EXHIBIT 10.16

 

 

CF INDUSTRIES HOLDINGS, INC.

 

2005 EQUITY AND INCENTIVE PLAN

 

Annual Incentive Program

 

 

Effective January 1, 2008

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

Purpose

 

3

 

 

 

Participation Eligibility

 

3

 

 

 

Award Opportunities

 

3

 

 

 

Company Performance Metric & Award Pool

 

4

 

 

 

Determination of Individual Awards

 

5

 

 

 

Payment of Awards

 

5

 

 

 

AIP Awards and Employee Benefits

 

6

 

 

 

Other Provisions

 

6

 

 

 

Exhibit I

 

8

 

2

--------------------------------------------------------------------------------

 

CF INDUSTRIES HOLDINGS, INC.

 

2005 EQUITY AND INCENTIVE PLAN

 

Annual Incentive Program

 

PURPOSE

 

The purpose of the Annual Incentive Program (“AIP”), established under the
Company’s 2005 Equity and Incentive Plan, is to support the accomplishment of
the Company’s financial objectives. In doing so the AIP is designed to:

 

·                  Closely align the compensation of AIP participants with the
financial interests and expectations of the Company’s stockholders.

 

·                  Provide opportunities, when combined with base salaries, for
participants to earn competitive levels of direct cash compensation in order to
attract and retain high-performing management employees.

 

·                  Define an appropriate portion of management compensation as
being “at risk”, thereby providing enhanced opportunities for pay for
performance.

 

PARTICIPATION ELIGIBILITY

 

Participation in the AIP is limited to corporate officers and other management
positions that have the ability to contribute meaningfully to the Company’s
business results.

 

Participation in the AIP by non-officers must be approved by the Chairman and
Chief Executive Officer of the Company.  Participation by the “executive
officers,” who are identified as such in the proxy statement, and by other
officers reporting directly to the Chairman and Chief Executive Officer must be
approved by the Compensation Committee of the Board of Directors.

 

AWARD OPPORTUNITIES

 

Each approved participant is assigned to a specific Target Award Group. A
participant’s assigned Group reflects a combination of his/her position’s
relative responsibility level and competitive compensation level. Each Group has
a target award level stated as a percent of “base earnings,” defined as payroll
earnings received during the program year.  Each year all participants will
receive award agreements that reflect the award opportunity for that specific
program year.

 

3

--------------------------------------------------------------------------------

 

The Target Award level as of January 1, 2008 for each Group is as follows:

 

 

 

Target Award

 

Group

 

% of Base
Earnings

 

 

 

 

 

1.

Chairman & CEO

 

100

%

2.

Selected Sr. Vice Presidents and Vice Presidents

 

60

 

3.

Selected Sr. Vice Presidents

 

55

 

4.

Selected Sr. Vice Presidents

 

50

 

5.

Selected Vice Presidents

 

45

 

6.

Selected Vice Presidents

 

40

 

7.

Selected Vice Presidents & Selected Dirs.

 

35

 

8.

Gen. Mgrs. & Selected Dirs.

 

30

 

9.

Selected Directors & Mgrs.

 

24

 

10.

Selected Directors & Mgrs.

 

20

 

11.

Selected Directors & Mgrs.

 

16

 

 

COMPANY PERFORMANCE METRIC & AWARD POOL

 

The performance metric used to determine the aggregate award pool is Cash Flow
Return on Average Gross Capital Employed (CFROC).  The Company’s performance
standard at the Target level is a CFROC of 19%.  The definition of CFROC is
presented in Exhibit I.

 

The determination of the aggregate award pool is based upon the following
Company performance schedule:

 

Cash Flow Return on
Average Gross Capital
Employed

 

Aggregate
Award Pool as a % of
Target

 

42

%

(Maximum)

 

 

200

%

33

 

 

 

 

150

 

19

 

(Target)

 

 

100

 

5

 

(Threshold)

 

 

50

 

 

The aggregate award pool for performance levels between objectives are
determined proportionately.  In addition, if the Company’s performance is below
Threshold, an award pool equal to 15% of the target awards at the 100% of target
level of all program participants in aggregate (excluding the executive officers
who are named in the summary compensation table in the proxy statement, referred
to as the “named executive officers”) will be available for distribution based
on management discretion.  In such circumstances, it is possible that none, some
or all of the award pool will be paid to participants.

 

4

--------------------------------------------------------------------------------

 

DETERMINATION OF INDIVIDUAL AWARDS

 

The determination of actual individual awards from the pool is based on the
following provisions:

 

·                  The Company’s CFROC performance (rounded to the nearest
one-tenth of a whole percent, for example 38.2%) will be used to determine the
percent of target (rounded to the nearest whole percent, for example 179%)
available to participants.

 

·                  The awards for the Chairman and CEO and all other named
executive officers are equal to their respective target awards multiplied by the
percent of target attained by applying the Company’s CFROC against the
performance schedule.  No awards are granted to these executives if Company
performance is below the Threshold level.

 

·                  The pool of award dollars available for distribution to all
other participants is equal to these participants’ target awards in aggregate
multiplied by the percent of target attained based on Company performance.  The
award for an individual participant is equal to 85% of the amount determined by
multiplying his/her target award by the percent of target attained based on
Company performance.  The remaining 15% of the pool is distributed based on
management discretion.

 

·                  When Company performance does not meet the CFROC threshold
level, an award pool equal to 15% of the target awards of all participants,
other than the named executive officers, may be distributed on a discretionary
basis.

 

PAYMENT OF AWARDS

 

Payment of approved awards is made no later than March 15 of the calendar year
following completion of the Program Year.

 

Participants, if eligible, may elect to defer all or a portion of their AIP
awards under the provisions of the Company’s non-qualified deferred compensation
plans if such elections are in place prior to January 1 of the Program year or
within 30 days of participation date if participation starts after the first of
the year.  Deferrals are subject to applicable taxes.

 

Payment of awards to participants whose employment with the Company terminates
is as follows:

 

·                  Due to Retirement, Disability, Death or Job Elimination (As
defined below)

 

Awards are pro-rated based on the participant’s base earnings through the date
of termination or disability and are determined and paid out after the close of
the Program Year based on applicable performance for the Program Year.

 

5

--------------------------------------------------------------------------------

 

·                  For Cause (As defined below)

 

Awards for the current Program Year (the year of termination) and awards not yet
paid out for the previous Program Year are forfeited.

 

·                  For Any Other Reason

 

Awards for the current Program Year (the year of termination) are forfeited. 
Awards for a completed Program Year not yet paid are paid out after the close of
the Program Year if applicable performance is achieved.

 

“Retirement” shall mean the Participant’s termination of employment, other than
for Cause, death or Disability, following the attainment by the Participant of
at least age fifty-five.

 

“Disability” shall have the meaning ascribed to such term in the Participant’s
individual employment, severance or other agreement with the Company or, if the
Participant is not party to such an agreement, “Disability” shall mean
Participant’s inability because of ill health, physical or mental disability, to
perform Participant’s duties for a period of 180 days in any twelve-month
period.

 

“Job Elimination” shall mean the Participant’s termination of employment
resulting from the Company’s determination that the job held by the participant
is obsolete.

 

“Cause” shall have the meaning ascribed to such term in the Participant’s
individual employment, severance or other agreement with the Company or, if the
Participant is not party to such an agreement, “Cause” shall mean (i) dishonesty
in the performance of the Participant’s duties, or (ii) the Participant’s
malfeasance or misconduct in connection with the Participant’s duties or
(iii) any act or omission which is injurious to the Company or its Subsidiaries
or affiliates, monetarily or otherwise.

 

Awards forfeited under the AIP will not be distributed to other participants.

 

AIP AWARDS AND EMPLOYEE BENEFITS

 

Participants’ AIP awards, whether paid out or deferred, are included in the
definition of Compensation for the purpose of calculating pension benefits for
eligible participants in the CF Industries, Inc. Retirement Income Plan and the
CF Industries, Inc. Supplemental Benefit and Deferral Plan.  AIP awards are not
used in the calculation of any other employee benefits.

 

OTHER PROVISIONS

 

Benefits paid to Program participants in the form of salary continuation under
CF’s Short-Term Disability Plan are included in base earnings for the purpose of
determining awards under the AIP.

 

6

--------------------------------------------------------------------------------

 

Any conflict between the AIP provisions stated in this document and the
provisions stated in the 2005 Equity and Incentive Plan will be governed by the
2005 Equity and Incentive Plan.

 

The AIP is administered by the Compensation Committee of the Company’s Board of
Directors, or by such person or persons as the Compensation Committee may
delegate to administer the Program.  Such administrator has the authority to
make all necessary or desirable interpretations under the AIP, which are final
and binding on all AIP participants.

 

The Company may modify or terminate the AIP at any time. In the event of program
termination, the performance results will be determined from the beginning of
the current program year to the effective date of program termination. Based on
these results, any awards earned will be paid in cash to participants on a
pro-rata basis within 45 days after the date of the program termination.

 

7

--------------------------------------------------------------------------------

 

EXHIBIT I

 

Definition of Cash Flow Return on Average Gross Capital Employed

 

The Company Performance Metric for the Annual Incentive Program is Cash Flow
Return on Average Gross Capital Employed (CFROC) defined as follows:

 

CFROC =

Cash Flow

Average Gross Capital Employed

 

Where:

 

Cash Flow =

 

Cash Flow from Operating Activities

Less:  Additions to Property, Plant & Equipment (excluding major capital
expenditures)

Less:  Minority Interest in CFL

Less:  Changes in Net Operating Working Capital*

Less:  Increase (Decrease) in Customer Advances

Plus:   Interest Expense

 

Gross Capital Employed =

 

Total Stockholders’ Equity (Book Equity) + Interest Bearing Debt (Gross Debt)

 

Average Gross Capital Employed =

 

Gross Capital Employed as of 12/31 for current Program Year, plus Gross Capital
Employed as of 12/31 of previous Program Year divided by 2.

 

--------------------------------------------------------------------------------

*Net Operating Working Capital =

 

Inventories

Plus:  Accounts Receivable

Plus:  Positive Exchange Positions

Plus:  Margin Deposits

Plus:  Prepaid Expenses

Less: Accounts Payable & Accrued Expenses excluding Accruals related to Asset
Retirement Obligations

Less: Negative Exchange Positions

 

The Company’s CFROC performance will be calculated and rounded to the nearest
one-tenth of a whole percent, for example 16.9%.

 

8

--------------------------------------------------------------------------------