Document:

Exhibit 10.1

Exhibit 10.1

PERFORMANCE SHARE AWARD

Date of Award: February [•], 2009

Target Number of Performance Shares Awarded: x,xxx

Recipient

Dear (name):

I am pleased to inform you that as an executive of Terra Industries Inc. (“Terra”) or a
subsidiary thereof, you have been awarded, under Terra’s 2007 Omnibus Incentive Compensation Plan
(the “Plan”), the number of Performance Shares set forth above, subject to certain restrictions,
terms and conditions set forth in this letter and in the Plan. Shares (or cash based on the value
of Shares) may be issued to you in the future for the Performance Shares granted to you if Terra
achieves certain financial results described below in paragraph 1 or the terms and conditions set
forth in this Agreement are otherwise satisfied. A Share shall mean a share of common stock of
Terra, without par value, or such other securities of Terra (a) into which such shares shall be
changed by reason of a recapitalization, merger, consolidation, split-up, combination, exchange of
shares or other similar transaction or (b) as may be determined by the Committee (as defined in the
Plan) pursuant to Section 4(b) of the Plan. Pursuant to the Plan, the Performance Shares are
Restricted Stock Units that may be settled in Shares or cash, as determined by the Committee in its
sole discretion, and are designated as Performance Compensation Awards. Unless otherwise defined,
the capitalized terms herein shall have the meanings assigned to them in the Plan.

1. Subject to the terms and conditions set forth in this Agreement, you will be eligible to
earn (or be deemed to earn) a number of Performance Shares that is between 0% and 200% of the
target number of Performance Shares set forth above, such number of earned Performance Shares to be
determined based on Terra’s annualized average return on capital employed (“ROCE”), described as
follows:

a. The ROCE period will be the thirty-six month period ending on December 31, 2011 (referred
to hereafter as the “Period”).

b. The numerator of the calculation will be the annualized average of the sum of income from
operations for the Period plus interest income for the Period (in both cases, as reported in
Terra’s Consolidated Statement of Operations for 2009, 2010 and 2011), reduced by 35% representing
normal income tax expense, plus income or earnings from equity investments and results from
discontinued operations.

 

 

 

c. The denominator of the calculation will be the average of the amounts reported on the
twelve Terra quarterly balance sheets for the Period for the following items: Common shareholders
and preferred shareholders equity, short and long-term debt, deferred income taxes and minority
interest.

d. The determination of the numerator and denominator used for the calculation of ROCE will
not include the following items:

	 	i.	 	Losses that are the direct result of a major casualty, force majeure
or natural disaster;
	 
	 	ii.	 	Losses for new legislation that directly affects Terra’s existing
product mix;
	 
	 	iii.	 	Losses that are the result of a terrorist attack;
	 
	 	iv.	 	Losses associated with shipping restrictions imposed by Terra’s
freight vendors for Terra’s products;
	 
	 	v.	 	Impairment of long-lived assets, goodwill or other intangible assets;
	 
	 	vi.	 	Losses on the early retirement of debt;
	 
	 	vii.	 	Equity-based or other employee retention awards granted in the
connection with any acquisition;
	 
	 	viii.	 	Amortization of goodwill;
	 
	 	ix.	 	Expenses classified as provisions for restructuring;
	 
	 	x.	 	Losses on the disposal of assets or segments of an acquired business
within three years of the acquisition date;
	 
	 	xi.	 	Losses on the disposition of a business;
	 
	 	xii.	 	Expenses associated with changes in tax or accounting regulations or
laws; and
	 
	 	xiii.	 	Other expenses or losses that are unusual in nature or infrequent in
occurrence and are disclosed as a separate item in Terra’s Consolidated Statement
of Operations.

e. In each instance, the above-referenced items must be determined in accordance with
generally accepted accounting principles and appear on the face of Terra’s Consolidated Statement
of Operations contained in its Consolidated Financial Statements for such performance year.

f. The Compensation Committee may, in its sole discretion, include any of the preceding items
in its calculation of the return amount if the inclusion of such item or items has the effect of
decreasing the level of ROCE achieved.

g. If Terra’s annualized average ROCE for the Period is 7.5% or less, none of the Performance
Shares will be earned.

h. If Terra’s annualized average ROCE for the Period is greater than 7.5% but less than or
equal to 12.5%, 1% of the target number of Performance Shares will be earned for each 0.05% by
which annualized average ROCE exceeds 7.5%.

 

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i. If Terra’s annualized average ROCE for the Period is greater than 12.5% but less than 15%,
an additional 1% of the target number Performance Shares will be earned for each 0.025% by which
annualized average ROCE exceeds 12.5%.

j. If Terra’s annualized average ROCE for the Period equals or exceeds 15%, then 200% of the
target number of Performance Shares (which is the maximum number of Performance Shares that may be
earned pursuant to this Award) will be earned.

2. The calculation of ROCE will be determined by the Committee following the end of the
Period. Until the Committee has made its determination about the level of achievement of ROCE and
the percentage of the Performance Shares that have been earned, you will not be entitled to receive
any Shares pursuant to this Agreement or to receive any cash in lieu of such Shares. In
determining the percentage of Performance Shares that you have earned during the Period, the
Compensation Committee may not award more Performance Shares than the maximum amount indicated by
the formula set forth above, but may, in its sole discretion, award fewer than the maximum amount
indicated by the formula.

3. Any Shares that are required to be issued after the Committee approves the portion, if any,
of the target number of Performance Shares that are earned based on Terra’s performance during the
Period (including Shares that you may be entitled to receive following a termination as a result of
Disability) shall be issued not later than the 74th day following the date that the relevant
Performance Shares become vested. Performance Shares will be deemed to have vested when they are
no longer subject to a substantial risk of forfeiture (within the meaning of Treasury Regulation
Section 1.409A-1(d)).

4. Upon a Change of Control of Terra on or prior to the last day of the Period, the
Performance Shares will no longer be subject to the achievement of the performance goal set forth
in paragraph 1 above, and instead, the number of Performance Shares that you will be eligible to
earn will become fixed as of the Change of Control at a number equal to the greater of (a) the
calculated award described in paragraphs 1.a. through j. above using Terra’s performance during the
actual quarters completed in the Period and (b) the target number of Performance Shares. Subject
to paragraph 5, such Performance Shares shall become vested and issued on the earliest of the
following:

a. Immediately prior to such Change of Control, unless provision is made in connection with
the Change of Control for (i) assumption of the Performance Shares or (ii) substitution for the
Performance Shares of new awards covering stock of a Successor or its “parent corporation” (as
defined in Section 424(e) of the Code) or “subsidiary corporation” (as defined in Section 424(f) of
the Code) with appropriate adjustments as to the number and kinds of shares, and any Shares
required to be issued pursuant to this paragraph will be issued not later than the 30th day
following the occurrence of the Change of Control;

b. The last day of the Period, in which case any Shares that are required to be issued shall
be issued not later than the 30th day following the end of the Period; or

 

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c. The termination of your employment by Terra or its parent or Successor without Cause (as
defined below) or by you for Good Reason (as defined below) or as a result of death or Disability
on or following a Change of Control.

	 	i.	 	For purposes of this Agreement, “Cause” shall have the meaning set
forth in any Employment Severance Agreement or any other agreement that governs
the terms and conditions of your employment with Terra or a Successor, or, if no
such agreement exists (or if such agreement does not define “Cause”), “Cause”
shall mean any of the following: (A) your willful and continued failure to perform
substantially your duties with Terra or a Successor (other than any such failure
resulting from incapacity due to physical or mental illness), (B) your willful
engaging in illegal conduct or gross misconduct which is materially and
demonstrably injurious to Terra or a Successor, (C) your willful and material
breach of any agreement that governs the terms and conditions of your employment
with Terra or a Successor, (D) your willful violation of any material provision of
the Code of Ethics and Standards of Business Conduct of Terra or a similar code of
conduct of a Successor, or (E) your willful failure to cooperate with an
investigation by any governmental authority. Terra or a Successor may terminate
your employment for Cause pursuant to clause (A), (C), (D) or (E) of this
paragraph 4.c.i after giving you written notice of the specific conduct that
constitutes Cause and if you fail to cure the circumstances that gave rise to
Cause within 10 days following delivery of such notice. For purposes of this
Agreement, no act or failure to act, on your part, shall be considered “willful”
unless it is done, or omitted to be done, by you in bad faith or without
reasonable belief that your action or omission was in the best interests of Terra
or a Successor. All determinations relating to a termination of your employment
for “Cause” shall be made by Terra or a Successor in its sole discretion.

	 	ii.	 	For purposes of this Agreement, “Good Reason” shall have the meaning
set forth in any Employment Severance Agreement or any other agreement that
governs the terms and conditions of your employment with Terra or a Successor, or,
if no such agreement exists (or if such agreement does not define “Good Reason”),
“Good Reason” shall mean any of the following events that occurs following a
Change of Control: (A) the failure of Terra or a Successor to pay you any
compensation when due (other than an inadvertent failure that is remedied within
ten business days after receipt of notice thereof given by you), (B) delivery to
you by Terra or any Subsidiary or a Successor of a notice of the intent to
terminate your employment for any reason, other than for Cause or Disability,
regardless of whether such termination is intended to become effective during or
after the Period, (C) a reduction of your base salary by 10% or more, (D) the
change of your principal place of employment to a location more than 50 miles from
your principal place of employment immediately prior to the change, (E) a
reduction in your target bonus by 10% or more, (F) any material diminution in your
titles, duties, responsibilities or status, (G) your removal from, or

 

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	 	 	 	any failure to re-elect you to, any of the offices you hold, or (H) any material
reduction in your retirement, insurance or fringe benefits. A termination of
employment for Good Reason for purposes of this letter shall be effectuated by
giving Terra or a Successor written notice (“Notice of Termination for Good
Reason”), not later than 90 days following the occurrence of the circumstance that
constitutes Good Reason, setting forth in reasonable detail the specific conduct of
Terra or such Successor that constitutes Good Reason and the specific provision(s)
of this letter on which you relied. Terra or a Successor shall be entitled, during
the 30-day period following receipt of a Notice of Termination for Good Reason, to
cure the circumstances that gave rise to Good Reason, provided that Terra or such
Successor shall be entitled to waive its right to cure or reduce the cure period by
delivery of written notice to that effect to you (such 30-day or shorter period,
the “Cure Period”). If, during the Cure Period, such circumstance is remedied, you
will not be permitted to terminate your employment for Good Reason as a result of
such circumstance. If, at the end of the Cure Period, the circumstance that
constitutes Good Reason has not been remedied, you will be entitled to terminate
your employment for Good Reason during the 30-day period that follows the end of
the Cure Period. If you do not terminate your employment during such 30-day
period, you will not be permitted to terminate your employment for Good Reason as a
result of such event. If Terra or a Successor disputes the existence of Good
Reason, Terra or such Successor shall have the burden of proof to establish that
Good Reason does not exist or that the circumstances that gave rise to Good Reason
have been cured.

5. If your employment with Terra terminates for any reason during the Period, all Performance
Shares shall automatically be forfeited by you, except as follows:

a. Termination prior to a Change of Control:

	 	i.	 	If your employment terminates by reason of death, the Performance
Shares shall be awarded with the award calculated as described in paragraphs 1.a.
through j. using Terra’s performance during the actual quarters completed prior to
the date of death. You may designate one or more beneficiaries by a writing filed
with Terra’s Corporate Secretary. Beneficiaries may be named contingently or
successively and may share in different proportions if so designated. In the
event of a termination of your employment by reason of death, any Performance
Shares required to be issued will be issued not later than the 74th day following
the date of death.

	 	ii.	 	If your employment terminates by reason of Disability, the
Performance Shares shall continue to be eligible for issuance pursuant to
paragraphs 1.a. through j., provided that if a Change of Control occurs following
the date that your employment terminates as a result of Disability, you will
become entitled to the number of Performance Shares determined in accordance
with the lead-in to paragraph 4, and any Shares that are required to be issued
shall be issued not later than the 30th day following the Change of Control.

 

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b. Termination on or following a Change of Control: If your employment with Terra or its
parent or Successor terminates pursuant to paragraph 4.c. above, the Performance Shares shall vest
pursuant to that paragraph and will be issued not later than the 30th day following such
termination.

c. If your employment with Terra and its Subsidiaries terminates under special circumstances
(other than the circumstances otherwise described in this paragraph 5), as determined by the
Committee in its sole discretion, the Committee shall determine, in a manner consistent with
Section 162(m) of the Internal Revenue Code, the number, if any, of Performance Shares that shall
not be forfeited upon termination, the form of payment (cash, shares or a combination) that you
shall be entitled to receive with respect to any such Performance Shares that are earned and the
timing of any such payment that is made to you.

6. Although the Performance Shares are intended to provide you with an economic equivalent of
stock ownership, the award of Performance Shares hereunder shall not entitle you to vote or
exercise any of the other rights of a holder of Shares (including the right to receive dividends or
dividend equivalents).

7. This award shall not be effective unless you sign a copy of this letter and deliver it to
Terra’s Corporate Secretary, Terra Centre, 600 Fourth Street, Sioux City, Iowa 51101, before 4:30
p.m. central time on March [10], 2009. If the Corporate Secretary does not have your properly
executed copy of this letter before such time, then, anything in this letter to the contrary
notwithstanding, this Award shall terminate and be of no effect.

8. You hereby agree to pay to Terra, or otherwise make arrangements satisfactory to Terra
regarding payment of any federal, state or local taxes required or authorized by law to be withheld
with respect to the award of the Performance Shares (the “Withholding Taxes”). Terra shall have, to
the extent permitted by law, the right to deduct from any payment of any kind otherwise due to you,
any Withholding Taxes and to condition the delivery of the Shares to be delivered upon earning the
Performance Shares on the payment to Terra of the Withholding Taxes. In lieu of the payment of the
Withholding Taxes in cash, you shall be entitled to pay all or a portion of the Withholding Taxes
by surrendering to Terra a portion of the Shares otherwise to be delivered upon earning the
Performance Shares.

9. Terra may, in the Committee’s sole discretion, at any time or from time to time, in lieu of
the delivery of all or any portion of the Shares earned pursuant to the Performance Shares, pay to
you cash equal to the average Fair Market Value (as defined in the Plan) of such Shares for the
last 20 trading days of 2011 (or, in the event that you become entitled to payment pursuant to this
Agreement prior to expiration of the Period, the average Fair Market Value for the last 20 trading
days prior to the event that results in your entitlement
to payment). Such cash payment shall be made on the same date that the Shares would have
otherwise been delivered.

 

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10. Nothing in this Performance Share Award shall confer upon you any right to continue in the
employ of Terra or a Subsidiary, or affect the right of Terra or of any Subsidiary to terminate
your employment, with or without Cause (as defined in paragraph 4.c.i. above).

11. (i) It is intended that the provisions of this Agreement comply with Section 409A of the
Code and the regulations thereunder as in effect from time to time (“Section 409A”), and all
provisions of this Agreement shall be construed and interpreted in a manner consistent with the
requirements for avoiding taxes or penalties under Section 409A.

(ii) Neither you nor any of your creditors or beneficiaries shall have the right to subject
any deferred compensation (within the meaning of Section 409A) payable under this Agreement to any
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or
garnishment. Except as permitted under Section 409A, any deferred compensation (within the meaning
of Section 409A) payable to you or for your benefit under this Agreement may not be reduced by, or
offset against, any amount owing by you to Terra or any of its Affiliates.

(iii) If, at the time of your separation from service (within the meaning of Section 409A),
(A) you shall be a specified employee (within the meaning of Section 409A and using the
identification methodology selected by Terra from time to time) and (B) Terra shall make a good
faith determination that an amount payable hereunder constitutes deferred compensation (within the
meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month
delay rule set forth in Section 409A in order to avoid taxes or penalties under Section 409A, then
Terra shall not pay such amount on the otherwise scheduled payment date but shall instead pay it,
without interest, on the first business day after such six-month period.

(iv) Notwithstanding any provision of this Agreement to the contrary, in light of the
uncertainty with respect to the proper application of Section 409A, Terra reserves the right to
make amendments to this Agreement as Terra deems necessary or desirable to avoid the imposition of
taxes or penalties under Section 409A. In any case, you shall be solely responsible and liable for
the satisfaction of all taxes and penalties that may be imposed on you or for your account in
connection with this Agreement (including any taxes and penalties under Section 409A), and neither
Terra nor any of its Affiliates shall have any obligation to indemnify or otherwise hold you
harmless from any or all of such taxes or penalties.

12. Terra’s obligation with respect to this Award shall not be funded or secured in any
manner.

13. Your rights with respect to these Performance Shares may not be assigned or transferred in
any manner and shall not be subject to any lien, claim, encumbrance,
obligation or liability of any kind. This Agreement shall be construed in accordance with and
governed by the laws of the State of State of Maryland without regard to any State’s conflict of
laws principles.

 

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These Performance Shares are awarded pursuant to the Plan and are subject to its terms. A
copy of the Plan is being furnished to you with this letter and also is available on request from
the Terra’s Corporate Secretary.

If you have any questions with respect to this Performance Share Award, please feel free to
call upon me.

	 	 	 	 	 
	 	Very truly yours,

TERRA INDUSTRIES INC.

 	 
	 	By:  	
 	 
	 	 	President and Chief Executive Officer 	 
	 	 	 
	 	By:  	
 	 
	 	 	Vice President, General Counsel 	 
	 	 	and Corporate Secretary 	 

I hereby agree to the terms and conditions set forth above and acknowledge receipt of the 2007
Omnibus Incentive Compensation Plan and the Prospectus covering shares issued under that Plan.

	 	 	 
	Signature of Employee
	 	 
	 
	 	 
	 

	 	 

 

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Exhibit 10.2

PHANTOM PERFORMANCE SHARE AWARD

Date of Award: February [l], 2009

Target Number of Phantom Performance Shares Awarded: x,xxx

Recipient

Dear (name):

I am pleased to inform you that as an executive of Terra Industries Inc. (“Terra”) or a
subsidiary thereof, you have been awarded, under Terra’s 2007 Omnibus Incentive Compensation Plan
(the “Plan”), the number of Phantom Performance Shares set forth above, subject to certain
restrictions, terms and conditions set forth in this letter and in the Plan. Pursuant to the Plan,
the Phantom Performance Shares are Restricted Stock Units that are settled in cash and are
designated as Performance Compensation Awards. Unless otherwise defined, the capitalized terms
herein shall have the meanings assigned to them in the Plan.

1. For each Phantom Performance Share that you earn (or are deemed to earn) pursuant to this
Agreement, you will be entitled to a cash payment, less applicable taxes, in an amount equal to the
average Fair Market Value (as defined in the Plan) of one Share for the last 20 trading days of
2011 (or, in the event that you become entitled to payment pursuant to this Agreement prior to
expiration of the Period (as defined below), the average Fair Market Value for the last 20 trading
days prior to the event that results in your entitlement to payment). A Share shall mean a share
of common stock of Terra, without par value, or such other securities of Terra (a) into which such
shares shall be changed by reason of a recapitalization, merger, consolidation, split-up,
combination, exchange of shares or other similar transaction or (b) as may be determined by the
Committee pursuant to Section 4(b) of the Plan. Subject to the terms and conditions set forth in
this Agreement and the Plan, you will be eligible to earn a number of Phantom Performance Shares
that is between 0% and 200% of the target number of Phantom Performance Shares set forth above,
such number of earned Phantom Performance Shares to be determined based on Terra’s annualized
average return on capital employed (“ROCE”), described as follows:

a. The ROCE period will be the thirty-six month period ending on December 31, 2011 (referred
to hereafter as the “Period”).

b. The numerator of the calculation will be the annualized average of the sum of income from
operations for the Period plus interest income for the Period (in both cases, as reported in
Terra’s Consolidated Statement of Operations for 2009, 2010 and 2011), reduced by 35% representing
normal income tax expense, plus income or earnings from equity investments and results from
discontinued operations.

 

 

 

c. The denominator of the calculation will be the average of the amounts reported on the
twelve Terra quarterly balance sheets for the Period for the following items: Common shareholders
and preferred shareholders equity, short and long-term debt, deferred income taxes and minority
interest.

d. The determination of the numerator and denominator used for the calculation of ROCE will
not include the following items:

	 	i.	 	Losses that are the direct result of a major casualty, force majeure
or natural disaster;
	 
	 	ii.	 	Losses for new legislation that directly affects Terra’s existing
product mix;
	 
	 	iii.	 	Losses that are the result of a terrorist attack;
	 
	 	iv.	 	Losses associated with shipping restrictions imposed by Terra’s
freight vendors for Terra’s products;
	 
	 	v.	 	Impairment of long-lived assets, goodwill or other intangible assets;
	 
	 	vi.	 	Losses on the early retirement of debt;
	 
	 	vii.	 	Equity-based or other employee retention awards granted in the
connection with any acquisition;
	 
	 	viii.	 	Amortization of goodwill;
	 
	 	ix.	 	Expenses classified as provisions for restructuring;
	 
	 	x.	 	Losses on the disposal of assets or segments of an acquired business
within three years of the acquisition date;
	 
	 	xi.	 	Losses on the disposition of a business;
	 
	 	xii.	 	Expenses associated with changes in tax or accounting regulations or
laws; and
	 
	 	xiii.	 	Other expenses or losses that are unusual in nature or infrequent in
occurrence and are disclosed as a separate item in Terra’s Consolidated Statement
of Operations.

e. In each instance, the above-referenced items must be determined in accordance with
generally accepted accounting principles and appear on the face of Terra’s Consolidated Statement
of Operations contained in its Consolidated Financial Statements for such performance year.

f. The Compensation Committee may, in its sole discretion, include any of the preceding items
in its calculation of the return amount if the inclusion of such item or items has the effect of
decreasing the level of ROCE achieved.

g. If Terra’s annualized average ROCE for the Period is 7.5% or less, none of the Phantom
Performance Shares will be earned.

h. If Terra’s annualized average ROCE for the Period is greater than 7.5% but less than or
equal to 12.5%, 1% of the target number of Phantom Performance Shares will be earned for each 0.05%
by which annualized average ROCE exceeds 7.5%.

 

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i. If Terra’s annualized average ROCE for the Period is greater than 12.5% but less than 15%,
an additional 1% of the target number of Phantom Performance Shares will be earned for each 0.025%
by which annualized average ROCE exceeds 12.5%.

j. If Terra’s annualized average ROCE for the Period equals or exceeds 15%, then 200% of the
target number of Phantom Performance Shares (which is the maximum number of Phantom Performance
Shares that may be earned pursuant to this Award) will be earned.

2. The calculation of ROCE will be determined by the Committee following the end of the
Period. Until the Committee has made its determination about the level of achievement of ROCE and
the percentage of the Phantom Performance Shares that have been earned, you will not be entitled to
receive any cash payment pursuant to this Agreement. In determining the percentage of Phantom
Performance Shares that you have earned during the Period, the Compensation Committee may not award
more Phantom Performance Shares than the maximum amount indicated by the formula set forth above,
but may, in its sole discretion, award fewer than the maximum amount indicated by the formula.

3. Any cash payment that is required to be made to you after the Committee approves the
portion, if any, of the target number of Phantom Performance Shares that is earned based on Terra’s
performance during the Period (including any cash that you may be entitled to receive following a
termination as a result of Disability) shall be paid to you not later than the 74th day following
the date that such Phantom Performance Shares become vested. Phantom Performance Shares will be
deemed to have vested when they are no longer subject to a substantial risk of forfeiture (within
the meaning of Treasury Regulation Section 1.409A-1(d)).

4. Upon a Change of Control of Terra on or prior to the last day of the Period, the Phantom
Performance Shares will no longer be subject to the achievement of the performance goal set forth
in paragraph 1 above, and instead, the number of Phantom Performance Shares that you will be
eligible to earn will become fixed as of the Change of Control at a number equal to the greater of
(a) the calculated award described in paragraphs 1.a. through j. above using Terra’s performance
during the actual quarters completed in the Period and (b) the target number of Phantom Performance
Shares. Subject to paragraph 5, such Phantom Performance Shares shall become vested and any cash
required to be paid to you in respect of your Phantom Performance Shares will be paid on the
earliest of the following:

a. Immediately prior to such Change of Control, unless provision is made in connection with
the Change of Control for (i) assumption of the Phantom Performance Shares or (ii) substitution for
the Phantom Performance Shares of new awards covering stock of a Successor or its “parent
corporation” (as defined in Section 424(e) of the Code) or “subsidiary corporation” (as defined in
Section 424(f) of the Code) with appropriate adjustments as to the number and kinds of shares, and
any cash required to be paid to you
pursuant to this paragraph will be paid not later than the 30th day following the occurrence
of the Change of Control;

 

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b. The last day of the Period, in which case any cash required to be paid to you in respect of
your Phantom Performance Shares will be paid not later than the 30th day following the end of the
Period; or

c. The termination of your employment by Terra or its parent or Successor without Cause (as
defined below) or by you for Good Reason (as defined below) or as a result of death or Disability
on or following a Change of Control.

	 	i.	 	For purposes of this Agreement, “Cause” shall have the meaning set
forth in any Employment Severance Agreement or any other agreement that governs
the terms and conditions of your employment with Terra or a Successor, or, if no
such agreement exists (or if such agreement does not define “Cause”), “Cause”
shall mean any of the following: (A) your willful and continued failure to perform
substantially your duties with Terra or a Successor (other than any such failure
resulting from incapacity due to physical or mental illness), (B) your willful
engaging in illegal conduct or gross misconduct which is materially and
demonstrably injurious to Terra or a Successor, (C) your willful and material
breach of any agreement that governs the terms and conditions of your employment
with Terra or a Successor, (D) your willful violation of any material provision of
the Code of Ethics and Standards of Business Conduct of Terra or a similar code of
conduct of a Successor, or (E) your willful failure to cooperate with an
investigation by any governmental authority. Terra or a Successor may terminate
your employment for Cause pursuant to clause (A), (C), (D) or (E) of this
paragraph 4.c.i after giving you written notice of the specific conduct that
constitutes Cause and if you fail to cure the circumstances that gave rise to
Cause within 10 days following delivery of such notice. For purposes of this
Agreement, no act or failure to act, on your part, shall be considered “willful”
unless it is done, or omitted to be done, by you in bad faith or without
reasonable belief that your action or omission was in the best interests of Terra
or a Successor. All determinations relating to a termination of your employment
for “Cause” shall be made by Terra or a Successor in its sole discretion.

	 	ii.	 	For purposes of this Agreement, “Good Reason” shall have the meaning
set forth in any Employment Severance Agreement or any other agreement that
governs the terms and conditions of your employment with Terra or a Successor, or,
if no such agreement exists (or if such agreement does not define “Good Reason”),
“Good Reason” shall mean any of the following events that occurs following a
Change of Control: (A) the failure of Terra or a Successor to pay you any
compensation when due (other than an inadvertent failure that is remedied within
ten business days after receipt of notice thereof given by you), (B) delivery to
you by Terra or any Subsidiary or a Successor of a notice of the intent to
terminate your employment for any reason, other than for Cause or Disability, regardless of whether such

 

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	 	 	 	termination is intended to become effective during or after the Period, (C) a
reduction of your base salary by 10% or more, (D) the change of your principal
place of employment to a location more than 50 miles from your principal place of
employment immediately prior to the change, (E) a reduction in your target bonus by
10% or more, (F) any material diminution in your titles, duties, responsibilities
or status, (G) your removal from, or any failure to re-elect you to, any of the
offices you hold, or (H) any material reduction in your retirement, insurance or
fringe benefits. A termination of employment for Good Reason for purposes of this
letter shall be effectuated by giving Terra or a Successor written notice (“Notice
of Termination for Good Reason”), not later than 90 days following the occurrence
of the circumstance that constitutes Good Reason, setting forth in reasonable
detail the specific conduct of Terra or such Successor that constitutes Good Reason
and the specific provision(s) of this letter on which you relied. Terra or a
Successor shall be entitled, during the 30-day period following receipt of a Notice
of Termination for Good Reason, to cure the circumstances that gave rise to Good
Reason, provided that Terra or such Successor shall be entitled to waive its right
to cure or reduce the cure period by delivery of written notice to that effect to
you (such 30-day or shorter period, the “Cure Period”). If, during the Cure
Period, such circumstance is remedied, you will not be permitted to terminate your
employment for Good Reason as a result of such circumstance. If, at the end of the
Cure Period, the circumstance that constitutes Good Reason has not been remedied,
you will be entitled to terminate your employment for Good Reason during the 30-day
period that follows the end of the Cure Period. If you do not terminate your
employment during such 30-day period, you will not be permitted to terminate your
employment for Good Reason as a result of such event. If Terra or a Successor
disputes the existence of Good Reason, Terra or such Successor shall have the
burden of proof to establish that Good Reason does not exist or that the
circumstances that gave rise to Good Reason have been cured.

5. If your employment with Terra terminates for any reason during the Period, all Phantom
Performance Shares shall automatically be forfeited by you, except as follows:

a. Termination prior to a Change of Control:

	 	i.	 	If your employment terminates by reason of death, the amount of cash
payable with respect to your Phantom Performance Shares shall be calculated as
described in paragraphs 1.a. through j. of this Agreement using Terra’s
performance during the actual quarters completed prior to the date of death. You
may designate one or more beneficiaries by providing written notice to Terra’s
Corporate Secretary. Beneficiaries may be named contingently or successively and
may share in different proportions if so designated. Any cash payable in respect
of your Phantom Performance
Shares shall be paid to your estate or beneficiary not later than the 74th day
following the date of death.

 

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	 	ii.	 	If you cease to be actively employed by reason of Disability, the
Phantom Performance Shares shall continue to be eligible for issuance pursuant to
paragraphs 1.a. through j. of this Agreement, provided that if a Change of Control
occurs following the date that your employment terminates as a result of
Disability, you will become entitled to the number of Phantom Performance Shares
determined in accordance with the lead-in to paragraph 4, and any cash required to
be paid to you in respect of your Phantom Performance Shares shall be paid not
later than the 30th day following the Change of Control.

b. Termination on or following a Change of Control: If your employment with Terra or its
parent or Successor terminates pursuant to paragraph 4.c. above, the Phantom Performance Shares
will vest pursuant to that paragraph and any cash required to be paid to you with respect of your
Phantom Performance Shares will be paid not later than the 30th day following such termination.

c. If your employment with Terra and its Subsidiaries terminates under special circumstances
(other than the circumstances otherwise described in this paragraph 5), as determined by the
Committee in its sole discretion, the Committee shall determine, in a manner consistent with
Section 162(m) of the Internal Revenue Code, the number, if any, of Phantom Performance Shares that
shall not be forfeited upon termination, and the timing of any payment in respect of such Phantom
Performance Shares that is made to you.

6. Although the Phantom Performance Shares are intended to provide you with an economic
equivalent of stock ownership, the award of Phantom Performance Shares hereunder shall not entitle
you to vote or exercise any of the other rights of a holder of Shares (including the receipt of
dividends or dividend equivalents).

7. Terra shall be entitled to withhold the amount of any tax attributable to any amount
payable hereunder.

8. Nothing in this Phantom Performance Share Award shall confer upon you any right to continue
in the employ of Terra or a Subsidiary, or affect the right of Terra or of any Subsidiary to
terminate your employment, with or without Cause (as defined in paragraph 4.c.i. above).

9. (i) It is intended that the provisions of this Agreement comply with Section 409A of the
Code and the regulations thereunder as in effect from time to time (“Section 409A”), and all
provisions of this Agreement shall be construed and interpreted in a manner consistent with the
requirements for avoiding taxes or penalties under Section 409A.

 

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(ii) Neither you nor any of your creditors or beneficiaries shall have the right to subject
any deferred compensation (within the meaning of Section 409A) payable under
this Agreement to any anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment or garnishment. Except as permitted under Section 409A, any deferred
compensation (within the meaning of Section 409A) payable to you or for your benefit under this
Agreement may not be reduced by, or offset against, any amount owing by you to Terra or any of its
Affiliates.

(iii) If, at the time of your separation from service (within the meaning of Section 409A),
(A) you shall be a specified employee (within the meaning of Section 409A and using the
identification methodology selected by Terra from time to time) and (B) Terra shall make a good
faith determination that an amount payable hereunder constitutes deferred compensation (within the
meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month
delay rule set forth in Section 409A in order to avoid taxes or penalties under Section 409A, then
Terra shall not pay such amount on the otherwise scheduled payment date but shall instead pay it,
without interest, on the first business day after such six-month period.

(iv) Notwithstanding any provision of this Agreement to the contrary, in light of the
uncertainty with respect to the proper application of Section 409A, Terra reserves the right to
make amendments to this Agreement as Terra deems necessary or desirable to avoid the imposition of
taxes or penalties under Section 409A. In any case, you shall be solely responsible and liable for
the satisfaction of all taxes and penalties that may be imposed on you or for your account in
connection with this Agreement (including any taxes and penalties under Section 409A), and neither
Terra nor any of its Affiliates shall have any obligation to indemnify or otherwise hold you
harmless from any or all of such taxes or penalties.

10. Terra’s obligation with respect to this Award shall not be funded or secured in any
manner.

11. Your rights with respect to these Phantom Performance Shares may not be assigned or
transferred in any manner and shall not be subject to any lien, claim, encumbrance, obligation or
liability of any kind. This Agreement shall be construed in accordance with and governed by the
laws of the State of State of Maryland without regard to any State’s conflict of laws principles.

These Phantom Performance Shares are awarded pursuant to the Plan and are subject to its
terms. A copy of the Plan is being furnished to you with this letter and also is available on
request from Terra’s Corporate Secretary.

 

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If you have any questions with respect to this Phantom Performance Share Award, please feel
free to call upon me.

	 	 	 	 	 
	 	Very truly yours,

TERRA INDUSTRIES INC.

 	 
	 	By:  	
 	 
	 	 	President and Chief Executive Officer 	 
	 	 	 
	 	By:  	
 	 
	 	 	Vice President, General Counsel 	 
	 	 	and Corporate Secretary 	 

 

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