ITEM 3. LEGAL PROCEEDINGS.
AGREEMENT SUSPENDING POTASH DUMPING INVESTIGATION
In March 1987, the U.S. International Trade Commission made a preliminary determination that there was a reasonable indication that the U.S. potash producers had been injured by imports of Canadian potash, assuming that Canadian potash had been "dumped" into the U.S. market at less than "fair value". On August 26, 1987, the U.S. Department of Commerce ("Commerce") determined on a preliminary basis that Canadian potash was, or was likely to be, sold in the United States at less than "fair value".
On January 8, 1988, Commerce signed a suspension agreement with all of the potash producers in Canada, suspending the dumping investigation by Commerce. The agreement stipulates that each producer's minimum price for potash sold in the United States is to be based upon a formula determined by Commerce for each producer that is designed to limit any dumping by that producer in the future. Compliance with the agreement is monitored by Commerce. The agreement can be terminated without termination of the suspended investigation if Commerce determines that sales are made below the price determined under the formula, producers having 15% or more of the total Canadian volume or value exported into the United States withdraw from the agreement, or the conditions of the agreement are otherwise not being met, in which case the suspended investigation could be resumed by Commerce.
In accordance with procedures established by the Uruguay Round Agreements Act, Commerce and the U.S. International Trade Commission will initiate a "sunset" review of the suspended investigation in April 1999 to determine whether the suspended investigation and suspension agreement should be terminated or should remain in effect.
CIVIL ANTITRUST COMPLAINTS
In June, 1993, PCS and PCS Sales (Canada) Inc. ("PCS Sales (Canada)") 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. Similar complaints were filed in the United States District Courts for the Northern District of Illinois and the Western District of Virginia. On motion of the defendants, all of the complaints were transferred and consolidated for pre-trial purposes in the United States District Court for Minnesota. Amended complaints were filed in March and April 1994. On January 12, 1995, the Minnesota Federal Court granted the plaintiffs' motion for class certification. The complaint sought treble damages in an unspecified amount and other relief. PCS 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' I-23
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. Oral arguments were heard on November 17, 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. PCS 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 PCS but that it does have personal jurisdiction over PCS Sales. The case remains at an early stage; no merits discovery has taken place. The parties have agreed to stay proceedings pending the outcome of the appeal to the United States Court of Appeals for the Eighth Circuit. The Illinois State Court complaint has been dismissed for failure to state a cause of action.
FORMER ARCADIAN EXECUTIVE PROCEEDINGS
On May 7, 1997, J. Douglas Campbell, Alfred L. Williams, Peter H. Kesser, and David Alyea, former officers of Arcadian, filed lawsuits against the Company in the United States District Court for the Western District of Tennessee. The complaints allege that the Company breached employment agreements between Arcadian and the officers and breached the related assumption agreement among the Company, PCS Nitrogen, and Arcadian. 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 the assumption agreement. The complaints of Mr. Campbell, Mr. Williams, Mr. Kesser, and Mr. Alyea seek damages in excess of $22.2 million, $6.2 million, $3.7 million, and $4.2 million, respectively. In addition, on October 14, 1997, Charles Lance, a former officer of Arcadian Corporation, filed a lawsuit in the same court against the Company also alleging breaches of his employment agreement and the related assumption agreement. Mr. Lance seeks damages in an amount exceeding $3.0 million. Each complaint also seeks certain additional unspecified damages. On August 11, 1998, the Court ruled that the Company had assumed the obligations of the employment agreements and that equitable claims and defenses asserted against the executives for breaches of fiduciary duties, corporate waste, and self-dealing should be asserted by PCS Nitrogen in the state court action described below. Trial with respect to the claims of Mr. Campbell, Mr. Williams and Mr. Kesser commenced on August 17, 1998 and concluded on August 25, 1998. On December 1, 1998 the court entered judgments in the amounts of $12.7 million, $3.2 million, and $2.6 million in favor of Mr. Campbell, Mr. Williams and Mr. Kesser, respectively, subject to pending applications for attorneys' fees or additional amounts to compensate the former Arcadian executives for the impact of certain excise taxes, if applicable. The Company has filed Notices of Appeal with respect to these judgments. The Company has settled the claim of Mr. Alyea for $700,000 and $50,000 of attorneys' fees (subject to the application for additional fees) and the claim of Mr. Lance for a total amount of $600,000.
On September 15, 1997, the Company and PCS Nitrogen filed an action in the Circuit Court of Tennessee for the Thirtieth Judicial District at Memphis against J. Douglas Campbell, Peter H. Kesser, Alfred L. Williams, Charles W. Lance, Jr., and David L. Alyea, for declaratory relief and damages. The Company and PCS Nitrogen alleged that the defendants, all former executives of Arcadian, committed breaches of their fiduciary duties in the negotiation of, obtaining approval for, and execution of the employment agreements each of them had with Arcadian. In addition, the Company and PCS Nitrogen also sought a declaratory judgment with respect to the unenforceability of the employment agreements. On October 14, 1997, the defendants removed this action from the Circuit Court of Tennessee to the United States District Court for the Western District of Tennessee. On October 21, 1997, the five defendants filed counterclaims: (i) under the Employee Retirement Income Security Act of 1974, as amended (ERISA), against PCS Nitrogen, (ii) alleging that the Company and PCS Nitrogen unlawfully interfered with their attainment of benefits under their employment agreements, and (iii) incorporating by reference all claims asserted in their individually filed complaints. The damages sought by the defendants in these counterclaims appear substantially equivalent to the damages sought in their individually filed suits as plaintiffs. On July 20, 1998 the federal court dismissed all of the former executives' claims under ERISA and remanded the case to
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state court, where it remains pending. Pursuant to the settlements with Mr. Alyea and Mr. Lance, the claims and counterclaims as they concern these individuals have been non-suited.
Management of the Company, having consulted with legal counsel, believes that the lawsuits will not have a material adverse effect on the Company's financial condition or results of operations.
PORT AUTHORITY PROCEEDINGS
On March 13, 1996, PCS Nitrogen, two other nitrogen producers, and up to 30 unidentified parties were named as defendants in a lawsuit filed in the name of the Port Authority of New York and New Jersey (the "Port Authority") in New Jersey state court. The lawsuit was actually filed by attorneys hired by the Port Authority's subrogated insurance carriers. The Port Authority's insurers are seeking to recover damages allegedly incurred as a result of the explosion at the World Trade Center in New York City on February 26, 1993. The Port Authority's insurers allege in their complaint that the two other named defendants and one or more unidentified parties (as manufacturers of ammonium nitrate), PCS Nitrogen and one or more unidentified parties (as producers of urea), and one or more unidentified makers of nitric acid are liable under various tort theories for unspecified property damages, business interruption losses, lost rent and other damages allegedly incurred by the Port Authority as a result of the World Trade Center explosion. The lawsuit was removed to federal court in New Jersey. On February 7, 1997, the defendants filed a motion to dismiss the suit for failure to state a claim upon which relief could be granted. On December 19, 1997, that motion was granted and the complaint was dismissed with prejudice. On January 15, 1998, the Port Authority appealed the dismissal to the United States Court of Appeals for the Third Circuit. The case was briefed and oral argument was heard on September 17, 1998. Although neither the Port Authority nor its subrogated insurers have alleged or otherwise revealed the amount of damages sought from PCS Nitrogen in the lawsuit, the Port Authority stated in an affidavit submitted to the court in support of its motion to disqualify its insurers' counsel that as of April 9, 1996, the Port Authority had submitted to its insurers claims relating to the explosion totaling approximately $340 million, of which the insurers had paid approximately $160 million. PCS Nitrogen is unaware of any basis for liability and intends to continue to vigorously defend the lawsuit.
DOJ INVESTIGATIONS
In 1993, PCS Nitrogen learned that the Antitrust Division of the Department of Justice (the "DOJ") had initiated a grand jury investigation of pricing practices in the explosives industry. In response to a subpoena issued in that investigation, PCS Nitrogen produced to the DOJ in 1994 and 1995 documents concerning ammonium nitrate sold to explosives manufacturers. In late 1996 and early 1997, PCS Nitrogen learned that the DOJ had begun contacting current and former PCS Nitrogen employees seeking information concerning PCS Nitrogen's pricing of ammonium nitrate in 1992. PCS Nitrogen cooperated fully with the DOJ investigation and was informed by the DOJ in 1997 that, based on available information, neither PCS Nitrogen nor any of its current or former directors, officers or employees was a target of the investigation. PCS Nitrogen has been informed that the DOJ's investigation of these matters as they relate to PCS Nitrogen, has concluded.
ENVIRONMENTAL PROCEEDINGS
For a description of certain environmental proceedings involving the Company, see "Environmental Matters".
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information under "Common Share Prices and Volumes", "Shareholder Information -- Ownership" and "Selected Ten-Year Data" in the registrant's 1998 Annual Report is incorporated herein by reference.
Dividends paid to U.S. holders of Common Shares, who do not use the shares in carrying on a business in Canada, will be subject to a Canadian withholding tax under the Income Tax Act. Under the Canada-U.S. Income Tax Convention (1980) (the "Convention"), the rate of withholding is generally reduced to 15%. Subject to certain limitations, the Canadian withholding tax will be treated as a foreign income tax that can generally be claimed as a deduction from income or as a credit against the U.S. income tax liability of the holder. Holders will generally not be subject to tax under the Income Tax Act with respect to any gain realized from a disposition of Common Shares.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The information under "Selected Ten-Year Data" in the registrant's 1998 Annual Report is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the registrant's 1998 Annual Report is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements contained in the registrant's 1998 Annual Report are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under "Election of Directors" in the 1999 Proxy Circular is incorporated herein by reference. Information concerning executive officers is set forth under "Executive Officers of the Company" in Part I.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information under "Executive Compensation" in the 1999 Proxy Circular is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under "Ownership of Shares" and "Election of Directors" in the 1999 Proxy Circular is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under "Election of Directors" and "Executive Compensation" in the 1999 Proxy Circular is incorporated herein by reference.
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PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of Documents Filed as Part of this Report
1. Consolidated Financial Statements in Annual Report
2. Schedules
All Schedules are omitted because the required information is inapplicable or it is presented in the Consolidated Financial Statements.
3. Exhibits
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.
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(b) No reports on Form 8-K were filed by the registrant during the last quarter of 1998.
Copies of Exhibits to the Form 10-K may be obtained upon request from the Corporate Secretary, Potash Corporation of Saskatchewan Inc., Suite 500, 122 First Avenue South, Saskatoon, Saskatchewan S7K 7G3, Canada. The Company reserves the right to recover its reasonable expenses in providing copies of the Exhibits, such expenses not to exceed $.25 per page. IV-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
POTASH CORPORATION OF SASKATCHEWAN INC.
By: /s/ CHARLES E. CHILDERS ----------------------------------------- Charles E. Childers Chief Executive Officer March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX
(b) No reports on Form 8-K were filed by the registrant during the last quarter of 1998.