale of a Principal Property shall, concurrently
with the closing of such sale, be delivered to the Trustee for deposit into the
Collateral Account pending its application to acquire a Replacement Principal
Property or purchase the Notes. To the extent that funds remain after repayment
of all obligations in connection with the purchase of the Notes, such excess
amounts and any interest thereon shall remain subject to the Lien of Indenture
and the applicable Security Documents. Pending such application of such
amounts, the Trustee shall invest such amount at Issuer's direction in
Temporary Cash Investments; provided that the maturity of those investments is
prior to the proposed purchase date of the Notes.
Limitation on Dividend and Other Restrictions Affecting Restricted
Subsidiaries
Parent will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to:
(a) pay dividends or make any other distributions on its Capital Stock to
Parent or any other Restricted Subsidiary or pay any Indebtedness owed to
Parent or any other Restricted Subsidiary,
(b) make any loans or advances to, or guarantee any Indebtedness of,
Parent or any other Restricted Subsidiary, or
(c) Transfer any of its assets to Parent or any other Restricted
Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date (including the Indenture and the
Credit Facility), as such encumbrance or restriction is in effect on the
Issue Date;
(2) restrictions on the Transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien;
(3) restrictions on the Transfer of assets imposed under any
agreement to sell such assets permitted under the Indenture pending the
closing of such sale;
(4) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the assets of any
Person, other than the Person or the assets of the Person so acquired;
(5) customary provisions in partnership agreements, limited liability
company organizational governance documents, joint venture agreements
and other similar agreements entered into in the ordinary course of
business that restrict the Transfer of ownership interests in such
partnership, limited liability company, joint venture or similar Person;
43
(6) Purchase Money Indebtedness and Capital Lease Obligations
incurred pursuant to clause (8) of the definition of "Permitted
Indebtedness" that impose restrictions of the nature described in clause
(c) above on the assets acquired;
(7) any encumbrances or restrictions imposed by any amendments or
Refinancings of the contracts, instruments or obligations referred to in
clause (1), (4) or (6) above; provided that such amendments or
Refinancings are, in the good faith judgment of the Board of Directors,
no more materially restrictive with respect to such encumbrances and
restrictions than those prior to such amendment or Refinancing;
(8) covenants to maintain net worth, total assets or liquidity and
similar financial responsibility covenants under contracts with
customers or suppliers in the ordinary course of business;
(9) any such encumbrance or restriction consisting of customary
provisions in leases governing leasehold interests to the extent such
provisions restrict the Transfer of the lease or the property leased
thereunder; and
(10) any restriction imposed by applicable law.
Limitation on Sale and Leaseback Transactions
Parent will not, and will not permit any Restricted Subsidiary to, enter
into any Sale and Leaseback Transaction; provided that Parent or any Restricted
Subsidiary may enter into a Sale and Leaseback Transaction not involving any
Collateral if:
(1) Parent or such Restricted Subsidiary could have
. incurred Indebtedness in an amount equal to the Attributable Debt
relating to such Sale and Leaseback Transaction pursuant to the
covenant described under "--Limitation on Incurrence of Indebtedness,"
and
. incurred a Lien to secure such Indebtedness pursuant to the covenant
described under "--Limitation on Liens";
(2) the gross cash proceeds of such Sale and Leaseback Transaction are at
least equal to the Fair Market Value of the asset that is the subject of
such Sale and Leaseback Transaction; and
(3) the Transfer of the asset in such Sale and Leaseback Transaction is
permitted by, and Issuer applies the proceeds of such transaction in
compliance with, the covenant described under "--Limitation on Asset Sales."
Additional Guarantees
If Parent or any Restricted Subsidiary Transfers, acquires or creates
another Restricted Subsidiary (other than any Foreign Subsidiary) after the
date of the Indenture, then that newly acquired or created Restricted
Subsidiary shall, within ten business days of the date on which it was acquired
or created, execute and deliver to the Trustee (1) a supplemental indenture in
form reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall fully and unconditionally guarantee all of Issuer's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (2) Security Documents in form and substance reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
grant to the Trustee a first priority security interest in and Lien on its
Fixed Assets. Thereafter, such Restricted Subsidiary shall be a Guarantor for
all purposes of the Indenture until released in accordance with the terms of
the Indenture as described under "--Guarantees."
If TNCLP becomes a Wholly Owned Subsidiary, TNCLP and TNLP shall,
concurrently with the release of the limited partnership interests in TNCLP
from the Lien of the Indenture and the Security Documents, execute
44
and deliver to the Trustee (1) a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which TNCLP and TNLP shall fully and
unconditionally guarantee all of Issuer's obligations under the Notes and the
Indenture on the terms set forth in the Indenture and (2) Security Documents in
form and substance reasonably satisfactory to the Trustee pursuant to which
each of TNCLP and TNLP shall grant to the Trustee a first priority security
interest in and Lien on its Fixed Assets. Thereafter, each of TNCLP and TNLP
shall be a Guarantor for all purposes of the Indenture until released in
accordance with the Indenture as described under "--Guarantees."
Maintenance of Insurance
Parent will, and will cause its Subsidiaries to, maintain property and
casualty, business interruption, workers' compensation and such other insurance
against such risks and in such amounts as are customarily carried by similar
businesses with deductibles, retentions, self-insured amounts and coinsurance
customarily carried by similar businesses of similar size; provided that, with
respect to the Collateral, Parent will, and will cause the Restricted
Subsidiaries to, maintain such insurance against such risks and in such amounts
as shall be required pursuant to the Indenture and the applicable Security
Documents.
All insurance under this provision will name the Trustee as an additional
insured or, in the case of Collateral, sole loss payee, as applicable, to the
extent of the interest of the Trustee in any assets covered by such insurance.
All such insurance will be issued by carriers having an A.M. Best & Company,
Inc. rating of A or higher, or if such carrier is not rated by A.M. Best &
Company, Inc., having the financial stability and size deemed appropriate by
Parent after consultation with a reputable insurance broker.
Merger, Consolidation and Sale of Assets
(A) Parent will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or Transfer (or
cause or permit any Restricted Subsidiary of Parent to Transfer) all or
substantially all of Parent's assets (determined on a consolidated basis for
Parent and its Subsidiaries) whether as an entirety or substantially as an
entirety to any Person, unless
(1) either
(a) Parent is the surviving or continuing corporation; or
(b) the Person (if other than Parent) formed by such consolidation or
into which Parent is merged or the Transferee of such assets (the
"Parent Surviving Entity"):
(x) is a corporation or limited liability company organized and
validly existing under the laws of the United States or any State
thereof or the District of Columbia; and
(y) expressly assumes, by supplemental indenture and Security
Documents (in each case, in form and substance satisfactory to the
Trustee) executed and delivered to the Trustee, all of the
Obligations of Parent under its Guarantee and the performance of
every covenant under Parent's Guarantee, the Indenture, the Exchange
and Registration Rights Agreement and the Security Documents on the
part of Parent to be performed or observed; and
(2) each of the conditions specified in paragraph (D) below is satisfied.
For purposes of the foregoing, the Transfer in a single transaction or series
of related transactions of all or substantially all of the assets of one or
more Restricted Subsidiaries of Parent, the Capital Stock of which constitutes
all or substantially all of the assets of Parent (determined on a consolidated
basis for Parent and its Subsidiaries), shall be deemed to be the Transfer of
all or substantially all of the assets of Parent.
The Indenture provides that upon any consolidation or merger in which Parent
is not the continuing corporation, or any Transfer of all or substantially all
of the assets of Parent in accordance with the foregoing, the
45
Parent Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of, Parent under its Guarantee, the Indenture,
the Exchange and Registration Rights Agreement and the Security Documents with
the same effect as if such Parent Surviving Entity had been named as such.
(B) Issuer will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or Transfer (or
cause or permit any Restricted Subsidiary of Issuer to Transfer) all or
substantially all of Issuer's assets (determined on a consolidated basis for
Issuer and its Subsidiaries) whether as an entirety or substantially as an
entirety to any Person, unless
(1) either
(a) Issuer is the surviving or continuing corporation; or
(b) the Person (if other than Issuer) formed by such consolidation or
into which Issuer is merged or the Transferee of such assets (the
"Issuer Surviving Entity"):
(x) is a corporation or limited liability company organized and
validly existing under the laws of the United States or any State
thereof or the District of Columbia; and
(y) expressly assumes, by supplemental indenture and Security
Documents (in each case, in form and substance satisfactory to the
Trustee) executed and delivered to the Trustee, the due and punctual
payment of the principal of and premium, if any, and interest on all
of the Notes and the performance of every covenant under the Notes,
the Indenture, the Exchange and Registration Rights Agreement and the
Security Documents on the part of Issuer to be performed or observed;
and
(2) each of the conditions specified in paragraph (D) below is satisfied.
For purposes of the foregoing, the Transfer in a single transaction or series
of related transactions of all or substantially all of the assets of one or
more Restricted Subsidiaries of Issuer, the Capital Stock of which constitutes
all or substantially all of the assets of Issuer (determined on a consolidated
basis for Issuer and its Subsidiaries), shall be deemed to be the Transfer of
all or substantially all of the assets of Issuer.
The Indenture provides that upon any consolidation or merger in which Issuer
is not the continuing corporation or any Transfer of all or substantially all
of the assets of Issuer in accordance with the foregoing, the Issuer Surviving
Entity shall succeed to, and be substituted for, and may exercise every right
and power of, Issuer under the Notes, the Indenture, the Exchange and
Registration Rights Agreement and the Security Documents with the same effect
as if such Issuer Surviving Entity had been named as such.
(C) No Guarantor (other than Parent) will, and Parent will not cause or
permit any such Guarantor to, consolidate with or merge with or into any Person
unless
(1) either
(a) such Guarantor shall be the surviving or continuing corporation;
or
(b) the Person (if other than such Guarantor) formed by such
consolidation or into which such Guarantor is merged shall expressly
assume, by supplemental indenture and Security Documents (in each case,
in form and substance satisfactory to the Trustee) executed and
delivered to the Trustee, all of the obligations of such Guarantor under
its Guarantee and the performance of every covenant under such
Guarantor's Guarantee, the Indenture, the Exchange and Registration
Rights Agreement and the Security Documents on the part of such
Guarantor to be performed or observed; and
(2) each of the conditions specified in paragraph (D) below (other than
clause (1) thereof) is satisfied.
The requirements of this paragraph (C) shall not apply to (x) a consolidation
or merger of any Guarantor with and into Issuer or any other Guarantor, so long
as Issuer or a Guarantor survives such consolidation or merger, or
46
(y) a Transfer of any Guarantor that complies with the covenant described under
"--Limitation on Asset Sales" or "--Limitation on Sale of Principal Properties."
(D) The following additional conditions shall apply to each transaction
described in paragraph (A), (B) or (C), except that clause (1) below shall not
apply to a transaction described in paragraph (C):
(1) immediately after giving effect to such transaction and the
assumption contemplated above (including giving effect to any Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction), Parent (or the Parent Surviving Entity, if applicable)
(x) could incur at least $1.00 of additional Indebtedness pursuant to
the Coverage Ratio Exception; and
(y) has a Consolidated Net Worth not less than the Consolidated Net
Worth of Parent immediately before the transaction;
(2) immediately before and immediately after giving effect to such
transaction and the assumption contemplated above (including giving effect
to any Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default has
occurred and is continuing;
(3) Parent, Issuer, such Guarantor or the relevant surviving entity, as
applicable, shall cause such amendments, supplements or other instruments to
be filed, executed and/or recorded in such jurisdictions as may be required
by applicable law to preserve and protect the Lien of the Security Documents
on the Collateral owned by or Transferred to such Person, together with such
financing statements as may be required to perfect any security interests in
such Collateral which may be perfected by the filing of a financing
statement under the UCC of the relevant states;
(4) the Collateral owned by or Transferred to Parent, Issuer, such
Guarantor or the relevant surviving entity, as applicable, shall
(a) continue to constitute Collateral under the Indenture and the
Security Documents,
(b) be subject to the Lien in favor of the Trustee for the benefit of
the noteholders, and
(c) not be subject to any Lien other than Liens permitted by the
Security Documents;
(5) the assets of the Person which is merged or consolidated with or into
the relevant surviving entity, to the extent that they are assets of the
types which would constitute Collateral under the Security Documents, shall
be treated as after acquired property and such surviving entity shall take
such action as may be reasonably necessary to cause such assets to be made
subject to the Lien of the Security Documents in the manner and to the
extent required in the Indenture; and
(6) Parent shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such transaction and, if a
supplemental indenture or supplemental Security Documents are required in
connection with such transaction, such supplemental indenture and Security
Documents comply with the applicable provisions of the Indenture, that all
conditions precedent in the Indenture relating to such transaction have been
satisfied and that supplemental indenture and Security Documents are
enforceable.
Impairment of Security Interest
Parent will not, and will not permit any Restricted Subsidiary to, take, or
knowingly omit to take, any action, which action or omission might or would
have the result of materially impairing the security interest in favor of the
Trustee on behalf of the noteholders with respect to the Collateral, and
neither Parent nor any Restricted Subsidiary shall grant to any Person (other
than the Trustee on behalf of the noteholders) any interest whatsoever in the
Collateral (other than as permitted by the Security Documents).
47
SEC Reports
Whether or not Issuer and the Guarantors are then subject to Section 13(a)
or 15(d) of the Exchange Act, Issuer and the Guarantors will electronically
file with the Commission, so long as the Notes are outstanding, the annual
reports, quarterly reports and other periodic reports that Issuer and the
Guarantors would be required to file with the Commission pursuant to Section
13(a) or 15(d) if Issuer and the Guarantors were so subject, and such documents
will be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which Issuer and the Guarantors would be required
so to file such documents if Issuer and the Guarantors were so subject, unless,
in any case, if such filings are not then permitted by the Commission.
If such filings with Commission are not then permitted by the Commission, or
such filings are not generally available on the Internet free of charge, Issuer
and the Guarantors will, within 15 days of each Required Filing Date, transmit
by mail to noteholders, as their names and addresses appear in the Note
register, without cost to such noteholders, and file with the Trustee copies of
the annual reports, quarterly reports and other periodic reports that Issuer
and the Guarantors would be required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act if Issuer and the Guarantors were
subject to such Section 13(a) or 15(d), and promptly upon written request,
supply copies of such documents to any prospective holder or beneficial owner
at Issuer's cost.
Conduct of Business
Parent will not, and will not permit any Restricted Subsidiary to, engage in
any business other than the Permitted Business.
Events of Default
Any of the following shall constitute an Event of Default:
(1) default for 30 days in the payment when due of interest on any Note;
(2) default in the payment when due of principal on any Note, whether
upon maturity, acceleration, optional redemption, required repurchase or
otherwise;
(3) failure to perform or comply with the covenant described under
"--Change of Control" or "--Certain Covenants--Limitation on Sale of
Principal Properties";
(4) failure to perform or comply with any covenant, agreement or warranty
in the Indenture (other than any specified in clause (1), (2) or (3) above)
which failure continues for 60 days after written notice thereof has been
given to Issuer by the Trustee or to Issuer and the Trustee by the holders
of at least 25% in aggregate principal amount of the then outstanding Notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by Parent or any Restricted Subsidiary, whether such
Indebtedness now exists or is created after the Issue Date, which:
. is caused by a failure to pay such Indebtedness at Stated Maturity
(after giving effect to any grace period related thereto) (a "Payment
Default"); or
. results in the acceleration of such Indebtedness prior to its Stated
Maturity;
and in each case, the principal amount of any such Indebtedness as to which a
Payment Default or acceleration shall have occurred, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$15.0 million or more;
(6) one or more final and non-appealable judgments, orders or decrees for
the payment of money of $15.0 million or more, individually or in the
aggregate, shall be entered against Parent or any Restricted Subsidiary or
any of their respective properties and which final and non-appealable
judgments, orders or
48
decrees are not covered by third party indemnities or insurance as to which
coverage has not been disclaimed and are not paid, discharged, bonded or
stayed within 60 days after their entry;
(7) a court having jurisdiction in the premises enters (x) a decree or
order for relief in respect of Issuer, Parent or any of its Significant
Subsidiaries in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar law
or (y) a decree or order adjudging Issuer, Parent or any of its Significant
Subsidiaries a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of
or in respect of Issuer, Parent or any of its Significant Subsidiaries under
any applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
Issuer, Parent or any of its Significant Subsidiaries or of any substantial
part of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period 60
consecutive days;
(8) Issuer, Parent or any of its Significant Subsidiaries:
. commences a voluntary case or proceeding under any applicable federal
or state bankruptcy, insolvency, reorganization or other similar law
or any other case or proceeding to be adjudicated a bankrupt or
insolvent; or
. consents to the entry of a decree or order for relief in respect of
Issuer, Parent or any of its Significant Subsidiaries in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding
against Issuer, Parent or any of its Significant Subsidiaries; or
. files a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law; or
. consents to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of Issuer, Parent or any of
its Significant Subsidiaries or of any substantial part of its
property; or
. makes an assignment for the benefit of creditors; or
. admits in writing its inability to pay its debts generally as they
become due; or
. takes corporate action in furtherance of any such action;
(9) the Guarantee of Parent or any Guarantor that is a Significant
Subsidiary ceases to be in full force and effect (other than in accordance
with the terms of such Guarantee and the Indenture) or is declared null and
void and unenforceable or is found invalid or any Guarantor denies its
liability under its Guarantee (other than by reason of release of a
Guarantor from its Guarantee in accordance with the terms of the Indenture
and the Guarantee); or
(10) default by Issuer or any Guarantor in the performance of any of the
Security Documents which adversely affects the enforceability or the
validity of the Trustee's Lien on the Collateral or which adversely affects
the condition or value of the Collateral, taken as a whole, in any material
respect, repudiation or disaffirmation by Issuer or any Guarantor of its
obligations under any of the Security Documents or the determination in a
judicial proceeding that any of the Security Documents is unenforceable or
invalid against Issuer or any Guarantor for any reason;
If an Event of Default occurs and is continuing (other than an Event of
Default described in clause (7) or (8) above with respect to Issuer, Parent or
any Guarantor that is a Significant Subsidiary), the Trustee or the holders of
at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default described in clause (7) or (8)
above occurs with respect to
49
Issuer, Parent or any Guarantor that is a Significant Subsidiary, the principal
of and interest on all the Notes will immediately become due and payable
without any declaration or other act on the part of the Trustee or any holders
of the Notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration
with respect to the Notes and its consequences.
Except to enforce the right to receive payment of principal or interest when
due, no noteholder may pursue any remedy with respect to the Indenture or the
Notes unless:
. such holder has previously given the Trustee notice that an Event of
Default is continuing;
. holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy;
. such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
. the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
. the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each noteholder notice of the
Default within 90 days after it occurs. Notwithstanding the foregoing, except
in the case of a Default in the payment of principal of or interest on any
Note, the Trustee may withhold notice if and so long as a committee of its
trust officers determines that withholding notice is in the interest of the
noteholders. In addition, Issuer is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether
the signers thereof know of any Default that occurred during the previous year.
Issuer also is required to deliver to the Trustee, within 30 days after the
occurrence thereof, written notice of any event which would constitute certain
Defaults, their status and what action Issuer is taking or proposes to take in
respect thereof.
Amendments and Waivers
Except as provided below, the Notes, the Indenture and the Security
Documents may be amended with the consent of the holders of a majority of the
aggregate principal amount of Notes then outstanding (including consents
obtained in connection with a tender offer or exchange for the Notes) and any
past default or compliance with any provisions may also be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding.
Without the consent of each holder of an outstanding Note affected thereby,
no amendment or waiver may:
. reduce the principal of or change the fixed maturity of any Note;
. alter the provisions with respect to the redemption or purchase provisions
of any Note or the Indenture in a manner adverse to the holders of the
Notes (other than the provisions of the Indenture relating to any offer to
purchase required under the covenants described under "--Change of
Control" or "--Certain Covenants--Limitation on Sale of Principal
Properties");
. waive a redemption or purchase payment due with respect to any Note;
50
. reduce the rate of or change the time for payment of interest on any Note;
. waive a Default in the payment of principal or interest on the Notes
(except that holders of at least a majority in aggregate principal amount
of the then outstanding Notes may (x) rescind an acceleration of the Notes
that resulted from a non-payment default and (y) waive the payment default
that resulted from such acceleration);
. make the principal of or interest on any Note payable in money other than
United States Dollars;
. make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of holders of Notes to receive payments of
principal of or interest on the Notes;
. release from the Lien of the Indenture and the Security Documents all or
substantially all of the Collateral;
. make the Notes or any Guarantee subordinated by their or its terms in
right of payment to any other Indebtedness;
. release any Guarantor that is a Significant Subsidiary from its Guarantee
except in compliance with the Indenture; or
. make any change in the amendment and waiver provisions of the Indenture;
provided further that no such amendment or waiver may, without the consent of
the holders of two-thirds of the aggregate principal amount of Notes then
outstanding:
. amend or waive any of the provisions (including the definitions thereto)
relating to the covenants described under "--Change of Control" or
"--Certain Covenants--Limitation on Sale of Principal Properties" in a
manner materially adverse to the noteholders; or
. release from the Lien of the Indenture and the Security Documents any
Principal Property other than in accordance with the covenant described
under "--Certain Covenants--Limitation on Sale of Principal Properties."
Without the consent of any noteholder, Issuer and the Trustee may amend
Notes, the Indenture and the Security Documents:
. to cure any ambiguity, defect or inconsistency;
. to provide for the assumption by a successor Person of the obligations of
Issuer or any Guarantor under the Indenture in accordance with the
covenant described under "--Certain Covenants--Merger, Consolidation and
Sale of Assets";
. to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code);
. to add a Guarantor;
. to release a Guarantor from its Guarantee and the Security Documents when
permitted by the Indenture;
. to add any additional asset as Collateral;
. to release Collateral from the Lien of the Indenture and the Security
Documents when permitted or required by the Indenture;
. to add to the covenants of Parent or Issuer for the benefit of the
noteholders or to surrender any right or power conferred upon Parent or
Issuer;
. to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act; or
51
. to make any other change that does not materially adversely affect the
rights of any noteholder.
The consent of the noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment or waiver. It is
sufficient if such consent approves the substance of the proposed amendment or
waiver.
After an amendment or waiver under the Indenture becomes effective, Issuer
is required to mail to noteholders a notice briefly describing such amendment
or waiver. However, the failure to give such notice to all noteholders, or any
defect therein, will not impair or affect the validity of the amendment or
waiver.
Transfer
Notes were issued in registered form and are transferable only upon the
surrender of the Notes being transferred for registration of transfer. No
service charge will be made for any registration of transfer or exchange of
Notes, but Issuer may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith.
Discharge of Indenture and Defeasance
The Indenture will, subject to certain surviving provisions, cease to be of
further effect when:
(1) Issuer delivers to the Trustee all outstanding Notes (other than
Notes replaced because of mutilation, loss, destruction or wrongful taking)
for cancellation; or
(2) all outstanding Notes have become due and payable, whether at
maturity or as a result of the mailing of a notice of redemption as
described above, and Issuer irrevocably deposits with the Trustee funds
sufficient to pay at maturity or upon redemption all outstanding Notes,
including interest thereon,
and if in either case Issuer pays all other sums payable under the Indenture by
Issuer. The Trustee will acknowledge satisfaction and discharge of the
Indenture on demand of Issuer accompanied by an officers' certificate and an
opinion of counsel and at the cost and expense of Issuer.
Subject to the conditions to defeasance described below and in the Indenture
and the survival of certain provisions, Issuer at any time may terminate:
(1) all its obligations under the Notes and the Indenture ("legal
defeasance option"); or
(2) its obligations under certain restrictive covenants and the related
Events of Default ("covenant defeasance option").
Issuer may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If Issuer exercises its legal defeasance option, payment of the Notes may
not be accelerated because of an Event of Default. If Issuer exercises its
covenant defeasance option, payment of the Notes may not be accelerated because
of an Event of Default referred to in clause (2) of the immediately preceding
paragraph.
In order to exercise either defeasance option, Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an opinion of counsel to
the effect that holders of the Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance and
will be subject to federal income
52
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in the
case of legal defeasance only, such opinion of counsel must be based on a
ruling of the Internal Revenue Service or change in applicable federal income
tax law).
Asset Sale Release
Issuer has the right to obtain a release of items of Collateral (the
"Released Interest") subject to an Asset Sale upon compliance with the
condition that Issuer deliver to the Trustee the following:
(1) a notice from Issuer requesting the release of the Released Interest:
. describing the proposed Released Interest;
. specifying the fair market value of such Released Interest on a date
within 60 days of such notice (the "Valuation Date");
. stating that the purchase price received is at least equal to the Fair
Market Value of the Released Interest; and
. in the event that any assets other than cash or Temporary Cash
Investments comprise a portion of the consideration received in such
Asset Sale, specifically describing such assets;
(2) an officers' certificate stating that:
. such Asset Sale complies with the terms and conditions of the
Indenture with respect to Asset Sale;
. the release of such Released Interest will not interfere with the
Trustee's ability to realize the value of the remaining Collateral and
will not impair the maintenance and operation of the remaining
Collateral;
. all Net Available Proceeds from the sale of any of the Released
Interests will be applied pursuant to the provisions of the Indenture
in respect of Asset Sale;
. there is no Default in effect or continuing on the date thereof, the
Valuation Date or the date of such Asset Sale;
. the release of the Collateral will not result in a Default; and
. all conditions precedent in the Indenture relating to the release in
question have been complied with;
(3) the Net Available Proceeds and other non-cash consideration from the
Asset Sale required to be delivered to the Trustee pursuant to the Indenture;
(4) all documentation necessary or reasonably requested by the Trustee to
grant to the Trustee a first priority security interest in and Lien on all
assets (other than cash or Temporary Cash Investments) comprising a portion
of the consideration received in such Asset Sale, if any; and
(5) all documentation required by the Trust Indenture Act prior to the
release of Collateral by the Trustee.
Possession, Use and Release of Collateral
The Indenture provides that, unless an Event of Default has occurred and is
continuing, Issuer or the applicable Guarantor has the right to remain in
possession and retain exclusive control of the Collateral (other than any cash,
securities, obligations and Temporary Cash Investments constituting part of the
Collateral and deposited with the Trustee and other than as set forth in the
Security Documents), to freely operate the Collateral and to collect, invest
and dispose of any income thereon.
Upon compliance by Issuer with (1) the conditions set forth under the
heading "--Asset Sale Release" or (2) the conditions set forth above with
respect to discharge of the Indenture, and upon delivery by Issuer to the
53
Trustee of an opinion of counsel to the effect that such conditions have been
met, the Trustee will, with respect to clause (1) above, release the Released
Interest and, with respect to clause (2) above, release all of the Collateral,
in each case from the Lien of the Indenture and the Security Documents and
reconvey the Released Interest to Issuer.
Under the circumstances described under "--Collateral--TNCLP and TNLP" and
concurrently with the compliance with the covenant described under "--Certain
Covenants--Additional Guarantees," the Trustee will release the limited
partnership interests of TNCLP from the Lien of the Indenture and the Security
Documents.
The Indenture provides that Issuer or the applicable Guarantor shall be
entitled, subject to compliance with the conditions set forth therein, to
obtain the release of Collateral which has been taken by eminent domain,
condemnation or in similar circumstances.
Disposition of Collateral Without Release
Notwithstanding the provisions of "--Possession, Use and Release of
Collateral" above, so long as no Default has occurred and is continuing or
would result therefrom, Issuer and the Guarantors may, among other things,
without any release or consent by the Trustee, conduct ordinary course of
business activities with respect to the Collateral in accordance with the
provisions of the Indenture, including:
. selling or otherwise disposing of, in any transaction or series of related
transactions, any property subject to the Lien of the Security Documents
which has become worn out or obsolete and which either has an aggregate
fair market value of $100,000 or less, or which is replaced by property of
substantially equivalent or greater value which becomes subject to the
Lien of the Security Documents as after acquired property;
. abandoning, terminating, canceling, releasing or making alterations in or
substitutions of any leases or contracts subject to the Lien of the
Indenture or any of the Security Documents;
. surrendering or modifying any franchise, license or permit subject to the
Lien of the Indenture or any of the Security Documents which it may own or
under which it may be operating;
. altering, repairing, replacing, changing the location or position of and
adding to its structures, machinery, systems, equipment, fixtures and
appurtenances;
. demolishing, dismantling, tearing down, scrapping or abandoning any
Collateral if, in the good faith opinion of the Board of Directors, such
demolition, dismantling, tearing down, scrapping or abandonment is in the
best interest of Issuer;
. granting a nonexclusive license of any intellectual property; and
. abandoning intellectual property which has become obsolete and not used in
the business.
Use of Trust Monies
All Trust Monies (including, without limitation, all Net Available Proceeds
under the covenant described under "--Certain Covenants--Limitation on Asset
Sales"or "--Certain Covenants--Limitation on Sale of Principal Properties" and
Net Insurance Proceeds required to be deposited with the Trustee) shall be held
by the Trustee as a part of the Collateral securing the Notes and, so long as
no Event of Default has occurred and is continuing, may either:
(1) be released as contemplated by "--Certain Covenants--Limitation on
Asset Sales" if such Trust Monies represent Net Available Proceeds in
respect of an Asset Sale or in respect of a Sale of a Principal Property; or
54
(2) at the direction of Issuer be applied by the Trustee from time to
time to the payment of the principal of and interest on any Notes at
maturity or upon redemption or retirement, or to the purchase of Notes upon
tender or in the open market or otherwise, in each case in compliance with
the Indenture.
Issuer may also withdraw Trust Monies constituting Net Insurance Proceeds to
repair or replace the relevant Collateral (or reimburse Parent or any
Restricted Subsidiary for any such repair or replacement), subject to certain
conditions set forth in the Indenture.
The Trustee shall be entitled to apply any Trust Monies to cure any Event of
Default. Trust Monies deposited with the Trustee shall be invested in Temporary
Cash Investments pursuant to the direction of Issuer and, so long as no Default
has occurred and is continuing, Issuer shall be entitled to any interest or
dividends accrued, earned or paid on such Temporary Cash Investments.
Concerning the Trustee
U.S. Bank Trust National Association is the Trustee under the Indenture and
the Security Documents and has been appointed by Issuer as Registrar and Paying
Agent with regard to the Notes.
The holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent person in the conduct of such person's
own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any noteholder, unless such noteholder shall have offered to the
Trustee reasonable security or indemnity reasonably acceptable to it against
any cost, expense and liabilities which might be incurred by it in compliance
with such request.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
Certain Definitions
"Acquired Indebtedness" means (1) with respect to any Person that becomes a
Restricted Subsidiary after the Issue Date, Indebtedness of such Person and its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
that was not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary and (2) with respect to Parent or any
Restricted Subsidiary, any Indebtedness of a Person (other than Parent or a
Restricted Subsidiary) existing at the time such Person is merged with or into
Parent or a Restricted Subsidiary, or Indebtedness expressly assumed by Parent
or any Restricted Subsidiary in connection with the acquisition of an asset or
assets from another Person, which Indebtedness was not, in any case, incurred
by such other Person in connection with, or in contemplation of, such merger or
acquisition.
"affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
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"Asset Sale" means any Transfer by Parent or any Restricted Subsidiary of:
. any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares and, to the extent required by local
ownership laws in foreign countries, shares owned by foreign shareholders);
. all or substantially all the assets of any division, business segment or
comparable line of business of Parent or any Restricted Subsidiary; or
. any other assets of Parent or any Restricted Subsidiary outside of the
ordinary course of business of Parent or such Restricted Subsidiary.
Notwithstanding the foregoing, the term "Asset Sale" shall not include:
(1) for purposes of the covenant described under "--Certain
Covenants--Limitation on Asset Sales," a Transfer (a) that constitutes a
Permitted Investment or a Restricted Payment permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments" or
(b) consummated in compliance with the covenant described under "--Certain
Covenants--Limitation on Sale of Principal Properties" or "--Certain
Covenants--Merger, Consolidation and Sale of Assets";
(2) sales of accounts receivable of the type specified in the definition
of "Qualified Securitization Transaction" to a Securitization Entity for the
Fair Market Value thereof;
(3) sales or grants of non-exclusive licenses to use the patents, trade
secrets, know-how and other intellectual property of Parent or any
Restricted Subsidiary to the extent that such licenses are granted in the
ordinary course of business, and do not prohibit Parent or any Restricted
Subsidiary from using the technologies licensed and do not require Parent or
any Restricted Subsidiary to pay any fees for any such use;
(4) a Transfer pursuant to any foreclosure of assets or other remedy
provided by applicable law by a creditor of Parent or any Restricted
Subsidiary with a Lien on such assets, if such Lien is permitted under the
Indenture;
(5) a Transfer involving only Temporary Cash Investments or inventory in
the ordinary course of business;
(6) any Transfer of damaged, worn-out or obsolete equipment in the
ordinary course of business;
(7) the lease or sublease of any real or personal property in the
ordinary course of business; provided that, to the extent such property
constitutes Collateral, such lease or sublease shall comply with the
provisions of the applicable Security Documents;
(8) the sale at cost of equipment pursuant to a program in which
participants agree to purchase or construct and maintain specific spare
parts necessary to operate production facilities in the Permitted Business;
or
(9) a Transfer of assets having a Fair Market Value and a sale price of
less than $1.0 million.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, as
at the time of determination, the present value (discounted at the implied
interest rate in such transaction) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such Sale
and Leaseback Transaction (including any period for which such lease has been
extended).
"Bank Collateral Agent" means the Person designated as such under the Credit
Facility or a Person otherwise performing the duties typical of a collateral
agent under a credit facility like the Credit Facility.
"Basket" has the meaning set forth under "--Certain Covenants--Limitation on
Restricted Payments."
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"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP, and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(1) Issuer ceases to be a Wholly Owned Subsidiary of Parent;
(2) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause such person or group
shall be deemed to have "beneficial ownership" of all securities that any
such person or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of Voting Stock representing 50% or more of the voting power of
the total outstanding Voting Stock of Parent;
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election to the Board of Directors or whose
nomination for election by the shareholders of Parent was approved by a vote
of 66 2/3% of the directors of Parent then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors then in office;
(4) Parent consolidates with or merges with or into another Person or
another Person merges with or into Parent, or all or substantially all the
assets of Parent and the Restricted Subsidiaries, taken as a whole, are
Transferred to another Person (other than to a Person that is controlled by
the Permitted Holders), and, in the case of any such merger or
consolidation, the securities of Parent that are outstanding immediately
prior to such transaction and which represent 100% of the aggregate voting
power of the Voting Stock of Parent are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving Person that represent immediately after such
transaction, at least a majority of the aggregate voting power of the Voting
Stock of the surviving Person; or
(5) Parent or Issuer liquidates or dissolves or the stockholders of
Parent adopt a plan of liquidation or dissolution.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means, collectively, all of the assets listed in the first
paragraph under "--Collateral-- Description of Collateral" and all other assets
that are from time to time subject to or are required to be subject to the Lien
of the Indenture and the Security Documents other than the Second Lien
Collateral.
"Collateral Account" means the collateral account established pursuant to
the Indenture.
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Collateral Permitted Liens means:
(1) Liens securing obligations under the Indenture, the Notes, the
Guarantees and the Security Documents in favor of the Trustee;
(2) Liens in favor of Issuer or any Guarantor; provided that such Liens
do not secure obligations that are assigned to any Person other than the
Trustee pursuant to the Security Documents;
(3) Liens on assets of a Person at the time such Person becomes a
Subsidiary; provided that (a) such Lien was not incurred in anticipation of
or in connection with the transaction or series of related transactions
pursuant to which such Person became a Subsidiary and (b) such Lien does not
extend to or cover any assets of Parent or any other Restricted Subsidiary;
(4) Liens existing on the Issue Date to the extent permitted by the
applicable Security Document;
(5) Liens imposed by law that are incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as
carriers', warehousemen's, mechanics', landlords', materialmen's,
employees', laborers', employers', suppliers', banks', repairmen's and other
like Liens, in each case, for sums not yet due or that (a) are being
contested in good faith by appropriate proceedings and that are
appropriately reserved for in accordance with GAAP if required by GAAP and
(b) satisfy the Contested Collateral Lien Conditions;
(6) Liens for taxes, assessments and governmental charges not yet due or
payable or subject to penalties for non-payment or that (a) are being
contested in good faith by appropriate proceedings and that are
appropriately reserved for in accordance with GAAP if required by GAAP and
(b) satisfy the Contested Collateral Lien Conditions;
(7) Liens on assets acquired or constructed after the Issue Date securing
Purchase Money Indebtedness and Capital Lease Obligations; provided that
such Liens shall in no event extend to or cover any assets other the such
assets acquired or constructed after the Issue Date with the proceeds of
such Purchase Money Indebtedness of Capital Lease Obligations;
(8) zoning restrictions, easements, rights-of-way, restrictions on the
use of real property, other similar encumbrances on real property incurred
in the ordinary course of business and minor irregularities of title to real
property that do not (a) secure Indebtedness, (b) individually or in the
aggregate materially impair the value or marketability of the real property
affected thereby or the occupation, use and enjoyment in the ordinary course
of business of Parent and the Restricted Subsidiaries at such real property;
(9) terminable or short-term leases or permits for occupancy, which
leases or permits (a) expressly grant to Parent or any Restricted Subsidiary
the right to terminate them at any time on not more than six months' notice,
(b) do not individually or in the aggregate interfere with the operation of
the business of Parent or any Restricted Subsidiary or individually or in
the aggregate impair the use (for its intended purpose) or the value of the
property subject thereto and (c) are subordinated to the Liens granted and
evidenced by the Security Documents in accordance with the provisions
thereof;
(10) Liens resulting from operation of law with respect to any judgments,
awards or orders to the extent that such judgments, awards or orders do not
cause or constitute an Event of Default; provided that any such Liens shall
be paid, discharged, bonded or stayed prior to the sale or forfeiture of any
portion of the Collateral on account of such Liens;
(11) bankers' Liens, rights of setoff and other similar Liens existing
solely with respect to cash and cash equivalents on deposit in one or more
accounts maintained by Parent or any Restricted Subsidiary in accordance
with the provisions of the Indenture or applicable Security Documents, in
each case granted in the ordinary course of business in favor of the bank or
banks with which such accounts are maintained, securing amounts owing to
such bank with respect to cash management and operating account
arrangements; provided that in no case shall any such Liens secure (either
directly or indirectly) the repayment of any Indebtedness; and
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(12) Liens securing Refinancing Indebtedness relating to Collateral
Permitted Liens of the type described in clauses (3) and (7) of this
definition; provided that such Liens extend only to the assets securing the
Indebtedness being Refinanced; and
(13) other Liens securing obligations (not constituting indebtedness for
money borrowed) in an aggregate amount, together with the aggregate amount
of any obligations secured pursuant to clause (10) of the definition of
"Permitted Liens," not to exceed $2.0 million at any time outstanding;
provided that such Liens shall in no event extend to or cover any assets
constituting Principal Properties encumbered by a mortgage, deed of trust or
foreign equivalent thereof in favor of the Trustee except to the extent
permitted thereby.
Comparable Treasury Issue means the United States Treasury security selected
by a Reference Treasury Dealer as having a maturity comparable to the Stated
Maturity of the principal of the Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
life of the Notes.
"Comparable Treasury Price" means, with respect to any date of redemption or
purchase:
. the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the
third business day preceding such date of redemption or purchase, as set
forth in the daily statistical release (or any successor release)
published by the Federal Reserve Bank of New York and designated
"Composite 3:30 p.m. Quotations for U.S. Government Securities"; or
. if such release (or any successor release) is not published or does not
contain such prices on such business day, the average of the Reference
Treasury Dealer Quotations.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (a) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which internal financial statements are
available to (b) Consolidated Fixed Charges for such four fiscal quarters;
provided that:
(1) if Parent or any Restricted Subsidiary has incurred any Indebtedness
since the beginning of such period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an incurrence of Indebtedness, or both,
EBITDA and Consolidated Fixed Charges for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period (except that, in the
case of Indebtedness used to finance working capital needs incurred under a
revolving credit or similar arrangement, the amount thereof shall be deemed
to be the average daily balance of such Indebtedness during such
four-fiscal-quarter period);
(2) if since the beginning of such period Parent or any Restricted
Subsidiary shall have Transferred any assets outside the ordinary course of
business, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets which are the
subject of such Transfer for such period, or increased by an amount equal to
the EBITDA (if negative) directly attributable thereto for such period, and
Consolidated Fixed Charges for such period shall be reduced by an amount
equal to the Consolidated Fixed Charges directly attributable to any
Indebtedness of Parent or any Restricted Subsidiary repaid, repurchased,
defeased, assumed by a third person (to the extent Parent and its Restricted
Subsidiaries are no longer liable for such Indebtedness) or otherwise
discharged with respect to Parent and its continuing Restricted Subsidiaries
in connection with such Transfer for such period (or, if the Capital Stock
of any Restricted Subsidiary is sold, the Consolidated Fixed Charges for
such period directly
59
attributable to the Indebtedness of such Restricted Subsidiary to the extent
Parent and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale);
(3) if since the beginning of such period Parent or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, which acquisition constitutes all or
substantially all of an operating unit of a business, including any such
Investment or acquisition occurring in connection with a transaction
requiring a calculation to be made hereunder, EBITDA and Consolidated Fixed
Charges for such period shall be calculated after giving pro forma effect
thereto (including the incurrence of any Indebtedness) as if such Investment
or acquisition occurred on the first day of such period; and
(4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into Parent or any
Restricted Subsidiary since the beginning of such period) shall have made
any Transfer of assets outside the ordinary course of business, any
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (2) or clause (3) above if made by Parent or a Restricted
Subsidiary during such period, EBITDA and Consolidated Fixed Charges for
such period shall be calculated after giving pro forma effect thereto as if
such Transfer, Investment or acquisition occurred on the first day of such
period;
For purposes of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income, earnings or expense relating
thereto and the amount of Consolidated Fixed Charges associated with any
Indebtedness incurred in connection therewith, the pro forma calculations shall
be prepared in accordance with Regulation S-X promulgated by the Commission and
after giving effect to any Pro Forma Cost Savings. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest of
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Fixed Charges" means, with respect to any period, the sum
(without duplication) of:
(1) the interest expense of Parent and the Restricted Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP
consistently applied, including, without limitation:
. amortization of debt issuance costs and debt discount;
. the net payments, if any, under Interest Rate Agreements (including
amortization of discounts);
. the interest portion of any deferred payment obligation;
. accrued interest; and
. commissions, discounts and other fees and charges incurred in respect
of letters of credit or bankers| acceptance financings;
(2) the interest component of the Capital Lease Obligations paid or
accrued during such period;
(3) all interest capitalized during such period;
(4) interest accrued during such period on Indebtedness of the type
described in clause (6) or (7) of the definition of "Indebtedness"; and
(5) the product of
. the amount of all dividends on any series of Preferred Stock of Parent
and the Restricted Subsidiaries (other than dividends paid in
Qualified Stock and other than dividends paid to Parent or to a
Restricted Subsidiary) paid, accrued or scheduled to be paid or
accrued during such period times;
. a fraction, the numerator of which is one and the denominator of which
is one minus the then current effective consolidated Federal, state
and local tax rate of Parent, expressed as a decimal;
60
excluding, however, any amount of such interest of any Restricted Subsidiary if
the net income (or loss) of such Restricted Subsidiary is excluded in the
calculation of Consolidated Net Income pursuant to clause (3) of the proviso in
the definition of "Consolidated Net Income" (but only in the same proportion as
the net income (or loss) of such Restricted Subsidiary is so excluded from the
calculation of Consolidated Net Income).
"Consolidated Net Income" means, for any period, the net income (or loss) of
Parent and the Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP consistently applied; provided that
there shall not be included in such Consolidated Net Income:
(1) any extraordinary gains or extraordinary losses;
(2) any net income or loss of any Person if such Person is not a
Restricted Subsidiary, except that the equity of Parent or any Restricted
Subsidiary in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to Parent or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to a Restricted Subsidiary, to
the limitations contained in clause (3) below);
(3) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, without prior approval (that has not been obtained), pursuant to
the terms of its charter or any agreement, instrument and governmental
regulation applicable to such Restricted Subsidiary or its stockholders;
(4) any gain or loss realized upon the sale or other disposition of (x)
any assets (including pursuant to Sale and Leaseback Transactions) which is
not sold or otherwise disposed of in the ordinary course of business or (y)
any Capital Stock of any Person; and
(5) the cumulative effect of a change in accounting principles;
provided further that Consolidated Net Income shall be reduced by the product
of (x) the amount of all dividends on Designated Preferred Stock (other than
dividends paid in Qualified Stock and other than dividends paid to Parent or to
a Restricted Subsidiary) paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
Federal, state and local tax rate of Parent, expressed as a decimal.
"Consolidated Net Worth" means with respect to any Person on any date, the
equity of the common and preferred stockholders of such Person and its
Restricted Subsidiaries as of such date, determined on a consolidated basis in
accordance with GAAP consistently applied, less any amount attributable to
Unrestricted Subsidiaries.
"Contested Collateral Lien Conditions" shall mean, with respect to any
Collateral Permitted Lien of the type described in clauses (5) and (6) of the
definition of "Collateral Permitted Liens", the following conditions:
(1) any proceeding instituted contesting such Lien shall conclusively
operate to stay the sale or forfeiture of any portion of the Collateral on
account of such Lien;
(2) in the event the amount of any such Lien shall exceed $250,000, at
the option and upon request of the Trustee, Parent or the applicable
Restricted Subsidiary shall maintain cash reserves in an amount sufficient
to pay and discharge such Lien and the Trustee|s reasonable estimate of all
interest and penalties related thereto; and
(3) such Lien shall in all respects be subject and subordinated in
priority to the Lien and security interest created and evidenced by the
Security Documents, except if and to the extent that the law or regulation
creating, permitting or authorizing such Lien provides that such Lien is or
must be superior to the Lien and security interest created and evidenced by
the Security Documents.
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"Coverage Ratio Exception" has the meaning set forth in the proviso in the
first paragraph of the covenant described under "--Certain
Covenants--Limitation on Incurrence of Indebtedness."
"Credit Facility" means one or more unsubordinated credit agreements,
including the Amended and Restated Revolving Credit Agreement dated on or about
the Issue Date among Issuer, Terra UK, TNLP, the guarantors party thereto, the
lenders party thereto and Citicorp USA, Inc., as administrative agent,
including any notes, guarantees, collateral and security documents (including
mortgages, pledge agreements and other security arrangements), instruments and
agreements executed in connection therewith, and in each case as amended or
Refinanced from time to time, including any agreement or agreements extending
the maturity of, or Refinancing (including increasing the amount of borrowings
or other Indebtedness outstanding or available to be borrowed thereunder), all
or any portion of the Indebtedness under such agreement, and any successor or
replacement agreement or agreements with the same or any other agents,
creditor, lender or group of creditors or lenders.
"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Preferred Stock" means preferred stock of Parent that is
designated as Designated Preferred Stock pursuant to an officers' certificate
executed by the principal executive officer and the principal financial officer
of Parent on the issuance date thereof, the Net Cash Proceeds of which do not
increase the Basket and are not used for purposes of clause (2) of the second
paragraph of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments."
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise; or
(2) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the date that is 91 days after the Stated
Maturity of the Notes;
provided that any class of Capital Stock of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations with respect to the
payment of dividends or upon maturity, redemption (pursuant to a sinking fund
or otherwise) or repurchase thereof or otherwise by the delivery of Qualified
Stock, and that is not convertible, puttable or exchangeable for Disqualified
Stock or Indebtedness, will not be deemed to be Disqualified Stock so long as
such Person satisfies its obligations with respect thereto solely by the
delivery of Qualified Stock; provided further that any Capital Stock that would
not constitute Disqualified Stock but for provisions thereof giving holders
thereof (or the holders of any security into or for which such Capital Stock is
convertible, exchangeable or exercisable) the right to require Parent or any
Restricted Subsidiary to redeem or purchase such Capital Stock upon the
occurrence of a change in control occurring prior to the final maturity date of
the Notes shall not constitute Disqualified Stock if the change in control
provisions applicable to such Capital Stock are no more favorable to such
holders than the provisions described under the caption "--Change of Control"
and such Capital Stock specifically provides that Parent or such Restricted
Subsidiary will not redeem or purchase any such Capital Stock pursuant to such
provisions prior to Issuer|s purchase of the Notes as required pursuant to the
provisions described under the caption "--Change of Control."
"Domestic Subsidiary" means a Restricted Subsidiary of Parent that is not a
Foreign Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income for such
period plus, without duplication, the following to the extent deducted in
calculating such Consolidated Net Income:
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(1) Consolidated Fixed Charges;
(2) income tax expense determined on a consolidated basis in accordance
with GAAP;
(3) depreciation expense determined on a consolidated basis in accordance
with GAAP;
(4) amortization expense determined on a consolidated basis in accordance
with GAAP;
(5) minority interest; and
(6) all other non-cash items reducing such Consolidated Net Income
(excluding (x) any non-cash item to the extent that it represents an accrual
of, or reserve for, cash disbursements to be made in any subsequent period
and (y) the amount attributable to minority interests) for such period;
provided that EBITDA shall be reduced by the following:
(a) all non-cash items increasing such Consolidated Net Income
(excluding (x) any non-cash item to the extent that it represents an
accrual of cash receipts to be received in a subsequent period and (y)
the amount attributable to minority interests); and
(b) amounts paid as dividends or distributions to any Person other
than Parent or any Restricted Subsidiary.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Subsidiary of Parent
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended or
otherwise distributed to Parent by such Subsidiary without prior approval (that
has not been obtained), pursuant to the terms of its charter and all
agreements, instruments and governmental regulations applicable to such
Subsidiary or its stockholders.
"Exchange and Registration Rights Agreement" has the meaning set forth under
"Exchange Offer; Registration Rights."
"Exchange Notes" has the meaning set forth under "Exchange Offer;
Registration Rights."
"Excluded Assets" has the meaning set forth under "--Ranking."
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that would be
negotiated in an arm's-length transaction for cash between a willing seller and
a willing and able buyer, neither of which is under any compulsion to complete
the transaction. Fair Market Value (other than of any asset with a public
trading market) in excess of $5.0 million shall be determined by the Board of
Directors acting reasonably and in good faith and shall be evidenced by a Board
Resolution delivered to the Trustee. Fair Market Value (other than of any asset
with a public trading market) in excess of $15.0 million shall be determined by
an Independent Financial Advisor, which determination shall be evidenced by an
opinion delivered to the Trustee.
"Fixed Asset Intercompany Note" means an unsubordinated promissory note
substantially in the form attached to the Indenture; provided that
(1) each such note shall be secured by the Fixed Assets of the obligor
thereof and assigned to the Trustee as Collateral under the Indenture;
(2) the Stated Maturity of, and interest payment dates on, each such note
shall be the same as those for the Notes;
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(3) the interest rate on each such note shall be equal to the weighted
average interest rate of borrowings under the Credit Facility; and
(4) any such note outstanding on the Issue Date will not be permitted to
be prepaid below the amount outstanding on the Issue Date, except that (x)
any such note will be permitted to be prepaid at any time to the extent
that, after giving effect to the prepayment, the aggregate principal amount
of all Fixed Asset Intercompany Notes then outstanding exceeds the aggregate
principal amount of Notes then outstanding and (y) the TNLP Intercompany
Note may be repaid under the conditions described under "--Collateral--
TNCLP and TNLP."
"Fixed Assets" means assets of the type constituting Collateral other than
the limited partnership interests issued by TNCLP and any Fixed Asset
Intercompany Note.
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a State thereof or the District of
Columbia and with respect to which a majority of its sales (determined on a
consolidated basis in accordance with GAAP) is generated from or derived from
operations outside the United States of America and a majority of its assets is
located outside the United States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the date of the Indenture, except that Statement of
Financial Accounting Statements No. 142, "Goodwill and Other Intangible
Assets," shall be given effect when adopted by Parent and its Subsidiaries.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person:
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise); or
entered into for the purpose of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided that the term "guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "guarantee"
used as a verb has a corresponding meaning. The term "guarantor" shall mean any
Person guaranteeing any obligation.
"Guarantee" means a full and unconditional senior guarantee of the Notes
pursuant to the Indenture, secured pursuant to the Security Documents.
"Guarantor" means (1) each of the following:
. Beaumont Ammonia Inc., a Delaware corporation;
. Beaumont Holdings Corporation, a Delaware corporation;
. BMC Holdings Inc., a Delaware corporation;
. Port Neal Corporation, a Delaware corporation;
. Terra (UK) Holdings Inc., a Delaware corporation;
. Terra Capital Holdings, Inc., a Delaware corporation;
. Terra Industries Inc., a Maryland corporation;
64
. Terra International (Oklahoma) Inc., a Delaware corporation;
. Terra International Inc., a Delaware corporation;
. Terra Methanol Corporation, a Delaware corporation;
. Terra Nitrogen Corporation, a Delaware corporation; and
. Terra Real Estate Corp., an Iowa corporation;
and (2) any other Restricted Subsidiary of Parent that issues a Guarantee of
the Notes, in each case, until such Person is released from its Guarantee in
accordance with the Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement entered into in
the ordinary course of business and not for speculative purposes.
"incur" means issue, create, assume, guarantee, incur or otherwise become
liable for; provided that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Subsidiary at the time it becomes a Restricted Subsidiary. Neither the
accrual of interest nor the accretion of original issue discount shall be
deemed to be an incurrence of Indebtedness. The term "incurrence" when used as
a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person, without duplication, and
whether or not contingent:
(1) all indebtedness of such Person for borrowed money or for the
deferred purchase price of assets or services or which is evidenced by a
note, bond, debenture or similar instrument, to the extent it would appear
as a liability upon a balance sheet of such Person prepared in accordance
with GAAP;
(2) all Capital Lease Obligations of such Person;
(3) all obligations of such Person in respect of letters of credit or
bankers' acceptances issued or created for the account of such Person;
(4) net obligations of such Person under Interest Rate Agreements or
Currency Agreements;
(5) all Disqualified Stock issued by such Person and all preferred stock
issued by any Subsidiary of such Person, in each case, valued at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued
and unpaid dividends thereon;
(6) to the extent not otherwise included, any guarantee by such Person of
any other Person's indebtedness or other obligations described in clauses
(1) through (5) above; and
(7) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided
that the amount of such Indebtedness shall be the lesser of (x) the Fair
Market Value of such asset at such date of determination and (y) the amount
of such Indebtedness.
For the avoidance of doubt, "Indebtedness" shall not include:
. current trade payables incurred in the ordinary course of business and
payable in accordance with customary practices;
. deferred tax obligations;
. minority interest;
65
. uncapitalized interest;
. non-interest bearing installment obligations and accrued liabilities
incurred in the ordinary course of business; and
. obligations of Parent or any Restricted Subsidiary pursuant to contracts
for, or options, puts or similar arrangements relating to, the purchase of
raw materials or the sale of inventory at a time in the future entered
into in the ordinary course of business.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Stock as if such Disqualified
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by the Fair Market Value of, such Disqualified Stock, such Fair Market
Value is to be determined in good faith by the board of directors of the issuer
of such Disqualified Stock. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence
of the contingency giving rise to the obligation, of any contingent obligations
as described above at such date; provided that the amount outstanding at any
time of any Indebtedness issued with original issue discount shall be deemed to
be the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP.
"Independent Financial Advisor" means a firm:
. which does not, and whose directors, officers or affiliates do not, have a
material financial interest in Parent or any of its Subsidiaries; and
. which, in the judgment of the Board of Directors, is otherwise independent
and qualified to perform the task for which it is to be engaged.
"interest" means, with respect to the Notes, the sum of any interest and any
Liquidated Damages on the Notes.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other similar financial agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including by way of guarantee or similar
arrangement) or capital contribution to, or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by, such
Person. "Investment" excludes (a) any Restricted Payment of the type described
in clause (2) of the definition "Restricted Payment" and (b) any purchase or
acquisition of Indebtedness of Parent or any of its Subsidiaries.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "Certain
Covenants--Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to Parent's
direct and indirect equity interest in such Subsidiary) of the Fair Market
Value of the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary;
(2) any asset Transferred to or from an Unrestricted Subsidiary shall be
valued at its Fair Market Value at the time of such Transfer; and
(3) if Parent or any Restricted Subsidiary Transfers any Capital Stock of
any direct or indirect Restricted Subsidiary, or any Restricted Subsidiary
issues Capital Stock, such that, after giving effect to any such Transfer or
issuance, such Person is no longer a Restricted Subsidiary, Parent shall be
deemed to have made an Investment on the date of any such Transfer or
issuance equal to the Fair Market Value of the Capital Stock of such Person
held by Parent or such Restricted Subsidiary immediately following any such
Transfer or issuance.
66
"Issue Date" means the date on which the Notes are originally issued.
"Issuer Surviving Entity" has the meaning set forth under "--Certain
Covenants--Merger, Consolidation and Sale of Assets."
"Lien" means, with respect to any asset, any mortgage, deed of trust, lien,
pledge, charge, debenture, security interest or encumbrance of any kind in
respect of such asset, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in any asset and any filing of, or agreement
to give, any financing statement under the UCC or equivalent statutes) of any
jurisdiction other than to evidence a lease.
"Liquidated Damages" has the meaning set forth in the Indenture.
"Make Whole Amount" means the excess, if any, of (1) an amount equal to the
sum of the present values of the remaining scheduled payments of principal of
the Notes to be redeemed or purchased and the scheduled payment of interest
thereon to originally scheduled maturity, discounted to the redemption or
purchase date (assuming a 360-day year consisting of twelve 30-day months) at
the Special Adjusted Treasury Rate from the respective dates on which such
principal and interest would have been payable over (2) the principal amount of
the Notes being redeemed or purchased.
"Net Available Proceeds" from an Asset Sale or a Sale of a Principal
Property means the aggregate cash proceeds received by such Person and/or its
affiliates in respect of such transaction, which amount is equal to the excess,
if any, of:
(1) the cash received by such Person and/or its affiliates (including any
cash payments received by way of deferred payment pursuant to, or
monetization of, a note or installment receivable or otherwise, but only as
and when received) in connection with such transaction, over
(2) the sum of (a) the amount of any Indebtedness that is secured by such
asset and which is required to be repaid by such person in connection with
such transaction, plus (b) all fees, commissions, and other expenses
incurred by such Person in connection with such transaction, plus (c)
provision for taxes, including income taxes, attributable to the transaction
or attributable to required prepayments or repayments of Indebtedness with
the proceeds of such transaction, plus (d) a reasonable reserve for the
after-tax cost of any indemnification payments (fixed or contingent)
attributable to seller|s indemnities to purchaser in respect of such
transaction undertaken by Parent or any of its Restricted Subsidiaries in
connection with such transaction, plus (e) if such Person is a Restricted
Subsidiary, any dividends or distributions payable to holders of minority
interests in such Restricted Subsidiary from the proceeds of such
transaction.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Net Insurance Proceeds" means the insurance proceeds (excluding liability
insurance proceeds payable to the Trustee for any loss, liability or expense
incurred by it) actually received by Parent or any Restricted Subsidiary as a
result of damage to, or the loss, destruction or condemnation of, all or any
portion of the Collateral, less collection costs, including fees and expenses
of attorneys and insurance adjusters paid by Parent or any Restricted
Subsidiary. For the avoidance of doubt, Net Insurance Proceeds do not include
proceeds from business interruption insurance.
67
"Obligations" means, with respect to any Indebtedness, any principal,
interest, penalties, fees, indemnification, reimbursements, costs, expenses,
damages and other liabilities payable under the documentation governing such
Indebtedness.
"Parent Surviving Entity" has the meaning set forth under "--Certain
Covenants--Merger, Consolidation and Sale of Assets."
"Permitted Business" means (1) the same or a similar line of business as
Parent and the Restricted Subsidiaries are engaged in on the date of the
Indenture as described in this prospectus and (2) such business activities as
are complementary, incidental, ancillary or related to, or are reasonable
extensions of, the foregoing.
"Permitted Holders" means Anglo American plc, an English public limited
company, and its affiliates.
"Permitted Indebtedness" has the meaning set forth in the second paragraph
under "--Certain Covenants--Limitation on Incurrence of Indebtedness."
"Permitted Investment" means:
(1) any Investment in Temporary Cash Investments or the Notes or the
Exchange Notes;
(2) any Investment in Issuer or any Guarantor;
(3) any Investment by Parent or any Restricted Subsidiary in a Person, if
as a result of such Investment:
. such Person becomes a Guarantor; or
. such Person is merged or consolidated with or into, or Transfers or
conveys all or substantially all of its assets to, or is liquidated
into, Issuer or a Guarantor;
(4) any Investment by any Foreign Subsidiary in:
. any other Foreign Subsidiary; or
. any Person, if as a result of such Investment, (x) such Person becomes
a Foreign Subsidiary, or (y) such Person is merged or consolidated
with or into, or Transfers or conveys all or substantially all of its
assets to, or is liquidated into, any Foreign Subsidiary;
(5) receivables owing to Parent or any Restricted Subsidiary if created
or acquired in the ordinary course of business and payable or dischargeable
in accordance with customary trade terms; provided that such trade terms may
include such concessionary trade terms as Parent or any such Restricted
Subsidiary deems reasonable under the circumstances;
(6) loans or advances to employees of Parent or any Restricted Subsidiary
that are made in the ordinary course of business consistent with past
practices of Parent or such Restricted Subsidiary;
(7) Investments in any Person to the extent such Investment represents
the non-cash portion of the consideration received in an Asset Sale or Sale
of a Principal Property as permitted pursuant to the covenant described
under "--Certain Covenants--Limitation on Asset Sales" or "--Certain
Covenants--Limitation on Sale of Principal Properties;"
(8) Investments of cash or Temporary Cash Investments in any Restricted
Subsidiary that is not a Guarantor in the form of Indebtedness that is not
subordinated by its terms to any other obligations; provided that
. any such Investment made with proceeds from the Transfer of Fixed
Assets shall be evidenced by a Fixed Asset Intercompany Note issued by
such Restricted Subsidiary to the Person that makes such Investment;
and
68
. to the extent that the aggregate amount of Indebtedness owed to Issuer
or any Guarantor by such Restricted Subsidiary (other than those
evidenced by a Fixed Asset Intercompany Note) after giving effect to
such Investment is greater than the aggregate amount of such
Indebtedness outstanding on the Issue Date, such Investment shall be
evidenced by an unsecured promissory note issued by such Restricted
Subsidiary to the Person that makes such Investment, on which note the
Bank Collateral Agent under the Credit Facility shall have a first
priority Lien and the Trustee shall have a second priority Lien (which
priorities shall be governed by the Intercreditor Agreement);
(9) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(10) Hedging Obligations incurred pursuant to clause (7) of the
definition of "Permitted Indebtedness";
(11) Investments in joint ventures not to exceed $10.0 million at any
time outstanding; provided that each such joint venture is engaged only in a
Permitted Business;
(12) any Investment by Parent or a Wholly Owned Subsidiary of Parent in a
Securitization Entity; provided that such Investment is in the form of a
Purchase Money Note or an equity interest or interests in accounts
receivable generated by Parent or any of its Subsidiaries;
(13) any Indebtedness of Parent to any of its Subsidiaries incurred in
connection with the purchase of accounts receivable and related assets by
Parent from any such Subsidiary which assets are subsequently conveyed by
Parent to a Securitization Entity in a Qualified Securitization Transaction;
(14) any guarantees of Indebtedness permitted by clause (6) or (17) of
the definition of "Permitted Indebtedness";
(15) any Investment by TNCLP or TNLP in the other; and
(16) additional Investments in an aggregate amount not to exceed $10.0
million at any time outstanding.
The amount of any Investments outstanding for purposes of clause (11) or
(16) above and the amount of Investments deemed made since the Issue Date for
purposes of clause (8) of "--Certain Covenants-Limitation on Restricted
Payments" shall be equal to the aggregate amount of Investments made pursuant
to such clause reduced (but not below zero) by the following (to the extent not
included in the calculation of Consolidated Net Income for purposes of
determining the Basket and without duplication):
. the aggregate net proceeds (including the Fair Market Value of assets
other than cash) received by Parent or any Restricted Subsidiary upon the
sale or other disposition of any Investment made pursuant to such clause;
. the net reduction in Investments made pursuant to such clause resulting
from dividends, repayments of loans or advances or other Transfers of
assets to Parent or any Restricted Subsidiary;
. to the extent that the amount available for Investments under such clause
was reduced as the result of the designation of an Unrestricted
Subsidiary, the portion (proportionate to Parent|s equity interest in such
Subsidiary) of the Fair Market Value of the net assets of such
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
redesignated, or liquidated or merged into, a Restricted Subsidiary; and
. the net reduction in Investments made pursuant to such clause resulting
from repayment of letters of credit or the expiration of letters of credit
undrawn.
"Permitted Liens" means:
(1) Liens of the type described in the definition of "Collateral
Permitted Liens" (other than clause (2) thereof), without giving effect to
any requirement of compliance with the Contested Collateral Lien Conditions;
69
(2) Liens encumbering the Excluded Assets and the Second Lien Collateral
securing the Credit Facility;
(3) Liens securing Hedging Obligations of the type described in clause
(7) of the definition of "Permitted Indebtedness";
(4) Liens securing Indebtedness of Foreign Subsidiaries (other than
Principal Property Subsidiaries);
(5) Liens in favor of Issuer or any Guarantor; provided that such Liens
do not secure obligations that are assigned to any Person other than the
Trustee pursuant to the Security Documents or the Bank Collateral Agent
pursuant to the Credit Facility;
(6) Liens on assets or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided that such Lien was not incurred in
anticipation of or in connection with the transaction or series of related
transactions pursuant to which such Person became a Subsidiary;
(7) pledges of or Liens on raw materials or on manufactured products as
security for any drafts or bills of exchange drawn in connection with the
importation of such raw materials or manufactured products;
(8) Liens in favor of banks that arise under Article 4 of the UCC on
items in collection and documents relating thereto and proceeds thereof and
Liens arising under Section 2-711 of the UCC;
(9) Liens arising or that may be deemed to arise in favor of a
Securitization Entity arising in connection with a Qualified Securitization
Transaction;
(10) other Liens securing obligations in an aggregate amount, together
with the aggregate amount of any obligations secured pursuant to clause (13)
of the definition of "Collateral Permitted Liens," not to exceed $2.0
million at any time outstanding;
(11) pledges or deposits by such Person under workers' compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to
secure public or statutory obligations of such Person or deposits of cash or
United States government bonds to secure surety or appeal bonds to which
such Person is a party, or deposits as security for contested taxes or
import duties or for the payment of rent or deposits as security for the
payment of insurance-related obligations (including, but not limited to, in
respect of deductibles, self-insured retention amounts and premiums and
adjustments thereto), in each case incurred in the ordinary course of
business;
(12) Liens in favor of issuers of surety, performance, judgment, appeal
and like bonds or letters of credit issued in the ordinary course of
business;
(13) Liens occurring solely by the filing of a UCC statement, which
filing has not been consented to by Parent or any Restricted Subsidiary;
(14) any obligations or duties affecting any property of Parent or any
Restricted Subsidiary to any municipality or public authority with respect
to any franchise, grant, license or permit that do not materially impair the
use of such property for the purposes for which it is held;
(15) Liens on any property in favor of domestic or foreign governmental
bodies to secure partial, progress, advance or other payments pursuant to
any contract or statute, not yet due and payable;
(16) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements; and
(17) deposits, pledges or other Liens to secure obligations under
purchase or sale agreements.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
70
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Principal Properties" means (1) each of the facilities at or near the
following locations, as described in this prospectus:
. Beaumont, Texas;
. Billingham, U.K.;
. Blytheville, Arkansas;
. Courtright, Ontario;
. Port Neal, Iowa;
. Severnside, U.K.;
. Verdigris, Oklahoma; and
. Woodward, Oklahoma;
and (2) each other real property of Parent or any Subsidiary required, pursuant
to the Indenture and the Security Documents, to be pledged to the Trustee as a
"Principal Property."
"Principal Property Subsidiaries" means (1) each of the following
Subsidiaries of Parent:
. Beaumont Ammonia Inc., a Delaware corporation;
. BMC Holdings Inc., a Delaware corporation;
. Port Neal Corporation, a Delaware corporation;
. Terra International (Canada) Inc., an Ontario corporation;
. Terra International (Oklahoma) Inc., a Delaware corporation;
. Terra Nitrogen (U.K.) Ltd., an English company;
. Terra Nitrogen Company, L.P., a Delaware limited partnership;
. Terra Nitrogen, Limited Partnership, a Delaware limited partnership; and
. Terra Real Estate Corp., a Delaware corporation;
and (2) any other Subsidiary that owns any Principal Property.
"Pro Forma Cost Savings" means, with respect to any period, the reduction in
costs that occurred during the period that were (1) directly attributable to an
acquisition and calculated on a basis that is consistent with Article 11 of
Regulation S-X under the Securities Act as in effect on the date of the
Indenture or (2) implemented by the business that was the subject of any such
acquisition within one year of the date of the acquisition and that are
supportable and quantifiable by the underlying accounting records of such
business, as if, in the case of each of clauses (1) and (2), all such
reductions in costs had been effected as of the beginning of such period,
decreased by any incremental expenses (except to the extent capitalized on
Parent's consolidated balance sheet) incurred or to be incurred for the period
in order to achieve such reduction in costs.
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"Purchase Money Indebtedness" mean Indebtedness:
. consisting of the deferred purchase price of assets, conditional sale
obligations, obligations under any title retention agreement, other
purchase money obligations and obligations in respect of industrial
revenue bonds or similar Indebtedness, in each case where the maturity of
such Indebtedness does not exceed the anticipated useful life of the asset
being financed; and
. incurred to finance the acquisition by Parent or a Restricted Subsidiary
of such asset, including additions and improvements;
provided that any Lien arising in connection with any such Indebtedness shall
be limited to the specified asset being financed or, in the case of real
property or fixtures, including additions and improvements, the real property
on which such asset is attached; provided further that such Indebtedness is
incurred within 120 days after such acquisition of, or the completion of
construction of, such asset by Parent or Restricted Subsidiary.
"Purchase Money Note" means a promissory note evidencing a line of credit,
which may be irrevocable, from, or evidencing other Indebtedness owed to,
Parent or any of its Subsidiaries in connection with a Qualified Securitization
Transaction, which note shall be repaid from cash available to the maker of
such note, other than amounts required to be established as reserves pursuant
to agreements, amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts paid in connection with the
purchase of newly generated receivables.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by Parent, any Restricted Subsidiary or a
Securitization Entity pursuant to which Parent or such Restricted Subsidiary or
that Securitization Entity may, pursuant to customary terms, sell, convey or
otherwise transfer to, or grant a security interest in for the benefit of, (1)
a Securitization Entity or Parent or any Restricted Subsidiary which
subsequently transfers to a Securitization Entity (in the case of a transfer by
Parent or such Restricted Subsidiary) and (2) any other Person (in the case of
transfer by a Securitization Entity), any accounts receivable (whether now
existing or arising or acquired in the future) of Parent or any Restricted
Subsidiary which arose in the ordinary course of business of Parent or such
Restricted Subsidiary, and any assets related thereto, including, without
limitation, all collateral securing such accounts receivable, all contracts and
contract rights and all guarantees or other obligations in respect of such
accounts receivable, proceeds of such accounts receivable and other assets
(including contract rights) which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"Qualified Stock" means any Capital Stock of Parent other than Disqualified
Stock.
"Reference Treasury Dealer" means each of (1) Salomon Smith Barney Inc. or
any successor; provided that if the foregoing shall not be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"),
Issuer shall substitute therefor another Primary Treasury Dealer and (2) any
Primary Treasury Dealer selected by Issuer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer on any date of redemption, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such date of redemption.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
increase, replace, renew, refund, repay, prepay, redeem, defease or retire, or
to issue other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means, with respect to any Indebtedness,
Indebtedness incurred to Refinance such Indebtedness that does not:
72
(1) result in an increase in the aggregate principal amount of
Indebtedness being Refinanced as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred in connection with such Refinancing) or
(2) create Indebtedness with (a) a Weighted Average Life to Maturity that
is less than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced or (b) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced;
provided that (x) if the Indebtedness being Refinanced is subordinated by its
terms to the Notes or a Guarantee, then such Refinancing Indebtedness shall be
subordinated by its terms to the Notes or such Guarantee at least to the same
extent and in the same manner as the Indebtedness being Refinanced and (y) the
obligor(s) on the Refinancing Indebtedness shall not include any Person that is
not the Issuer or a Guarantor or a Person that is an obligor on the
Indebtedness being Refinanced.
"Released Interest" has the meaning set forth under "--Asset Sale Release."
"Restricted Payment" means, with respect to any Person:
(1) any dividend or other distribution declared or paid on any Capital
Stock of Parent (other than dividends or distributions payable solely in
Qualified Stock);
(2) any payment to purchase, redeem or otherwise acquire or retire for
value any Capital Stock of Parent or any affiliate of Parent (other than any
Restricted Subsidiary);
(3) any payment to purchase, redeem, defease or otherwise acquire or
retire for value any Subordinated Obligations prior to the Stated Maturity
thereof (other than any Purchase Money Indebtedness incurred after the Issue
Date upon the sale of the related asset); or
(4) the making of an Investment (other than a Permitted Investment),
including any Investment in an Unrestricted Subsidiary (including by the
designation of any Subsidiary of Parent as an Unrestricted Subsidiary).
"Restricted Subsidiary" means Issuer, each Principal Property Subsidiary and
each other Subsidiary of Parent that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby Parent or a Restricted Subsidiary
Transfers such property to a Person and Parent or a Restricted Subsidiary
leases it from such Person.
"Second Lien Collateral" means all of the assets listed in the second
paragraph under "--Collateral--Description of Collateral."
"Securitization Entity" means a Wholly Owned Subsidiary of Parent (or
another Person in which Parent or any Subsidiary of Parent makes an Investment
and to which Parent or any Subsidiary of Parent Transfers accounts receivable)
(1) which is designated by the Board of Directors (as provided below) as
a Securitization Entity and engages in no activities other than in
connection with the financing of accounts receivable;
(2) no portion of the Indebtedness or any other obligations (contingent
or otherwise) of which (a) is guaranteed by Parent or any of its
Subsidiaries (other than the Securitization Entity) (excluding guarantees of
obligations (other than the principal of, and interest on, Indebtedness))
pursuant to Standard Securitization Undertakings), (b) is recourse to or
obligates Parent or any of its Subsidiaries (other than the Securitization
Entity) in any way other than pursuant to Standard Securitization
Undertakings or (c) subjects
73
any asset of Parent or any of its Subsidiaries (other than the
Securitization Entity), directly or indirectly, contingently or otherwise,
to the satisfaction thereof, other than pursuant to Standard Securitization
Undertakings and other than any interest in the accounts receivable (whether
in the form of an equity interest in such assets or subordinated
indebtedness payable primarily from such financed assets) retained or
acquired by Parent or any of its Subsidiaries;
(3) with which neither Parent nor any of its Subsidiaries has any
material contract, agreement, arrangement or understanding other than on
terms no less favorable to Parent or such Subsidiary than those that might
be obtained at the time from Persons that are not affiliates of Parent,
other than fees payable in the ordinary course of business in connection
with servicing receivables of such entity; and
(4) to which neither Parent nor any of its Subsidiaries has any
obligation to maintain or preserve such entity|s financial condition or
cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution giving
effect to such designation and an officers' certificate certifying that such
designation complied with the foregoing conditions.
"Security Documents" means, collectively, (1) the Security Agreement among
Issuer, the Guarantors and the Trustee, as collateral agent, and (2) all
security agreements, mortgages, deeds of trust, pledges, collateral
assignments, charges, debentures and other agreements or instruments evidencing
or creating any security in favor of the Trustee on behalf of itself and the
noteholders in any or all of the Collateral, in each case as amended from time
to time in accordance with their terms.
"Significant Subsidiary" means (1) any Restricted Subsidiary that is a
"significant subsidiary" of Parent on a consolidated basis within the meaning
of Regulation S-X promulgated by the SEC or (2) any Restricted Subsidiary that,
when aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Subsidiaries and as to which any event described in clause (7), (8)
or (9) under "--Events of Default" has occurred and is continuing, would
constitute a Significant Subsidiary under clause (1) of this definition.
"Special Adjusted Treasury Rate" means, with respect to any date of
redemption or purchase, the rate per annum equal to the semiannual equivalent
yield to maturity of the Comparable Treasury Issue, assuming a price equal to
the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such date of redemption or
purchase, plus 0.50%.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Parent or any of its Subsidiaries
which are reasonably customary in an accounts receivable securitization
transaction.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of Issuer or a Guarantor
(whether outstanding on the Issue Date or thereafter incurred) which is
subordinated by its terms in right of payment to the Notes or the Guarantee of
such Guarantor.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which Voting Stock representing more
than 50% of the total voting power of all outstanding Voting Stock of such
Person is at the time owned, directly or indirectly, by:
. such Person;
74
. such Person and one or more Subsidiaries of such Person; or
. one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof;
(2) investments in time or demand deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any State thereof or any
foreign country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of
$50,000,000 (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A-2" or higher by Moody|s Investors Service, Inc.
("Moody's"), "A" or higher by Standard & Poor|s Ratings Group ("S&P") or the
equivalent rating by any other nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an affiliate of
Issuer) organized and in existence under the laws of the United States of
America, any State thereof or the District of Columbia or any foreign
country recognized by the United States of America with a rating at the time
as of which any investment therein is "P-2" or higher from Moody's, "A-2" or
higher from S&P or the equivalent rating by any other nationally recognized
statistical rating organization (as defined above);
(5) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Moody's or "A" by S&P; and
(6) shares of any money market mutual fund rated at least AAA or the
equivalent thereof by S&P, at least Aaa or the equivalent thereof by Moody's
or any other mutual fund at least 95% of whose assets consist of the type
specified in clauses (1) through (5) above.
"Terra Canada" means Terra International (Canada) Inc., an Ontario
corporation.
"Terra UK" means Terra Nitrogen (U.K.) Ltd., an English company.
"Terra UK Customer Debt" means Indebtedness for borrowed money of a customer
of Terra UK owing to a financial institution in the United Kingdom; provided
that:
. such customer uses the entire principal proceeds of such Indebtedness to
pay for goods and services purchased from Terra UK;
. such customer is required to repay such Indebtedness in full within 12
months of the date on which such Indebtedness is incurred;
. in the reasonable opinion of Terra UK, such customer is creditworthy; and
. it is a condition of the extension of credit by such financial institution
to such customer that Terra UK guarantee a portion of such Indebtedness.
"Terra UK Intercompany Note" means the Fixed Asset Intercompany Note issued
by Terra UK to Terra (UK) Holdings Inc.
75
"TNCLP" means Terra Nitrogen Company, L.P., a Delaware limited partnership.
"TNLP" means Terra Nitrogen, Limited Partnership, a Delaware limited
partnership.
"TNLP Intercompany Note" means the Fixed Asset Intercompany Note issued by
TNLP to Issuer.
"Transfer" means to sell, assign, transfer, lease (other than pursuant to an
operating lease entered into in the ordinary course of business), convey or
otherwise dispose of, including by Sale and Leaseback Transaction,
consolidation, merger or otherwise, in one transaction or a series of
transactions. "Transferred," "Transferor" and "Transferee" have correlative
meanings.
"Trust Monies" means all cash and Temporary Cash Investments received by the
Trustee:
(1) upon the release of Collateral from the Lien of the Indenture or the
Security Documents, including all Net Available Proceeds and all moneys
received in respect of the principal of all purchase money, governmental and
other obligations;
(2) as compensation for or proceeds of the sale of all or any part of the
Collateral taken by eminent domain or purchased by or sold pursuant to any
order of a governmental authority or otherwise disposed of;
(3) as Net Insurance Proceeds;
(4) pursuant to the Security Documents;
(5) as proceeds of any Transfer of all or any part of the Collateral by
or on behalf of the Trustee or any collection, recovery, receipt,
appropriation or other realization of or from all or any part of the
Collateral pursuant to the Indenture or any of the Security Documents or
otherwise; or
(6) for application as provided in the relevant provisions of the
Indenture or any Security Document or which disposition is not otherwise
specifically provided for in the Indenture or in any Security Document;
provided that Trust Monies shall in no event include any property deposited
with the Trustee for any redemption, legal defeasance or covenant defeasance of
Notes, for the satisfaction and discharge of the Indenture or to pay the
purchase price of Notes pursuant to Net Proceeds Offer or offer to purchase
Notes required under "--Change of Control" or "--Certain Covenants--Limitation
on Sale of Principal Properties."
"UCC " means the Uniform Commercial Code in effect in the applicable
jurisdiction.
"Unrestricted Subsidiary" means:
. any Subsidiary of Parent that at the time of determination shall have been
designated an Unrestricted Subsidiary by the Board of Directors; and
. any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of Parent (including any
newly acquired or newly formed Subsidiary but excluding any Principal Property
Subsidiary and any parent company of any Principal Property Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien on any assets of,
Issuer or any other Subsidiary of Parent that is not a Subsidiary of the
Subsidiary to be so designated; provided that
. no Default has occurred and is continuing or would occur as a consequence
thereof;
. Issuer could incur at least $1.00 of additional Indebtedness pursuant to
the Coverage Ratio Exception; and
. either (x) the Subsidiary to be so designated has total assets of $1,000
or less or (y) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described under
76
"--Certain Covenants--Limitation on Restricted Payments" (treating the
Fair Market Value of Issuer's proportionate interest in the net worth of
such Subsidiary on such date calculated in accordance with GAAP as the
amount of the Investment).
The Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
. no Default has occurred and is continuing; and
. Indebtedness of such Unrestricted Subsidiary and all Liens on any asset of
such Unrestricted Subsidiary outstanding immediately following such
redesignation would, if incurred at such time, be permitted to be incurred
under the Indenture.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Valuation Date" has the meaning set forth under "--Asset Sale Release."
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such Indebtedness
into
(2) the sum of the total of the products obtained by multiplying (x) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payment of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Parent
and/or one or more Wholly Owned Subsidiaries.
77
BOOK-ENTRY; DELIVERY AND FORM
The notes were offered and sold in connection with the initial offering
thereof solely to "qualified institutional buyers," as defined in Rule 144A
under the Securities Act ("QIBs"), pursuant to Rule 144A and in offshore
transactions to persons other than "U.S. persons," as defined in Regulation S
under the Securities Act ("Non-U.S. Persons"), in reliance on Regulation S.
Following the initial offering of the notes, the notes may be sold to QIBs
pursuant to Rule 144A, Non-U.S. Persons in reliance on Regulation S and
pursuant to other exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act, as described under "Transfer
Restrictions," including sales to institutional "accredited investors," as
defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act
("Institutional Accredited Investors"), that are not QIBs.
The Global Notes
Rule 144A Global Note. Notes offered and sold to QIBs pursuant to Rule 144A
were issued in the form of one or more registered notes in global form, without
interest coupons (collectively, the "Rule 144A Global Note"). The Rule 144A
Global Note remain in the custody of the Trustee pursuant to the FAST Balance
Certificate Agreement between The Depository Trust Company ("DTC") and the
Trustee. Interests in the Rule 144A Global Note will be available for purchase
only by QIBs.
Regulation S Global Notes. Notes offered and sold in offshore transactions
to Non-U.S. Persons in reliance on Regulation S were initially issued in the
form of one or more registered notes in global form, without interest coupons
(collectively, the "Regulation S Global Note"). Each Regulation S Global Note
was deposited upon issuance with, or on behalf of, a custodian for DTC in the
manner described in the preceding paragraph for credit to the respective
accounts of the Euroclear System ("Euroclear"), or Clearstream Banking, S.A. of
Luxembourg ("Clearstream, Luxembourg"). Prior to the 40th day after the later
of the commencement of the offering of the notes and the Issue Date (such
period through and including such 40th day, the "Distribution Compliance
Period"), interests in the Regulation S Global Note were held only through
Euroclear or Clearstream, Luxembourg (as indirect participants in DTC) unless
exchanged for interests in the Rule 144A Global Note or the Institutional
Accredited Investor Global Note (as defined below) in accordance with the
transfer and certification requirements described herein.
Investors may hold their interests in the Regulation S Global Note directly
through Euroclear or Clearstream, Luxembourg, if they are participants in such
systems, or indirectly through organizations which are participants in such
systems. After the expiration of the Distribution Compliance Period (but not
earlier), investors may also hold such interests through organizations other
than Euroclear or Clearstream, Luxembourg that are participants in the DTC
system. Euroclear and Clearstream, Luxembourg will hold such interests in the
Regulation S Global Note on behalf of their participants through customers'
securities accounts in their respective names on the books of their respective
depositories. Such depositories, in turn, will hold such interests in the
Regulation S Global Note in customers' securities accounts in the depositories'
names on the books of DTC.
Institutional Accredited Investor Global Note. In connection with the sale
of notes to an Institutional Accredited Investor, beneficial interests in any
of the Global Notes (as defined below) may be exchanged for interests in a
separate note in registered form, without interest coupons (the "Institutional
Accredited Investor Global Note"), which was deposited on the issue date with,
or on behalf of, a custodian for DTC in the manner described in the preceding
paragraphs.
Except as set forth below, the Rule 144A Global Note, the Regulation S
Global Notes and the Institutional Accredited Investor Global Note
(collectively, the "Global Notes") may be transferred, in whole and not in
part, solely to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the Global Notes may not be exchanged for notes in
physical, certificated form ("Certificated Notes") except in the limited
circumstances described below.
The notes are subject to certain restrictions on transfer and bear a
restrictive legend as set forth under "Transfer Restrictions."
78
All interests in the Global Notes, including those held through Euroclear or
Clearstream, Luxembourg, may be subject to the procedures and requirements of
DTC. Those interests held through Euroclear or Clearstream, Luxembourg may also
be subject to the procedures and requirements of such systems.
Exchanges Among the Global Notes
Prior to the expiration of the Distribution Compliance Period, transfers by
an owner of a beneficial interest in the Regulation S Global Note to a
transferee who takes delivery of such interest through the Rule 144A Global
Note or the Institutional Accredited Investor Global Note were made only in
accordance with applicable procedures and upon receipt by the Trustee of a
written certification from the transferor of the beneficial interest in the
form provided in the Indenture to the effect that such transfer is being made
to (1) a person whom the transferor reasonably believes is a QIB within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or
(2) an Institutional Accredited Investor purchasing for its own account, or for
the account of such an Institutional Accredited Investor, in a minimum
principal amount of the notes of $250,000. Such written certification is no
longer required because the Distribution Compliance Period has expired. In
addition, in the case of a transfer pursuant to clause (2) above, whether
before or after the expiration of the Distribution Compliance Period, the
transferor may be required to deliver to the Trustee a letter from the
transferee substantially in the form set forth in the Indenture, which shall
provide, among other things, that the transferee is an Institutional Accredited
Investor that is acquiring such notes not for distribution in violation of the
Securities Act.
Transfers by an owner of a beneficial interest in the Rule 144A Global Note
or the Institutional Accredited Investor Global Note to a transferee who takes
delivery of such interest through the Regulation S Global Note, whether before
or after the expiration of the Distribution Compliance Period, will be made
only upon receipt by the Trustee of a certification from the transferor to the
effect that such transfer is being made in accordance with Regulation S or (if
available) Rule 144 under the Securities Act and that, if such transfer is
being made prior to the expiration of the Distribution Compliance Period, the
interest transferred was held immediately thereafter through Euroclear or
Clearstream, Luxembourg.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in another Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such
an interest.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC, Euroclear and
Clearstream, Luxembourg set forth below are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to change by them from time
to time. Neither the issuer nor any initial purchaser takes any responsibility
for these operations or procedures, and investors are urged to contact the
relevant system or its participants directly to discuss these matters.
DTC has advised the issuer that it is:
. a limited purpose trust company organized under the laws of the State of
New York;
. a "banking organization" within the meaning of the New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
. a "clearing agency" registered pursuant to Section 17A of the Exchange Act.
79
DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical
transfer and delivery of certificates. DTC's Participants include securities
brokers and dealers (including the initial purchasers), banks and trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Investors who are not Participants
may beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The issuer believes that pursuant to procedures established by DTC (1) upon
deposit of each Global Note, DTC credited the accounts of Participants
designated by the initial purchasers with an interest in the Global Note and
(2) ownership of the notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interests of Participants) and the records of Participants and the
Indirect Participants (with respect to the interests of persons other than
Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an interest
in notes represented by a Global Note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of notes under the
Indenture or such Global Note. The issuer understands that under existing
industry practice, in the event that the issuer requests any action of holders
of notes, or a holder that is an owner of a beneficial interest in a Global
Note desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participants would authorize holders owning through such Participants to
take such action or would otherwise act upon the instruction of such holders.
Neither the issuer nor the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of notes
by DTC, or for maintaining, supervising or reviewing any records of DTC
relating to such notes.
Payments with respect to the principal of, and premium, if any, Liquidated
Damages, if any, and interest on, any notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Note representing such notes
under the Indenture. Under the terms of the Indenture, the issuer and the
Trustee may treat the persons in whose names the notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving
payment thereon and for any and all other purposes whatsoever. Accordingly,
neither the issuer nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to owners of beneficial interests in
a Global Note (including principal, premium, if any, Liquidated Damages, if
any, and interest). Payments by the Participants and the Indirect Participants
to the owners of beneficial interests in a Global Note will be governed by
standing instructions and customary industry practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
80
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream, Luxembourg will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Clearstream, Luxembourg participants, on the other hand, will
be effected through DTC in accordance with DTC's rules on behalf of Euroclear
or Clearstream, Luxembourg, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions
to Euroclear or Clearstream, Luxembourg, as the case may be, by the
counterparts in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
Clearstream, Luxembourg, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Notes in DTC, and making or receiving payment
in accordance with normal procedures for same-day funds settlement applicable
to DTC. Euroclear participants and Clearstream, Luxembourg participants may not
deliver instructions directly to the depositories for Euroclear or Clearstream,
Luxembourg.
Because of time zone differences, the securities account of a Euroclear or
Clearstream, Luxembourg participant purchasing an interest in a Global Note
from a Participant in DTC will be credited, and any such crediting will be
reported to the relevant Euroclear or Clearstream, Luxembourg participant,
during the securities settlement processing day (which must be a business day
for Euroclear and Clearstream, Luxembourg) immediately following the settlement
date of DTC. Cash received in Euroclear or Clearstream, Luxembourg as a result
of sales of interest in a Global Security by or through a Euroclear or
Clearstream, Luxembourg participant to a Participant in DTC will be received
with value on the settlement date of DTC but will be available in the relevant
Euroclear or Clearstream, Luxembourg cash account only as of the business day
for Euroclear or Clearstream, Luxembourg following DTC's settlement date.
Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the
foregoing procedures to facilitate transfers of interests in the Global Notes
among participants in DTC, Euroclear and Clearstream, Luxembourg, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the issuer nor the
Trustee will have any responsibility for the performance by DTC, Euroclear or
Clearstream, Luxembourg or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes
If:
. the issuer notifies the Trustee in writing that DTC is no longer willing
or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation; or
. the issuer, at their option, notifies the Trustee in writing that it
elects to cause the issuance of notes in definitive form under the
indenture governing the notes; or
. upon the occurrence of certain other events as provided in the indenture
governing the notes, then, upon surrender by DTC of the Global Notes,
Certificated Notes will be issued to each person that DTC identifies as
the beneficial owner of the notes represented by the Global Notes. Upon
any such issuance, the Trustee is required to register such Certificated
Notes in the name of such person or persons (or the nominee of any
thereof) and cause the same to be delivered thereto.
Neither the issuer nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued).
81
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of ownership of the new notes. This discussion deals only with new notes held
as capital assets and does not deal with the consequences to special classes of
holders of the new notes, such as dealers in notes or currencies, life
insurance companies, tax exempt entities, financial institutions, persons with
a functional currency other than the U.S. dollar, U.S. expatriates or investors
in pass-through entities such as partnerships. It does not deal with the
effects of any arrangement entered into by a holder of the new notes that
partially or completely hedges the new notes, or otherwise holds the new notes
as part of a synthetic security or other integrated investment. In general,
this discussion assumes that a holder acquires new notes at original issue. The
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), and the related regulations, rulings, and judicial decisions as of the
date of this prospectus, any of which may be repealed or modified in a manner
resulting in federal income tax consequences that differ from those described
below. This discussion does not address the tax considerations arising under
the laws of any foreign, state or local jurisdiction.
Holders of the notes should consult their own tax advisors concerning U.S.
federal income tax consequences resulting from their particular situations, and
state, local, franchise, gift and estate tax consequences, or other
consequences under the laws of any other taxing jurisdiction.
U.S. Holders
The following discussion addresses the U.S. federal income tax consequences
to a U.S. holder of a new note. For purposes of this discussion, a "U.S.
holder" is a note holder that is (1) a citizen or resident of the United States
for United States federal income tax purposes, including an alien individual
who is a lawful permanent resident of the United States or meets the
"substantial presence" test prescribed under the Code, (2) a corporation,
partnership, or other entity organized under the laws of the United States or
any political subdivision of the United States, (3) an estate taxed by the
United States without regard to its source of income or (4) a trust if the
trust has validly elected to be treated as a United States person for U.S.
federal income tax purposes of if (a) a court within the United States can
exercise primary supervision over its administration and (b) one or more United
States persons have authority to control all of its substantial decisions.
Exchange Offer in Connection with Registration of the New Notes
The exchange of the outstanding notes for the new notes, which have
substantially identical terms, in connection with the registration of the new
notes will not be a taxable event for federal income tax purposes.
Consequently, no gain or loss will be recognized by U.S. holders and non-U.S.
holders of the outstanding notes upon receipt of the new notes and ownership of
the new notes will be considered a continuation of ownership of the outstanding
notes. For purposes of determining gain or loss upon the subsequent sale or
exchange of the new notes, a holder will have the same tax basis and holding
period in the new notes that the holder had in the outstanding notes. The U.S.
federal income tax consequences of holding and disposing of the new notes will
be the same as those of holding and disposing of the outstanding notes.
Interest and Original Issue Discount
Payments of stated interest on a new note will be taxable as ordinary
interest income at the time it is received or accrued, depending upon the
method of accounting applicable to the holder of the new note.
With respect to original issue discount ("OID"), we intend to take the
position (which generally will be binding on holders) that the new notes are
not issued with OID. Accordingly, the U.S. holders will include stated interest
in gross income in accordance with their methods of accounting for tax
purposes. This position is based
82
in part upon our conclusion that, as of the date of this prospectus, the
likelihood of paying additional amounts as described under "Description of
Notes" should be "remote" within the meaning of applicable Treasury
regulations. We intend to treat any such payments as additional interest
payable on the new notes which should be taxable to U.S. holders at the time is
accrues or is received in accordance with such holder's regular method of
accounting. The Internal Revenue Service may or may not agree with this
conclusion.
Additional Interest
The interest rate on the new notes may be increased if the new notes are not
registered with the SEC within the prescribed time period or if we do not
commence the exchange offer within the prescribed time period. We believe that
the possibility that any additional interest will be paid is "remote and
incidental" under applicable Treasury Regulations and, therefore, that any
additional interest will be taxable to U.S. holders at the time that it accrues
or is received in accordance with each U.S. holder's method of accounting. The
Internal Revenue Service may take a different position, which could affect the
time when the additional interest, if any, would be taxable to a U.S. holder.
Sale, Exchange or Retirement of the New Notes
Upon the sale, exchange or retirement of the new notes, a U.S. holder will
recognize gain or loss equal to the difference between the amount realized upon
the sale, exchange or retirement, less a portion allocable to any accrued and
unpaid interest, which will be taxable as ordinary income, and the U.S.
holder's adjusted tax basis in the new notes. A U.S. holder's adjusted tax
basis in the new notes generally will be the U.S. holders cost of the new
notes, less any principal payments received by the holder.
Gain or loss recognized by a U.S. holder on the sale, exchange or retirement
of the new notes will be capital gain or loss. The gain or loss will be
long-term capital gain or loss if the new notes have been held by the U.S.
holder for more than twelve months. In the case of a noncorporate U.S. holder,
long-term capital gain is subject to a maximum U.S. Federal tax rate of 20%.
The deductibility of capital losses by U.S. holders is subject to certain
limitations.
Market Discount
Any gain or loss on a disposition of a new note would generally be a capital
gain or loss. However, a subsequent purchaser of a new note who did not acquire
the new note at its original issue, and who acquires the new note at a price
that is less than the stated redemption price of the new note at its maturity
(i.e., the face amount of the new note if it is issued at par), may be required
to treat the new note as a "market discount bond." Any recognized gain on a
disposition of the new note would then be treated as ordinary income to the
extent that it does not exceed the "accrued market discount" on the new note.
In general, accrued market discount is that amount that bears the same ratio to
the excess of the stated redemption price of the new note over the purchaser's
basis in the new note immediately after its acquisition, as the number of days
the purchaser holds the new note bears to the number of days after the date the
purchaser acquired the new note up to and including the date of its maturity.
In addition, there are rules deferring the deduction of all or part of the
interest expense on indebtedness incurred or continued to purchase or carry the
new notes and permitting a purchaser to elect to include accrued market
discount in income on a current basis.
Information Reporting and Backup Withholding
A U.S. holder of a new note may be subject to "backup withholding" at a rate
of 30.5% (30% for payments made after December 31, 2001) with respect to
certain "reportable payments," including payments of interest and, under
certain circumstances, principal payments on the new note. These backup
withholding rules apply if the U.S. holder, among other things, (1) fails to
furnish us with his or its social security number or other taxpayer
identification number ("TIN"), certified under penalties of perjury, within a
reasonable time after the request
83
therefore, (2) furnishes an incorrect TIN, (3) fails to properly report the
receipt of interest, or (4) under certain circumstances, fails to provide a
certified statement, signed under penalties of perjury, that the TIN furnished
is the correct number and that such holder is not subject to backup
withholding. Any amount withheld from a payment to a U.S. holder under the
backup withholding rules is creditable against the U.S. holder's U.S. federal
income tax liability, provided that the required information is furnished to
the Internal Revenue Service. Backup withholding will not apply, however, with
respect to payments made to certain holders (including corporations and
tax-exempt organizations), provided their exemptions from backup withholding
are properly established. A U.S. holder who does not provide us with its
correct TIN also may be subject to penalties imposed by the Internal Revenue
Service.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. holder and certain U.S. federal estate tax
consequences of a nonresident alien individual (for U.S. federal estate tax
purposes). As used herein, a "Non-U.S. holder" is any holder other than a U.S.
holder.
Under present United States federal income and estate tax law, assuming
certain certification requirements are satisfied (which include identification
of the beneficial owner of the instrument), and subject to the discussion of
backup withholding below:
1. payments of interest on the new notes to any Non-U.S. holder will not
be subject to United States federal income or withholding tax, provided that
(a) (i) the Non-U.S. holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of our stock entitled
to vote, (ii) the Non-U.S. holder is not (A) a bank receiving interest
pursuant to a loan agreement entered into in the ordinary course of its
trade or business or (B) a controlled foreign corporation that is related to
us through stock ownership and (iii) those interest payments are not
effectively connected with the conduct of a United States trade or business
of the Non-U.S. holder (the "Portfolio Interest Exemption") or (b) the
Non-U.S. holder is entitled to the benefits of an income tax treaty under
which interest on the new notes is exempt from U.S. federal withholding tax
and provides a properly executed IRS Form W-8BEN claiming the exemption (a
"Treaty Exemption");
2. a holder of the new notes who is a Non-U.S. holder will not be subject
to the United States federal income tax on gain realized on the sale,
exchange or other disposition of the new notes, unless (a) that holder is an
individual who is present in the United States for 183 days or more during
the taxable year and certain other requirements are met or (b) the gain is
effectively connected with the conduct of a United States trade or business
of the holder; and
3. if interest on the new notes is exempt from withholding of United
States federal income tax under the Portfolio Interest Exemption (without
regard to the certification requirement), the new notes will not be included
in the estate of a deceased Non-U.S. holder for United States federal estate
tax purposes.
The certification referred to above may be made on an Internal Revenue
Service Form W-8BEN or a substantially similar substitute form.
Information Reporting and Backup Withholding
We will, where required, report to the holders of the new notes and the
Internal Revenue Service the amount of any interest paid on the new notes in
each calendar year and the amounts of federal tax withheld, if any, with
respect to payments. A noncorporate U.S. holder may be subject to information
reporting and to backup withholding at a rate of 30.5% (30% after December 31,
2001) with respect to payments of principal and interest made on the new notes,
or on proceeds of the disposition of the new notes before maturity, unless that
U.S. holder provides a correct taxpayer identification number or proof of an
applicable exemption, and otherwise complies with applicable requirements of
the information reporting and backup withholding rules.
84
Backup withholding and information reporting will not apply to payments made
by us or any agent of ours (in its capacity as such) to a Non-U.S. holder of
new notes if such Non-U.S. holder has provided the required certification that
it is not a U.S. person on the form W-8BEN or has otherwise established an
exemption (provided that neither we nor our agent have actual knowledge that
such holder is a U.S. person or that the conditions of any exemption are not in
fact satisfied).
Payments of the proceeds from the sale of new notes to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except if the broker is (1) a U.S. person, (2) a "controlled
foreign corporation," (3) a foreign person 50% of more of whose gross income
for certain periods is effectively connected with a United States trade or
business or (4) a foreign partnership, if at any time during its taxable year,
one or more of its partners are United States persons who in the aggregate hold
more than 50% of the income or capital interest in the partnership or if, at
any time during its taxable year, the foreign partnership is engaged in a
United States trade or business, unless the Non-U.S. holder establishes an
exception as specified in the Final Regulations regarding backup withholding
and information reporting, as applicable.
Backup withholding is not an additional tax. Any amount withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
holder's United States Federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
The preceding discussion of material U.S. federal income and estate tax
consequences does not constitute tax advice. Accordingly, each holder should
consult its own tax advisor as to the particular tax consequences to it of
purchasing, holding, or disposing of the new notes, including the applicability
and effect of any U.S. federal, state, local or foreign tax laws, as well as
any possible changes in the tax laws.
85
PLAN OF DISTRIBUTION
Each participating broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a participating broker-dealer in connection with resales of exchange notes
received in exchange for outstanding notes where such outstanding notes were
acquired as a result of market-making activities or other trading activities.
We have agreed that for a period of 180 days after the expiration date, we will
make this prospectus, as amended or supplemented, available to any
participating broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sales of the exchange notes by
participating broker-dealers. Exchange notes received by participating
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the exchange
notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such participating broker-dealer and/or the
purchasers of any such exchange notes. Any participating broker-dealer that
resells the exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a participating broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any participating broker-dealer that requests such documents in
the letter of transmittal.
Prior to the exchange offer, there has not been any public market for the
outstanding notes. The outstanding notes have not been registered under the
Securities Act and will be subject to restrictions on transferability to the
extent that they are not exchanged for exchange notes by holders who are
entitled to participate in this exchange offer. The holders of outstanding
notes, other than any holder that is our affiliate within the meaning of Rule
405 under the Securities Act, who are not eligible to participate in the
exchange offer are entitled to certain registration rights, and we are required
to file a shelf registration statement with respect to the outstanding notes.
The exchange notes will constitute a new issue of securities with no
established trading market. We do not intend to list the exchange notes on any
national securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
initial purchasers have advised us that they currently intend to make a market
in the exchange notes. In addition, such market making activity will be subject
to the limits imposed by the Securities Act and the Exchange Act and may be
limited during the exchange offer and the pendency of the shelf registration
statements. Accordingly, no assurance can be given that an active public or
other market will develop for the exchange notes or as to the liquidity of the
trading market for the exchange notes. If a trading market does not develop or
is not maintained, holders of the exchange notes may experience difficulty in
reselling the exchange notes or may be unable to sell them at all. If a market
for the exchange notes develops, any such market may be discontinued at any
time.
VALIDITY OF THE NEW SECURITIES
The validity of the exchange notes and the guarantees and other legal
matters will be passed upon on our behalf by Kirkland & Ellis, a partnership
that includes professional corporations, Chicago, Illinois.
86
EXPERTS
The financial statements and related financial statement schedules of Terra
Industries as of December 31, 2000 and 1999, and for each of the three years in
the period ended December 31, 2000, included and incorporated by reference in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports, which are incorporated by reference
herein, and have been so included and incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The financial statements incorporated in this prospectus by reference from
Terra Nitrogen Company, L.P.'s Annual Report on Form 10-K for 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Terra Industries files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain further information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Our SEC filings are also available to the public over the Internet at the SEC's
web site at http://www.sec.gov. Terra Industries' common stock is listed on the
New York Stock Exchange, and you may inspect our SEC filings at the offices of
The New York Stock Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede the information in this
prospectus. Accordingly, we incorporate by reference the following documents
filed by us:
(1) Terra Industries' Annual Report on Form 10-K for the year ended December
31, 2000 (excluding the Consolidated Statements of Financial Position,
Consolidated Statements of Operations, Consolidated Statements of Cash
Flows, Consolidated Statements of Changes in Stockholders' Equity, Notes to
the Consolidated Financial Statements and Independent Auditors' Report in
Exhibit 13),
(2) Amendment No. 1 to Terra Industries' Annual Report on Form 10-K/A for the
year ended December 31, 2000,
(3) Terra Industries' Quarterly Report on Form 10-Q for the quarter ended March
31, 2001,
(4) Terra Industries' Quarterly Report on Form 10-Q for the quarter ended June
30, 2001,
(5) Terra Industries' Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001,
(6) Terra Industries' Current Report on Form 8-K filed on October 17, 2001,
(7) TNCLP's Annual Report on Form 10-K for the year ended December 31, 2000,
(8) Amendment No. 1 to TNCLP's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2000,
(9) TNCLP's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001,
(10) TNCLP's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001,
and
(11) TNCLP's Quarterly Report on Form 10-Q for the quarter ended September 30,
2001.
87
In addition, all reports and other documents we subsequently filed pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act on or
after the date of this prospectus shall be deemed to be incorporated by
reference in this prospectus and to be part of this prospectus from the date of
the filing of such reports and documents. Any statement contained in this
prospectus or in a document incorporated or deemed to be incorporated in this
prospectus by reference shall be deemed to be modified or superseded for the
purposes of this prospectus to the extent that a statement contained in any
subsequently filed document which is or is deemed to be incorporated by
reference in this prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
You may obtain, without charge, a copy of any of the documents incorporated
by reference in this prospectus, other than exhibits to those documents that
are not specifically incorporated by reference into those documents, by writing
or telephoning Terra Industries Inc., Attn: Corporate Secretary, Terra Centre,
600 Fourth Street, P.O. Box 6000, Sioux City, Iowa 51102, (712) 277-1340.
88
TERRA INDUSTRIES INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Audited Consolidated Financial Statements:
Independent Auditors' Report...................................................................... F-2
Consolidated Statements of Financial Position as of December 31, 1999 and 2000.................... F-3
Consolidated Statements of Operations for the years ended December 31, 1998, 1999 and 2000........ F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000........ F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1998,
1999 and 2000................................................................................... F-6
Notes to Consolidated Financial Statements for the years ended December 31, 1998, 1999
and 2000........................................................................................ F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Terra Industries Inc.:
We have audited the accompanying consolidated statements of financial
position of Terra Industries Inc. and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of operations, cash flows and
changes in stockholders' equity for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of Terra's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 25, 2001
F-2
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At December 31,
----------------------
1999 2000
---------- ----------
(in thousands)
Assets
Cash and short-term investments........................................... $ 9,790 $ 101,425
Accounts receivable, less allowance for doubtful accounts of $491 and $889 102,776 107,299
Inventories............................................................... 133,634 101,526
Other current assets...................................................... 47,482 17,448
---------- ----------
Total current assets............................................... 293,682 327,698
---------- ----------
Property, plant and equipment, net........................................ 997,801 902,801
Excess of cost over net assets of acquired businesses..................... 253,162 231,372
Other assets.............................................................. 56,800 50,681
---------- ----------
Total assets....................................................... $1,601,445 $1,512,552
========== ==========
Liabilities
Debt due within one year.................................................. $ 17,152 $ 5,546
Accounts payable.......................................................... 88,413 62,820
Accrued and other liabilities............................................. 35,158 60,324
---------- ----------
Total current liabilities.......................................... 140,723 128,690
---------- ----------
Long-term debt............................................................ 469,309 467,808
Deferred income taxes..................................................... 163,733 156,475
Other liabilities......................................................... 67,409 43,508
Minority interest......................................................... 103,269 105,274
Commitments and contingencies (Note 11)...................................
---------- ----------
Total liabilities.................................................. 944,443 901,755
---------- ----------
Stockholders' Equity
Capital stock
Common Shares, authorized 133,500 shares; 75,309 and 75,885 shares
outstanding.......................................................... 127,890 128,283
Paid-in capital........................................................... 552,903 554,750
Accumulated other comprehensive loss...................................... (9,852) (48,115)
Retained deficit.......................................................... (13,939) (24,121)
---------- ----------
Total stockholders' equity......................................... 657,002 610,797
---------- ----------
Total liabilities and stockholders' equity......................... $1,601,445 $1,512,552
========== ==========
See accompanying Notes to the Consolidated Financial Statements.
F-3
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
---------------------------------------
1998 1999 2000
-------- --------- ----------
(in thousands, except per-share amounts
Revenues
Net sales........................................................... $904,926 $ 824,992 $1,053,452
Other income, net................................................... 5,042 8,451 9,558
-------- --------- ----------
909,968 833,443 1,063,010
-------- --------- ----------
Cost and Expenses
Cost of sales....................................................... 836,786 841,061 971,713
Selling, general and administrative expense......................... 62,968 55,424 48,490
-------- --------- ----------
899,754 896,485 1,020,203
-------- --------- ----------
Income (loss) from operations....................................... 10,214 (63,042) 42,807
Insurance settlement costs.......................................... -- -- (5,968)
Interest income..................................................... 326 8,361 3,869
Interest expense.................................................... (51,122) (53,076) (51,511)
Minority interest................................................... (27,510) (8,341) (5,379)
-------- --------- ----------
Loss from continuing operations before income taxes................. (68,092) (116,098) (16,182)
Income tax benefit.................................................. (24,761) (46,000) (6,000)
-------- --------- ----------
Loss from continuing operations..................................... (43,331) (70,098) (10,182)
Loss from discontinued operations:
Income (loss) from operations, net of income taxes.............. 17,082 (5,800) --
Loss on disposition, net of income taxes........................ -- (4,724) --
Extraordinary loss on early retirement of debt, net of income taxes. -- (9,265) --
-------- --------- ----------
Net Loss............................................................... $(26,249) $ (89,887) $ (10,182)
======== ========= ==========
Basic and Diluted Earnings (Loss) Per Share:
Continuing operations............................................... $ (0.58) $ (0.94) $ (0.14)
Discontinued operations............................................. 0.23 (0.14) --
Extraordinary loss on early retirement of debt...................... -- (0.12) --
-------- --------- ----------
Net Loss Per Share..................................................... $ (0.35) $ (1.20) $ (0.14)
======== ========= ==========
See accompanying Notes to the Consolidated Financial Statements.
F-4
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------------
1998 1999 2000
-------- --------- --------
(in thousands)
Operating Activities
Net loss...................................................................... $(26,249) $ (89,887) $(10,182)
Adjustments to reconcile net loss to net cash flows from operating activities:
(Income) loss from discontinued operations................................. (17,082) 10,524 --
Extraordinary loss on early retirement of debt............................. -- 9,265 --
Depreciation and amortization.............................................. 101,053 101,588 114,901
Deferred income taxes...................................................... 11,319 2,805 1,881
Minority interest in earnings.............................................. 27,510 8,341 5,379
Other non-cash items....................................................... (2,197) -- --
Change in current assets and liabilities, excluding working capital purchased:
Accounts receivable........................................................ (22,937) (5,663) (7,644)
Account receivable securitization.......................................... (14,000) (136,000) --
Inventories................................................................ (37,460) 11,454 28,388
Other current assets....................................................... 4,044 1,329 13,981
Accounts payable........................................................... (32,017) (9,669) (22,978)
Accrued and other liabilities.............................................. (6,368) (62,520) 11,078
Other......................................................................... 7,299 4,573 (1,975)
-------- --------- --------
Net Cash Flows From Operating Activities...................................... (7,085) (153,860) 132,829
-------- --------- --------
Investing Activities
Purchase of property, plant and equipment.................................. (55,327) (51,899) (12,219)
Discontinued operations.................................................... 96,766 335,129 --
Other...................................................................... 3,371 (4,531) (4,962)
-------- --------- --------
Net Cash Flows From Investing Activities...................................... 44,810 278,699 (17,181)
-------- --------- --------
Financing Activities
Net short-term borrowings (repayments)..................................... -- 6,000 (6,000)
Principal payments on long-term debt....................................... (9,538) (16,569) (7,107)
Stock issuance--net........................................................ 286 13 7
Distributions to minority interests........................................ (35,052) (9,429) (1,119)
Repurchase of TNCLP common units........................................... (16,523) (5,994) (2,414)
Deferred financing costs................................................... -- -- (6,697)
Redemption of minority interest in subsidiary.............................. -- (225,000) --
Dividends.................................................................. (14,986) (5,281) --
-------- --------- --------
Net Cash Flows From Financing Activities...................................... (75,813) (256,260) (23,330)
-------- --------- --------
Effect of Exchange Rate Changes on Cash....................................... (331) (432) (683)
-------- --------- --------
Increase (Decrease) in Cash and Short-Term Investments........................ (38,419) (131,853) 91,635
Cash and Short-Term Investments at Beginning of Year.......................... 180,062 141,643 9,790
-------- --------- --------
Cash and Short-Term Investments at End of Year................................ $141,643 $ 9,790 $101,425
======== ========= ========
Interest Paid................................................................. $ 61,907 $ 55,379 $ 50,851
======== ========= ========
Income Taxes Received......................................................... $ (7,085) $ (20,285) $(14,058)
======== ========= ========
See accompanying Notes to the Consolidated Financial Statements.
F-5
TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Capital Stock Other Retained
Comprehensive ---------------- Paid-In Comprehensive Earnings
Income (Loss) Shares Amount Capital Loss (Deficit) Total
------------- ------ -------- -------- ------------- --------- --------
(in thousands)
January 1, 1998................ 74,977 $127,581 $548,772 $ (8,488) $122,464 $790,329
====== ======== ======== ======== ======== ========
Comprehensive Income
Net loss..................... $(26,249) -- -- -- -- (26,249) (26,249)
Foreign currency
translation adjustments..... (5,669) -- -- -- (5,669) -- (5,669)
--------
Total....................... $(31,918)
========
Exercise of stock options, net. 43 43 243 -- -- 286
Stock Incentive Plan........... 445 263 3,878 -- -- 4,141
Dividends...................... -- -- -- -- (14,986) (14,986)
------ -------- -------- -------- -------- --------
December 31, 1998.............. 75,465 $127,887 $552,893 $(14,157) $ 81,229 $747,852
====== ======== ======== ======== ======== ========
Comprehensive Income
Net loss...................... $(89,887) -- -- -- -- (89,887) (89,887)
Foreign currency translation
adjustments................. 4,305 -- -- -- 4,305 -- 4,305
--------
Total....................... $(85,582)
========
Exercise of stock options, net. 3 3 10 -- -- 13
Stock Incentive Plan........... (159) -- -- -- -- --
Dividends...................... -- -- -- -- (5,281) (5,281)
------ -------- -------- -------- -------- --------
December 31, 1999.............. 75,309 $127,890 $552,903 $ (9,852) $(13,939) $657,002
====== ======== ======== ======== ======== ========
Comprehensive Income
Net loss..................... $(10,182) -- -- -- -- (10,182) (10,182)
Foreign currency translation
adjustments................. (38,263) -- -- -- (38,263) -- (38,263)
--------
Total....................... $(48,445)
========
Exercise of stock options, net. 5 5 2 -- -- 7
Stock Incentive Plan........... 571 388 1,845 -- -- 2,233
====== ======== ======== ======== ======== ========
December 31, 2000.............. 75,885 $128,283 $554,750 $(48,115) $(24,121) $610,797
====== ======== ======== ======== ======== ========
See accompanying Notes to the Consolidated Financial Statements.
F-6
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of presentation:
The Consolidated Financial Statements include the accounts of Terra
Industries Inc. and all majority owned subsidiaries (Terra). All significant
intercompany accounts and transactions have been eliminated. Minority interest
in earnings and ownership has been recorded for the percentage of limited
partnership common units not owned by Terra Industries Inc. for each respective
period presented.
Description of business:
Terra produces nitrogen products for agricultural dealers and industrial
users, and methanol for industrial users.
Foreign exchange:
Results of operations for the foreign subsidiaries are translated using
average currency exchange rates during the period; assets and liabilities are
translated using current rates. Resulting translation adjustments are recorded
as foreign currency translation adjustments in accumulated other comprehensive
income in stockholders' equity. These translation adjustments are the only
component of accumulated other comprehensive income.
Cash and short-term investments:
Terra 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 average cost or estimated net
realizable value. The cost of average 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 ranging from 15 to 20 years for
buildings and 3 to 18 years for plant and equipment. 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 until the next
scheduled turnaround, generally two years.
Excess of costs over net assets of acquired businesses:
Terra amortizes costs in excess of fair value of net assets of businesses
acquired using the straight-line method over periods ranging from 15 to 18
years. Management periodically evaluates the recoverability of this asset
through an assessment of expected cash flows from future operations.
F-7
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impairment of long-lived assets:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of ", the Company reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If the sum of the expected future cash
flows expected to result from the use of the asset (undiscounted and without
interest charges) is less than the carrying amount of the asset, an impairment
loss is recognized based on the difference between the carrying amount and the
fair value of the asset. To date, no such impairment has occurred.
Revenue recognition:
Revenue is recognized when title to finished product passes to the customer.
Revenue is recognized as the net amount to be received after deducting
estimated amounts for discounts and trade allowances.
Cost of sales and hedging transactions:
Realized gains and losses from hedging activities and premiums paid for
option contracts are deferred and recognized in the month to which the hedged
transactions relate (see Note 12--Derivative Financial Instruments). Costs
associated with settlement of natural gas purchase contracts are included in
cost of sales.
Stock-based compensation:
The Company accounts for its employee stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations, which utilizes the
intrinsic value method. The Company follows the disclosure provisions and
accounts for non-employee stock-based compensation in accordance with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").
Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications:
The company reclassified freight costs previously reported as a reduction of
revenues to cost of sales in accordance with the Financial Accounting Standards
Board's Emerging Issues Task Force No. 00-10, "Accounting for Shipping and
Handling Fees and Costs". As a result, revenues and cost of sales increased by
$64.4 million in 1998, $59.1 million in 1999 and $61.9 million in 2000,
respectively. Certain other reclassifications have been made to prior years'
financial statements to conform with current year presentation.
Per-share results:
Basic earnings per share data are based on the weighted-average number of
Common Shares outstanding during the period. Diluted earnings per share data
are based on the weighted-average number of Common
F-8
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Shares outstanding and the effect of all dilutive potential common shares
including stock options, restricted shares and contingent shares.
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by
SFAS No. 137 and SFAS No. 138, requires that all derivative instruments be
recorded in the balance sheet at fair value. Changes in the fair value of
derivatives are recorded in earnings or other comprehensive income, based on
whether the instrument is designated as part of a hedge transaction and, if so,
the type of hedge transaction. On January 1, 2001, Terra adopted this statement
which resulted in a $23.3 million increase in current assets to recognize the
value of open natural gas contracts, a $9.2 million reduction in current
liabilities to reclassify deferred gains on closed contracts relating to future
periods, a $1.1 million increase in long-term debt related to interest rate
hedges and a $31.4 million increase to stockholders' equity as a reduction in
accumulated other comprehensive losses. Management does not expect the adoption
of SFAS 133 to have a material impact on Terra's results of operations or cash
flows.
2. Discontinued Operations
On June 30, 1999, Terra sold its Distribution business segment to Cenex/Land
O' Lakes Agronomy Company ("Buyer") for $335.1 million, net of seasonal working
capital increases from December 31, 1998, and closing costs. In the sales
transaction, the Buyer acquired all rights to the Distribution business'
earnings from April 1, 1999 forward. Included in the sale were Terra's
approximately 400 retail farm service centers in the U.S. and Canada, and its
50% ownership position in the Omnium chemical formulation plants.
The accompanying consolidated statements of operations, financial position
and cash flows have been restated for prior periods to segregate results of
operations and net assets associated with the discontinued Distribution
business segment.
The Buyer and Terra have also entered into a three-year nitrogen fertilizer
supply agreement through which the Buyer will purchase approximately the
quantity that Terra's Nitrogen Products segment supplied to both the
Distribution business and the Buyer.
F-9
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Earnings Per Share
The following table provides a reconciliation between Basic and Diluted Loss
Per Share.
1998 1999 2000
-------- -------- --------
(in thousands, except per-share data)
Basic and diluted loss per share computation:.........
Loss from continuing operations....................... $(43,331) $(70,098) $(10,182)
Earnings (loss) from discontinued operations.......... 17,082 (10,524) --
-------- -------- --------
Loss available before extraordinary item.............. (26,249) (80,622) (10,182)
Extraordinary loss on debt retirement................. -- (9,265) --
-------- -------- --------
Loss available to common shareholders................. $(26,249) $(89,887) $(10,182)
======== ======== ========
Basic and diluted weighted average shares outstanding. 73,954 74,703 74,707
======== ======== ========
Loss per share from continuing operations............. $ (0.58) $ (0.94) $ (0.14)
Earnings (loss) per share from discontinued operations 0.23 (0.14) --
-------- -------- --------
Loss per share before extraordinary item.............. (0.35) (1.08) (0.14)
-------- -------- --------
Extraordinary loss per share.......................... -- (0.12) --
-------- -------- --------
Basic and diluted loss per share...................... $ (0.35) $ (1.20) $ (0.14)
======== ======== ========
4. Inventories
Inventories consisted of the following at December 31:
1999 2000
-------- --------
(in thousands)
Raw materials................ $ 37,437 $ 24,085
Supplies..................... 20,335 20,918
Finished goods............... 75,862 56,523
-------- --------
Total..................... $133,634 $101,526
======== ========
5. Other Current Assets
Other current assets consisted of the following at December 31:
1999 2000
------- -------
(in thousands)
Deferred tax asset--current................................................ $ 5,238 $ --
Income taxes recoverable................................................... 10,278 --
Accounts receivable of discontinued operations, less allowance for doubtful
accounts of $12,533 and $6,358........................................... 6,238 1,240
Other current assets....................................................... 25,728 16,208
------- -------
Total................................................................... $47,482 $17,448
======= =======
F-10
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at December 31:
1999 2000
---------- ----------
(in thousands)
Land and buildings............................ $ 53,875 $ 69,136
Plant and equipment........................... 1,170,541 1,216,066
Construction in progress...................... 98,406 11,378
---------- ----------
1,322,822 1,296,580
Less accumulated depreciation and amortization (325,021) (393,779)
---------- ----------
Total...................................... $ 997,801 $ 902,801
========== ==========
7. Insurance Settlement Costs
During 2000, Terra incurred $6.0 million of legal and other professional
fees in connection with a lawsuit to recover losses related to a 1994 explosion
at Terra's Port Neal facility. These costs were related to an insurance
recovery gain reported in Terra's 1997 financial statements which was excluded
from the determination of operating income.
8. Debt Due Within One Year
Debt due within one year consisted of the following at December 31:
1999 2000
------- ------
(in thousands)
Short-term borrowings................. $ 6,000 $ --
Current maturities of long-term debt.. 11,152 5,546
------- ------
Total................................. $17,152 $5,546
======= ======
Weighted average short-term borrowings $10,699 $ 536
======= ======
Weighted average interest rate........ 10.00% 10.75%
======= ======
In April 2000, Terra entered into a $175 million revolving credit facility,
which expires in January 2003 and replaced a $62 million revolving credit
facility. Borrowings available under the facility are reduced by the amount of
the Bank Term Notes (described in Note 10), currently $59.4 million, and
further limited based on consolidated working capital levels and outstanding
letters of credit issued under the facility. At December 31, 2000, there were
$21.3 million of outstanding letters of credit under the facility for recorded
liabilities. Interest on borrowings is charged at current market rates. A
commitment fee is charged on the unused portion of the facility under the
credit agreement, currently 0.5 percent. The credit agreement is secured by
substantially all assets.
The agreement requires Terra to adhere to certain limitations on additional
debt, capital expenditures, acquisitions, liens, asset sales, investments,
prepayments of subordinated indebtedness, changes in lines of business and
transactions with affiliates. In addition, Terra is required to maintain
minimum levels of earnings before interest, income taxes, depreciation and
amortization (as defined in the credit agreement) computed on a quarterly basis.
F-11
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Accrued and Other Liabilities
Accrued and other liabilities consisted of the following at December 31:
1999 2000
------- -------
(in thousands)
Customer deposits................ $10,346 $ 5,821
Payroll and benefit costs........ 3,220 12,359
Deferred natural gas hedging gain 3 9,207
Income taxes--state.............. 1,360 --
Other............................ 20,229 32,937
------- -------
Total......................... $35,158 $60,324
======= =======
10. Long-Term Debt
Long-term debt consisted of the following at December 31:
1999 2000
-------- --------
(in thousands)
Senior Notes, 10.5%, due 2005............................................ $200,000 $200,000
Senior Notes, 10.75%, due 2003........................................... 158,755 158,755
Bank Term Notes, due 2003................................................ 109,375 59,375
Asset based Term Facility, due 2003...................................... -- 46,250
Industrial Development Revenue Bonds bearing interest at an average 6.85%
with increasing payments from 2000 to 2011............................. 8,130 7,820
Other.................................................................... 4,201 1,154
-------- --------
480,461 473,354
Less current maturities.................................................. 11,152 5,546
-------- --------
Total................................................................. $469,309 $467,808
======== ========
Scheduled principal payments for each of the five years 2001 through 2005
are $5.5 million, $4.4 million, $256.8 million, $0.5 million and $200.6
million, respectively.
The 10.5% unsecured Senior Notes are redeemable at the option of Terra, in
whole or part, at any time at 105.250% of their principal amount, plus accrued
interest, declining to 102.625% on or after June 15, 2001, and declining to
100% on or after June 15, 2002. The 10.5% unsecured 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 10.75% unsecured Senior Notes are redeemable at par at the option of
Terra, in whole or part. The 10.75% Senior Notes Indenture contains
restrictions similar to those in the 10.5% Senior Notes Indenture.
The Bank Term Notes are secured by substantially all assets of Terra Canada,
a beneficially owned subsidiary of Terra. The Notes are due in full on January
2, 2003. The Notes bear interest at a rate based on current market rates, 9.89%
at December 31, 2000. The Notes include covenants similar to the credit
agreement described in Note 8--Debt Due Within One Year.
The Asset Based Term Facility is secured by substantially all assets. The
facility requires quarterly payments of $1.25 million through September 2002,
with the balance due at maturity. The facility bears interest
F-12
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at a rate based on current market rates, currently 10.64%. The facility has
covenants similar to those described in Note 8--Debt Due Within One Year.
The Industrial Development Revenue Bonds due in 2011 are secured by a letter
of credit guaranteed by Terra and, along with certain other long-term debt due
in 2003, by Terra's headquarters building located in Sioux City, Iowa.
11. Commitments and Contingencies
Terra and its subsidiaries are committed to various non-cancelable operating
leases for equipment, railcars and production, office and storage facilities
expiring on various dates through 2017. Total minimum rental payments are as
follows:
(in thousands)
2001............... $15,445
2002............... 11,514
2003............... 9,838
2004............... 7,041
2005 and thereafter 16,396
-------
Total........... $60,234
=======
Total rental expense for continuing operations under all leases, including
short-term cancelable operating leases, was approximately $20.8 million, $20.6
million and $18.0 million for the years ended December 31, 1998, 1999 and 2000,
respectively.
Terra is liable for retiree medical benefits of employees of coal mining
operations sold in 1993, under the Coal Industry Retiree Health Benefit Act of
1992, which mandated certain retiree medical benefits for union coal miners.
Terra has provided reserves adequate to cover the estimated present value of
these liabilities at December 31, 2000.
Four lawsuits by U.K. soft drink producers and distributors have been filed
against Terra and other defendants seeking in excess of (Pounds)13.3 million in
damages, plus costs and interest. The lawsuits seek to recover damages
following a product recall the plaintiffs initiated in reaction to trace
amounts of benzene allegedly found in carbon dioxide used as an ingredient in
the recalled products. Terra produced the carbon dioxide at one of its U.K.
plants. A fifth lawsuit seeking (Pounds)12.5 million and a sixth lawsuit
seeking (Pounds)0.6 million in damages were settled by Terra's insurer in
January 2000 and February 2001, respectively, with Terra making no contribution
toward the settlements. In addition to the filed lawsuits, certain other soft
drink producers have indicated their intention to file claims in unspecified
amounts. Terra has denied liability for these lawsuits and claims and intends
to vigorously defend its position. Terra believes it has insurance coverage for
any damages. Its insurer is paying Terra's defense costs in all cases, has
funded the January 2000 and February 2001 settlements, and has extended full
coverage in the single case now before the court (wherein damages of (Pounds)9
million are sought), but currently continues to reserve the right to deny
coverage in whole or in part for any adverse judgments in the remaining cases.
While it is not feasible to predict with certainty the final outcome of these
proceedings, management does not believe this matter will have a material
adverse effect on Terra's results of operations, financial position or net cash
flows.
Terra 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 the results of operations, financial position
or net cash flows of Terra.
F-13
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Terra will be required to make a payment for each year through 2002 if
average ammonium nitrate prices exceed certain thresholds during any year,
subject to maximum payments of (Pounds)58 million ($95.7 million USD at the
time of signing) over the term of the agreement. As a result of making any such
payments, Terra will not benefit fully from the U.K. price of ammonium nitrate
of certain thresholds during the term of this agreement. No payments were due
under this agreement in 1998, 1999 or 2000.
12. Derivative Financial Instruments
Terra manages risk using derivative financial instruments for (a) changes in
natural gas supply prices and (b) interest rate fluctuations and (c) currency.
Derivative financial instruments have credit risk and market risk.
To manage credit risk, Terra enters into derivative transactions only with
counter-parties who are currently rated BBB or better or equivalent as
recognized by a national rating agency. Terra will not enter into transactions
with a counter-party if the additional transaction will result in credit
exposure exceeding $20 million. The credit rating of counter-parties may be
modified through guarantees, letters of credit or other credit enhancement
vehicles.
Terra classifies a derivative financial instrument as a hedge if all of the
following conditions are met:
1. The item to be hedged must expose Terra to currency, interest or price
risk.
2. It must be probable that the results of the hedge position
substantially offset the effects of currency, interest or price changes on
the hedged item (e.g., there is a high correlation between the hedge
position and changes in market value of the hedge item).
3. The derivative financial instrument must be designated as a hedge of
the item at the inception of the hedge.
A change in the market value of a derivative financial instrument is
recognized as a gain or loss in the period of the change unless the instrument
meets the criteria to qualify as a hedge. If the hedge criteria are met, the
accounting for the derivative financial instrument is related to the accounting
for the hedged item so that changes in the market value of the derivative
financial instrument are recognized in income when the effects of related
changes in the currency rate, interest rate or price of the hedged item are
recognized.
A change in the market value of a derivative financial instrument that is a
hedge of a firm commitment is included in the measurement of the transaction
that satisfies the commitment. Terra accounts for a change in the market value
of a derivative financial instrument that hedges an anticipated transaction in
the measurement of the subsequent transaction. If a derivative financial
instrument that has been accounted for as a hedge is closed before the date of
the anticipated transaction, Terra carries forward the accumulated change in
value of the contract and includes it in the measurement of the related
transaction.
Natural Gas Prices--United Kingdom Operations--To meet natural gas
production requirements at the Terra's United Kingdom production facilities,
Terra enters into one- or two-year term gas supply contracts with fixed prices
for generally 25-80% of total volume requirements. As of December 31, 2000,
Terra had fixed-price contracts for 49% of its 2001 United Kingdom natural gas
requirements and 12% of its 2002 United Kingdom natural gas requirements. Terra
does not use derivative financial instruments for its United Kingdom natural
gas needs.
Natural Gas Prices--North American Operations--Natural gas supplies to meet
production requirements at Terra's production facilities are purchased at
market prices. Natural gas market prices are volatile
F-14
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and Terra effectively fixes prices for a portion of its natural gas production
requirements and inventory through the use of futures contracts, swaps and
options. These contracts reference physical natural gas prices or appropriate
NYMEX futures contract prices. Contract physical prices are frequently based on
prices at the Henry Hub in Louisiana, the most common and financially liquid
location of reference for financial derivatives related to natural gas.
However, natural gas supplies for Terra's six production facilities are
purchased for each plant at locations other than Henry Hub, which often creates
a location basis differential between the contract price and the physical price
of natural gas. Accordingly, the use of financial derivatives may not exactly
offset the change in the price of physical gas. The contracts are traded in
months forward and settlement dates are scheduled to coincide with gas
purchases during that future period.
A swap is a contract between Terra and a third party to exchange cash based
on a designated price. Option contracts give the holder the right to either own
or sell a futures or swap contract. The futures contracts require maintenance
of cash balances generally 10% to 20% of the contract value and option
contracts require initial premium payments ranging from 2% to 5% of contract
value. Basis swap contracts require payments to or from Terra for the amount,
if any, that monthly published gas prices from the source specified in the
contract differ from prices of NYMEX natural gas futures during a specified
period. There are no initial cash requirements related to the swap and basis
swap agreements.
The following summarizes open natural gas contracts at December 31, 1999 and
2000:
1999 2000
-------------------- -------------------
Contract Unrealized Contract Unrealized
MMBtu Gain (Loss) MMBtu Gain (Loss)
-------- ----------- -------- -----------
(in thousands)
Swaps............................. 36,570 $5,810 10,180 $24,399
Options........................... 36,095 -- 9,070 (2,280)
------ ------ ------ -------
72,665 $5,810 19,250 $22,119
====== ====== ====== =======
Basis swaps....................... 14,470 $ 458 6,590 $ 426
====== ====== ====== =======
Annual consolidated production requirements are approximately 160 million
MMBtu. Contracts and firm purchase commitments were in place at December 31,
2000 to cover approximately 17.5% of 2001 natural gas requirements.
Gains and losses on settlement of these contracts and premium payments on
option contracts are credited or charged to cost of sales in the month in which
the hedged transaction closes. The risk and reward of outstanding natural gas
positions are directly related to increases or decreases in natural gas prices
in relation to the underlying NYMEX natural gas contract prices. Realized gains
on closed contracts relating to future periods as of December 31, 2000 were $10
million. Cash flows related to natural gas hedging are reported as cash flows
from operating activities.
During 1998, 1999 and 2000, natural gas hedging activities reduced Terra's
North American natural gas costs by approximately $15.4 million, $6.4 million
and $76.8 million, respectively, compared with spot prices.
Interest Rate Fluctuations--Terra has entered into interest rate swap
agreements to fix the interest rate on $100 million of its floating rate
obligations at an average base rate of approximately 6.05% per annum. The
interest rate swap agreements are designated as hedges. The agreements expire
December 31, 2002. The differential paid or received on interest rate swap
agreements is recognized as an adjustment to interest expense. Cash flows for
the interest rate swap agreements are classified as cash flows from operations.
F-15
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the carrying amounts and estimated fair values
of Terra's derivative financial instruments at December 31, 1999 and 2000. 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.
1999 2000
-------------- --------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(in millions)
Natural gas.................. $0.6 $5.7 $10.0 $32.5
Interest rate................ -- 2.4 -- (1.1)
The following methods and assumptions were used to estimate the fair value
of each class of derivative financial instrument:
Natural gas futures, swaps, options and basis swaps: Estimated based on
quoted market prices from brokers, and computations prepared by Terra.
Interest rate swap agreements: Estimated based on quotes from the market
makers of these instruments.
13. Financial Instruments and Concentrations of Credit Risk
The following table presents the carrying amounts and estimated fair values
of Terra's financial instruments at December 31, 1999 and 2000. SFAS 107
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.
1999 2000
--------------- ---------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- ------
(in millions)
Financial Assets
Cash and short-term investments. $ 9.8 $ 9.8 $101.4 $101.4
Receivables..................... 102.7 102.7 107.3 107.3
Equity and other investments.... 1.8 1.8 1.9 1.9
Other assets.................... 7.1 7.1 5.1 4.6
Financial Liabilities
Short-term borrowings........... 6.0 6.0 -- --
Long-term debt.................. 480.4 474.6 473.4 483.1
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
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, when available, comparisons with
similar companies whose shares are publicly traded.
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.
F-16
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Short-term borrowings and long-term debt: The fair value of Terra's
short-term borrowings and long-term debt is estimated based on the quoted
market price of these or similar issues or by discounting expected cash flows
at the rates currently offered to Terra for debt of the same remaining
maturities.
Concentration of Credit Risk: Terra 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 generally is minimized due to its
geographic dispersion. Short-term cash investments are placed in short duration
corporate and government debt securities funds with well capitalized, high
quality financial institutions. By policy, Terra limits the amount of credit
exposure in any one type of investment instrument.
Financial Instruments: At December 31, 2000, Terra had letters of credit
outstanding totaling $21.3 million, guaranteeing various insurance and
financing activities.
14. Stockholders' Equity
Terra allocates $1.00 per share upon the issuance of Common Shares to the
Common Share capital account. At December 31, 2000, 1.1 million Common Shares
were reserved for issuance upon award of restricted shares and exercise of
employee stock options.
Terra has authorized 16,500,000 Trust Shares for issuance. There were no
Trust Shares outstanding at December 31, 2000.
15. Stock-Based Compensation
Terra accounts for its stock-based compensation under the provisions of
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", which utilizes the intrinsic value method. Compensation cost
related to stock-based compensation was $4.2 million, $0.9 million and $1.7
million for the years ended December 31, 1998, 1999 and 2000, respectively.
Terra's 1997 Stock Incentive Plan authorized granting directors and key
employees awards in the form of options, rights, performance units or
restricted stock. The aggregate number of Common Shares that may be subject to
awards under the plan may not exceed 3.8 million shares. There were no
outstanding rights or performance units at December 31, 2000. Options generally
may not be exercised prior to one year or more than ten years from the date of
grant. Stock options and restricted shares vest over specified periods, or in
some cases upon the attainment, prior to a termination date, of pre-established
market price objectives for Terra's Common Shares. The restricted shares are
entitled to normal voting rights and earn dividends as declared during the
performance periods. At December 31, 2000, 1.1 million Common Shares were
available for grant under the 1997 Plan.
F-17
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of Terra's stock-based compensation activity related to stock
options for the years ended December 31, 1998, 1999 and 2000 follows:
1998 1999 2000
--------------- --------------- ---------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------ -------- ------ -------- ------ --------
Outstanding--beginning of year 2,428 $10.47 2,151 $10.35 3,015 $ 6.76
Granted....................... 35 8.47 1,522 3.32 -- --
Expired/terminated............ 269 11.75 655 10.45 754 11.71
Exercised..................... 43 6.69 3 4.11 5 1.43
----- ------ ----- ------ ----- ------
Outstanding--end of year... 2,151 $10.35 3,015 $ 6.76 2,256 $ 5.16
===== ====== ===== ====== ===== ======
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---------- -------- ----------- --------
(options in (in years) (options in
thousands) thousands)
$1.00 $ 3.99 1,518 8.87 $ 3.35 520 $ 3.34
4.00 7.99 305 2.12 5.06 306 5.06
8.00 14.99 433 5.11 11.58 432 11.58
----- ---- ------ ----- ------
Total.... 2,256 7.20 $ 5.16 1,258 $ 6.59
===== ==== ====== ===== ======
There were 1,464,000 and 1,312,000 options exercisable at December 31, 1999
and 1998, respectively.
The weighted average fair value of options granted was $2.83 per option for
1998 and $1.54 per option for 1999. The fair value of options granted was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions:
1998 1999
----- -----
Risk-free interest rate......................................... 5.52% 5.95%
Dividend yield.................................................. 2.30% 1.37%
Expected volatility............................................. 42.00% 57.00%
Expected life (years)........................................... 4.0 4.0
There were 699,000 restricted shares granted during 2000 with a weighted
average fair value of $2.14 per share. There were 610,000 restricted shares
granted during 1998 with a weighted average fair value of $5.75 per share and
no restricted shares granted during 1999.
The restricted shares granted in 1998 became fully vested in 2000.
F-18
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma impact on net loss and diluted loss per share of accounting
for stock-based compensation using the fair value method required by SFAS 123,
"Accounting for Stock-Based Compensation," follows:
1998 1999 2000
-------- -------- --------
(in thousands, except per-share data)
Net loss
As reported.................... $(26,249) $(89,887) $(10,182)
Pro forma...................... (28,270) (90,754) (11,123)
Diluted loss per share
As reported.................... $ (0.35) $ (1.20) $ (0.14)
Pro forma...................... (0.38) (1.20) (0.15)
The pro forma impact takes into account only stock-based compensation grants
since January 1, 1995 and is likely to increase in future years as additional
awards are granted and amortized ratably over the vesting period.
16. Retirement Benefit Plans
Terra and its subsidiaries maintain pension plans that cover substantially
all salaried and hourly employees. Benefits are based on a 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. Terra and its subsidiaries also have certain non-qualified
pension plans covering executives, which are unfunded. Terra 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, including $10.6 million of 1999 curtailment
benefits which were included in discontinued operations, follow:
1998 1999 2000
-------- -------- --------
(in thousands)
Service cost........................... $ 8,319 $ 9,185 $ 6,856
Interest cost.......................... 9,689 11,325 11,614
Expected return on plan assets......... (13,523) (13,243) (14,361)
Amortization of prior service cost..... 79 42 37
Amortization of actuarial (gain) loss.. (64) 1,471 1
Amortization of net asset.............. (307) (306) (314)
Curtailment benefit.................... -- (10,556) --
-------- -------- --------
Pension expense (credit)............... $ 4,193 $ (2,082) $ 3,833
======== ======== ========
F-19
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table reconciles the plans' funded status to amounts included
in the Consolidated Statements of Financial Position at December 31:
1999 2000
-------- --------
(in thousands)
Change in Benefit Obligation
Benefit Obligation--beginning of year.... $173,925 $170,879
Service cost............................. 9,185 6,856
Interest cost............................ 11,325 11,614
Participants' contributions.............. 435 850
Curtailment gain......................... (9,381) --
Actuarial (gain) loss.................... (9,753) 2,410
Foreign currency exchange rate changes... (842) (6,074)
Benefits paid............................ (4,015) (7,833)
-------- --------
Benefit Obligation--end of year.......... 170,879 178,702
-------- --------
Change in Plan Assets
Fair value plan assets--beginning of year 147,565 168,133
Actual return on plan assets............. 21,526 20,892
Foreign currency exchange rate changes... (705) (6,522)
Employer contribution.................... 3,370 1,127
Participants' contributions.............. 391 1,222
Benefits paid............................ (4,014) (7,833)
-------- --------
Fair value plan assets--end of year...... 168,133 177,019
-------- --------
Funded status............................ (2,745) (1,683)
Unrecognized net actuarial (gain) loss... 715 (3,391)
Unrecognized prior service cost.......... 232 200
Unrecognized net transition asset........ (985) (678)
-------- --------
Accrued benefit cost..................... $ (2,783) $ (5,552)
======== ========
The non-qualified pension plans are unfunded and have an Accumulated Benefit
Obligation of $4.8 million at December 31, 2000 which is included in other
liabilities.
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, 2000 were as follows:
1998 1999 2000
---- ---- ----
Weighted average discount rate........... 6.7% 7.1% 6.9%
Long-term per annum compensation increase 4.2% 4.1% 4.3%
Long-term return on plan assets.......... 8.9% 8.9% 8.8%
Terra also sponsors a qualified savings plan covering most full-time North
American employees. Contributions made by participating employees are matched
based on a specified percentage of employee contributions up to 6% of the
employees' pay base. The cost of Terra's matching contribution to the savings
plan totaled $4.9 million in 1998, $2.9 million in 1999 and $1.4 million in
2000.
F-20
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Post Retirement Benefits
Terra also provides health care benefits for eligible retired employees.
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 to
participate in the plan if they elect to on or before January 1, 2002.
Participant contributions and co-payments are subject to escalation.
The following table indicates the components of the post-retirement medical
benefits obligation included in Terra's Consolidated Statements of Financial
Position at December 31:
1999 2000
------- -------
(in thousands)
Change in Benefit Obligation
Benefit Obligation--beginning of year.... $ 4,372 $ 3,247
Service cost............................. 85 21
Interest cost............................ 295 220
Participants' contributions.............. 235 314
Actuarial (gain) loss.................... (916) 885
Foreign currency exchange rate changes... 27 (11)
Curtailment gain......................... (18) --
Benefits paid............................ (833) (882)
------- -------
Benefit Obligation--end of year.......... 3,247 3,794
------- -------
Change in Plan Assets
Fair value plan assets--beginning of year -- --
Employer contribution.................... 599 568
Participants' contributions.............. 234 314
Benefits paid............................ (833) (882)
------- -------
Fair value plan assets--end of year...... -- --
------- -------
Funded status............................ (3,247) (3,794)
Unrecognized net actuarial gain.......... (2,101) (569)
Unrecognized prior service cost.......... (446) (170)
------- -------
Accrued benefit cost..................... $(5,794) $(4,533)
======= =======
Net periodic post-retirement medical benefit income consisted of the
following components:
1998 1999 2000
----- ----- -----
(in thousands)
Service cost.......................... $ 118 $ 85 $ 21
Interest cost......................... 372 295 220
Amortization of prior service cost.... (236) (525) (270)
Amortization of actuarial gain........ (403) (429) (657)
Effect of curtailment benefit......... -- (9) --
----- ----- -----
Post-retirement medical benefit income $(149) $(583) $(686)
===== ===== =====
F-21
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Terra 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 was 7.0% in 1998, 7.5%
in 1999, and 7.5% in 2000. The assumed annual health care cost trend rate was
5.0% in 2000 and is assumed to remain at that level thereafter. A 1% increase
in the assumed health care cost trend rate would increase total service and
interest cost by $3,000 while a 1% decline would decrease cost by $27,000. The
impact on the benefit obligation of a 1% increase in the assumed health care
cost trend rate would be $42,000 while a 1% decline in the rate would decrease
the benefit obligation by $41,000.
18. Income Taxes
Components of the income tax provision (benefit) applicable to continuing
operations are as follows:
1998 1999 2000
-------- -------- --------
(in thousands)
Current:
Federal............... $(35,106) $(18,659) $(21,451)
Foreign............... 981 -- 215
State................. (1,955) (2,355) (1,592)
-------- -------- --------
(36,080) (21,014) (22,828)
-------- -------- --------
Deferred:
Federal............... 8,586 (20,843) 9,612
Foreign............... 2,464 (2,940) 6,842
State................. 269 (1,203) 374
-------- -------- --------
11,319 (24,986) 16,828
-------- -------- --------
Total income tax benefits $(24,761) $(46,000) $ (6,000)
======== ======== ========
The following table reconciles the income tax provision (benefit) per the
Consolidated Statements of Operations to the federal statutory provision:
1998 1999 2000
-------- --------- --------
(in thousands)
Loss from continuing operations before taxes:
Domestic.................................. $(78,508) $(102,707) $(36,782)
Foreign................................... 10,416 (13,391) 20,600
-------- --------- --------
$(68,092) $(116,098) $(16,182)
======== ========= ========
Statutory income tax provision (benefit):
Domestic.................................. $(27,844) $ (35,947) $(12,874)
Foreign................................... 4,100 (4,306) 7,107
-------- --------- --------
(23,744) (40,253) (5,767)
Purchased Canadian tax benefit............... (4,344) 215 (1,750)
Non-deductible expenses, primarily goodwill.. 6,884 6,125 6,152
State and local income taxes................. (700) (2,688) (1,126)
Benefit of loss carryforwards................ (442) -- --
Other........................................ (2,415) (9,399) (3,509)
-------- --------- --------
Income tax benefit........................... $(24,761) $ (46,000) $ (6,000)
======== ========= ========
F-22
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effect of net operating loss (NOL) and tax credit carryforwards and
significant temporary differences between reported and taxable earnings that
gave rise to net deferred tax (liabilities) assets were as follows:
1999 2000
--------- ---------
(in thousands)
Current deferred tax asset (liability)
Accrued liabilities.................................. $ 4,832 $ (4,962)
Inventory valuation.................................. 406 652
--------- ---------
Net current deferred tax asset (liability).............. $ 5,238 $ (4,310)
========= =========
Non-current deferred tax liability
Depreciation......................................... (182,556) $(187,369)
Investments in partnership........................... (25,994) (26,460)
U.S. international tax allowance..................... (11,432) (9,682)
U.K. intercompany interest........................... -- (3,815)
Unfunded employee benefits........................... 10,826 12,106
Discontinued business costs.......................... 18,846 7,538
Valuation allowance.................................. (4,825) (21,276)
NOL, capital loss and tax credit carryforwards....... 32,073 84,464
Other................................................ 9,254 (11,981)
--------- ---------
Net noncurrent deferred tax liability................... (153,808) (156,475)
--------- ---------
Net deferred tax liability.............................. $(148,570) $(160,785)
========= =========
During 1996, after receiving a favorable ruling from Revenue Canada, Terra
refreshed its tax basis in plant and equipment at its Canadian subsidiary by
entering into a transaction with a Canadian subsidiary of Anglo American, plc,
resulting in a deferred tax asset for Terra. The valuation of this tax basis
has been challenged by Revenue Canada in 2000.
The deferred tax asset related to NOLs includes $21.3 million which the
Company's management believes likely will not be realized. Therefore, a
valuation allowance of $21.3 million has been provided by the Company. The
Company will continue to assess the recoverablility for these NOLs and to the
extent it is determined that such valuation allowance is no longer required the
tax benefit of these NOLs will be recognized at such time. Components of income
tax provision (benefit) included in net income other than from continuing
operations are as follows:
1998 1999 2000
------ -------- ----
(in thousands)
Current:
Federal.............................................. $9,761 $(10,655) $--
State................................................ -- (3,070) --
------ -------- ---
$9,761 $(13,725) $--
====== ======== ===
19. Industry Segment Data
Terra operates in two principal industry segments--Nitrogen Products and
Methanol. The Nitrogen Products business produces and distributes ammonia,
urea, nitrogen solutions (UAN) and ammonium nitrate to agricultural and
industrial users. The Methanol business manufactures and distributes methanol,
which is
F-23
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. Management evaluates performance
based on operating earnings of each segment. Terra does not allocate interest,
income taxes or infrequent items to the business segments. Included in Other
are general corporate activities not attributable to a specific industry
segment. The following summarizes additional information about Terra's industry
segments:
Nitrogen
Products Methanol Other Total
---------- -------- -------- ----------
(in thousands)
2000
Revenues............................ $ 916,959 $136,781 $ 9,270 $1,063,010
Operating earnings.................. 28,639 12,395 1,773 42,807
Total assets........................ 1,247,678 175,929 88,945 1,512,552
Depreciation and amortization....... 89,861 12,957 12,083 114,901
Capital expenditures................ 6,364 3,098 2,757 12,219
Equity earnings..................... 843 -- -- 843
Equity investments.................. 1,865 -- -- 1,865
Minority interest in earnings....... 5,379 -- -- 5,379
1999
Revenues............................ $ 745,901 $ 85,178 $ 2,364 $ 833,443
Operating loss...................... (43,909) (15,210) (3,923) (63,042)
Total assets........................ 1,413,225 175,151 13,069 1,601,445
Depreciation and amortization....... 75,082 12,701 13,805 101,588
Capital expenditures................ 40,626 1,422 9,851 51,899
Equity earnings..................... 787 -- -- 787
Equity investments.................. 1,822 -- -- 1,822
Minority interest in earnings....... (1,088) 9,429 -- 8,341
1998
Revenues............................ $ 816,014 $ 96,547 $ (2,593) $ 909,968
Operating earnings (loss)........... 39,329 (7,891) (21,224) 10,214
Total assets........................ 1,332,765 176,197 528,806 2,037,768
Depreciation and amortization....... 81,933 12,821 6,299 101,053
Capital expenditures................ 53,908 1,354 65 55,327
Equity earnings..................... 1,236 -- -- 1,236
Equity investments.................. 1,985 -- -- 1,985
Minority interest in earnings....... 9,633 17,877 -- 27,510
The following summarizes geographic information about Terra:
Revenues Long-lived Assets
---------------------------- --------------------------------
1998 1999 2000 1998 1999 2000
-------- -------- ---------- ---------- ---------- ----------
(in thousands)
United States................ $572,836 $546,199 $ 749,145 $1,184,793 $ 938,365 $ 867,762
Canada....................... 57,734 41,376 45,868 70,404 56,897 49,467
United Kingdom............... 279,398 245,868 267,997 315,058 312,501 267,625
-------- -------- ---------- ---------- ---------- ----------
$909,968 $833,443 $1,063,010 $1,570,255 $1,307,763 $1,184,854
======== ======== ========== ========== ========== ==========
F-24
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Agreements of Limited Partnerships
Terra Nitrogen Company, L.P. (TNCLP)
In accordance with the TNCLP limited partnership agreement, quarterly
distributions to unitholders and TNC are made in an amount equal to 100% of its
available cash, as defined in the partnership agreement. 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.
If at any time less than 25% of the issued and outstanding units are held by
non-affiliates of the general partner, TNCLP may call, or assign to the general
partner or its affiliates, its right to acquire all such outstanding units held
by non-affiliated persons with at least 30 but not more than 60 days notice of
its decision to purchase the outstanding units. The purchase price per unit
will be the greater of (1) the average of any previous twenty trading days'
closing prices as of the date five days before the purchase is announced or (2)
the highest price paid by the general partner or any of its affiliates for any
unit within the 90 days preceding the date the purchase is announced. Terra
owned 74.1% of the Common Units at December 31, 2000. Subsequent to December
31, 2000, the percentage owned by Terra increased to 75.1%.
Beaumont Methanol, Limited Partnership (BMLP)
Terra repurchased the limited interest in BMLP on June 30, 1999 for $225
million with proceeds from sale of the Distribution business. The limited BMLP
interest had received a first priority return from BMLP approximating an annual
rate of LIBOR plus 3.17% on its $225 million investment.
The publicly held TNCLP Common Units and the BMLP limited interest are
reflected in the financial statements as minority interest.
21. Pending Change of Control
Anglo American plc, through a wholly-owned subsidiary, owns 49.5% of Terra's
outstanding shares. Anglo American has made public its intention to dispose of
its interest in Terra with the timing based on market and other conditions.
22. Guarantory Subsidiaries
Payment obligations under the Senior Secured Notes due 2008 of Terra
Capital, Inc. ("TCAPI") offered by this prospectus will be fully and
unconditionally guaranteed on a joint and several basis by Terra Industries
Inc. ("Parent") and its wholly owned U.S. subsidiaries (the "Guarantor
Subsidiaries"). Terra Nitrogen, Limited Partnership, Terra Nitrogen Company,
L.P. and the Parent's foreign subsidiaries will not guarantee the notes.
Condensed consolidating financial information regarding Parent, TCAPI, the
Guarantor Subsidiaries and subsidiaries of the Parent that are not Guarantor
Subsidiaries for December 31, 1998, 1999 and 2000 are presented below for
purposes of complying with the reporting requirements of the Guarantor
Subsidiaries.
Terra's ability to receive dividends from its subsidiaries is limited by the
credit agreement to amounts required for the funding of operating expenses and
debt service (not to exceed $40 million per year), income tax payments on the
earnings of TCAPI and its subsidiaries and liabilities associated with
discontinued operations (not to exceed $5 million per year). In addition,
dividends to Terra are permitted for the purpose of retiring the 10.5% Senior
Notes due in 2005 or purchasing common units in Terra Nitrogen Company, L.P.
subject to credit agreement restrictions on such purchases.
F-25
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations for the Year Ended December
31, 1998:
Non-
Guarantor Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------- ------------ ------------ ------------ ------------
(in thousands)
Revenues
Net sales........................ $ -- $ -- $323,755 $623,386 $(42,215) $904,926
Other income, net................ -- 6,413 (32,674) 48,604 (17,301) 5,042
-------- -------- -------- -------- -------- --------
-- 6,413 291,081 671,990 (59,516) 909,968
-------- -------- -------- -------- -------- --------
Cost and Expenses
Cost of sales.................... -- -- 327,593 551,408 (42,215) 836,786
Selling, general and
administrative expenses........ 4,874 4,277 33,466 37,652 (17,301) 62,968
-------- -------- -------- -------- -------- --------
4,874 4,277 361,059 589,060 (59,516) 899,754
-------- -------- -------- -------- -------- --------
Income (loss) from operations.... (4,874) 2,136 (69,978) 82,930 -- 10,214
Interest income.................. 32 22,661 (22,976) (1,537) 2,146 326
Interest expense................. (38,861) (15,885) 32,048 (28,424) -- (51,122)
Minority interest................ -- (3,466) (27,510) -- 3,466 (27,510)
Equity in the earnings (loss) of
subsidiaries................... (4,185) (5,732) 27,965 41,086 (59,134) --
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes.......................... (47,888) (286) (60,451) 94,055 (53,522) (68,092)
Income tax provision (benefit)... (21,639) (125) (12,910) 5,890 4,023 (24,761)
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations..................... (26,249) (161) (47,541) 88,165 (57,545) (43,331)
Income from discontinued
operations, net of taxes....... -- -- 17,082 -- -- 17,082
-------- -------- -------- -------- -------- --------
Net Income (Loss)................... $(26,249) $ (161) $(30,459) $ 88,165 $(57,545) $(26,249)
======== ======== ======== ======== ======== ========
F-26
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows for the Year Ended December
31, 1998:
Guarantor Non-Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
-------- --------- ------------ ------------- ------------ ------------
(in thousands)
Operating Activities
Net income (loss)................... $(26,249) $ (161) $(30,459) $ 88,165 $ (57,545) $ (26,249)
Adjustments to reconcile net loss to
net cash flows from operating
activities:
Income from discontinued
operations........................ (17,082) -- (17,082) -- 17,082 (17,082)
Depreciation and amortization....... -- 2,143 76,425 21,928 557 101,053
Deferred income taxes............... (5,817) -- 14,920 -- 2,216 11,319
Minority interest in earnings....... -- 3,466 27,510 -- (3,466) 27,510
Equity in earnings (loss) of
subsidiaries...................... 4,185 5,732 (27,965) (41,086) 59,134 --
Other non-cash items................ 556 -- -- -- (556) --
Change in operating assets and
liabilities....................... (1,716) (462,573) (69,084) (40,201) 464,836 (108,738)
Other............................... 19,590 (10,270) (3,466) -- (752) 5,102
-------- --------- -------- -------- --------- ---------
Net Cash Flows from Operating
Activities........................ (26,533) (461,663) (29,201) 28,806 481,506 (7,085)
-------- --------- -------- -------- --------- ---------
Investing Activities
Purchase of property, plant and
equipment......................... -- (47) (41,109) (14,181) 10 (55,327)
Discontinued operations............. -- -- 96,766 -- -- 96,766
Other............................... -- -- -- -- 3,371 3,371
-------- --------- -------- -------- --------- ---------
Net Cash Flows from
Investing Activities.............. -- (47) 55,657 (14,181) 3,381 44,810
-------- --------- -------- -------- --------- ---------
Financing Activities
Principal payments on long-term
debt.............................. -- -- (652) (8,886) -- (9,538)
Change in investments and advances
from (to) affiliates.............. 32,281 472,579 26,486 (33,847) (497,499) --
Stock (repurchase) issuance--net.... 286 -- -- -- -- 286
Distributions to minority interests. -- (2,164) (32,888) -- -- (35,052)
Repurchase of TNCLP common
units............................. -- (16,523) -- -- -- (16,523)
Dividends........................... (14,986) -- 5,600 -- (5,600) (14,986)
Other............................... -- (7) (10,594) (7,280) 17,881 --
-------- --------- -------- -------- --------- ---------
Net Cash Flows from
Financing Activities.............. 17,581 453,885 (12,048) (50,013) (485,218) (75,813)
-------- --------- -------- -------- --------- ---------
Effect of Foreign Exchange
Rate on Cash...................... -- (331) -- (331) 331 (331)
-------- --------- -------- -------- --------- ---------
Increase (decrease) in Cash and
short-term investments............ (8,952) (8,156) 14,408 (35,719) -- (38,419)
-------- --------- -------- -------- --------- ---------
Cash and Short-term investments
at Beginning of Year.............. 14,993 35,384 79,627 50,058 -- 180,062
-------- --------- -------- -------- --------- ---------
Cash and Short-term Investments
At End of Year.................... $ 6,041 $ 27,228 $ 94,035 $ 14,339 $ -- $ 141,643
======== ========= ======== ======== ========= =========
F-27
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Financial Position at December 31, 1999:
Non-
Guarantor Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
---------- -------- ------------ ------------ ------------ ------------
(in thousands)
Assets
Cash and short-term
investments..................... $ 8 $ 183 $ 28,453 $(18,854) $ -- $ 9,790
Accounts Receivable............... -- -- 28,463 74,313 -- 102,776
Inventories....................... -- -- 33,959 99,675 -- 133,634
Other current assets.............. 3,972 5,905 32,915 16,832 (12,142) 47,482
Total current assets.......... 3,980 6,088 123,790 171,966 (12,142) 293,682
Property, plant and
equipment, net.................. -- -- 522,909 474,850 42 997,801
Excess of cost over net
assets of acquired
businesses...................... -- -- 225,080 28,082 -- 253,162
Investments in and
advanced to (from)
affiliates...................... 1,115,739 628,969 884,971 206,123 (2,835,802) --
Other assets...................... 7,425 -- 10,747 38,670 (42) 56,800
---------- -------- ---------- -------- ----------- ----------
Total assets.................. $1,127,144 $635,057 $1,767,497 $919,691 $(2,847,944) $1,601,445
========== ======== ========== ======== =========== ==========
Liabilities
Debt due within one
year............................ $ -- $ 6,000 $ 2,493 $ 8,659 $ -- $ 17,152
Accounts payable.................. -- 10,475 32,083 50,021 (4,166) 88,413
Accrued and other
liabilities..................... 5,209 3,771 8,929 10,047 7,202 35,158
---------- -------- ---------- -------- ----------- ----------
Total current liabilities..... 5,209 20,246 43,505 68,727 3,036 140,723
---------- -------- ---------- -------- ----------- ----------
Long-term debt.................... 358,755 -- 8,974 101,580 -- 469,309
Deferred income taxes............. 78,705 74,510 (92) 863 9,747 163,733
Other liabilities................. 27,473 43,088 (7,808) 4,656 -- 67,409
Minority interest................. -- 17,143 86,126 -- -- 103,269
---------- -------- ---------- -------- ----------- ----------
Total liabilities............. 470,142 154,987 130,705 175,826 12,783 944,443
---------- -------- ---------- -------- ----------- ----------
Stockholders' Equity
Common stock...................... 127,890 -- 73 50,585 (50,658) 127,890
Paid in capital................... 552,903 150,218 1,561,431 732,452 (2,444,101) 552,903
Accumulated other
comprehensive loss.............. (9,852) (9,852) -- (9,852) 19,704 (9,852)
Retained earnings
(deficit)....................... (13,939) 339,704 75,288 (29,320) (385,672) (13,939)
---------- -------- ---------- -------- ----------- ----------
Total stockholders'
equity...................... 657,002 480,070 1,636,792 743,865 (2,860,727) 657,002
---------- -------- ---------- -------- ----------- ----------
Total liabilities and
stockholders equity......... $1,127,144 $635,057 $1,767,497 $919,691 $(2,847,944) $1,601,445
========== ======== ========== ======== =========== ==========
F-28
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations for the Year Ended December
31, 1999:
Non-
Guarantor Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------- ------------ ------------ ------------ ------------
(in thousands)
Revenues
Net sales........................... $ -- $ -- $278,063 $546,929 $ -- $ 824,992
Other income, net................... -- 129 (1,610) 16,202 (6,270) 8,451
-------- -------- -------- -------- -------- ---------
-- 129 276,453 563,131 (6,270) 833,443
-------- -------- -------- -------- -------- ---------
Cost and Expenses
Cost of sales....................... -- -- 323,045 518,016 -- 841,061
Selling, general and
administrative expenses........... 5,521 214 7,877 48,794 (6,982) 55,424
-------- -------- -------- -------- -------- ---------
5,521 214 330,922 566,810 (6,982) 896,485
-------- -------- -------- -------- -------- ---------
Loss from operations................ (5,521) (85) (54,469) (3,679) 712 (63,042)
Interest income..................... 729 2,669 19,029 436 (14,502) 8,361
Interest expense.................... (38,966) (3,111) 1,408 (26,331) 13,924 (53,076)
Minority interest................... -- (1,385) (6,956) -- -- (8,341)
Equity in the earnings (loss) of
subsidiaries...................... (52,479) (60,390) (4,024) (7,229) 124,122 --
-------- -------- -------- -------- -------- ---------
Loss from continuing operations
before income taxes............... (96,237) (62,302) (45,012) (36,803) 124,256 (116,098)
Income tax provision
(benefit)......................... (26,139) (19,610) (21,632) (4,029) 25,410 (46,000)
-------- -------- -------- -------- -------- ---------
Income (loss) from continuing
operations........................ (70,098) (42,692) (23,380) (32,774) 98,846 (70,098)
Income (loss) from discontinued
operations:
Income (loss) from
operations, net of taxes...... (5,800) -- (5,800) -- 5,800 (5,800)
Income (loss) from
disposition, net of taxes..... (4,725) -- (6,285) 1,561 4,725 (4,724)
Extraordinary loss on early
retirement of debt, net of
taxes............................. (9,264) (9,265) -- -- 9,264 (9,265)
-------- -------- -------- -------- -------- ---------
Net Loss............................... $(89,887) $(51,957) $(35,465) $(31,213) $118,635 $ (89,887)
======== ======== ======== ======== ======== =========
F-29
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows for the Year Ended December
31, 1999:
Non-
Guarantor Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
-------- --------- ------------ ------------ ------------ ------------
(in thousands)
Operating Activities
Net loss....................................... $(89,887) $ (51,957) $ (35,465) $ (31,213) $ 118,635 $ (89,887)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Loss from discontinued operations.............. 10,524 -- 10,524 -- (10,524) 10,524
Extraordinary loss on early retirement of debt. 9,264 9,265 -- -- (9,264) 9,265
Depreciation and amortization.................. -- -- 60,877 40,700 11 101,588
Deferred income taxes.......................... (13,882) 74,510 (93,325) 863 34,639 2,805
Minority interest in earnings.................. -- 1,385 6,956 -- -- 8,341
Equity in earnings (loss) of subsidiaries...... 52,479 60,390 4,024 7,229 (124,122) --
Change in operating assets and liabilities..... (18,809) 19,243 (67,646) (155,314) 21,457 (201,069)
Other.......................................... 19,653 -- -- -- (15,080) 4,573
-------- --------- --------- --------- --------- ---------
Net Cash Flows from Operating Activities......... (30,658) 112,836 (114,055) (137,735) 15,752 (153,860)
-------- --------- --------- --------- --------- ---------
Investing Activities
Purchase of property, plant and equipment...... -- -- (49,283) (2,616) -- (51,899)
Discontinued operations........................ -- -- 335,129 -- -- 335,129
Other.......................................... -- -- -- -- (4,531) (4,531)
-------- --------- --------- --------- --------- ---------
Net Cash Flows from Investing Activities......... -- -- 285,846 (2,616) (4,531) 278,699
-------- --------- --------- --------- --------- ---------
Financing Activities
Net short-term borrowings...................... -- 6,000 -- -- -- 6,000
Principal payments on long-term debt........... -- -- (657) (15,912) -- (16,569)
Change in investments and advances from (to)
affiliates.................................... 29,895 (157,688) (7,927) 144,579 (8,859) --
Stock issuance--net............................ 13 -- -- -- -- 13
Distributions to minority interests............ -- (1,565) (7,864) -- -- (9,429)
Repurchase of TNCLP common units............... -- (5,994) -- -- -- (5,994)
Redemption of minority interests in subsidiary. -- -- (225,000) -- -- (225,000)
Dividends...................................... (5,283) -- -- -- 2 (5,281)
Other.......................................... -- 19,798 4,075 (21,077) (2,796) --
-------- --------- --------- --------- --------- ---------
Net Cash Flows from Financing Activities......... 24,625 (139,449) (237,373) 107,590 (11,653) (256,260)
-------- --------- --------- --------- --------- ---------
Effect of Foreign Exchange Rate on Cash.......... -- (432) -- (432) 432 (432)
-------- --------- --------- --------- --------- ---------
Increase (decrease) in Cash and Short-term
Investments..................................... (6,033) (27,045) (65,582) (33,193) -- (131,853)
-------- --------- --------- --------- --------- ---------
Cash and Short-term Investments at Beginning
of Year......................................... 6,041 27,228 94,035 14,339 -- 141,643
-------- --------- --------- --------- --------- ---------
Cash and Short-term Investments at End of
Year............................................ $ 8 $ 183 $ 28,453 $ (18,854) $ -- $ 9,790
======== ========= ========= ========= ========= =========
F-30
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Financial Position at December 31, 2000:
Guarantor Non-Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
---------- -------- ------------ ------------- ------------ ------------
(in thousands)
Assets
Cash and short-term investments....... $ -- $ 76,959 $ 11,844 $ 12,622 $ -- $ 101,425
Accounts receivable................... -- -- 38,653 68,646 -- 107,299
Inventories........................... -- -- 32,199 69,327 -- 101,526
Other current assets.................. 8,155 22 6,208 17,521 (14,458) 17,448
---------- -------- ---------- --------- ----------- ----------
Total current assets................. 8,155 76,981 88,904 168,116 (14,458) 327,698
---------- -------- ---------- --------- ----------- ----------
Property, plant and equipment, net.... -- -- 479,881 426,890 (3,970) 902,801
Excess of cost over net assets of
acquired businesses.................. -- -- 207,652 23,720 -- 231,372
Investments in and advanced to (from)
affiliates........................... 1,141,732 437,026 1,264,050 296,124 (3,138,932) --
Other assets.......................... 5,151 5,772 10,458 25,392 3,908 50,681
---------- -------- ---------- --------- ----------- ----------
Total assets......................... $1,155,038 $519,779 $2,050,945 $ 940,242 $(3,153,452) $1,512,552
========== ======== ========== ========= =========== ==========
Liabilities
Debt due within one year.............. $ -- $ -- $ 546 $ 5,000 $ -- $ 5,546
Accounts payable...................... -- 2,989 17,048 42,783 -- 62,820
Accrued and other liabilities......... 9,486 2,607 35,498 15,368 (2,635) 60,324
---------- -------- ---------- --------- ----------- ----------
Total current liabilities............ 9,486 5,596 53,092 63,151 (2,635) 128,690
---------- -------- ---------- --------- ----------- ----------
Long-term debt........................ 358,755 -- 8,428 100,625 -- 467,808
Deferred income taxes................. 150,721 17,182 -- 3,955 (15,383) 156,475
Other liabilities..................... 25,279 14,518 699 3,681 (669) 43,508
Minority interest..................... -- 19,653 85,621 -- -- 105,274
---------- -------- ---------- --------- ----------- ----------
Total liabilities.................... 544,241 56,949 147,840 171,412 (18,687) 901,755
---------- -------- ---------- --------- ----------- ----------
Stockholders' Equity
Common stock.......................... 128,283 -- 73 49,710 (49,783) 128,283
Paid in capital....................... 554,750 150,218 1,798,968 905,816 (2,855,002) 554,750
Accumulated other comprehensive loss.. (48,115) (48,114) -- (48,114) 96,228 (48,115)
Retained earnings (deficit)........... (24,121) 360,726 104,064 (138,582) (326,208) (24,121)
---------- -------- ---------- --------- ----------- ----------
Total stockholders' equity........... 610,797 462,830 1,903,105 768,830 (3,134,765) 610,797
---------- -------- ---------- --------- ----------- ----------
Total liabilities and stockholders'
equity.............................. $1,155,038 $519,779 $2,050,945 $ 940,242 $(3,153,452) $1,512,552
========== ======== ========== ========= =========== ==========
F-31
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations for the Year Ended December
31, 2000:
Guarantor Non-Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------- ------------ ------------- ------------ ------------
(in thousands)
Revenues
Net sales..................... $ -- $ -- $383,628 $669,824 $ -- $1,053,452
Other income, net............. -- 401 4,205 4,952 -- 9,558
-------- ------- -------- -------- -------- ----------
-- 401 387,833 674,776 -- 1,063,010
-------- ------- -------- -------- -------- ----------
Cost and Expenses
Cost of sales................. -- -- 376,337 595,376 -- 971,713
Selling, general and
administrative expenses..... 1,471 1,089 31,709 14,221 -- 48,490
-------- ------- -------- -------- -------- ----------
1,471 1,089 408,046 609,597 -- 1,020,203
-------- ------- -------- -------- -------- ----------
Income (loss) from operations. (1,471) (688) (20,213) 65,179 -- 42,807
Insurance settlement costs.... -- -- (5,968) -- -- (5,968)
Interest income............... 6 3,994 13,814 353 (14,298) 3,869
Interest expense.............. (42,006) (792) (747) (22,894) 14,928 (51,511)
Minority interest............. -- (995) (4,384) -- -- (5,379)
Equity in the earnings (loss)
of subsidiaries............. 20,232 17,300 42,199 19,402 (99,133) --
-------- ------- -------- -------- -------- ----------
Income (loss) from continuing
operations before income
taxes....................... (23,239) 18,819 24,701 62,040 (98,503) (16,182)
Income tax provision
(benefit)................... (13,057) 7,500 -- 7,057 (7,500) (6,000)
-------- ------- -------- -------- -------- ----------
Net Income (Loss)................ $(10,182) $11,319 $ 24,701 $ 54,983 $(91,003) $ (10,182)
======== ======= ======== ======== ======== ==========
F-32
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows for the Year Ended December
31, 2000:
Guarantor Non-Guarantor
Parent TCAPI Subsidiaries Subsidiaries Eliminations Consolidated
-------- -------- ------------ ------------- ------------ ------------
(in thousands)
Operating Activities
Net income (loss)............................. $(10,182) $ 11,319 $ 24,701 $ 54,983 $(91,003) $(10,182)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization................. -- 925 63,733 50,243 -- 114,901
Deferred income taxes......................... 76,326 (57,328) 92 3,092 (20,301) 1,881
Minority interest in earnings................. -- 996 4,383 -- -- 5,379
Equity in earnings (loss) of subsidiaries..... (20,232) (17,300) (42,199) (19,402) 99,133 --
Other non-cash items.......................... 286 -- -- -- (286) --
Change in operating assets and liabilities.... (4,422) (31,337) 29,811 33,410 (4,637) 22,825
Other......................................... -- -- -- -- (1,975) (1,975)
-------- -------- -------- --------- -------- --------
Net Cash Flows from Operating Activities........ 41,776 (92,725) 80,521 122,326 (19,069) 132,829
-------- -------- -------- --------- -------- --------
Investing Activities
Purchase of property, plant and equipment..... -- -- (1,676) (10,543) -- (12,219)
Other......................................... -- -- (3,863) 25,836 (26,935) (4,962)
-------- -------- -------- --------- -------- --------
Net Cash Flows from Investing Activities........ -- -- (5,539) 15,293 (26,935) (17,181)
-------- -------- -------- --------- -------- --------
Financing Activities
Net short-term borrowings (repayments)........ -- (6,000) -- -- -- (6,000)
Principal payments on long-term debt.......... -- -- (2,493) (4,614) -- (7,107)
Change in investments and advances from
(to) affiliates.............................. (44,024) 181,367 (99,343) (99,934) 61,934 --
Stock issuance--net........................... 2,240 -- -- -- (2,233) 7
Distributions to minority interests........... -- (207) (912) -- -- (1,119)
Repurchase of TNCLP common units.............. -- (2,414) -- -- -- (2,414)
Deferred financing costs...................... -- (6,697) -- -- -- (6,697)
Other......................................... -- 4,135 11,157 (912) (14,380) --
-------- -------- -------- --------- -------- --------
Net Cash Flows from Financing Activities........ (41,784) 170,184 (91,591) (105,460) 45,321 (23,330)
-------- -------- -------- --------- -------- --------
Effect of Foreign Exchange Rate on Cash......... -- (683) -- (683) 683 (683)
-------- -------- -------- --------- -------- --------
Increase (decrease) in Cash and Short-term
Investments.................................... (8) 76,776 (16,609) 31,476 -- 91,635
-------- -------- -------- --------- -------- --------
Cash and Short-term Investments at
Beginning of Year.............................. 8 183 28,453 (18,854) -- 9,790
-------- -------- -------- --------- -------- --------
Cash and Short-term Investments at End of
Year........................................... $ -- $ 76,959 $ 11,844 $ 12,622 $ -- $101,425
======== ======== ======== ========= ======== ========
F-33
TERRA INDUSTRIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
23. Subsequent Event (Unaudited)
On July 13, 2001, a British court found Terra Nitrogen (UK) Ltd. liable for
damages associated with recalls of carbonated beverages containing carbon
dioxide tainted with benzene, plus interest and attorney fees. In addition,
there are three similar cases awaiting trial and certain other beverage
manufacturers have indicated their intention to file claims for unspecified
amounts. We estimate total claims against us from these lawsuits may be
(Pounds)10 million, or $14 million. We have established reserves during the
second quarter of 2001 in this amount to cover estimated losses.
In addition to our plan to appeal the British court's decision, we also
believe we have recourse for these claims against both our insurer and the
previous owner of our U.K. operations. (Our insurer had previously paid,
without recourse, two recall cost settlements on our behalf, plus a court
judgment rendered against us. Nonetheless, the insurer reserved its right to
deny coverage in whole or in part for adverse judgments in the remaining
cases.) We will vigorously pursue our rights against these parties, but there
will be no income recognition for those rights until settlements are finalized.
We are involved in various other legal actions and claims, including
environmental matters, arising from the normal course of business. While it is
not feasible to predict with certainty the final outcome of these proceedings,
we do not believe that these matters, or the U.K. benzene claims, will have a
material adverse effect on our results of operations, financial position or net
cash flows.
F-34
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20: Indemnification of Directors and Officers.
The following is a summary of the statutes, charter and bylaw provisions or
other arrangements under which the Registrants' directors and officers are
insured or indemnified against liability in their capacities as such. All of
the directors and officers of the Registrants are covered by insurance policies
maintained and held in effect by Terra Industries Inc. against certain
liabilities for actions taken in their capacities as such, including
liabilities under the Securities Act.
Registrants Incorporated Under Delaware Law
Beaumont Ammonia Inc., Beaumont Holdings Corporation, BMC Holdings Inc.,
Port Neal Corporation, Terra (UK) Holdings Inc., Terra Capital, Inc., Terra
Capital Holdings, Inc., Terra International (Oklahoma) Inc., Terra
International Inc., Tera Methanol Corporation, and Terra Nitrogen Corporation
are incorporated under the laws of the State of Delaware. Section 145 of the
General Corporation Law of the State of Delaware (the "Delaware Statute")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), other than an action by or in the right of such corporation, by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise (an "indemnified capacity"). The indemnity may include expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. Similar provisions apply to actions
brought by or in the right of the corporation, except that no indemnification
shall be made without judicial approval if the officer or director is adjudged
to be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred. Section 145 of the Delaware
Statute further authorizes a corporation to purchase and maintain insurance on
behalf of any indemnified person against any liability asserted against him and
incurred by him in any indemnified capacity, or arising out of his status as
such, regardless of whether the corporation would otherwise have the power to
indemnify him under the Delaware Statute. The articles of incorporation and/or
by-laws of these corporations provide that the respective corporation shall
indemnify and hold harmless, to the fullest extent permitted by law, each
person who is or was made a party, threatened to be made a party, or otherwise
involved in any action, suit, or proceeding by reason of the fact that he or
she is or was a director or officer of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee, partner, or
agent of another corporation, partnership, joint venture, or other enterprise,
against expenses, liabilities, and losses. Furthermore, the directors of these
respective corporations shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by the Delaware Statute.
Registrants Incorporated Under Iowa Law
Terras Real Estate Corp. is incorporated under the laws of the State of
Iowa. Section 490.851 of the Iowa Business Corporation Act ("IBCA") provides
that a corporation has the power to indemnify its directors and officers
against liabilities and expenses incurred by reason of such person serving in
the capacity of director or officer, if such person has acted in good faith and
in a manner reasonably believed by the individual to be in or not opposed to
the best interests of the corporation, and in any criminal proceeding if such
person had no reasonable cause to believe the individual's conduct was
unlawful. The foregoing indemnity provisions notwithstanding, in the case of
actions brought by or in the right of the corporation, no indemnification shall
be
II-1
made to such director or officer with respect to any matter as to which such
individual has been adjudged to be liable to the corporation unless, and only
to the extent that, a court determines that indemnification is proper under the
circumstances.
The By-laws of Terra Real Estate Corp. provide that any person who is or was
an officer, director, employee or agent of the corporation, or is or was
serving at the request of this corporation as an officer, director, employee or
agent of another corporation, partnership, joint venture, trust or enterprise,
shall be entitled to indemnification to the same extent as permitted or
required by the IBCA.
Registrants Incorporated Under Maryland Law
Terra Industries Inc. is incorporated under the laws of the State of
Maryland. The Maryland General Corporation Law ("MGCL") permits a corporation
to indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason
of their service in those or other capacities, unless it is established that
(a) the act or omission of the directors or officer was material to the matter
giving rise to such proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services,
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the action or omission was unlawful.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(i) the person actually received an improper benefit or profit in money,
property or services or (ii) a judgment or other final adjudication is entered
in a proceeding based on a finding that the person's action, or failure to act,
was the result of active and deliberate dishonesty and was material to the
cause of action adjudicated in the proceeding. Article SEVENTH, Paragraph (8)
of Terra Industries Inc.'s Charter provides for indemnification of directors
and officers of Terra Industries Inc. as follows. The Corporation shall
indemnify (a) its directors to the full extent provided by the general laws of
the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures provided by such laws; (b) its officers to the
same extent it shall indemnify its directors; and (c) its officers who are not
directors to such further extent as shall be authorized by the Board of
Directors and be consistent with law. The foregoing shall not limit the
authority of the Corporation to indemnify other employees and agents consistent
with law. Terra Industries Inc.'s Charter also contains a provision providing
for elimination of the liability of its directors or officers to the Registrant
or its stockholders for money damages to the fullest extent permitted by
Maryland law.
Item 21. Exhibits.
(a) Reference is made to the attached Exhibit Index.
(b) No financial statement schedules are required to be filed herewith
pursuant to this Item.
Item 22. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions described in Item 20, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a directors, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants will,
unless in the opinion of its counsel the matter has been settled by
II-2
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrants' annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the date of the registration statement through the date of
responding to the request.
(d) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned Registrants hereby undertake:
1. To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment will be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra Capital,
Inc. has duly caused this
Pre-Effective Amendment No. 1 to Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized.
TERRA CAPITAL, INC.
/S/ FRANCIS G. MEYER
By: ______________________________
Francis G. Meyer
Vice President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director and Vice President (Principal Financial and
------------------------ Accounting Officer)
Francis G. Meyer
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra Industries
Inc. has duly caused this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized.
TERRA INDUSTRIES INC.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Senior Vice President and Chief
Financial Officer
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ HENRY R. SLACK* Chairman of the Board
- ------------------------
Henry R. Slack
/S/ BURTON M. JOYCE* Vice Chairman of the Board
- ------------------------
Burton M. Joyce
/S/ MICHAEL L. BENNETT* Director, President and Chief Executive Officer (Principal
- ------------------------ Executive Officer)
Michael L. Bennett
/S/ FRANCIS G. MEYER Senior Vice President and Chief Financial Officer (Principal
- ------------------------ Financial Officer and Controller/Principal Accounting
Francis G. Meyer Officer)
/S/ EDWARD G. BEIMFOHR* Director
- ------------------------
Edward G. Beimfohr
II-5
Signature Title
--------- -----
/S/ EDWARD M. CARSON* Director
---------------------------
Edward M. Carson
/S/ THOMAS H. CLAIBORNE* Director
---------------------------
Thomas H. Claiborne
/S/ ERIC K. DIACK* Director
---------------------------
Eric K. Diack
/S/ DAVID E. FISHER* Director
---------------------------
David E. Fisher
/S/ MARTHA O. HESSE* Director
---------------------------
Martha O. Hesse
/S/ WILLIAM R. LOOMIS, JR.* Director
---------------------------
William R. Loomis, Jr.
/S/ JOHN R. NORTON III* Director
---------------------------
John R. Norton III
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: ___________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Beaumont Ammonia
Inc. has duly caused this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized.
BEAUMONT AMMONIA INC.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ FRANCIS G. MEYER Director and President (Principal Executive, Financial and
- ------------------------ Accounting Officer)
Francis G. Meyer
/S/ MICHAEL L. BENNETT* Director
- ------------------------
Michael L. Bennett
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
- ------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Beaumont
Holdings Corporation has duly caused this Pre-Effective Amendment No. 1 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized.
BEAUMONT HOLDINGS CORPORATION
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ FRANCIS G. MEYER Director and President (Principal Financial and
- ------------------------ Accounting Officer)
Francis G. Meyer
/S/ MICHAEL L. BENNETT* Director and Vice President (Principal Executive Officer)
- ------------------------
Michael L. Bennett
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
- ------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, BMC Holdings
Inc. has duly caused this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized.
BMC HOLDINGS INC.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Vice President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director and Vice President (Principal Financial and
------------------------ Accounting Officer)
Francis G. Meyer
/S/ WYNN S. STEVENSON* Director, Vice President and Treasurer
------------------------
Wynn S. Stevenson
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Port Neal
Corporation has duly caused this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized.
PORT NEAL CORPORATION
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Vice President and Chief Financial
Officer
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director, Vice President and Chief Financial Officer
------------------------ (Principal Financial and Accounting Officer)
Francis G. Meyer
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra (UK)
Holdings Inc. has duly caused this Pre-Effective Amendment No. 1 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized.
TERRA (UK) HOLDINGS INC.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ FRANCIS G. MEYER
- ------------------------ Director and President (Principal Financial and
Francis G. Meyer Accounting Officer)
/S/ MICHAEL L. BENNETT* Director and Vice President (Principal Executive Officer)
- ------------------------
Michael L. Bennett
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
- ------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra Capital
Holdings, Inc. has duly caused this Pre-Effective Amendment No. 1 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized.
TERRA CAPITAL HOLDINGS, INC.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Vice President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director and Vice President (Principal Financial and
------------------------ Accounting Officer)
Francis G. Meyer
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra
International (Oklahoma) Inc. has duly caused this Pre-Effective Amendment No.
1 to Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized.
TERRA INTERNATIONAL (OKLAHOMA) INC.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Vice President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director and Vice President (Principal Financial and
------------------------ Accounting Officer)
Francis G. Meyer
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra
International Inc. has duly caused this Pre-Effective Amendment No. 1 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized.
TERRA INTERNATIONAL INC.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Senior Vice President and Chief
Financial
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
- ------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director, Senior Vice President and Chief Financial Officer
- ------------------------ (Principal Financial and Accounting Officer)
Francis G. Meyer
/S/ MARK A. KALAFUT Director, Vice President, General Counsel and Corporate
- ------------------------ Secretary
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra Methanol
Corporation has duly caused this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized.
TERRA METHANOL CORPORATION
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Vice President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director and Vice President (Principal Financial and
------------------------ Accounting Officer)
Francis G. Meyer
/S/ WYNN S. STEVENSON* Director, Vice President and Treasurer
------------------------
Wynn S. Stevenson
/S/ MARK A. KALAFUT Director, Vice President and Corporate Secretary
------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra Nitrogen
Corporation has duly caused this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized.
TERRA NITROGEN CORPORATION
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Vice President
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ BURTON M. JOYCE* Chairman of the Board
------------------------
Burton M. Joyce
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director and Vice President (Principal Financial and
------------------------ Accounting Officer)
Francis G. Meyer
/S/ DENNIS B. LONGMIRE* Director
------------------------
Dennis B. Longmire
/S/ THEODORE D. SANDS* Director
------------------------
Theodore D. Sands
/S/ ROBERT W. TODD* Director
------------------------
Robert W. Todd
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Terra Real
Estate Corp. has duly caused this Pre-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized.
TERRA REAL ESTATE CORP.
/S/ FRANCIS G. MEYER
By: _______________________________
Francis G. Meyer
Treasurer and Assistant Secretary
Dated: January 16, 2002
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated on the 16th day of January 2002.
Signature Title
--------- -----
/S/ MICHAEL L. BENNETT* Director and President (Principal Executive Officer)
- ------------------------
Michael L. Bennett
/S/ FRANCIS G. MEYER Director, Treasurer and Assistant Secretary (Principal
- ------------------------ Financial and Accounting Officer)
Francis G. Meyer
/S/ MARK A. KALAFUT Director and Vice President
- ------------------------
Mark A. Kalafut
- --------
* Signed pursuant to power of attorney:
/S/ FRANCIS G. MEYER
By: _________________________________________________________________________
Francis G. Meyer
Attorney-in-fact
II-17
EXHIBIT INDEX
Exhibit Filed
No. Description Incorporated Herein by Reference to Herewith
- ------- ----------- ----------------------------------- --------
3.i.(a) Certificate of Incorporation of Terra Capital, Inc. +
3.i.(b) Certificate of Incorporation of Beaumont +
Ammonia Inc.
3.i.(c) Certificate of Incorporation of Beaumont Holdings +
Corporation
3.i.(d) Certificate of Incorporation of BMC Holdings Inc. +
3.i.(e) Certificate of Incorporation of Port Neal Corporation +
3.i.(f) Restated Certificate of Incorporation of Terra (UK) +
Holdings Inc.
3.i.(g) Certificate of Incorporation of Terra Capital +
Holdings, Inc.
3.i.(h) Articles of Restatement of Terra Industries Inc. Exhibit 3.1 to Terra Industries
Form 10-K for the year ended
December 31, 1990
3.i.(i) Articles of Amendment of Terra Industries Inc. Exhibit 3.1.2 to Terra Industries
Form 10-K for the year ended
December 31, 1992
3.i.(j) Articles Supplementary of Terra Industries Inc. Exhibit 4.1.3 to Terra Industries
Form 8-K/A dated November 3,
1994
3.i.(k) Certificate of Incorporation of Terra International +
(Oklahoma) Inc., as amended
3.i.(l) Certificate of Incorporation of Terra International Inc. +
(f/k/a Terra Chemicals International, Inc.)
3.i.(m) Certificate of Incorporation of Terra Methanol +
Corporation, as amended
3.i.(n) Restated Certificate of Incorporation of Terra Nitrogen +
Corporation, as amended (f/k/a Agricultural Mineral
Corporation)
3.i.(o) Articles of Incorporation of Terra Real Estate Corp. +
3.ii.(a) By-Laws of Terra Capital, Inc. +
3.ii.(b) Bylaws of Beaumont Ammonia Inc. +
3.ii.(c) Bylaws of Beaumont Holdings Corporation +
3.ii.(d) Bylaws of BMC Holdings Inc. +
3.ii.(e) Bylaws of Port Neal Corporation +
3.ii.(f) Bylaws of Terra (UK) Holdings Inc. +
3.ii.(g) Bylaws of Terra Capital Holdings, Inc. +
3.ii.(h) Bylaws of Terra Industries Inc., as amended through Exhibit 3 to Terra Industries
August 7, 1991 Form 8-K dated September 30,
1991
3.ii.(i) Bylaws of Terra International (Oklahoma) Inc. +
3.ii.(j) Bylaws of Terra International Inc. +
3.ii.(k) Bylaws of Terra Methanol Corporation +
Exhibit Filed
No. Description Incorporated Herein by Reference to Herewith
- ------- ----------- ----------------------------------- --------
3.ii.(l) Bylaws of Terra Nitrogen Corporation +
3.ii.(m) Bylaws of Terra Real Estate Corp. +
5.i.(a) Opinion of Kirkland & Ellis regarding the validity of +
the securities offered hereby
12 Ratio of Earnings to Fixed Charges +
13 Financial Review and Consolidated Financial Exhibit 13 to Terra Industries
Statements as contained in the Annual Report to Form 10-K for the year ended
Stockholders of Terra Industries for the fiscal year December 31, 2001
ended December 31, 2000.
23 Consent of Deloitte & Touche LLP, Independent +
Auditors
24 Power of Attorney (on signature pages hereto) Previously filed herewith
25 Statement of Eligibility of Trustee on Form T-1 under +
the Trust Indenture Act of 1939 of U.S. Bank Trust
National Association
99.1 Form of Letter of Transmittal +
99.2 Form of Tender Instructions +
99.3 Form of Notice of Guaranteed Delivery +
- --------
+ Included in this filing.