<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10351
POTASH CORPORATION OF SASKATCHEWAN INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
SASKATCHEWAN N/A
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
122 - 1ST AVENUE SOUTH
SASKATOON, SASKATCHEWAN, CANADA
S7K 7G3
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
306-933-8500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As at April 30, 1997
53,662,876 Common Shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
These interim consolidated financial statements do not include all
disclosure normally provided in annual financial statements. In management's
opinion, the unaudited financial information includes all adjustments
(consisting solely of normal recurring adjustments) necessary to present fairly
such information. Interim results are not necessarily indicative of the results
expected for the fiscal year.
POTASH CORPORATION OF SASKATCHEWAN INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales.............................................................. $464,834 $366,871
Cost of goods sold..................................................... 349,807 259,467
-------- --------
Gross Margin........................................................... 115,027 107,404
-------- --------
Selling and administrative............................................. 19,289 14,881
Provincial mining and other taxes...................................... 10,503 11,920
Other income........................................................... (5,278) (6,519)
-------- --------
24,514 20,282
-------- --------
Operating Income....................................................... 90,513 87,122
Interest Expense....................................................... 13,818 13,842
-------- --------
Income Before Income Taxes............................................. 76,695 73,280
Income Taxes........................................................... 20,330 9,602
-------- --------
Net Income............................................................. 56,365 63,678
Retained Earnings, Beginning of Period................................. 438,526 277,689
Dividends.............................................................. (14,322) (11,757)
-------- --------
Retained Earnings, End of Period....................................... $480,569 $329,610
======== ========
Net Income Per Share (Note 4).......................................... $ 1.18 $ 1.40
======== ========
Dividends Per Share (Note 5)........................................... $ 0.27 $ 0.26
======== ========
</TABLE>
(See Notes to the Consolidated Financial Statements)
1
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POTASH CORPORATION OF SASKATCHEWAN INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS OF US DOLLARS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents........................................ $ 81,035 $ --
Accounts receivable.............................................. 346,462 230,778
Inventories (Note 3)............................................. 377,873 219,433
Prepaid expenses................................................. 33,054 16,748
---------- ----------
838,424 466,959
Property, plant and equipment...................................... 2,970,472 1,978,692
Goodwill........................................................... 533,678 1,686
Other assets....................................................... 104,043 47,050
---------- ----------
$4,446,617 $2,494,387
========== ==========
LIABILITIES
Current Liabilities
Bank indebtedness................................................ $ -- $ 6,330
Short-term debt.................................................. 140,000 --
Accounts payable and accrued charges............................. 363,150 180,008
Current portion of long-term debt................................ -- 1,520
Current obligations under capital leases......................... 300 300
---------- ----------
503,450 188,158
Long-term debt..................................................... 1,364,700 618,800
Obligations under capital leases................................... 1,091 1,163
Deferred income tax liability...................................... 273,311 28,480
Accrued post-retirement/post-employment benefits................... 119,583 95,460
Accrued reclamation costs.......................................... 144,430 146,512
Other non-current liabilities and deferred credits................. 18,805 10,318
---------- ----------
2,425,370 1,088,891
---------- ----------
SHAREHOLDERS' EQUITY
Share Capital...................................................... 1,204,192 630,484
Contributed Surplus................................................ 336,486 336,486
Retained Earnings.................................................. 480,569 438,526
---------- ----------
2,021,247 1,405,496
---------- ----------
$4,446,617 $2,494,387
========== ==========
</TABLE>
(See Notes to the Consolidated Financial Statements)
2
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POTASH CORPORATION OF SASKATCHEWAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1997 1996
----------- ---------
<S> <C> <C>
Operating Activities
Working capital from operations
Net income....................................................... $ 56,365 $ 63,678
Depreciation and amortization.................................... 29,990 23,300
Loss on disposal of fixed assets................................. 439 69
Provision for deferred income taxes.............................. 15,269 4,448
Provision for post-retirement/post-employment benefits........... 1,882 1,743
---------- ---------
103,945 93,238
Changes in non-cash operating working capital
Accounts receivable.............................................. 29,635 24,321
Inventories...................................................... 1,243 (12,429)
Prepaid expenses................................................. (8,738) (10,893)
Accounts payable and accrued charges............................. (36,830) (24,362)
Accrued reclamation costs.......................................... (2,082) 1,524
Other non-current liabilities and deferred credits................. (4,608) (2,755)
---------- ---------
Cash provided by operating activities.............................. 82,565 68,644
---------- ---------
Investing Activities
Acquisition of Arcadian Corporation (Note 2)..................... (1,039,858) --
Additions to property, plant and equipment....................... (25,282) (8,384)
Proceeds on disposal of fixed assets............................. 196 324
Additions to (disposal of) other assets.......................... 1,050 (85)
---------- ---------
Cash used in investing activities.................................. (1,063,894) (8,145)
---------- ---------
Cash (deficiency) before financing activities...................... (981,329) 60,499
---------- ---------
Financing Activities
Proceeds from (repayment of) long-term obligations............... 743,408 (94,296)
Proceeds from short-term debt.................................... 140,000 --
Repayment of note payable........................................ (374,100) --
Dividends........................................................ (14,322) (11,757)
Issuance of shares............................................... 573,708 1,777
---------- ---------
Cash provided by (used in) financing activities.................... 1,068,694 (104,276)
---------- ---------
Increase (Decrease) in Cash........................................ 87,365 (43,777)
(Bank Indebtedness) Cash and Cash Equivalents, Beginning of
Period........................................................... (6,330) 40,497
---------- ---------
Cash and Cash Equivalents (Bank Indebtedness), End of Period....... $ 81,035 $ (3,280)
========== =========
Supplemental cash flow disclosure
Interest paid.................................................... $ 9,724 $ 14,612
Income taxes paid................................................ $ 3,730 $ 15,716
</TABLE>
(See Notes to the Consolidated Financial Statements)
3
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POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are in accordance with accounting
principles generally accepted in Canada. These policies are consistent with
accounting principles generally accepted in the United States except as outlined
in Note 7.
Basis of presentation
The consolidated financial statements include the accounts of PCS and its
operating subsidiaries (the "Company" except to the extent the context otherwise
requires):
-- PCS Sales (Canada) Inc.
-- PCS Sales (Iowa), Inc.
-- PCS Sales (Indiana), Inc.
-- Potash Corporation of Saskatchewan (Florida) Inc.
-- Potash Corporation of Saskatchewan Transport Limited
-- PCS Sales (USA), Inc.
-- PCS Phosphate Company, Inc.
-- Albright & Wilson Company (proportionately consolidated)
-- White Springs Agricultural Chemicals, Inc.
-- PCS Nitrogen, Inc. ("PCS Nitrogen")
2. ACQUISITION OF ARCADIAN CORPORATION
On March 6, 1997, the Company acquired all of the outstanding shares of
Arcadian Corporation for cash of $555,145 and the issuance of 8,030,236 common
shares valued at $573,278. The cash consideration was financed by debt. Arcadian
Corporation is based in Memphis, Tennessee and is a producer of nitrogen and
nitrogen products. The acquisition was completed through the merger of Arcadian
Corporation into a wholly-owned subsidiary of the Company, PCS Nitrogen.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of PCS Nitrogen have been included
in the consolidated financial statements from March 7, 1997. The excess of the
purchase price over the fair value of the net identifiable assets acquired of
$532,820 has been recorded as goodwill and is being amortized on a straight-line
basis over 40 years.
Net assets acquired were:
<TABLE>
<S> <C>
Working capital.................................................. $ 180,851
Fixed assets and other assets.................................... 1,054,651
Goodwill......................................................... 532,820
----------
1,768,322
Long-term debt and other long-term liabilities................... 639,899
----------
Net assets acquired.............................................. 1,128,423
Less: Cash acquired.............................................. 88,565
----------
Net acquisition cost............................................. $1,039,858
==========
</TABLE>
4
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POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
The following unaudited pro forma financial information presents the
combined results of operations of the Company and PCS Nitrogen as if the
acquisition had occurred at the beginning of the periods presented, after giving
effect to certain adjustments including amortization of goodwill, additional
depreciation expense, increased interest expense on debt related to the
acquisition, decreased interest expense and interest income due to debt retired
in connection with the acquisition, and related income tax effects.
The consolidated financial statements and the pro forma amounts are based
on a preliminary allocation of the purchase price. However, changes to the
consolidated financial statements and pro forma amounts are expected as
evaluations of assets and liabilities are completed and additional information
becomes available. Accordingly, the final allocated values may differ from the
amounts set forth in the consolidated financial statements and below.
The unaudited pro forma financial information is for informational purposes
only and is not necessarily indicative of the future results of operations of
the combined company or the results of operations that would have actually
occurred had the acquisition been in effect for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1997 1996
-------- ------------
(UNAUDITED PRO FORMA)
<S> <C> <C>
Net sales.................................. $623,016 $641,149
Operating income........................... 120,859 160,805
Net income................................. 71,876 100,808
Net income per share....................... $ 1.34 $ 1.88
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
Finished product........................... $177,662 $ 93,717
Materials and supplies..................... 137,578 73,912
Raw materials.............................. 40,743 29,917
Work in process............................ 21,890 21,887
-------- --------
$377,873 $219,433
======== ========
</TABLE>
4. EARNINGS PER SHARE
Earnings per share are calculated on the weighted average shares issued and
outstanding during the three months ended March 31, 1997 of 47,823,000 (1996 --
45,484,000).
5. DIVIDENDS
The Company declares its dividends in Canadian dollars.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As a result of the acquisition of Arcadian Corporation, the Company now
employs certain derivative instruments for the purpose of establishing the cost
of a portion of its natural gas requirements (primarily futures, swaps and
options) thereby managing the exposure to commodity price risk in the purchase
of natural gas, the primary raw material used in the manufacture of ammonia.
These activities have been designated as
5
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POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
hedging activities by the Company and are accounted for as such. The Company
hedges for both committed and anticipated purchases of natural gas. The Company
does not hold these instruments for trading purposes.
Gains or losses resulting from changes in the fair value of hedging
transactions which have not yet been settled are not recognized as they
generally relate to changes in the spot price of anticipated natural gas
purchases. Gains or losses arising from settled hedging transactions are
deferred as a component of inventory until the product containing the hedged
item is sold, at which time both the natural gas purchase cost and the related
hedging deferral are recorded as cost of sales. The Company regularly evaluates
its unrecognized or deferred gains and losses on these derivatives from a net
realizable value of inventory perspective and establishes appropriate reserves,
if necessary.
7. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
A description of the accounting principles which differ significantly in
certain respects from generally accepted accounting principles in the United
States (US GAAP) follows:
Earnings per share: In computing primary earnings per share, under US GAAP,
the stock options are included in the calculation to the extent that they are
exercisable.
Deferred income taxes: Deferred tax assets have been recognized only to the
extent of reducing deferred tax liabilities. US GAAP would require that deferred
tax assets be recorded when their realization is more likely than not.
Net sales: Sales are recorded net of freight costs (less related revenues)
and transportation and distribution expenses. US GAAP would require that net
freight costs be included in cost of sales and transportation and distribution
expenses be included in operating expenses.
The application of US GAAP, as described above, would have had the
following approximate effects on net income, net income per share, total assets
and shareholders' equity:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net income as reported in the consolidated statements of income
and retained earnings........................................... $ 56,365 $ 63,678
Item decreasing reported net income
Deferred income taxes........................................... (3,174) (3,227)
---------- ----------
Approximate net income -- US GAAP................................. $ 53,191 $ 60,451
========== ==========
Weighted average shares outstanding -- US GAAP.................... 48,410,000 45,976,000
========== ==========
Net income per share -- US GAAP................................... $ 1.10 $ 1.31
========== ==========
</TABLE>
6
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POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Total assets as reported in the consolidated statements of financial
position.......................................................... $4,446,617 $2,494,387
Item increasing reported total assets
Deferred income tax asset......................................... 12,553 15,727
---------- ----------
Approximate total assets -- US GAAP................................. $4,459,170 $2,510,114
========== ==========
Shareholders' equity as reported in the consolidated statements of
financial position................................................ $2,021,247 $1,405,496
Item increasing reported shareholders' equity
Deferred income taxes............................................. 8,208 11,382
---------- ----------
Approximate shareholders' equity -- US GAAP......................... $2,029,455 $1,416,878
========== ==========
</TABLE>
8. COMPARATIVE FIGURES
Certain of the prior period's comparative figures have been reclassified to
conform with the current period's presentation. Results for the first quarter of
1996 do not include the operations of PCS Nitrogen (formerly Arcadian
Corporation) acquired March 6, 1997.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
With the exception of purchased product, nitrogen data for 1997 is only for
the period subsequent to the acquisition of PCS Nitrogen, Inc. (formerly
Arcadian Corporation).
Net sales and net income for the three months ended March 31, 1997
increased 27 percent and decreased 11 percent, respectively, over the same
period in 1996. Net income for the first quarter of 1997 was $56.4 million (1996
- -- $63.7 million) on net sales of $464.8 million (1996 -- $366.9 million), or
$1.18 per share (1996 -- $1.40 per share). For the first quarter of 1997, gross
margin and operating income were $115.0 million and $90.5 million, respectively,
compared to a gross margin of $107.4 million and an operating income of $87.1
million for the same period in 1996 (increases of 7 percent and 4 percent,
respectively).
For the three months ended March 31, 1997, North American and offshore net
sales revenue was $327.2 million (1996 -- $230.9 million) and $137.6 million
(1996 -- $136.0 million), respectively. North American net sales revenue
represented 70 percent (1996 -- 63 percent) of total net sales revenue whereas
offshore sales represented 30 percent of net sales revenue (1996 -- 37 percent).
Net sales revenue for the first quarter of 1997 was $464.8 million, an
increase of $97.9 million or 27 percent over the first three months of 1996.
Potash, phosphate and nitrogen revenue for the first quarter of 1997 was $107.0
million (1996 -- $103.9 million), $223.7 million (1996 -- $224.1 million) and
$134.1 million (1996 -- $38.9 million), respectively.
Gross margin for the first three months of 1997 increased $7.6 million or 7
percent over the same quarter in 1996. Gross margin for potash was $47.2
million, a decrease of $4.5 million when compared to first quarter 1996. Gross
margin for phosphate and feed was $39.4 million, a decrease of $15.2 million
when compared to first quarter 1996. Of this $39.4 million gross margin, 47
percent is attributable to phosphate fertilizer products, 39 percent to feed
products, and 14 percent to industrial products. Gross margin for manufactured
nitrogen products was $27.8 million. Of this $27.8 million gross margin, 41
percent is attributable to urea prills, 19 percent to ammonia, 19 percent to
nitrogen solutions, 11 percent to ammonium nitrate, 5 percent to nitric acid and
5 percent to other nitrogen products. Gross margin for purchased nitrogen
products was $0.6 million. The $97.9 million increase in net sales is comprised
as follows:
<TABLE>
<CAPTION>
($ MILLIONS)
------------
<S> <C>
Potash................................................... $ 3.1
Phosphates
Rock................................................... (2.2)
Solids................................................. (7.0)
Liquids................................................ 7.3
Animal Feed Supplement................................. 1.0
Industrial............................................. .5
Nitrogen
Ammonia................................................ 14.9
Urea................................................... 34.2
Nitrogen Solutions..................................... 19.4
Other.................................................. 14.2
Nitrogen Purchased Product............................. 12.5
-----
Total Increase in Net Sales Revenue...................... $97.9
=====
</TABLE>
The decrease in net income of $7.3 million is attributable to: lower sales
revenue in phosphate ($7.0 million decrease in DAP); higher cost of sales in
potash (4.3 additional shutdown weeks, higher costs due to mine mix and general
increases in operating supplies and labor); higher cost of sales in phosphate
8
<PAGE> 10
(inventory adjustments, higher ammonia input costs and higher mining costs
caused by excessive moisture in the overburden at Aurora); additional selling
and administrative expenses of $4.4 million (most of which is attributable to
the consolidation of PCS Nitrogen as well as the $1.1 million amortization of
the goodwill). The foregoing were offset by a $30.5 million gross margin from
the nitrogen acquisition, $3.1 million of additional potash revenue, $7.3
million additional revenue in liquid fertilizers and $1.0 million of additional
feed revenue. The increase in income taxes of $10.7 million resulted primarily
from an income tax provision for the nitrogen operations of $8.0 million and the
Canadian potash operations now being subjected to deferred income taxes.
POTASH REVENUE
Potash net sales revenue for the first three months of 1997 increased by
$3.1 million or 3 percent as compared to the first three months of 1996 (1997 --
$107.0 million; 1996 -- $103.9 million). Potash net sales revenue represented 23
percent of consolidated net sales revenue. The Company sold 1.546 million tonnes
of potash in this year's first quarter, compared to 1.457 million tonnes sold in
the same period last year, an increase of .089 million tonnes or 6 percent.
Potash prices experienced an overall decrease of 3 percent in the first quarter
of 1997 as compared to the first quarter of 1996. The overall increase in potash
volumes of 6 percent resulted in a $5.0 million increase in potash net sales
revenue, while the 3 percent decrease in overall potash prices resulted in a
$1.9 million decline in potash net sales revenue. The gross margin for potash
was $47.2 million (1996 -- $51.7 million) or 41 percent of the consolidated
gross margin.
In the first quarter of 1997, North American sales volumes increased 17
percent over the same period in 1996 as a result of a good pre-season fill. The
strong offshore volumes in the first quarter of 1996 were matched in the first
quarter of 1997 as China continued its spot purchases from Canpotex. Potash
prices decreased 5 percent in the offshore market but were still higher than
those received in the domestic market. After consideration of distribution
costs, realizations in the North American market were up by 4 percent from the
first quarter a year ago.
The increase in North American potash sales volumes and prices resulted in
a $7.3 million increase in North American potash net sales revenue. North
American potash sales volumes for the first quarter of 1997 increased .100
million tonnes (1997 -- .689 million tonnes; 1996 -- .589 million tonnes)
compared to the first quarter of 1996. North American net sales revenue from
potash operations represented 41 percent of the potash net sales revenue of the
Company during this year's first quarter (1996 -- 35 percent).
A 1 percent decrease in offshore sales volumes and the 5 percent decrease
in selling price resulted in a $4.2 million decrease in offshore potash net
sales revenue. In the offshore market, the Company sold .857 million potash
tonnes during the first quarter (1996 -- .868 million tonnes). Of the .857
million tonnes, .734 million tonnes were sold through Canpotex and the remaining
.123 million tonnes were produced by PCS New Brunswick and sold and delivered to
offshore markets, such as Brazil and Europe, by PCS Sales. In the first quarter
of 1997, offshore net sales revenue from potash operations represented 59
percent of potash net sales revenue of the Company (1996 -- 65 percent).
PHOSPHATE REVENUE
Phosphate net sales revenue for the three months ended March 31, 1997 was
$223.7 million representing 48 percent of the consolidated net sales revenue.
The distribution of this revenue was as follows: phosphate fertilizer $150.5
million (67 percent); non-fertilizer products (animal feed and industrial
products) $72.1 million (32 percent); and phosphate rock $1.1 million (1
percent). For the same quarter of 1996, net sales revenue was $224.1 million;
phosphate fertilizer $150.2 million (67 percent); non-fertilizer products
(animal feed and industrial products) $70.6 million (32 percent); and phosphate
rock $3.3 million (1 percent). Gross margin for phosphate was $39.4 million
(1996 -- $54.6 million) or 34 percent of the consolidated gross margin.
First quarter net sales revenue from liquid and solid fertilizers was
$150.5 million (1996 -- $150.2 million) with sales volumes of .758 million
tonnes (1996 -- .716 million tonnes). Solid phosphate fertilizer (substantially
all DAP) accounted for 56 percent (1996 -- 61 percent) or $84.3 million (1996 --
9
<PAGE> 11
$91.2 million) of the total. Compared to the first three months of 1996, the
Company received higher prices for most of its phosphate products. Rock, liquid
fertilizer products, feed products and industrial phosphate prices were all up.
However, gross margin for phosphate was negatively affected by lower DAP prices
as that product got off to a slow start. Solid phosphate fertilizer prices
decreased by 14 percent whereas volumes increased by 7 percent. In liquid
fertilizer, 5 percent higher volumes were accompanied by 7 percent higher
prices. Liquid phosphate revenue was up $7.3 million reflecting the inclusion of
additional sales from the recently acquired Geismar facility.
Net sales revenue from animal feed and industrial products during the first
quarter was $72.1 million (1996 -- $70.6 million) with sales volumes of .255
million tonnes (1996 -- .275 million tonnes). The animal feed business
experienced the addition of a new competitor in the market which reduced sales
volumes by 5 percent but prices improved by 8 percent. This resulted in 2
percent higher sales revenue. Industrial product prices improved by 20 percent
when compared to the first quarter of 1996. Gross margin for feed and industrial
products improved over the same period a year ago.
Net sales revenue from phosphate rock was $1.1 million (1996 -- $3.3
million) with sales volumes of .026 million tonnes (1996 -- .081 million
tonnes). The average net sales price improved by 3 percent for the first quarter
of 1997 when compared to the same quarter of 1996.
NITROGEN REVENUE
Nitrogen net sales revenue was $134.1 million (1996 -- $38.9 million),
representing 29 percent of the consolidated net sales revenue. Net sales revenue
includes $51.4 million (1996 -- $38.9 million) of Russian purchased ammonia
product and other nitrogen products for resale. The overall gross margin was
impacted negatively by sales of this low margin purchased ammonia and by lower
selling prices for urea and nitrogen solutions. Manufactured nitrogen net sales
revenue for one month of activity was $82.7 million. The distribution of this
revenue was as follows: ammonia $14.9 million (18 percent); urea $34.2 million
(41 percent); nitrogen solutions $19.4 million (24 percent); and other nitrogen
products $14.2 million (17 percent). Gross margin for manufactured nitrogen
products was $27.8 million (34 percent of manufactured nitrogen net sales
revenue). Manufactured and purchased nitrogen gross margin contributed 25
percent of the consolidated gross margin.
March 1997 sales tonnes for manufactured nitrogen products were as follows:
ammonia .070 million tonnes; urea .181 million tonnes; nitrogen solutions .178
million tonnes; and other nitrogen products .100 million tonnes.
Purchased nitrogen products sales tonnes for the first quarter of 1997 were
.245 million tonnes (1996 -- .187 million tonnes).
Urea and nitrogen solutions prices weakened as a result of wet weather in
the south and mideast and the related delay in planting and fertilizer
applications.
COST OF GOODS SOLD
For the three months ended March 31, 1997, the Company produced 1.653
million potassium chloride (KCl) tonnes, a 3 percent decrease from the 1.699
million tonnes produced in the first quarter of 1996. In this year's first
quarter, the Company produced .503 million phosphoric acid (P205) tonnes (1996
- -- .514 million tonnes), a decrease of 2 percent. From the date of acquisition,
nitrogen production was .239 million nitrogen (N) tonnes.
Potash unit cost of sales increased by 7 percent in the first three months
of 1997 compared to the same period in 1996 due to 4.3 additional shutdown
weeks, higher mining costs due to mine mix and overall increases in mine
operating supplies and labor. In phosphate, lower input costs for sulphur were
more than offset by inventory adjustments, higher ammonia input costs and higher
mining costs at the Aurora facility during the first quarter. In nitrogen,
natural gas prices in the US decreased considerably for March 1997 following the
high prices posted in the preceding winter months.
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<PAGE> 12
Depreciation expense for the first quarter of 1997 was $30.0 million
compared to $23.3 million in 1996, an increase of 29 percent. The increase is
mostly the result of the additional depreciation of $5.3 million from the
acquired nitrogen operations.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses during the first quarter of 1997 were
$19.3 million as compared to $14.9 million in 1996, an increase of $4.4 million.
The increase is attributable to the consolidation of PCS Nitrogen (including
$1.1 million for amortization of goodwill) and to general increases in supplies,
compensation and benefits.
PROVINCIAL MINING AND OTHER TAXES
Saskatchewan's potash production tax is comprised of a base tax per tonne
of product sold and an additional tax based on mine-by-mine profits. The New
Brunswick division and the Saskatchewan divisions pay a provincial crown
royalty, which is accounted for under cost of goods sold.
Decreased profitability at certain of the mines decreased the taxes paid to
the Saskatchewan government but this was offset somewhat by higher potash sales
volumes. For the first quarter of 1997, Saskatchewan provincial mining and other
taxes were $10.5 million as compared to $11.9 million in the first quarter of
1996, a decrease of 12 percent. Potash production tax for the first quarter of
1997 was $6.8 million compared to $8.5 million in the same period in 1996, a
decrease of 20 percent. Saskatchewan capital tax was $3.8 million in the three
months ended March 31, 1997 compared to $3.6 million in the prior comparable
period, an increase of 6 percent.
INTEREST EXPENSE
For the first quarters of 1997 and 1996, interest expense was $13.8
million. The average balance of long-term debt in 1996 was lower than 1997, but
this was offset by higher interest rates in 1996.
INCOME TAXES
Income taxes in the first quarter of 1997 were $20.3 million, compared to
$9.6 million in the same period of 1996, an increase of $10.7 million. The
increase is largely attributable to deferred income taxes relating to the
Company's acquired nitrogen operations and current taxes from its Trinidad
operations, Canadian deferred income taxes and US withholding taxes. The tax
rate applicable to the US operations for 1997 is approximately 27 percent of
income before taxes (1996 -- approximately 26 percent). Of this, 2 percent
represents cash taxes paid (1996 -- 3 percent).
ANALYSIS OF FINANCIAL CONDITION AND CASH FLOW
Working capital for the first three months of 1997 increased by $56.2
million primarily from the nitrogen operations. Cash flow from operations was
$82.6 million. Quick and current ratios were .85 and 1.67 at March 31, 1997
(1.23 and 2.48 respectively at December 31, 1996). The Company paid $374.1
million on a note payable, paid dividends of $14.3 million, and received
proceeds of $743.4 million in long-term debt and $140.0 million in short-term
debt to finance the nitrogen acquisition and refinance high cost debt of the
former Arcadian Corporation. The Arcadian debt included senior notes in the
principal sum of $340 million at an interest rate of 10.75 percent. The Company
utilized its credit facility to refinance at a rate of LIBOR plus a spread of
less than 50 basis points (currently 6.06 percent). The retirement of this debt
removes certain restrictive covenants on the Company and its subsidiaries,
including the need to carry cash reserves for portions of the debt servicing
costs. The Company is currently renegotiating operating leases in Trinidad at
comparable interest rates which in turn will reduce operating costs. At the end
of the first quarter, the debt to capital ratio was at 40 percent (31 percent at
December 31, 1996) and the interest coverage ratio was 6.6:1 (6.4:1 at December
31, 1996). Net debt to market capitalization at March 31, 1997 was 32 percent
(16 percent at December 31, 1996).
11
<PAGE> 13
OUTLOOK
The statements in this Management Discussion and Analysis of Financial
Condition and Results of Operations, including those in this "Outlook" section,
relating to the period after March 31, 1997, are forward-looking statements
subject to uncertainties. The Company's financial performance is affected by
price, worldwide state of supply and demand for potash, phosphate and nitrogen
products, application rates, government assistance programs, weather conditions,
exchange rates and agricultural and trade policies of producing and consuming
nations which, among other things, are influenced by domestic political
conditions. The Company sells to a diverse group of customers both by geography
and by end product. Market conditions by country will vary on a year over year
basis and sales shift from one period to another.
The rising world population and the demand for better diets in developing
nations will continue to drive consumption for fertilizer products over the
long-term. Over the short-term, there should be increased fertilizer usage over
the next few years as world grain stocks are low, in spite of a good harvest in
1996, crop prices continue to rise, and governments around the world focus on
food production. The Company expects to be an important supplier to these
markets. While the consumption trend line is expected to continue to climb over
the long-term, there will be, at times, fluctuations in demand. The Chinese
government continues to emphasize agricultural production which should encourage
purchases in the balance of 1997. For the first half of 1997, it is estimated
that as much as 2.0 million tonnes of potash will go to China, higher than the
first half of 1996 which should help to support offshore prices. Difficulties
over credit in Brazil means selling prices will have to increase to compensate
for the extended terms. Prices for Brazil's cash crops are up so demand this
year is still expected to be strong.
North American potash, phosphate and nitrogen demand in fertilizer is
generally considered mature but is expected to fluctuate slightly from year to
year, as a function of acres planted and application rates per acre which are
influenced by crop prices and weather. While the outlook for 1997 in the
domestic market has been bullish due to a new Farm Bill and no set asides, the
flooding in 1997 is affecting consumption in some areas. However, the Company
still expects a good spring season.
DAP markets are expected to improve with the renewed interest in China.
Recent offshore DAP sales to China and India have tightened the DAP market and
should have the effect of expanding margins. India signed a record agreement
with PhosChem for purchase of merchant grade acid and prices are up for liquid
phosphate fertilizer. As the first quarter ended, nitrogen prices were under
pressure but potash and phosphate prices were showing strength in domestic
markets.
PCS continues to operate its potash mines by matching production to sales
demand. Shutdowns at potash mines for inventory correction will influence potash
production costs. An additional 7.5 shutdown weeks are projected for 1997 when
compared to 1996; however this will be dependent on sales volume throughout the
remaining part of 1997.
Mining costs for potash operations are not expected to increase at a rate
greater than the anticipated rate of inflation, pending anticipated electrical
cost reductions offsetting anticipated natural gas price increases. Sulphur and
ammonia prices have moderated and are expected to impact favourably upon
phosphate processing input costs for 1997. These savings are expected to offset
the increased costs due to the excessive moisture in the overburden at Aurora.
Capital expenditures in 1997 will exceed those in 1996 primarily due to the
nitrogen acquisition. Plans for such expenditures are limited to sustaining
capital except for $54.7 million to be spent in expansion, mostly in nitrogen.
With respect to the proposed acquisition of a controlling interest in Kali
and Salz AG, PCS and BASF have, on March 26, 1997, requested approval for the
transaction from the German Minister of Economics. The request is currently
being considered by the Monopolies Commission of the German Government which
will make a recommendation to the Minister. A decision from the Minister is
expected in late June or July of this year.
The narrative, included under this Management Discussion and Analysis of
Financial Condition and Results of Operations, has been prepared with reference
to the financial statements reported under Canadian Generally Accepted
Accounting Principles (GAAP).
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CIVIL ANTITRUST COMPLAINTS
In June, 1993, the Company and PCS Sales (Canada) Inc. ("PCS Sales") were
served with a complaint relating to a suit filed in the United States District
Court for Minnesota against most North American potash producers, including the
Company. The complaint alleged a conspiracy among the defendants to fix the
price of potash purchased by the plaintiffs as well as potash purchased by the
members of a class of certain purchasers proposed by the plaintiffs. The
complaint sought treble damages in an unspecified amount and other relief. The
Company and PCS Sales filed a motion for summary judgment on December 22, 1995.
On January 2, 1997, Judge Richard H. Kyle issued an order granting the
defendants' motions for summary judgment and dismissing the lawsuit. The
plaintiffs appealed that order to the United States Court of Appeals for the
Eighth Circuit, on January 31, 1997.
Additional complaints were filed in the California and Illinois State
Courts on behalf of purported classes of indirect purchasers of potash in those
states. The Company moved to dismiss the California State Court lawsuit for lack
of personal jurisdiction and the court ruled that it does not have personal
jurisdiction over the Company but that it does have personal jurisdiction over
PCS Sales. The case remains at an early stage; no merits discovery has taken
place. The Illinois State Court dismissed the Illinois State Court complaint for
failure to state a cause of action. The Illinois plaintiff appealed that
dismissal and that dismissal was affirmed by the Appellate Court of Illinois on
November 27, 1996. On January 15, 1997 the appellate court denied the
plaintiff's request for rehearing. On February 17, 1997, the plaintiff
petitioned the Supreme Court of Illinois to review the Appellate Court's
decision. The Illinois Supreme Court denied that petition on April 2, 1997.
LAKELAND, FLORIDA PROCEEDING
On April 8, 1997, PCS Joint Venture, Ltd., Potash Corporation of
Saskatchewan (Florida), Inc., and others, were served with a summons and a
complaint and petition for enforcement, entered by the State of Florida
Department of Environmental Protection ("FDEP"). FDEP's complaint alleges that
there is soil and groundwater contamination at a PCS Joint Venture, Ltd.
fertilizer plant located in Lakeland, Florida and at certain adjoining property
(collectively, the "Site"). The complaint asserts that the defendants are
jointly and severally liable for such contamination, as operators and/or owners
of the Site. FDEP seeks up to $10,000 for each day of violation together with
costs, and also seeks a declaration of liability with respect to future costs of
responding to environmental conditions at the Site. Responses to the complaint
were filed by PCS Joint Venture, Ltd. and Potash Corporation of Saskatchewan
(Florida), Inc. Such responses deny liability, plead affirmative defenses
(failure to state a claim, third party causation, divisibility of damages,
setoff, contribution, statute of limitations, and laches) and assert cross
claims against the co-defendants. Assessment of the contamination of the Site is
continuing. No connection between the operations of PCS Joint Venture and the
contamination has been established. The magnitude of any liability which PCS
Joint Venture. Ltd. and Potash Corporation of Saskatchewan (Florida), Inc. may
have with respect to the Site has not yet been determined.
PCS NITROGEN LEGAL MATTERS
Lake Charles Plant
In connection with an incident at its Lake Charles plant in 1992, PCS
Nitrogen is contesting penalties proposed by the United States Occupational
Safety and Health Administration ("OSHA") totaling $4.35 million. On February
19, 1997, an administrative law judge of the Occupational Safety and Health
Review Commission issued a decision finding that PCS Nitrogen had committed a
willful violation of the federal Occupational Safety and Health Act and
assessing a penalty of $50,000. PCS Nitrogen has appealed the judge's decision.
In another phase of the OSHA litigation, on April 28, 1997, the United States
Court of Appeals for the Fifth Circuit held that OSHA may not multiply the
penalty for the violation by the number of employees allegedly exposed in the
incident. OSHA has not informed PCS Nitrogen whether OSHA will appeal that
decision. While PCS Nitrogen and legal counsel anticipate that any civil penalty
ultimately paid
II-1
<PAGE> 15
will be substantially less than the remaining $4.35 million penalty proposed by
OSHA, they cannot predict with certainty the outcome of the proceeding.
In September 1996, PCS Nitrogen's liability insurers negotiated preliminary
settlements of substantially all of the civil litigation arising from the Lake
Charles incident. The settlements, which in the aggregate are within the policy
limits of PCS Nitrogen's liability insurance, are subject to the negotiation and
execution of definitive settlement agreements and, with respect to the class
action civil litigation, approval as to fairness by the court. There remain
three lawsuits against PCS Nitrogen arising from the incident, which were
brought by former employees at the Lake Charles plant who allege that they were
wrongfully terminated following the incident. Management and legal counsel
believe that these lawsuits are without merit, and that there will be no
material adverse effect on the Company upon their resolution.
Shareholder Litigation
Following announcement of Arcadian Corporation's proposed business
combination with Freeport McMoRan Inc., five lawsuits were filed in the Court of
Chancery of the State of Delaware in New Castle County on behalf of a purported
class of all stockholders of Arcadian Corporation other than the defendants and
their affiliates against Arcadian Corporation and some or all of its directors.
PCS was named as an additional defendant in an amended complaint, but PCS was
not served process. The amended complaint alleged generally that the defendants
acted improperly in causing Arcadian Corporation to enter into the merger
agreement, and seeks an injunction preventing the merger, unspecified monetary
damages, and other relief.
The defendants believe the lawsuit is without merit. Nevertheless, Arcadian
Corporation and the other defendants entered into a memorandum of understanding
(the "Memorandum of Understanding") with the plaintiffs providing for the
conditional settlement of the litigation. In so doing, the defendants denied
that they violated the law and agreed to settle the suit solely to eliminate the
burden and expense of any further litigation relating to the merger. The
Memorandum of Understanding provides among other things that PCS will pay the
fees and expenses, if any, awarded by the court to the plaintiffs' counsel, up
to $450,000, and that the parties will attempt in good faith to agree upon and
enter into a stipulation of settlement of all claims asserted in the suit and
all other claims, if any, arising out of or relating to the merger (the
"Stipulation"). The Stipulation will provide for, among other things, (a) the
dismissal of all claims asserted in the lawsuit with prejudice; and (b) the
release by the plaintiffs of any and all claims relating to the Merger that they
may have against the defendants and related persons. The consummation of the
settlement is subject to certain conditions, including (a) the completion of
confirmatory discovery by the plaintiffs to verify that the terms of the
settlement are fair and reasonable; and (b) the approval of the Stipulation by
the Delaware court. The plaintiffs' have completed such confirmatory discovery
and the defendants have delivered a draft Stipulation to the plaintiffs.
Former Arcadian Executive Proceedings
On May 7, 1997, J. Douglas Campbell, Alfred L. Williams, Peter H. Kesser,
and David Alyea, former officers of Arcadian Corporation, filed lawsuits against
PCS in the United States District Court for the Western District of Tennessee.
The complaints allege that PCS breached employment agreements between Arcadian
and the officers and breached related assumption agreements among PCS, PCS
Nitrogen, and the officers. In addition, Mr. Alyea's complaint names Charles
Childers, John Gugulyn, and John Hampton as additional defendants and alleges
that the defendants interfered with and conspired to interfere with his
employment agreement, and did not accurately state their intentions in entering
into his assumption agreement. The complaints of Mr. Campbell, Mr. Williams, Mr.
Kesser, and Mr. Alyea seek damages approximately in the amounts of $22.2
million, $6.2 million, $3.7 million, and $4.2 million, respectively. Each
complaint also seeks certain additional unspecified damages. Management of the
Company, having consulted with legal counsel, believes that the lawsuits will
not have a material adverse effect on the Company. The defendants have not been
served.
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<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- ---------------------------------------------------------------------
<C> <S>
2 Agreement and Plan of Merger dated September 2, 1996, as amended, by
and among the registrant, Arcadian Corporation and PCS Nitrogen, Inc,
incorporated by reference to Exhibit 2(a) to Amendment Number 2 to
the registrant's Form S-4 (File No. 333-17841).
3(a) Restated Articles of Incorporation of the registrant dated October
31, 1989, as amended May 11, 1995, incorporated by reference to
Exhibit 3(i) to the registrant's report on Form 10-K for the year
ended December 31, 1995 (the "1995 Form 10-K").
3(b) Bylaws of the registrant dated March 2, 1995, incorporated by
reference to Exhibit 3(ii) to the 1995 Form 10-K.
4 Term Credit Agreement between The Bank of Nova Scotia and other
financial institutions and the registrant dated October 4, 1996,
incorporated by reference to Exhibit 4(b) to the registrant's Form
S-4 (File No. 333-17841).
The registrant hereby undertakes to file with the Securities and Exchange
Commission, upon request, copies of any constituent instruments defining the rights of
holders of long-term debt of the registrant or its subsidiaries that have not been filed
herewith because the amounts represented thereby are less than 10% of the total assets
of the registrant and its subsidiaries on a consolidated basis.
10 (a) Suspension Agreement concerning Potassium Chloride from Canada dated
January 7, 1988, among U.S. Department of Commerce, Potash
Corporation of Saskatchewan, International Minerals and Chemical
(Canada) Limited, Noranda, Inc. (Central Canada Potash Co.), Potash
Company of America, a Division of Rio Algom Limited, S & P Canada, II
(Kalium Chemicals), Cominco Ltd., Potash Company of Canada Limited,
Agent for Denison-Potacan Potash Co. and Saskterra Fertilizers Ltd.,
incorporated by reference to Exhibit 10 (a) to the registrant's Form
F-1 (File No. 33-31303) (the "F-1 Registration Statement").
10 (b) Sixth Voting Agreement dated April 22, 1978, between Central Canada
Potash, Division of Noranda, Inc., Cominco Ltd., International
Minerals and Chemical Corporation (Canada) Limited, PCS Sales and
Texasgulf Inc., incorporated by reference to Exhibit 10(f) to the F-1
Registration Statement.
10 (c) Canpotex Limited Shareholders Seventh Memorandum of Agreement
effective April 21, 1978, between Central Canada Potash, Division of
Noranda Inc., Cominco Ltd., International Minerals and Chemical
Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex
Limited as amended by Canpotex S & P amending agreement dated
November 4, 1987, incorporated by reference to Exhibit 10(g) to the
F-1 Registration Statement.
10 (d) Producer Agreement dated April 21, 1978, between Canpotex Limited and
PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1
Registration Statement.
10 (e) Agreement of Limited Partnership of Arcadian Fertilizer, L.P. (now
PCS Nitrogen Fertilizer, L.P.) dated as of March 3, 1992 (form), and
the related Certificate of Limited Partnership of Arcadian Fertilizer
L.P., filed with the Secretary of State of the State of Delaware on
March 3, 1992 (incorporated by reference to Exhibits 3.1 and 3.2 to
Arcadian Partners L.P.'s Registration Statement on Form S-1 (File No.
33-45828)).
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- ---------------------------------------------------------------------
<C> <S>
10(f) Geismar Complex Services Agreement dated June 4, 1984, between Allied
Corporation and Arcadian Corporation (incorporated by reference to
Exhibit 10.4 to Registration Statement on Form S-1 (Registration No.
33-34357)).
10(g) PCS Sales -- Saskterra Special Canpotex Entitlement effective June
13, 1990, incorporated by reference to Exhibit 10(n) to the
registrant's Form S-1 (File No. 33-36283).
10(h) Canpotex/PCS Amending Agreement, dated with effect October 1, 1992,
incorporated by reference to Exhibit 10(f) to the 1995 Form 10-K.
10(i) Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated
with effect October 7, 1993, incorporated by reference to Exhibit
10(g) to the 1995 Form 10-K.
10(j) Esterhazy Restated Mining and Processing Agreement dated January 31,
1978, between International Minerals and Chemical Corporation
(Canada) Limited and the registrant's predecessor, incorporated by
reference to Exhibit 10(e) to the F-1 Registration Statement.
10(k) Agreement dated December 21, 1990, between International Minerals &
Chemical Corporation (Canada) Limited and the registrant, amending
the Esterhazy Restated Mining and Processing Agreement dated January
31, 1978, incorporated by reference to Exhibit 10(p) to the
registrant's report on Form 10-K for the year ended December 31,
1990.
10(l) Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and
Arcadian Ohio, L. P., as amended by the First Amendment to the
Operating Agreement dated as of November 20, 1995, between BP
Chemicals Inc. and Arcadian Ohio, L. P. ("First Amendment")
(incorporated by reference to Exhibit 10.2 to Arcadian Partners L.
P.'s current report on Form 8-K for the report event dated May 11,
1993 ("Partners 5/11/93 Report"), except for the First Amendment
which is incorporated by reference to Arcadian Corporation's report
on Form 10-K for the year ended December 31, 1995 ("Arcadian 10-K")).
10(m) Manufacturing Support Agreement dated May 11, 1993, between BP
Chemicals Inc. and Arcadian Ohio, L. P. (incorporated by reference to
Exhibit 10.3 to the Partners 05/11/93 Report).
10(n) Agreement for Lease dated as of June 29, 1995, between Trinidad
Ammonia Company, Limited Partnership, and Arcadian Fertilizer, L.P.
(incorporated by reference to Exhibit 10.21 to Arcadian Corporation's
Registration Statement on Form S-4 (File No. 33-90290) (the "Arcadian
S-4")), as such agreement was amended by Amendment No. 1 to Agreement
for Lease dated as of August 20, 1996, between Trinidad Ammonia
Company, Limited Partnership, and Arcadian Fertilizer, L.P.
(incorporated by reference to Exhibit 10.1 to Arcadian Corporation's
Report on Form 10-Q for the period ended September 30, 1996, as
amended (the "Arcadian 10-Q")).
10(o) Lease Agreement dated as of June 29, 1995, between Trinidad Ammonia
Company, Limited Partnership, and Arcadian Fertilizer, L.P., as
amended by Amendment No. 1 to Lease Agreement dated as of August 20,
1996, between Trinidad Ammonia Company, Limited Partnership, and
Arcadian Fertilizer, L.P., and Amendment No. 2 to Lease Agreement
dated as of August 26, 1996, between Trinidad Ammonia Company,
Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated by
reference to Exhibit 10.22 to the Arcadian S-4, except for Amendment
No. 1 and Amendment No. 2 which are incorporated by reference to
Exhibit 10.2 to the Arcadian 10-Q).
</TABLE>
II-4
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- ---------------------------------------------------------------------
<C> <S>
10(p) Agreement for Lease dated as of March 27, 1996, between Nitrogen
Leasing Company, Limited Partnership, and Arcadian Fertilizer, L.P.,
as amended by Amendment No. 1 to Agreement for Lease dated as of May
24, 1996, between Nitrogen Leasing Company, Limited Partnership, and
Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.3
to the Arcadian 10-Q).
10(q) Lease Agreement dated as of March 27, 1996, between Nitrogen Leasing
Company, Limited Partnership, and Arcadian Fertilizer, L.P., as
amended by Amendment No. 1 to Lease Agreement dated as of August 26,
1996, between Nitrogen Leasing Company, Limited Partnership, and
Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.4
to the Arcadian 10-Q).
10(r) Purchase Option Agreement dated as of March 27, 1996, between
Nitrogen Leasing Company, Limited Partnership, and Arcadian
Corporation (incorporated by reference to Exhibit 10.5 to the
Arcadian 10-Q).
10(s) Purchase Option Agreement dated as of June 29, 1995, between Trinidad
Ammonia Company, Limited Partnership and Arcadian Corporation
(incorporated by reference to Exhibit 10.22 to the Arcadian S-4).
10(t) Agreement dated October 13, 1995 between the registrant and Charles
E. Childers, incorporated by reference to Exhibit 10(j) to the 1995
Form 10-K.
10(u) Potash Corporation of Saskatchewan Inc. Stock Option
Plan -- Unaffiliated Directors, incorporated by reference Exhibit
4(a) to the registrant's Form S-8 (File No. 333-19215) (the "Form
S-8").
10(v) Potash Corporation of Saskatchewan Inc. Stock Option Plan -- Officers
and Key Employees, incorporated by reference to Exhibit 4(b) to the
Form S-8.
10(w) Short Term Incentive Plan of the registrant, effective January 1,
1995, incorporated by reference to Exhibit 10(m) to the 1995 Form
10-K.
10(x) Long-Term Incentive Plan of the registrant, as amended December 15,
1995, incorporated by reference to Exhibit 10(n) to the 1995 Form
10-K.
10(y) Resolution and Forms of Agreement for Supplemental Retirement Income
Plan, for officers and key employees of the registrant, incorporated
by reference to Exhibit 10(o) to the 1995 Form 10-K.
10(z) Supplemental Executive Retirement Plan of Arcadian Corporation
(incorporated by reference to Exhibit 10.16 to the Arcadian S-4).
10(aa) Forms of Agreement dated December 30, 1994, between the registrant
and certain officers of the registrant, concerning a change in
control of the registrant, incorporated by reference to Exhibit 10(p)
to the 1995 Form 10-K.
10(bb) Form of Agreement of Indemnification dated August 8, 1995, between
the registrant and certain officers and directors of the registrant,
incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
10(cc) Employment Agreement between Arcadian Corporation and Gary E.
Carlson, dated as of September 5, 1996
10(dd) Deferred Compensation Plan, for certain officers of PCS Phosphate
Company, Inc, incorporated by reference to Exhibit 10(r) to the 1995
Form 10-K.
10(ee) Supplemental Retirement Benefits Plan, for eligible employees of PCS
Phosphate Company, Inc., incorporated by reference to Exhibit 10(s)
to the 1995 Form 10-K.
</TABLE>
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<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- ---------------------------------------------------------------------
<C> <S>
10(ff) Second Amended and Restated Membership Agreement dated January 1,
1995, among Phosphate Chemicals Export Association, Inc. and members
of such association, including Texasgulf Inc. (now PCS Phosphate
Company, Inc.), incorporated by reference to Exhibit 10(t) to the
1995 Form 10-K.
10(gg) International Agency Agreement dated January 1, 1995, between
Phosphate Chemicals Export Association, Inc. and Texasgulf Inc. (now
PCS Phosphate Company, Inc.) establishing Texasgulf Inc. as exclusive
marketing agent for such association's wet phosphatic materials,
incorporated by reference to Exhibit 10(u) to the 1995 Form 10-K.
10(hh) General Partnership Agreement forming Albright & Wilson Company,
dated July 29, 1988 and amended January 31, 1995, between Texasgulf
Inc. (now PCS Phosphate Company, Inc.) and Albright & Wilson
Americas, Inc., incorporated by reference to Exhibit 10(v) to the
1995 Form 10-K.
10(ii) Royalty Agreement dated October 7, 1993, by and between the
registrant and Rio Algom Limited, incorporated by reference to
Exhibit 10(x) to the 1995 Form 10-K.
10(jj) Amending Resolution and revised forms of agreement regarding
Supplemental Retirement Income Plan of the registrant, incorporated
by reference to Exhibit 10(x) to the registrant's report on Form 10-Q
for the quarterly period ended June 30, 1996 (the "Second Quarter
Form 10-Q").
10(kk) Employment Agreement dated May 16, 1996, by and between PCS Phosphate
Company, Inc. and Thomas J. Wright, incorporated by reference to
Exhibit 10(y) to the Second Quarter Form 10-Q.
10(ll) Shareholders Rights Agreement dated November 10, 1994, as amended on
March 28, 1995, and May 4, 1995, and approved the shareholders on May
11, 1995, incorporated by reference to Exhibit 4(a) to the 1995 Form
10-K.
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
On March 20, 1997, the registrant filed a report on Form 8-K regarding the
merger of Arcadian Corporation with and into PCS Nitrogen, Inc., a wholly-owned
subsidiary of the registrant.
II-6
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POTASH CORPORATION OF
SASKATCHEWAN INC.
<TABLE>
<S> <C>
May 7, 1997 By: /s/ JOHN L.M. HAMPTON
-----------------------------------------
John L.M. Hampton
Senior Vice President, General Counsel
and Secretary
May 7, 1997 By: /s/ BARRY E. HUMPHREYS
-----------------------------------------
Barry E. Humphreys
Sr. Vice President, Finance and Treasurer
(Principal Financial and Accounting Officer)
</TABLE>
II-7
<PAGE> 21
EXHIBIT INDEX
Exhibit No. Description of Document
2(a) Agreement and Plan of Merger dated September 2, 1996, as amended, by and
among the registrant, Arcadian Corporation and PCS Nitrogen, Inc,
incorporated by reference to Exhibit 2(a) to Amendment Number 2 to the
registrant's Form S-4 (File No. 333-17841).
3(a) Restated Articles of Incorporation of the registrant dated October 31,
1989, as amended May 11, 1995, incorporated by reference to Exhibit 3(i)
to the registrant's report on Form 10-K for the year ended December 31,
1995 (the "1995 Form 10-K").
3(b) Bylaws of the registrant dated March 2, 1995, incorporated by reference
to Exhibit 3(ii) to the 1995 Form 10-K.
4 Term Credit Agreement between The Bank of Nova Scotia and other financial
institutions and the registrant dated October 4, 1996, incorporated by
reference to Exhibit 4(b) to the registrant's Form S-4 (File No.
333-17841).
10(a) Suspension Agreement concerning Potassium Chloride from Canada dated
January 7, 1988, among U.S. Department of Commerce, Potash Corporation of
Saskatchewan, International Minerals and Chemical (Canada) Limited,
Noranda, Inc. (Central Canada Potash Co.), Potash Company of America, a
Division of Rio Algom Limited, S & P Canada, II (Kalium Chemicals),
Cominco Ltd., Potash Company of Canada Limited, Agent for Denison-Potacan
Potash Co. and Saskterra Fertilizers Ltd., incorporated by reference to
Exhibit 10 (a) to the registrant's Form F-1 (File No. 33-31303) (the "F-1
Registration Statement").
10(b) Sixth Voting Agreement dated April 22, 1978, between Central Canada
Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals
and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc.,
incorporated by reference to Exhibit 10(f) to the F-1 Registration
Statement.
10(c) Canpotex Limited Shareholders Seventh Memorandum of Agreement effective
April 21, 1978, between Central Canada Potash, Division of Noranda Inc.,
Cominco Ltd., International Minerals and Chemical Corporation (Canada)
Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by
Canpotex S & P amending agreement dated November 4, 1987, incorporated by
reference to Exhibit 10(g) to the F-1 Registration Statement.
10(d) Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS
Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration
Statement.
10(e) Agreement of Limited Partnership of Arcadian Fertilizer, L.P. (now PCS
Nitrogen Fertilizer, L.P.) dated as of March 3, 1992 (form), and the
related Certificate of Limited Partnership of Arcadian Fertilizer L.P.,
filed with the Secretary of State of the State of Delaware on March 3,
1992 (incorporated by reference to Exhibits 3.1 and 3.2 to Arcadian
Partners L.P.'s Registration Statement on Form S-1 (File No. 33-45828)).
10(f) Geismar Complex Services Agreement dated June 4, 1984, between Allied
Corporation and Arcadian Corporation (incorporated by reference to Exhibit
10.4 to Registration Statement on Form S-1 (Registration No. 33-34357)).
<PAGE> 22
10(g) PCS Sales - Saskterra Special Canpotex Entitlement effective June 13,
1990, incorporated by reference to Exhibit 10(n) to the registrant's Form
S-1 (File No. 33-36283).
10(h) Canpotex/PCS Amending Agreement, dated with effect October 1, 1992,
incorporated by reference to Exhibit 10(f) to the 1995 Form 10-K.
10(i) Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated with
effect October 7, 1993, incorporated by reference to Exhibit 10(g) to the
1995 Form 10-K.
10(j) Esterhazy Restated Mining and Processing Agreement dated January 31,
1978, between International Minerals and Chemical Corporation (Canada)
Limited and the registrant's predecessor, incorporated by reference to
Exhibit 10(e) to the F-1 Registration Statement.
10(k) Agreement dated December 21, 1990, between International Minerals &
Chemical Corporation (Canada) Limited and the registrant, amending the
Esterhazy Restated Mining and Processing Agreement dated January 31, 1978,
incorporated by reference to Exhibit 10(p) to the registrant's report on
Form 10-K for the year ended December 31, 1990.
10(l) Operating Agreement dated May 11, 1993, between BP Chemicals Inc. and
Arcadian Ohio, L. P., as amended by the First Amendment to the Operating
Agreement dated as of November 20, 1995, between BP Chemicals Inc. and
Arcadian Ohio, L. P. ("First Amendment") (incorporated by reference to
Exhibit 10.2 to Arcadian Partners L. P.'s current report on Form 8-K for
the report event dated May 11, 1993 ("Partners 5/11/93 Report"), except
for the First Amendment which is incorporated by reference to Arcadian
Corporation's report on Form 10-K for the year ended December 31, 1995
("Arcadian 10-K")).
10(m) Manufacturing Support Agreement dated May 11, 1993, between BP Chemicals
Inc. and Arcadian Ohio, L. P. (incorporated by reference to Exhibit 10.3
to the Partners 05/11/93 Report).
10(n) Agreement for Lease dated as of June 29, 1995, between Trinidad Ammonia
Company, Limited Partnership, and Arcadian Fertilizer, L.P. (incorporated
by reference to Exhibit 10.21 to Arcadian Corporation's Registration
Statement on Form S-4 (File No. 33-90290) (the "Arcadian S-4")), as such
agreement was amended by Amendment No. 1 to Agreement for Lease dated as
of August 20, 1996, between Trinidad Ammonia Company, Limited Partnership,
and Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.1
to Arcadian Corporation's Report on Form 10-Q for the period ended
September 30, 1996, as amended (the "Arcadian 10-Q")).
10(o) Lease Agreement dated as of June 29, 1995, between Trinidad Ammonia
Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by
Amendment No. 1 to Lease Agreement dated as of August 20, 1996, between
Trinidad Ammonia Company, Limited Partnership, and Arcadian Fertilizer,
L.P., and Amendment No. 2 to Lease Agreement dated as of August 26, 1996,
between Trinidad Ammonia Company, Limited Partnership, and Arcadian
Fertilizer, L.P. (incorporated by reference to Exhibit 10.22 to the
Arcadian S-4, except for Amendment No. 1 and Amendment No. 2 which are
incorporated by reference to Exhibit 10.2 to the Arcadian 10-Q).
10(p) Agreement for Lease dated as of March 27, 1996, between Nitrogen Leasing
Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended by
Amendment No. 1 to Agreement for Lease dated as of May 24, 1996, between
Nitrogen Leasing Company, Limited Partnership, and Arcadian Fertilizer,
L.P. (incorporated by reference to Exhibit 10.3 to the Arcadian 10-Q).
10(q) Lease Agreement dated as of March 27, 1996, between Nitrogen Leasing
Company, Limited Partnership, and Arcadian Fertilizer, L.P., as amended
by Amendment No. 1 to Lease Agreement dated as of August 26, 1996, between
Nitrogen Leasing Company, Limited Partnership, and
<PAGE> 23
Arcadian Fertilizer, L.P. (incorporated by reference to Exhibit 10.4
to the Arcadian 10-Q).
10(r) Purchase Option Agreement dated as of March 27, 1996, between Nitrogen
Leasing Company, Limited Partnership, and Arcadian Corporation
(incorporated by reference to Exhibit 10.5 to the Arcadian 10-Q).
10(s) Purchase Option Agreement dated as of June 29, 1995, between Trinidad
Ammonia Company, Limited Partnership and Arcadian Corporation
(incorporated by reference to Exhibit 10.22 to the Arcadian S-4).
10(t) Agreement dated October 13, 1995 between the registrant and Charles E.
Childers, incorporated by reference to Exhibit 10(j) to the 1995 Form
10-K.
10(u) Potash Corporation of Saskatchewan Inc. Stock Option Plan - Unaffiliated
Directors, incorporated by reference Exhibit 4(a) to the registrant's Form
S-8 (File No. 333-19215) (the "Form S-8").
10(v) Potash Corporation of Saskatchewan Inc. Stock Option Plan - Officers and
Key Employees, incorporated by reference to Exhibit 4(b) to the Form S-8.
10(w) Short Term Incentive Plan of the registrant, effective January 1, 1995,
incorporated by reference to Exhibit 10(m) to the 1995 Form 10-K.
10(x) Long-Term Incentive Plan of the registrant, as amended December 15, 1995,
incorporated by reference to Exhibit 10(n) to the 1995 Form 10-K.
10(y) Resolution and Forms of Agreement for Supplemental Retirement Income
Plan, for officers and key employees of the registrant, incorporated by
reference to Exhibit 10(o) to the 1995 Form 10-K.
10(z) Supplemental Executive Retirement Plan of Arcadian Corporation
(incorporated by reference to Exhibit 10.16 to the Arcadian S-4).
10(aa) Forms of Agreement dated December 30, 1994, between the registrant and
certain officers of the registrant, concerning a change in control of the
registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form
10-K.
10(bb) Form of Agreement of Indemnification dated August 8, 1995, between the
registrant and certain officers and directors of the registrant,
incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
10(cc) Employment Agreement between Arcadian Corporation and Gary E. Carlson,
dated as of September 5, 1996
10(dd) Deferred Compensation Plan, for certain officers of PCS Phosphate
Company, Inc, incorporated by reference to Exhibit 10(r) to the 1995 Form
10-K.
10(ee) Supplemental Retirement Benefits Plan, for eligible employees of PCS
Phosphate Company, Inc., incorporated by reference to Exhibit 10(s) to
the 1995 Form 10-K.
10(ff) Second Amended and Restated Membership Agreement dated January 1, 1995,
among Phosphate Chemicals Export Association, Inc. and members of such
association, including Texasgulf Inc. (now PCS Phosphate Company, Inc.),
incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K.
<PAGE> 24
10(gg) International Agency Agreement dated January 1, 1995, between Phosphate
Chemicals Export Association, Inc. and Texasgulf Inc. (now PCS Phosphate
Company, Inc.) establishing Texasgulf Inc. as exclusive marketing agent
for such association's wet phosphatic materials, incorporated by
reference to Exhibit 10(u) to the 1995 Form 10-K.
10(hh) General Partnership Agreement forming Albright & Wilson Company, dated
July 29, 1988 and amended January 31, 1995, between Texasgulf Inc. (now
PCS Phosphate Company, Inc.) and Albright & Wilson Americas, Inc.,
incorporated by reference to Exhibit 10(v) to the 1995 Form 10-K.
10(ii) Royalty Agreement dated October 7, 1993, by and between the registrant
and Rio Algom Limited, incorporated by reference to Exhibit 10(x) to the
1995 Form 10-K.
10(jj) Amending Resolution and revised forms of agreement regarding
Supplemental Retirement Income Plan of the registrant, incorporated by
reference to Exhibit 10(x) to the registrant's report on Form 10-Q for
the quarterly period ended June 30, 1996 (the "Second Quarter
Form 10-Q").
10(kk) Employment Agreement dated May 16, 1996, by and between PCS Phosphate
Company, Inc. and Thomas J. Wright, incorporated by reference to Exhibit
10(y) to the Second Quarter Form 10-Q.
10(ll) Shareholders Rights Agreement dated November 10, 1994, as amended on
March 28, 1995, and May 4, 1995, and approved the shareholders on May 11,
1995, incorporated by reference to Exhibit 4(a) to the 1995 Form 10-K.
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10(cc)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is effective as of the 5th
day of September, 1996 (the "Effective Date"), by and between ARCADIAN
CORPORATION, a Delaware corporation (the "Company"), and Gary E. Carlson
("Executive").
W I T N E S S E T H :
WHEREAS, the Company is engaged in the business of producing, marketing,
selling and distributing nitrogen fertilizers and chemicals ("Business");
WHEREAS, Executive is recognized as having experience in the management
and operation of companies that are in the Business;
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its stockholders
to assure that the Company will have the continued dedication of Executive,
notwithstanding the possibility, threat or occurrence of a Change in Control
(as defined in Section 4.7 hereof);
WHEREAS, the Board believes it is imperative (i) to diminish the
inevitable and significant distractions of Executive and dilution of the time
of Executive, by virtue of the personal uncertainties and risks created by a
pending or threatened Change in Control, (ii) to encourage Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change in Control, and (iii) to provide Executive with
compensation arrangements in the event of a Change in Control which provide
Executive with financial security, which are competitive with those of other
corporations, and which ensure that Executive receives the compensation and
benefits intended to be provided to Executive by the Company through this
Agreement and the Company's various employee benefit and compensation plans and
arrangements without regard to any Excise Tax (as defined in Section 4.11(a)
hereof); and
WHEREAS, in order to accomplish the objectives described in the two
immediately preceding recitals, the Board desires to cause the Company to enter
into this Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company and Executive hereby agree as follows:
ARTICLE I
EMPLOYMENT, REPORTING AND DUTIES
I.1 Employment. On the terms and subject to the conditions of this
Agreement, the Company hereby employs and engages the services of Executive to
serve as, and Executive agrees
<PAGE> 2
to diligently and competently serve as and perform the functions of,
Senior Vice Presidet, Marketing (the "Office") of the Company for the term and
for the compensation and benefits stated herein.
I.2 Major Responsibilities; Authority. Executive shall have the
authorities, duties, responsibilities and status (including offices, titles and
reporting requirements) usually associated with the Office of companies having
operations and assets similar in nature and value to the operations and assets
of the Company and at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date, and such other duties as the
Board shall determine and Executive shall accept from time to time.
I.3 Extent of Service. During the Term (as defined in Section 4.1), and
excluding any periods of vacation and sick leave to which Executive is
entitled, Executive agrees to devote reasonable time and energies to the
Business consistent with past practice and shall not, during the Term, be
engaged in any business activity which would interfere or prevent Executive
from carrying out his duties under this Agreement; provided, however, that this
Section 1.3 shall not be construed as preventing Executive from investing his
assets in such form or manner as will not require services on the part of
Executive in the operation of the affairs of any company in which such
investments are made.
I.4 Location. Executive shall not be required to move from Executive's
home in Shelby County, Tennessee.
ARTICLE II
COMPENSATION AND RELATED ITEMS
II.1 Compensation.
(a) Base Salary. As compensation and consideration for the services
to be rendered by Executive under this Agreement and for the performance
by Executive of the usual obligations of such employment, the Company
agrees to pay Executive, and Executive agrees to accept, a base salary
("Base Salary") of $261,600 per annum which shall be paid in accordance
with Company's standard payroll practice. Executive's Base Salary may
increase from time to time, and after any such change, Executive's new
level of Base Salary shall be Executive's Base Salary for purposes of
this Agreement until the effective date of any subsequent change.
(b) Additional Compensation. In addition to the Base Salary
provided for in Section 2.1(a), Executive and/or Executive's family, as
the case may be, shall be entitled to:
(i) participate in, and shall receive all benefits under:
(A) any and all welfare benefit and similar employee
benefit plans, programs, arrangements, or policies that are
generally made available by the Company and its affiliates
(as defined in Section 4.11(l)) now or at any time
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<PAGE> 3
in the future to other key employees or retired key employees, including,
but not limited to, any hospitalization, medical, prescription, dental,
disability, salary continuance, individual life insurance, executive life
insurance, group life insurance, accidental death insurance, and travel
accident insurance plans, programs, arrangements, and policies; and
(B) any and all bonus, incentive, savings, retirement,
profit sharing, pension, stock option, restricted stock,
employee stock ownership, supplemental executive retirement
and other employee benefit plans, programs, arrangements, and
policies that are generally made available by the Company and
its affiliates now or at any time in the future to officers
and other key employees; additionally, when Executive is
eligible for and elects retirement, pension benefit
calculations shall be calculated so as to provide a benefit
based on Executive's actual credited years and months of
service with the Company plus a benefit calculated equivalent
to an added five years of credited service. If the benefits
set forth in this clause would cause the Pension Plan to lose
its qualification under Section 401(a) of the Code, then the
benefits accrued hereunder shall accrue to Executive under
the Company's Supplemental Executive Retirement Plan
("SERP"); and
(ii) annual vacations and sick leave in accordance with the
vacation and sick leave policies of the Company and its affiliates
that are now or at any time in the future in effect with respect to
officers and other key employees, during which time Executive's
compensation shall be paid in full; and
(iii) fringe benefits in accordance with the fringe benefit
policies of the Company and its affiliates that are now or at any
time in the future in effect with respect to officers and other key
employees.
II.2 Expenses. The Company agrees that, during the Term, Executive shall
be allowed reasonable and necessary business expenses in connection with the
performance of his duties hereunder within guidelines established by the Board
as in effect at any time with respect to key employees ("Business Expenses"),
including, but not limited to, reasonable and necessary expenses for food,
travel, lodging, entertainment and other items in the promotion of the Business
within such guidelines. The Company shall promptly reimburse Executive for all
Business Expenses incurred by Executive upon Executive's presentation to the
Company of an itemized account thereof, together with receipts, vouchers, or
other supporting documentation. After termination or expiration of this
Agreement, however such termination or expiration may come about, Executive
shall have ninety (90) days after the date of such termination or expiration to
submit Business Expenses incurred during the Term to the Company for
reimbursement.
II.3 Working Facilities. Executive shall be furnished with offices of a
size and with other furnishings and appointments, administrative staff,
secretarial and other assistants, stenographic help, and such other facilities
and services as are suitable to Executive's position and adequate for the
performance of Executive's duties.
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<PAGE> 4
ARTICLE III
EXCULPATION
The Company agrees that Executive will not be liable for any losses,
expenses, costs or damages caused by or resulting from the recommendations,
suggestions, actions, errors, omissions or mistakes of Executive undertaken or
proposed by Executive if Executive acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company. Executive's rights under this Article III shall not be deemed
exclusive of, but shall be cumulative with, any and all other rights
(including, but not limited to, rights of indemnification and advancement of
expenses) to which Executive may now or at any time in the future be entitled
under applicable law, the Company's certificate of incorporation, the Company's
bylaws, any agreement (including, but not limited to, this Agreement), any vote
of stockholders, any resolution of directors, or otherwise.
ARTICLE IV
TERM AND TERMINATION
IV.1 Term. The term of this Agreement shall be for three years commencing
on the Effective Date ("Term"); provided, however, that if a Change in Control
occurs within the first twelve (12) months after the Effective Date, the Term
shall be extended to end on the third anniversary of such Change in Control.
IV.2 Termination of Agreement. Except as may otherwise be provided
herein, this Agreement may terminate prior to the end of the Term upon the
occurrence of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Executive's death or, at the Company's option, upon Executive's
becoming Disabled (as defined in Section 4.9 hereof).
Any notice of termination given by the Company to Executive under Section
4.2(a) above shall specify whether such termination is with or without Cause
(as defined in Section 4.4 hereof). Any notice of termination given by
Executive to the Company under Section 4.2(a) above shall specify whether such
termination is made with or without Good Reason (as defined in Section 4.5
hereof) or Good Reason-Change in Control (as defined in Section 4.6 hereof).
IV.3 Obligations of the Company Upon Termination.
(a) Cause; Without Good Reason; and Without Good Reason-Change in
Control. If the Company terminates this Agreement with Cause pursuant to
Section 4.2(a) hereof, or if Executive terminates this Agreement without
Good Reason or without Good Reason-Change in Control pursuant to Section
4.2(a) hereof, this Agreement shall terminate without further obligations
to Executive, other than those obligations owing or accrued to, vested
in, or earned by Executive through the date of termination, including,
but not limited to:
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<PAGE> 5
(i) to the extent not theretofore paid, Executive's Base
Salary in effect at the time of such termination through the date
of termination; and
(ii) in the case of compensation previously deferred by
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company; and
(iii) all other amounts or benefits owing or accrued to,
vested in or earned by Executive through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Company and its affiliates,
including, but not limited to, any such plans, programs,
arrangements, or policies described in Section 2.1(b) hereof;
such obligations owing or accrued to, vested in, or earned by Executive
through the date of termination, including, but not limited to, such
amounts and benefits specified in clauses (i), (ii), and (iii) of this
sentence, being hereinafter collectively referred to as the "Accrued
Obligations." The aggregate amount of such obligations owing or accrued
to, vested in, or earned by Executive through the date of termination,
including, but not limited to, the Accrued Obligations, shall be paid by
the Company to Executive in accordance with the plans, programs or
agreements under which the Accrued Obligations were earned.
(b) Good Reason; Without Cause Before a Change in Control. If
Executive terminates this Agreement with Good Reason pursuant to Section
4.2(a) hereof, or if the Company terminates this Agreement without Cause
before the occurrence of a Change in Control pursuant to Section 4.2(a)
hereof:
(1) the Company shall pay the aggregate of the following
amounts to Executive in one lump sum within thirty (30) days after
the date of such termination or in a manner and at such later time
as specified by Executive, provided that all such payments must be
made no later than the last day of the twenty-four (24) month
period commencing on the date of such termination (the "24 Month
Period"):
(i) to the extent not theretofore paid, Executive's Base
Salary in effect at the time of such termination (but prior
to giving effect to any reduction therein which precipitated
such termination) through the date of termination; and
(ii) an amount equal to the sum of (A) two (2) times
Executive's Base Salary in effect at the time of such
termination (but prior to giving effect to any reduction
therein which precipitated such termination), (B) two (2)
times the average of all bonuses, profit sharing and other
incentive payments made by the Company to all other
executives of the Company who are the same grade level as the
Executive and who have executed an employment agreement
similar in nature and benefits to this Agreement in respect
of the
-5-
<PAGE> 6
two (2) calendar years immediately preceding such
termination, or in the event there are no other executives at
the same grade level as the Executive upon the date of
termination or there are no other such executives who are in
the employ of the Company on the date of Executive's
termination, payment amount shall be the same as such other
executives who were at the same grade level as Executive on
the effective date of this Agreement had they remained in the
employ of the Company until the date of Executive's
termination, except that, when Executive has a full calandar
year of participation in any such bonus, profit sharing or
other incentive plan or arrangement, Executive's actual award
or compensation shall be used in the average calculation
herein for that period of full calandar year participation,
and (C) the pro-rata share of Executive's target bonus,
profit sharing and other incentive payments for the calendar
year in which such termination occurred based upon the
proportion that the number of complete months in such
calendar year up to the date of termination bears to the
complete calendar year; and
(iii) in the case of compensation previously deferred by
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Company,
and any accrued vacation pay not yet paid by the Company; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Executive through the date of
termination under the then existing or applicable plans,
programs, arrangements, and policies of the Company and its
affiliates, including, but not limited to, any such plans,
programs, arrangements, or policies described in Section
2.1(b) hereof; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii) or (iv) of this
sentence; and
(2) Executive shall receive the following additional benefits:
(i) for an eighteen (18) month period commencing on the
date of termination of this Agreement (the "18 Month
Period"), Executive shall continue to be covered under each
of the medical, dental, life insurance, accident benefit and
other welfare benefit (exclusive of short- and long-term
disability benefit) programs of the Company in effect and
applicable to Executive immediately prior to such
termination, and the Company shall pay the costs therefor
except to the extent that Executive already pays all or any
portion thereof; provided, however, that if Executive obtains
any of the welfare benefits provided for under this sentence
from another employer, the Company's obligation to provide
such welfare benefits should be secondary to that of such
other employer. Executive's coverage under the Company's
medical and dental programs for the 18 Month Period shall be
included in the
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<PAGE> 7
calculation of the "Period of Coverage" to be provided
to Executive pursuant to Section 4980B(f)(2)(B) of the
Internal Revenue Code of 1986, as amended ("Code"), and
Executive's right to "Continuation Coverage" under Section
4980B(f)(2) of the Code. The amount of the "Applicable
Premium" to be charged Executive under Section 4980B(f)(4)
for Continuation Coverage shall never be greater than the
monthly amount charged Executive for medical and dental
coverage prior to the termination of this Agreement; and
(ii) shall be fully vested in any and all options,
restricted stock, stock appreciation rights, cash equivalent
stock appreciation rights, or any other similar rights based
on the fair market value of or otherwise relating to the
Company's common stock (collectively, "Stock Incentive
Rights") which are outstanding immediately prior to the
termination of this Agreement, and Executive may exercise any
such vested Stock Incentive Rights during the 24 Month
Period, notwithstanding any provision otherwise in any plan
or agreement awarding or granting any Stock Incentive Right
to Executive; and
(iii) shall be fully vested in any and all benefits
accrued under any "employee pension benefit plan," as defined
in Section 3(2)(A) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), of the Company
("Retirement Plan"); and
(iv) shall receive credit in the calculation of the
accrued benefit under the Company's Pension Plan ("Pension
Plan") for (A) the compensation to be paid to Executive in
clause (ii) of paragraph (1) of this Section 4.3(b) and (B)
twenty-four (24) months of service in addition to the service
accrued by Executive through the date that this Agreement is
terminated plus a benefit calculated equivilant to an added
five (5) years of credited service as provided in Section
2.1(b)(i)(B). In calculating the accrued benefit under the
Pension Plan, if actual months of employment are less than
sixty (60) months, then the average of the actual months of
credited service shall be used to determine final average
earnings as defined in the Pension Plan. If the benefits set
forth in this clause would cause the Pension Plan to lose its
qualification under Section 401(a) of the Code, then the
benefits accrued hereunder shall accrue to Executive under
the Company's Supplemental Executive Retirement Plan
("SERP"); and
(v) shall receive such individual outplacement service
as is appropriate for Executive's position for the 24 Month
Period.
(c) Good Reason-Change in Control; Without Cause On or After a
Change in Control. If Executive terminates this Agreement with Good
Reason-Change in Control pursuant to Section 4.2(a) hereof, or if the
Company terminates this Agreement without Cause on or after the
occurrence of a Change in Control pursuant to Section 4.2(a) hereof:
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<PAGE> 8
(1) the Company shall pay the aggregate of the following
amounts to Executive in one lump sum within thirty (30) days after
the date of such termination or in a manner and at such later time
as specified by Executive, provided that all such payments must be
made no later than the last day of the thirty-six (36) month period
commencing on the date of such termination (the "36 Month Period"):
(i) to the extent not theretofore paid, Executive's Base
Salary in effect at the time of such termination (but prior
to giving effect to any reduction therein which precipitated
such termination) through the date of termination; and
(ii) an amount equal to the sum of (A) three (3) times
Executive's Base Salary in effect at the time of such
termination (but prior to giving effect to any reduction
therein which precipitated such termination), (B) three (3)
times the average of all bonuses, profit sharing and other
incentive payments made by the Company to all other
executives of the Company who are the same grade level as the
Executive and who have executed an employment agreement
similar in nature and benefits to this Agreement in respect
of the two (2) calendar years immediately preceding such
termination, or in the event there are not other executives
at the same grade level as the Executive upon the date of
termination or there are no other such executives who are in
the employ of the Company on the date of Executive's
termination, payment amount shall be the same as such other
executives who were at the same grade level as Executive on
the effective date of this Agreement had they remained in the
employ of the Company until the date of Executive's
termination, except that, when Executive has a full calandar
year of participation in any such bonus, profit sharing or
other incentive plan or arrangement, Executive's actual award
or compensation shall be used in the calculation herein for
that period of full calandar year participation, and (C) the
pro-rata share of Executive's target bonus, profit sharing
and other incentive payments for the calendar year in which
such termination occurred based upon the proportion that the
number of complete months in such calendar year up to the
date of termination bears to the complete calendar year; and
(iii) in the case of compensation previously deferred by
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Company,
and any accrued vacation pay not yet paid by the Company; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Executive through the date of
termination under the then existing or applicable plans,
programs, arrangements, and policies of the Company and its
affiliates, including, but not limited to, any such plans,
programs, arrangements, or policies described in Section
2.1(b) hereof; and
-8-
<PAGE> 9
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii) or (iv) of this
sentence; and
(2) Executive shall receive the following additional benefits:
(i) for the 36 Month Period, Executive shall continue
to be covered under each of the medical, dental, life
insurance, accident benefit and other welfare benefit
(exclusive of short- and long-term disability benefit)
programs of the Company in effect and applicable to Executive
immediately prior to the time of such termination, and the
Company shall pay the costs therefor except to the extent
that Executive already pays all or any portion thereof;
provided, however, that if Executive obtains any of the
welfare benefits provided for under this sentence from
another employer, the Company's obligation to provide such
welfare benefits shall be secondary to that of such other
employer. Executive's coverage under the Company's medical
and dental programs for the 36 Month Period shall not be
included in the calculation of the "Period of Coverage" to be
provided to Executive pursuant to Section 4980B(f)(2)(B) of
the Code, and Executive's right to "Continuation Coverage"
under Section 4980B(f)(2) of the Code for medical and dental
benefits under the Company's medical and dental programs
shall commence on the first day following the end of the 36
Month Period. The amount of the "Applicable Premium" to be
charged Executive under Section 4980B(f)(4) for Continuation
Coverage shall never be greater than the monthly amount
charged Executive for medical and dental coverage during the
36 Month Period; and
(ii) shall be fully vested in any and all benefits
accrued under any Retirement Plan; and
(iii) shall receive credit in the calculation of the
accrued benefit under the Pension Plan for (A) the
compensation to be paid to Executive in clause (ii) of
paragraph (1) of this Section 4.3(c) and (B) thirty-six (36)
months of service in addition to the service accrued by
Executive through the date that this Agreement is terminated
plus a benefit calculated equivilant to an added five (5)
years of credited service as provided in Section
2.1(b)(i)(B). In calculating the accrued benefit under the
Pension Plan, if actual months of employment are less than
sixty (60) months, then the average of the actual months of
credited service shall be used to determine final average
earnings as defined in the Pension Plan. If the benefits set
forth in this clause would cause the Pension Plan to lose its
qualification under Section 401(a) of the Code, then the
benefits accrued hereunder shall accrue to Executive under
the SERP, and if the Executive is not a participant in the
SERP, the actuarial lump sum equivalent of the benefit
described in this clause (iv) shall be paid in accordance
with paragraph (1) of Section 4.2(c); and
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(iv) shall receive such individual outplacement service
as is appropriate for Executive's position for the 36 Month
Period.
(d) Death. If Executive's employment is terminated under Section
4.2(b) hereof by reason of Executive's death, the Company shall pay to
Executive's legal representatives the full amount of the obligations
owing or accrued to, vested in, or earned by Executive through the date
of Executive's death, including, but not limited to, the Accrued
Obligations in accordance with the plans, programs, or agreements under
which the Accrued Obligations were earned. Anything in this Agreement to
the contrary notwithstanding, Executive's family shall be entitled to
receive benefits provided by the Company and any of its affiliates to
surviving families under the then existing or applicable plans, programs,
or arrangements and policies of the Company and its affiliates.
(e) Disability. If Executive's employment is terminated under
Section 4.2(b) hereof by reason of Executive becoming Disabled, the
Company shall pay to Executive or Executive's legal representative the
full amount of the obligations owing or accrued to, vested in, or earned
by Executive through the date of termination, including, but not limited
to, the Accrued Obligations in accordance with the plans, programs, or
agreements under which the Accrued Obligations were earned.
IV.4 Cause. As used in this Agreement, the term "Cause" means (i) willful
misconduct by Executive or gross neglect by Executive of his duties as an
employee, officer or director of the Company which continues for more than
thirty (30) days after Executive's receipt of written notice from the Board to
Executive specifically identifying the willful misconduct or gross negligence
of Executive and directing Executive to discontinue the same, (ii) the
commission by Executive of a crime constituting a felony, or (iii) the
commission by Executive of an act, other than an act taken in good faith within
the course and scope of Executive's employment, which is directly detrimental
to the Company and exposes the Company to material liability.
IV.5 Good Reason. As used in this Agreement, the term "Good Reason" means
the breach of any material provision of this Agreement by the Company
(including, but in no way limited to, any removal of Executive, without Cause,
from the position of the Office during the Term) which is not cured within
thirty (30) days after written notice from Executive to the Company
specifically identifying such breach; provided, however, that the term "Good
Reason" shall not include any breach of any provision of this Agreement that
occurs after the occurrence of a Change in Control.
IV.6 Good Reason-Change in Control.
(a) Except as provided in Section 4.6(b) below, as used in this
Agreement, the term "Good Reason-Change in Control" means after the
occurrence of a Change in Control, a determination by Executive that any
one or more of the following events has occurred:
(i) a material change in the nature of Executive's Office,
including, but not limited to, his authorities, duties,
responsibilities or status (including offices,
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titles or reporting requirements), from those in effect
immediately prior to the Change in Control; or
(ii) the relocation of Executive's place of employment to a
location in excess of fifty (50) miles from the place of
Executive's employment immediately prior to the Change in Control,
except for required travel on Company business to an extent
substantially equivalent to Executive's business travel obligations
immediately prior to the Change in Control; or
(iii) any reduction by the Company of Executive's Base Salary,
or a material reduction in his bonus, profit sharing or other
incentive benefits, from those in effect immediately prior to the
Change in Control; or
(iv) the failure by the Company to increase Executive's Base
Salary in a manner consistent (both as to frequency and percentage
increase) with (A) the Company's practices in effect immediately
prior to the Change in Control with respect to similarly positioned
employees or (B) the Company's practices implemented subsequent to
the Change in Control with respect to similarly positioned
employees, whichever is more favorable to Executive; or
(v) the failure of the Company to continue in effect
Executive's participation in (A) the Company's employee benefit
plans, programs, arrangements and policies, at a level
substantially equivalent in value to and on a basis consistent with
the relative levels of participation of other similarly positioned
employees, as in effect immediately prior to the Change in Control
or (B) the Company's employee benefit plans, programs, arrangements
and policies implemented subsequent to the Change in Control with
respect to similarly positioned employees, whichever is more
favorable to Executive; or
(vi) the failure of the Company to obtain from a successor
(including a successor to a material portion of the business or
assets of the Company) a satisfactory assumption in writing of the
Company's obligations under this Agreement; or
(vii) the failure of the Company to continue to provide
Executive with office space, related facilities and support
personnel (including, but not limited to, administrative and
secretarial assistance) that are both commensurate with the Office
and Executive's responsibilities to and position with the Company
immediately prior to the Change in Control and not materially
dissimilar to the office space, related facilities and support
personnel provided to other key executive officers of the Company;
or
(viii) the Company notifies Executive of the Company's
intention not to observe or perform one or more of the obligations
of the Company under this Agreement; or
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(ix) the Company breaches any provision of this Agreement and
such breach is not cured within thirty (30) days after the
Company's receipt of notice thereof from Executive.
(b) If, after the occurrence of a Change in Control, Executive
receives a written description from the Company of the nature of
Executive's Office thereafter, stating Executive's authorities, duties,
responsibilities, status, salary, bonus and other employee benefits, or
job location, and Executive accepts such new authorities, duties,
responsibilities, status, salary, bonus and other employee benefits, or
job location ("New Office") with the Company without determining that the
New Office causes a Good Reason-Change in Control as set forth in Section
4.6(a), then for the remaining Term the New Office shall be the
authorities, duties, responsibilities, status, salary, bonus and other
employee benefits, or job location to be used by Executive in determining
whether a Good Reason-Change in Control occurs thereafter pursuant to
Section 4.6(a).
IV.7 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Company of any of the following
events:
(a) a report on Schedule 13D is filed with the Securities and
Exchange Commission (the "SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Company (or
one of its subsidiaries) or any employee benefit plan sponsored by the
Company (or one of its subsidiaries), is the beneficial owner (as such
term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 30% or more of the outstanding shares of
common stock of the Company or the combined voting power of the then
outstanding securities of the Company;
(b) a report is filed by the Company disclosing a response to either
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, Item 1 of Form 8-K promulgated under the Exchange Act, or
any similar reporting requirement hereafter promulgated by the SEC;
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Company (or one of its
subsidiaries) or any employee benefit plan sponsored by the Company (or
one of its subsidiaries), shall purchase securities pursuant to a tender
offer or exchange offer to acquire any common stock of the Company (or
securities convertible into common stock) for cash, securities or any
other consideration, provided that after consummation of the offer, the
person, entity or group in question is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 30% or more of the combined voting power of the then
outstanding securities of the Company (as determined under paragraph (d)
of Rule 13d-3 promulgated under the Exchange Act, in the case of rights
to acquire common stock);
(d) the stockholders of the Company shall approve:
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(i) any merger, consolidation, or reorganization of the Company:
(A) in which the Company is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the
Company would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20% or more of the
combined voting power of the then outstanding securities of
the Company, or
(D) in which the Company will not survive as an
independent, publicly owned corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Company, or
(iii) any liquidation or dissolution of the Company;
(e) the stockholders of the Company shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any
person, entity or group (within the meaning of Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in excess of 30% of the
outstanding shares of common stock of the Company or in excess of 30% of
the combined voting power of the then outstanding securities of the
Company;
(f) the Company's common stock ceases to be listed on the New York
Stock Exchange; or
(g) during any period of two consecutive years, the individuals who
at the beginning of such period constituted the Board cease for any
reason to constitute a majority of the Board, unless the election or
nomination for election by the Company's stockholders of each new
director during any such two-year period was approved by the vote of
two-thirds of the directors then still in office who were directors at
the beginning of such two-year period.
IV.8 Executive Group. As used herein, "Executive Group" shall mean the
officers of the Company at the levels of Vice President and above; and each of
such officers shall be deemed members of the Executive Group.
IV.9 Disabled. As used herein, "Disabled" shall mean a mental or physical
impairment which, in the reasonable opinion of a qualified doctor selected by
the Company, renders Executive unable to perform with reasonable diligence the
ordinary functions and duties of Executive on a
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full-time basis in accordance with the terms of this Agreement, which
inability continues for a period of not less than 180 consecutive days.
IV.10 Return of Materials; Confidential Information. In the event of any
termination of this Agreement, Executive shall promptly deliver to the Company
all lists, books, records, literature, products and any other materials owned
or provided by the Company in connection with Executive's employment hereunder.
Executive shall not at any time during or after the Term hereof use for himself
or others, or divulge to others, any secret or confidential information,
knowledge or data of the Company obtained by Executive as a result of his
employment unless authorized by a majority of the Board.
IV.11 Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company or
any of its affiliates to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions being individually referred to
herein as a "Payment," and any two or more of such payments or distributions
being referred to herein as "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code (such excise tax, together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such excise tax, and any interest in respect of such penalties,
additions to tax or additional amounts, being collectively referred herein to
as the "Excise Tax"), then Executive shall be entitled to receive and the
Company shall make an additional payment or payments (individually referred to
herein as a "Gross-Up Payment," and any two or more of such additional payments
being referred to herein as "Gross-Up Payments") in an amount such that after
payment by Executive of all taxes (as defined in Section 4.11(k)) imposed upon
the Gross-Up Payment, Executive retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 4.11(c) through (i), any
determination (individually, a "Determination") required to be made under this
Section 4.11(b), including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by nationally recognized tax counsel mutually acceptable to the
Company and Executive ("Tax Counsel"). Tax Counsel shall provide detailed
supporting legal authorities, calculations, and documentation both to the
Company and Executive within 15 business days of the termination of Executive's
employment, if applicable, or such other time or times as is reasonably
requested by the Company or Executive. If Tax Counsel makes the initial
Determination that no Excise Tax is payable by Executive with respect to a
Payment or Payments, it shall furnish Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to any
such Payment or Payments. Executive shall have the right to dispute any
Determination (a "Dispute") within 15 business days after delivery of Tax
Counsel's opinion with respect to such Determination. The Gross-Up Payment, if
any, as determined pursuant to such Determination shall, at the Company's
expense, be paid by the Company to Executive within five business days of
Executive's receipt of such Determination. The existence of a Dispute shall
not in any way affect Executive's right to receive the Gross-Up Payment in
accordance with such Determination. If there is no Dispute, such Determination
shall be binding, final and conclusive upon the Company and
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Executive, subject in all respects, however, to the provisions of Section
4.11(c) through (i) below. As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, it is possible that Gross-Up Payments
(or portions thereof) which will not have been made by the Company should have
been made ("Underpayment"), and if upon any reasonable written request from
Executive or the Company to Tax Counsel, or upon Tax Counsel's own initiative,
Tax Counsel, at the Company's expense, thereafter determines that Executive is
required to make a payment of any Excise Tax or any additional Excise Tax, as
the case may be, Tax Counsel shall, at the Company's expense, determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to Executive.
(c) The Company shall defend, hold harmless, and indemnify Executive on a
fully grossed-up after tax basis from and against any and all claims, losses,
liabilities, obligations, damages, impositions, assessments, demands,
judgements, settlements, costs and expenses (including reasonable attorneys',
accountants', and experts' fees and expenses) with respect to any tax liability
of Executive resulting from any Final Determination (as defined in Section
4.11(j)) that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral communication with
respect to any question, adjustment, assessment or pending or threatened audit,
examination, investigation or administrative, court or other proceeding which,
if pursued successfully, could result in or give rise to a claim by Executive
against the Company under this Section 4.11(d) ("Claim"), including, but not
limited to, a claim for indemnification of Executive by the Company under
Section 4.11(c), then such party shall promptly notify the other party hereto
in writing of such Claim ("Tax Claim Notice").
(e) If a Claim is asserted against Executive ("Executive Claim"),
Executive shall take or cause to be taken such action in connection with
contesting such Executive Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as
are reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide
that the Company shall be solely responsible for the payment of any and all
fees and disbursements of such counsel and any experts) and the execution of
powers of attorney, provided that:
(i) within 30 calendar days after the Company receives or delivers,
as the case may be, the Tax Claim Notice relating to such Executive Claim
(or such earlier date that any payment of the taxes claimed is due from
Executive, but in no event sooner than five calendar days after the
Company receives or delivers such Tax Claim Notice), the Company shall
have notified Executive in writing ("Election Notice") that the Company
does not dispute its obligations (including, but not limited to, its
indemnity obligations) under this Agreement and that the Company elects
to contest, and to control the defense or prosecution of, such Executive
Claim at the Company's sole risk and sole cost and expense; and
(ii) the Company shall have advanced to Executive on an
interest-free basis, the total amount of the tax claimed in order for
Executive, at the Company's request, to pay or cause to be paid the tax
claimed, file a claim for refund of such tax and, subject to
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the provisions of the last sentence of Section 4.11(g), sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding
in, for example, United States Tax Court) and shall indemnify and hold
Executive harmless, on a fully grossed-up after tax basis, from any tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and
(iii) the Company shall reimburse Executive for any and all costs
and expenses resulting from any such request by the Company and shall
indemnify and hold Executive harmless, on fully grossed-up after-tax
basis, from any tax imposed as a result of such reimbursement.
(f) Subject to the provisions of Section 4.11(e) hereof, the Company shall
have the right to defend or prosecute, at the sole cost, expense and risk of
the Company, such Executive Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted diligently by the Company to a
Final Determination; provided, however, that (i) the Company shall not, without
Executive's prior written consent, enter into any compromise or settlement of
such Executive Claim that would adversely affect Executive, (ii) any request
from the Company to Executive regarding any extension of the statute of
limitations relating to assessment, payment, or collection of taxes for the
taxable year of Executive with respect to which the contested issues involved
in, and amount of, the Executive Claim relate is limited solely to such
contested issues and amount, and (iii) the Company's control of any contest or
proceeding shall be limited to issues with respect to the Executive Claim and
Executive shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or any other
taxing authority. So long as the Company is diligently defending or
prosecuting such Executive Claim, Executive shall provide or cause to be
provided to the Company any information reasonably requested by the Company
that relates to such Executive Claim, and shall otherwise cooperate with the
Company and its representatives in good faith in order to contest effectively
such Executive Claim. The Company shall keep Executive informed of all
developments and events relating to any such Executive Claim (including,
without limitation, providing to Executive copies of all written materials
pertaining to any such Executive Claim), and Executive or his authorized
representatives shall be entitled, at Executive's expense, to participate in
all conferences, meetings and proceedings relating to any such Executive Claim.
(g) If, after actual receipt by Executive of an amount of a tax claimed
(pursuant to an Executive Claim) that has been advanced by the Company pursuant
to Section 4.11(e)(ii) hereof, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, Executive shall promptly pay or cause to be paid to the Company
any refund actually received by, or actually credited to, Executive with
respect to such tax (together with any interest paid or credited thereon by the
taxing authority and any recovery of legal fees from such taxing authority
related thereto), except to the extent that any amounts are then due and
payable by the Company to Executive, whether under the provisions of this
Agreement or otherwise. If, after the receipt by Executive of an amount
advanced by the Company pursuant to Section 4.11(e)(ii), a determination is
made by the Internal Revenue Service or other appropriate
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taxing authority that Executive shall not be entitled to any refund with
respect to such tax claimed and the Company does not notify Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of any Gross-Up Payments and other
payments required to be paid hereunder.
(h) With respect to any Executive Claim, if the Company fails to deliver
an Election Notice to Executive within the period provided in Section
4.11(e)(i) hereof or, after delivery of such Election Notice, the Company fails
to comply with the provisions of Section 4.11(e)(ii) and (iii) and (f) hereof,
then Executive shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion, to defend
or prosecute, at the sole cost, expense and risk of the Company, such Executive
Claim. Executive shall have full control of such defense or prosecution and
such proceedings, including any settlement or compromise thereof. If requested
by Executive, the Company shall cooperate, and shall cause its affiliates to
cooperate, in good faith with Executive and his authorized representatives in
order to contest effectively such Executive Claim. The Company may attend, but
not participate in or control, any defense, prosecution, settlement or
compromise of any Executive Claim controlled by Executive pursuant to this
Section 4.11(h) and shall bear its own costs and expenses with respect thereto.
In the case of any Executive Claim that is defended or prosecuted by Executive,
Executive shall, from time to time, be entitled to current payment, on a fully
grossed-up after tax basis, from the Company with respect to costs and expenses
incurred by Executive in connection with such defense or prosecution.
(i) In the case of any Executive Claim that is defended or prosecuted to a
Final Determination pursuant to the terms of this Section 4.11(i), the Company
shall pay, on a fully grossed-up after tax basis, to Executive in immediately
available funds the full amount of any taxes arising or resulting from or
incurred in connection with such Executive Claim that have not theretofore been
paid by the Company to Executive, together with the costs and expenses, on a
fully grossed-up after tax basis, incurred in connection therewith that have
not theretofore been paid by the Company to Executive, within ten calendar days
after such Final Determination. In the case of any Executive Claim not covered
by the preceding sentence, the Company shall pay, on a fully grossed-up after
tax basis, to Executive in immediately available funds the full amount of any
taxes arising or resulting from or incurred in connection with such Executive
Claim at least ten calendar days before the date payment of such taxes is due
from Executive, except where payment of such taxes is sooner required under the
provisions of this Section 4.11(i), in which case payment of such taxes (and
payment, on a fully grossed-up after tax basis, of any costs and expenses
required to be paid under this Section 4.11(i) shall be made within the time
and in the manner otherwise provided in this Section 4.11(i).
(j) For purposes of this Agreement, the term "Final Determination" shall
mean (A) a decision, judgment, decree or other order by a court or other
tribunal with appropriate jurisdiction, which has become final and
non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (C) any disallowance of
a claim for refund or credit in respect to an overpayment of tax unless a suit
is filed on a timely basis; or (D) any final disposition by reason of the
expiration of all applicable statutes of limitations.
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(k) For purposes of this Agreement, the terms "tax" and "taxes" mean any
and all taxes of any kind whatsoever (including, but not limited to, any and
all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such taxes and any interest in respect of such penalties, additions
to tax, or additional amounts.
(l) For purposes of this Agreement, the terms "affiliate" and "affiliates"
mean, when used with respect to any entity, individual, or other person, any
other entity, individual, or other person which, directly or indirectly,
through one or more intermediaries controls, or is controlled by, or is under
common control with such entity, individual or person. The term "control" and
derivations thereof when used in the immediately preceding sentence means the
ownership, directly or indirectly, of 50% or more of the voting securities of
an entity or other person or possessing the power to direct or cause the
direction of the management and policies of such entity or other person,
whether through the ownership of voting securities, by contract or otherwise.
IV.12 Legal Fees and Expenses. The Company shall defend, hold harmless,
and indemnify Executive on a fully grossed-up after tax basis from and against
any and all costs and expenses (including reasonable attorneys', accountants'
and experts' fees and expenses) incurred by Executive acting reasonably from
time to time as a result of any contest (regardless of the outcome) by the
Company or others contesting the validity or enforcement of, or liability
under, any term or provision of this Agreement, plus in each case interest at
the applicable federal rate provided for in Section 7872(f)(2)(B) of the Code.
IV.13 Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plan, program, arrangement or policy provided by the Company
or any of its affiliates (including, but not limited to, any plan, program,
arrangement or policy described in Section 2.1(c) hereof) and for which
Executive and/or Executive's family may qualify, nor shall anything herein
limit or otherwise affect such rights as Executive and/or Executive's family
may have under any other agreements with the Company or any of its affiliates.
Amounts which are vested benefits or which Executive and/or Executive's family
is otherwise entitled to receive under any plan, program, arrangement, or
policy of the Company or any of its affiliates (including, but not limited to,
any plan, program, arrangement or policy described in Section 2.1(c) hereof) at
or subsequent to the date of termination of this Agreement shall be payable in
accordance with such plan, program, arrangement or policy.
IV.14 Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
Executive or others. In no event shall Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement.
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ARTICLE V
GENERAL PROVISIONS
V.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
V.2 Assignability. This Agreement is personal to Executive and without
the prior written consent of the Company shall not be assignable by Executive
other than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives and heirs. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company shall
require any corporation, entity, individual or other person who is the
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform, by a
written agreement in form and substance satisfactory to Executive, all of the
obligations of the Company under this Agreement. As used in this Agreement,
the term "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, written agreement, or otherwise.
V.3 Withholding. The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
V.4 Entire Agreement; Amendment. This Agreement constitutes the entire
agreement and understanding between Executive and the Company and supersedes
any prior agreements or understandings, whether written or oral, with respect
to the subject matter hereof. Except as may be otherwise provided herein, this
Agreement may not be amended or modified except by subsequent written agreement
executed by both parties hereto.
V.5 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, but all of which
together shall constitute one Agreement.
V.6 Notices. Any notice provided for in this Agreement shall be deemed
delivered upon deposit in the United States mails, registered or certified
mail, addressed to the party to whom directed at the addresses set forth below
or at such other addresses as may be substituted therefor by notice given
hereunder. Notice given by any other means must be in writing and shall be
deemed delivered only upon actual receipt.
If to the Company:
Arcadian Corporation
6750 Poplar Avenue, Suite 600
Memphis, Tennessee 38138-7419
Attention: President
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<PAGE> 20
If to Executive:
Gary E. Carlson
2480 Birnam Wood Drive
Germantown, TN 38138
V.7 Waiver. The waiver of any breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any breach of the
same or any other term or condition of this Agreement.
V.8 Severability. In the event any provision of this Agreement is found
to be unenforceable or invalid, such provision shall be severable from this
Agreement and shall not effect the enforceability or validity of any other
provision of this Agreement.
V.9 Other Severance Benefits. This Agreement replaces and supplants any
and all provisions of and benefits under the Arcadian Corporation Severance
Program for Key Employees.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
ARCADIAN CORPORATION
By: /s/ J.D. CAMPBELL
______________________________________________
Name: J. D. Campbell
Title: President and Chief Executive Officer
/s/ GARY E. CARLSON
__________________________________________________
Name: Gary E. Carlson
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<PAGE> 1
EXHIBIT 11
POTASH CORPORATION OF SASKATCHEWAN INC.
COMPUTATION OF PER SHARE EARNINGS
FOR THE QUARTERS ENDED MARCH 31
(Figures and amounts expressed in thousands, except per share and per option
amounts)
<TABLE>
<CAPTION>
Q1-1997 Q1-1996
------- -------
<S> <C> <C> <C>
A Net Income as reported, Canadian GAAP............................ 56,365 63,678
B Items adjusting net income....................................... (3,174) (3,227)
C Net income, US GAAP (A+B)........................................ 53,191 60,451
D Weighted average number of shares outstanding.................... 47,823 45,484
E Options outstanding to purchase equivalent shares................ 1,714 1,292
F Average exercise price per option................................ $52.90 $43.57
G Average market price per share................................... $80.48 $70.35
H Period end market price per share................................ $76.00 $62.50
I Rate of Return available on option proceeds...................... 0.05 0.05
CANADIAN GAAP
Basic earnings per share (A/D)................................... $ 1.18 $ 1.40
Fully diluted earnings per share
J Imputed earnings on options proceeds (E*F*I)..................... 4,533 2,814
Fully diluted earnings per share ((A+J)/(D+E))................... $ 1.23 $ 1.42
UNITED STATES GAAP
Basic earnings per share
K Net additional shares issuable (E-(E*F/G))....................... 587 492
Basic earnings per share (C/(D+K))............................... $ 1.10 $ 1.31
Fully diluted earnings per share
L Net additional shares issuable (E-(E*F/H))....................... 521 391
Fully diluted earnings per share (C/(D+L))....................... $ 1.10 $ 1.32
D+K Weighted average shares for US GAAP.............................. 48,410 45,976
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 81,035
<SECURITIES> 0
<RECEIVABLES> 352,505
<ALLOWANCES> (6,043)
<INVENTORY> 377,873
<CURRENT-ASSETS> 838,424
<PP&E> 3,527,066
<DEPRECIATION> (556,594)
<TOTAL-ASSETS> 4,446,617
<CURRENT-LIABILITIES> 503,450
<BONDS> 1,364,891
0
0
<COMMON> 1,204,192
<OTHER-SE> 817,055
<TOTAL-LIABILITY-AND-EQUITY> 4,446,617
<SALES> 464,834
<TOTAL-REVENUES> 464,834
<CGS> 349,807
<TOTAL-COSTS> 349,807
<OTHER-EXPENSES> 24,514
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,818
<INCOME-PRETAX> 76,695
<INCOME-TAX> 20,330
<INCOME-CONTINUING> 56,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,365
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.23
</TABLE>
